---

|                                   
|-----------------------------------
|UNITED
 STATES                     
|SECURITIES
 AND EXCHANGE COMMISSION
|Washington,
 D.C. 20549            

| |           | 
| | --------- | 
| |           | 
| | FORM 10-Q | 

|                                                        |                                                                                           
|------------------------------------------------------- | ------------------------------------------------------------------------------------------
|(Mark One)                                             
|                                                        |                                                                                           
|x                                                       | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934 
|                                                        |                                                                                           
|For the quarterly period ended September 30, 2008      
|                                                       
|OR                                                     
|                                                        |                                                                                           
|o                                                       | TRANSITION
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
|                                                        |                                                                                           
|For the transition period from _______ to _______      
|                                                       
|Commission File Number: 0-29804                        
|                                                       
|SecureCARE
 Technologies, Inc.                         
|(Exact
 name of registrant as specified in its charter)

|                                                                                    |  |                                       
|----------------------------------------------------------------------------------- |  | --------------------------------------
|Nevada                                                                              |  | 82-0255758                            
|(State
 or other jurisdiction of
 incorporation or organization)                    |  | (I.R.S.
 Employer
 Identification No.)
|                                                                                    |  |                                       
|1617 W. 6th Street, Suite C
 Austin, TX(Address of
 principal executive offices)    |  | 78703(Zip Code)                       
|                                                                                    |  |                                       
|(512) 447-3700                                                                     
|(Registrants
 telephone number, including area code)                              
|                                                                                   
|N/A                                                                                
|(Former
 name, former address and former fiscal year, if changed since last report)

Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yesx No  o

Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.

|Large accelerated filero                                                | Accelerated filero         
|----------------------------------------------------------------------- | ---------------------------
|                                                                        |                            
|Non-accelerated
 filer o (Do not check
 if a smaller reporting company) | Smaller reporting company x

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

As of September 30, 2008,
 2,066,448 shares of common stock, par value $.001 per share, were
 outstanding, of which 883,958 shares were held by non-affiliates.

---



SECURECARE TECHNOLOGIES, INC.
FORM 10-Q
CONTENTS

|               |          |    |                                                                                              |  |   
|-------------- | -------- | -- | -------------------------------------------------------------------------------------------- |  | --
|               |          |    |                                                                                              |  |   
|PART
 I        |          |    | FINANCIAL
 INFORMATION                                                                       |  |   
|               |          |    |                                                                                              |  |   
|               | Item
 1. |    | Financial
 Statements                                                                        |  |   
|               |          |    |                                                                                              |  |   
|               |          |    | Balance Sheets at September 30, 2008 (unaudited) and December
 31, 2007                      |  | 3 
|               |          |    |                                                                                              |  |   
|               |          |    | Statements of Operations (unaudited) for the three months
 ended September 30, 2008 and 2007 |  | 4 
|               |          |    |                                                                                              |  |   
|               |          |    | Statements of Operations (unaudited) for the nine months ended
 September 30, 2008 and 2007  |  | 5 
|               |          |    |                                                                                              |  |   
|               |          |    | Statements of Cash Flows (unaudited) for the nine months
 ended September 30, 2008 and 2007  |  | 6 
|               |          |    |                                                                                              |  |   
|               |          |    | Notes to Interim Financial Statements (unaudited)                                            |  | 7 
|               |          |    |                                                                                              |  |   
|               |          |    |                                                                                              |  |   
|               | Item 2.  |    | Managements Discussion and Analysis of Financial
 Condition and Results of Operations       |  | 17
|               |          |    |                                                                                              |  |   
|               | Item 4.  |    | Controls and Procedures                                                                      |  | 22
|               |          |    |                                                                                              |  |   
|               |          |    |                                                                                              |  |   
|PART II        |          |    | OTHER INFORMATION                                                                            |  |   
|               |          |    |                                                                                              |  |   
|               | Item 1.  |    | Legal Proceedings                                                                            |  | 23
|               |          |    |                                                                                              |  |   
|               | Item 2.  |    | Changes in Securities and Use of Proceeds                                                    |  | 23
|               |          |    |                                                                                              |  |   
|               | Item 3.  |    | Defaults Upon Senior Securities                                                              |  | 23
|               |          |    |                                                                                              |  |   
|               | Item 4.  |    | Submission of Matters to a Vote of Security Holders                                          |  | 23
|               |          |    |                                                                                              |  |   
|               | Item 5.  |    | Other Information                                                                            |  | 23
|               |          |    |                                                                                              |  |   
|               | Item 6.  |    | Exhibits and Reports on Form 8-K                                                             |  | 23
|               |          |    |                                                                                              |  |   
|SIGNATURES     |          | 24
|               |          |    |                                                                                              |  |   
|CERTIFICATIONS |          |   

2

---



SECURECARE TECHNOLOGIES, INC.BALANCE SHEETS
September 30, 2008 (Unaudited) and December 31, 2007

|                                                                                                                                                                     |  |      |             |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                     |  | 2008 |             | 2007 |  
|                                                                                                                                                                     |  |      |             |      |  
|                                                                                                                                                                     |  |      | (Unaudited) |      |   |             |  
|ASSETS                                                                                                                                                               |  |      |             |      |   |             |  
|Current
 assets                                                                                                                                                      |  |      |             |      |   |             |  
|Cash and cash equivalents                                                                                                                                            |  | $    | 33,768      |      | $ | 161,680     |  
|Accounts receivable - trade, net of
 allowance for doubtful accounts of $1,582 and $2,000, respectively                                                              |  |      | 19,617      |      |   | 19,569      |  
|Prepaid expenses                                                                                                                                                     |  |      | 8,633       |      |   | 12,253      |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total current assets                                                                                                                                                 |  |      | 62,018      |      |   | 193,502     |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Property and equipment, net of
 accumulated depreciation of $346,123 and $484,263, respectively                                                                      |  |      | 71,522      |      |   | 88,049      |  
|Deposits                                                                                                                                                             |  |      | 26,404      |      |   | 5,852       |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total assets                                                                                                                                                         |  | $    | 159,944     |      | $ | 287,403     |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                                                |  |      |             |      |   |             |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Current
 Liabilities                                                                                                                                                 |  |      |             |      |   |             |  
|Current portion of notes payable
 (including $1,166,294 and $696,500 to related parties, respectively), net of
 debt discount of $177,217 and $400,633, respectively |  | $    | 1,926,283   |      | $ | 856,867     |  
|Accounts payable - trade                                                                                                                                             |  |      | 156,327     |      |   | 213,175     |  
|Accrued payroll                                                                                                                                                      |  |      | 144,914     |      |   | 101,417     |  
|Accrued payroll taxes and penalties
 and interest - current                                                                                                          |  |      | 143,323     |      |   | 125,517     |  
|Deferred revenue                                                                                                                                                     |  |      | 18,526      |      |   |            |  
|Accrued interest, including $76,938
 and $24,835 to related parties, respectively                                                                                    |  |      | 154,214     |      |   | 60,012      |  
|Other accrued liabilities                                                                                                                                            |  |      | 6,323       |      |   | 30,590      |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total current liabilities                                                                                                                                            |  |      | 2,549,910   |      |   | 1,387,578   |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Notes payable (including $410,500
 and $323,000 to related parties), less current portion and net of debt
 discount of $164,521 and $264,382, respectively           |  |      | 473,479     |      |   | 186,118     |  
|Non-current
 accrued payroll taxes and penalties and interest                                                                                                        |  |      | 116,906     |      |   | 147,437     |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total liabilities                                                                                                                                                    |  |      | 3,140,295   |      |   | 1,721,133   |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Shareholders
 deficit                                                                                                                                               |  |      |             |      |   |             |  
|Preferred stock - $0.001 par value;
 15,000,000 shares authorized:                                                                                                   |  |      |             |      |   |             |  
|Series A preferred stock -
 1,575,000 and 1,875,000 shares issued and outstanding, respectively
 (liquidation preference of $1.00 per share)                         |  |      | 1,575       |      |   | 1,875       |  
|Series B preferred stock  768,183
 and 1,336,364 shares issued and outstanding, respectively (liquidation
 preference of $1.10 per share)                           |  |      | 768         |      |   | 1,336       |  
|Common stock - $0.001 par value;
 50,000,000 shares authorized, 2,066,448 and 1,658,706 shares issued and
 outstanding, respectively                                 |  |      | 2,066       |      |   | 1,659       |  
|Additional paid-in capital                                                                                                                                           |  |      | 36,895,403  |      |   | 36,365,516  |  
|Accumulated deficit                                                                                                                                                  |  |      | (39,880,163 | )    |   | (37,804,116 | )
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total shareholders deficit                                                                                                                                          |  |      | (2,980,351  | )    |   | (1,433,730  | )
|                                                                                                                                                                     |  |      |             |      |   |             |  
|                                                                                                                                                                     |  |      |             |      |   |             |  
|Total liabilities and shareholders
 deficit                                                                                                                         |  | $    | 159,944     |      | $ | 287,403     |  
|                                                                                                                                                                     |  |      |             |      |   |             |  

The accompanying notes are
an integral part of these financial statements.

3

---



SECURECARE TECHNOLOGIES, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended September 30, 2008 and 2007

|                                                                                   |  |      |           |      |   |           |  
|---------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                                                                   |  | 2008 |           | 2007 |  
|                                                                                   |  |      |           |      |  
|Revenues                                                                           |  | $    | 48,505    |      | $ | 32,034    |  
|                                                                                   |  |      |           |      |   |           |  
|Operating expenses                                                                 |  |      |           |      |   |           |  
|Cost of revenues                                                                   |  |      | 31,710    |      |   | 25,477    |  
|Selling, general and administrative                                                |  |      | 560,544   |      |   | 593,887   |  
|                                                                                   |  |      |           |      |   |           |  
|                                                                                   |  |      |           |      |   |           |  
|Operating loss                                                                     |  |      | (543,749  | )    |   | (587,330  | )
|                                                                                   |  |      |           |      |   |           |  
|Other income (expense)                                                             |  |      |           |      |   |           |  
|Other income                                                                       |  |      | 428       |      |   |          |  
|Interest expense (including $24,834 and
 $10,340 to related parties, respectively) |  |      | (250,146  | )    |   | (137,305  | )
|                                                                                   |  |      |           |      |   |           |  
|                                                                                   |  |      |           |      |   |           |  
|Net loss                                                                           |  | $    | (793,467  | )    | $ | (724,635  | )
|                                                                                   |  |      |           |      |   |           |  
|                                                                                   |  |      |           |      |   |           |  
|Net loss attributable to common
 shareholders                                      |  | $    | (793,467  | )    | $ | (724,635  | )
|                                                                                   |  |      |           |      |   |           |  
|                                                                                   |  |      |           |      |   |           |  
|Net loss per common share - basic and
 diluted                                     |  | $    | (0.38     | )    | $ | (0.50     | )
|                                                                                   |  |      |           |      |   |           |  
|                                                                                   |  |      |           |      |   |           |  
|Weighted average number of common shares
 outstanding - basic and diluted          |  |      | 2,063,435 |      |   | 1,454,905 |  
|                                                                                   |  |      |           |      |   |           |  

The accompanying notes are an integral part of these
financial statements.

4

---



SECURECARE TECHNOLOGIES, INC.STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 2008 and 2007

|                                                                                   |  |      |            |      |   |            |  
|---------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                   |  | 2008 |            | 2007 |  
|                                                                                   |  |      |            |      |  
|                                                                                  
|Revenues                                                                           |  | $    | 124,323    |      | $ | 100,916    |  
|                                                                                   |  |      |            |      |   |            |  
|Operating expenses                                                                 |  |      |            |      |   |            |  
|Cost of revenues                                                                   |  |      | 86,919     |      |   | 77,107     |  
|Selling, general and administrative                                                |  |      | 1,404,975  |      |   | 1,144,169  |  
|Loss on early extinguishment of debt                                               |  |      |           |      |   | 381,358    |  
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Operating loss                                                                     |  |      | (1,367,571 | )    |   | (1,501,718 | )
|                                                                                   |  |      |            |      |   |            |  
|Other income (expense)                                                             |  |      |            |      |   |            |  
|Other income                                                                       |  |      | 833        |      |   | 1,621      |  
|Interest expense (including $63,082 and
 $20,448 to related parties, respectively) |  |      | (709,309   | )    |   | (300,866   | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Net loss                                                                           |  | $    | (2,076,047 | )    | $ | (1,800,963 | )
|                                                                                   |  |      |            |      |   |            |  
|Amortization of deemed dividend upon
 issuance of convertible preferred stock      |  |      |           |      |   | (393,080   | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Net loss attributable to common
 shareholders                                      |  | $    | (2,076,047 | )    | $ | (2,194,043 | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Net loss per common share - basic and
 diluted                                     |  | $    | (1.09      | )    | $ | (2.64      | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Weighted average number of common shares
 outstanding - basic and diluted          |  |      | 1,901,956  |      |   | 831,154    |  
|                                                                                   |  |      |            |      |   |            |  

The accompanying notes are an integral part of these
financial statements.

5

---



SECURECARE TECHNOLOGIES, INC.STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2008 and 2007

|                                                                                         |  |      |            |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                         |  | 2008 |            | 2007 |  
|                                                                                         |  |      |            |      |  
|Cash flows from operating activities                                                     |  |      |            |      |   |            |  
|Net loss                                                                                 |  | $    | (2,076,047 | )    | $ | (1,800,963 | )
|Adjustments to reconcile net loss to net
 cash used in operating activities:             |  |      |            |      |   |            |  
|Depreciation and amortization                                                            |  |      | 47,563     |      |   | 20,418     |  
|Bad debt expense                                                                         |  |      | 442        |      |   | 2,524      |  
|Common stock issued for services                                                         |  |      |           |      |   | 45,000     |  
|Stock compensation expense                                                               |  |      | 253,250    |      |   | 318,878    |  
|Loss on early extinguishment of debt                                                     |  |      |           |      |   | 381,358    |  
|Amortization of debt discount                                                            |  |      | 599,455    |      |   | 247,352    |  
|Increases and decreases in working capital
 accounts:                                    |  |      |            |      |   |            |  
|Accounts receivable - trade                                                              |  |      | (490       | )    |   | (4,033     | )
|Prepaid expenses                                                                         |  |      | 3,620      |      |   | (10,867    | )
|Deposits                                                                                 |  |      | (20,552    | )    |   |           |  
|Deferred revenue                                                                         |  |      | 18,526     |      |   |           |  
|Accounts payable - trade                                                                 |  |      | (56,848    | )    |   | (31,239    | )
|Accrued liabilities                                                                      |  |      | 100,706    |      |   | (118,670   | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows used in operating activities                                                  |  |      | (1,130,375 | )    |   | (950,242   | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows from investing activities                                                     |  |      |            |      |   |            |  
|Capital expenditures                                                                     |  |      | (31,037    | )    |   | (25,940    | )
|Capitalized software development costs                                                   |  |      |           |      |   | (52,000    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows used in investing activities                                                  |  |      | (31,037    | )    |   | (77,940    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows from financing activities                                                     |  |      |            |      |   |            |  
|Payment of notes payable                                                                 |  |      | (50,000    | )    |   |           |  
|Proceeds from notes payable                                                              |  |      | 1,083,500  |      |   | 997,000    |  
|                                                                                         |  |      |            |      |   |            |  
|Cash flows provided by financing
activities                                              |  |      | 1,033,500  |      |   | 997,000    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Net decrease in cash and cash equivalents                                                |  |      | (127,912   | )    |   | (31,182    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash and cash equivalents, beginning of
 period                                          |  |      | 161,680    |      |   | 130,150    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Cash and cash equivalents, end of period                                                 |  | $    | 33,768     |      | $ | 98,968     |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Supplemental disclosures for cash flow
 information:                                     |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Interest paid                                                                            |  | $    | 13,304     |      | $ |           |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Amortization of deemed dividend upon
 issuance of convertible preferred stock            |  | $    |           |      | $ | 393,080    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Relative fair value of common stock issued
 in connection with issuance of notes payable |  | $    | 276,177    |      | $ | 261,790    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Conversion of notes payable and accrued
 interest into common stock                      |  | $    |           |      | $ | 244,018    |  
|                                                                                         |  |      |            |      |   |            |  

The accompanying notes are an integral part of these
financial statements.

6

---



SECURECARE TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

NOTE 1. NATURE OF OPERATIONS

SecureCares management
believes that the Company is a leading provider of Internet-based document
exchange and e-signature solutions for the healthcare industry.

The Companys proprietary
technology offers workflow solutions that enable documents to be sent,
retrieved, signed and remotely viewed anywhere in the world, between providers
of healthcare, while protecting patient privacy as required by law.

The Companys Internet-based
Sfax with Digital Signature and annotation features is the only secure EFR
(electronic fax record) that is 100 percent dedicated to the healthcare
industry. The product is a HIPAA-ready (Health Insurance Portability and
Accountability Act) work flow solution that saves end-users up to 95 percent of
the time and up to 80 percent of the cost of manual faxing. It provides a
complete log and audit trail for all fax documents and completely eliminates
the manual paper processing of fax documents. Sfax is distributed to end-users
through the Companys network of health care software vendors and value-added
resellers and is sold as an easily integrated, add-on module to existing health
care applications or as a stand-alone solution.

The Companys Internet-based
SecureCare.net portal is an electronic document exchange and e-signature
workflow solution that was built with Microsofts dotNet state-of-the art
development tools. The SecureCare.net portal is tailored to the needs of physicians,
clinics and home healthcare, hospice and durable medical equipment providers.
This end-to-end solution offers a money-saving approach to accessing
information and managing time-consuming forms and authorizations. It eliminates
paper while enhancing the physicians ability to capture fees for otherwise
unbilled time and services.

The Company markets its
services to customers throughout the United States; currently operating from
its Austin, Texas-based corporate headquarters.

The Company intends to
continue to utilize the Internet to provide browser-initiated healthcare
document exchange and e-signature solutions that facilitate the confidential,
on-line exchange of healthcare information for many participants in the
healthcare industry. Based on the technology and products in place, other
applications can and will be developed that will enhance the Companys position
in the physicians office and in the offices of other providers of healthcare.
These services using Internet technology in the healthcare industry are subject
to risks, including but not limited to those associated with competition from
existing companies offering similar services, rapid technological change,
development risks, management of growth and a minimal previous record of operations
or earnings.

BASIS OF PRESENTATION

The unaudited financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States for interim financial information and
in accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the financial information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Results of operations for the three and nine months ended
September 30, 2008, are not necessarily indicative of the results that may be expected
for the year ending December 31, 2008.

Certain prior period amounts
have been reclassified to conform to current period presentation.

These financial statements
should be read in conjunction with the financial statements and notes thereto
contained in the Companys Annual Report on Form 10-KSB for the year ended
December 31, 2007.

7

---



GOING CONCERN

The financial statements
have been prepared on the assumption that the Company will continue as a going
concern. The Company sustained a net loss of $2,076,047 for the nine months
ended September 30, 2008. The Company has accumulated losses through September
30, 2008 of $39,880,163 (including a non-recurring loss on early extinguishment
of debt totaling $19,030,648 incurred in the fourth quarter of 2006). Cash used
in operating activities for the period ended September 30, 2008 aggregated
$1,130,375. Total liabilities at September 30, 2008 of $3,140,295 significantly
exceed total assets of $159,944. As of the date of this report, the Company is
unable to meet all of its short-term obligations because of shortages of cash.
The Companys continued existence depends upon the success of managements
efforts to raise additional capital necessary to meet the Companys obligations
as they come due, and to obtain sufficient capital to execute its business
plan. The Company intends to obtain capital primarily through issuances of debt
or equity. There can be no degree of assurance that the Company will be
successful in completing additional financing transactions. Failure to generate
additional revenues, raise additional capital or manage discretionary spending
could have a material adverse effect on the Companys ability to continue as a
going concern and to achieve its intended business objectives. The accompanying
unaudited financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or
classification of liabilities which may result from the inability of the
Company to continue as a going concern.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the
Financial Accounting Standards Board issued SFAS No. 157, Fair Value
Measurements. This Statement defines fair value, establishes a framework for
measuring fair value and expands disclosures about fair value measurements.
This Statement establishes a fair value hierarchy about the assumptions used to
measure fair value and clarifies assumptions about risk and the effect of a
restriction on the sale or use of an asset. On February 12, 2008, the FASB
issued FSP No. FAS 157-2, Effective Date of FASB Statement No. 157, which
delays the effective date of SFAS No. 157 for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on at least an annual basis; the statement is
effective for fiscal years beginning after December 31, 2008. Upon adoption,
the provisions of SFAS No. 157 are to be applied prospectively with limited
exceptions. Management is currently evaluating the impact that the full
adoption of SFAS No. 157 will have on the financial position of the Company.

8

---



NOTE 2. SUMMARY OF SIGNFICANT ACCOUNTING PRINCIPLES

REVENUE RECOGNITION

The Company derives its
revenues from the following healthcare provider sources - recurring monthly
service fees, one-time training and set-up fees and integration and
customization services as contracted.

The Company recognizes
revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue
Recognition (SAB 104). SAB 104 generally requires that four basic criteria must
be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based on managements
judgments regarding the fixed nature of the fee charged for services rendered
and the collectability of those fees. Should changes in conditions cause management
to determine these criteria are not met for certain sales, revenue recognized
for any reporting period could be adversely affected. In instances where any
one of the four criteria is not met, the Company will either defer recognition
of the monthly service fees until the criteria are met or will recognize the
recurring monthly service fees on a ratable basis. Recognition of revenue
resulting from one-time training and set-up fees, which are billed upfront, is
deferred and amortized over the life of the corresponding arrangements.

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company capitalizes
costs related to computer software developed or obtained for internal use in
accordance with the American Institute of Certified Public Accountants
Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use and is depreciated using the
straight-line method over the estimated useful life of the software, generally
two years. At September 30, 2008, capitalized software development costs
totaled $235,750, less accumulated amortization of $205,615. No software
development costs were incurred or capitalized during the three and nine month
periods ended September 30, 2008.

LONG-LIVED ASSETS

Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to the undiscounted future net cash flows expected to be generated
by the asset. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying amount of the net
asset exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.

PROPERTY AND EQUIPMENT

Property and equipment are
recorded at cost. The Company provides for depreciation of its property and
equipment using the straight-line method over the estimated useful life of the
depreciable assets ranging from two to five years. Maintenance and repairs are
expensed as incurred. Replacements and betterments are capitalized.

Depreciation expense for the
nine months ended September 30, 2008 and 2007 was $47,563 and $20,418,
respectively. In March 2008, the Company retired $185,703 of fully depreciated
property and equipment, resulting in no gain or loss in the period.

STOCK-BASED COMPENSATION

On January 1, 2006, the
Company adopted the modified prospective method of SFAS No. 123 (revised 2004),
Share-Based Payment (SFAS No. 123R). SFAS No. 123R supersedes APB Opinion
No. 25, and amends SFAS No. 95, Statement of Cash Flows. SFAS No. 123R
requires that all share-based payments to employees, including the grant of
employee stock options, be recognized in the income statement based on their
fair values. Under the modified prospective application, SFAS No. 123R is
applied to new awards and awards modified, repurchased or cancelled after the
effective date. Compensation cost for the portion of awards for which requisite
service has not been rendered that are outstanding as of the effective date is
recognized as the requisite service is rendered on or after the effective date.
The compensation cost for the portion of awards is based on the grant date fair
value of those awards, less estimated forfeitures.

Stock-based compensation
expense recognized during the period is based on the value of the portion of
the stock-based payment awards that is ultimately expected to vest less
estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at
the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

9

---



STOCK-BASED COMPENSATION (Continued)

The Company accounts for
equity instruments issued to non-employees in accordance with the provisions of
SFAS No. 123 as amended and Emerging Issues Task Force (EITF) Issue No. 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services. All transactions
in which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date of the fair value
of the equity instrument issued is the earlier of the date on which the
counterpartys performance is complete or the date on which it is probable that
performance will occur.

2008 PlanThe Board of
Directors of the Company approved the SecureCare Technologies, Inc. 2008 Stock
Option Plan (the 2008 Plan) on July 2, 2008. The Company has reserved 500,000
shares of common stock for issuance under the 2008 Plan. In accordance with the
terms of the 2008 Plan, the exercise price of each option granted may not be
less than the fair market value of common stock at the date of grant, without prior
approval of the Board of Directors. Options are exercisable according to the
terms set out in the option agreement, not to exceed ten years. All options
granted by the Company under its 2008 Plan are restricted stock awards under
rules promulgated by the Securities and Exchange Commission.

The Company granted 480,000
options under the 2008 Plan on July 29, 2008 at an exercise price of $0.75 per
share. Of the options granted under the 2008 Plan, 310,000 options vested
immediately and 170,000 options will vest ratably over a two year period (24
months). On August 12, 2008, the Company granted an additional 10,000 options
under the 2008 Plan at an exercise price of $1.01. These options vest ratably
over a two year period (24 months).

The Company calculates the
fair value of each option award on the date of the grant using the
Black-Scholes option-pricing model. Using the Black-Scholes option pricing
model, we used the following weighted-average assumptions to value the options
issued in the third quarter of 2008: Risk free interest rate, 4.04%; expected
life, 4 years; expected dividend yield, 0%; and daily annualized volatility of
247%. At September 30, 2008, under the 2008 Plan, the Company had 490,000
options outstanding, of which 325,000 were exercisable.

2007 PlanThe Board of
Directors of the Company approved the SecureCare Technologies, Inc. 2007 Stock
Option Plan (the 2007 Plan) on August 15, 2007. The Company has reserved
425,000 shares of common stock for issuance under the 2007 Plan. In accordance
with the terms of the 2007 Plan, the exercise price of each option granted may
not be less than the fair market value of common stock at the date of grant,
without prior approval of the Board of Directors. Options are exercisable
according to the terms set out in the option agreement, not to exceed ten
years. All options granted by the Company under its 2007 Plan are restricted
stock awards under rules promulgated by the Securities and Exchange Commission.

The Company granted 420,834
options under the 2007 Plan on August 15, 2007 at an exercise price of $0.80
per share. Of the options granted under the 2007 Plan, 410,834 options vested
immediately and 833 options vested between August 15, 2007 and November 15,
2007. On November 15, 2007, 9,167 options were forfeited and on February 15,
2008, 833 options were canceled. On February 22, 2008, the Company granted an
additional 10,000 options under the 2007 Plan at an exercise price of $1.25.
These options vested immediately.

The Company calculates the
fair value of each option award on the date of the grant using the
Black-Scholes option-pricing model. Using the Black-Scholes option pricing
model, we used the following weighted-average assumptions to value the options
issued in the first quarter of 2008: Risk free interest rate, 3.79%; expected
life, 4 years; expected dividend yield, 0%; and daily annualized volatility of
250%.

At September 30, 2008, under
the 2007 Plan, the Company had 420,834 options outstanding, of which 420,834
were exercisable. There were no new options granted, exercised or cancelled
under the 2007 Plan during the third quarter of 2008.

2004 PlanThe Board of
Directors of the Company approved the SecureCare Technologies, Inc. 2004 Stock
Option Plan (the 2004 Plan) on December 31, 2004. The Company has reserved
10,000 shares of common stock for issuance under the 2004 Plan. The exercise
price of each option granted may not be less than the fair market value of
common stock at the date of grant, without prior approval of the Board of Directors.
Options are exercisable according to the terms set out in the option agreement,
not to exceed ten years. At September 30, 2008, under the 2004 Plan, the
Company had 1,250 options outstanding, of which 1,250 were exercisable. All
options granted by the Company under its 2004 Plan are restricted stock awards
under rules promulgated by the Securities and Exchange Commission. There were
no new options granted, exercised or cancelled under the 2004 Plan during the
nine months ended September 30, 2008.

10

---



STOCK-BASED COMPENSATION (Continued)

For the nine months ended
September 30, 2008 and 2007, the compensation expense associated with stock
options was $253,250 and $318,878, respectively. The impact on the Companys
results of operations of recording stock-based compensation for the three and
nine months ended September 30, 2008 was as follows:

|                                                                         |  |                                  |         |                                  |   |                                   |  |                                   |         |  |   |         | 
|------------------------------------------------------------------------ |  | -------------------------------- | ------- | -------------------------------- | - | --------------------------------- |  | --------------------------------- | ------- |  | - | ------- | 
|                                                                         |  | Nine Months Ended
 Sept 30, 2008 |         | Nine Months Ended
 Sept 30, 2007 |   | Three Months Ended
 Sept 30, 2008 |  | Three Months Ended
 Sept 30, 2007 |        
|                                                                         |  |                                  |         |                                  |   |                                   |  |                                   |        
|Selling, general and administrative                                      |  | $                                | 253,250 |                                  | $ | 318,878                           |  | $                                 | 240,894 |  | $ | 318,878 | 
|                                                                         |  |                                  |         |                                  |   |                                   |  |                                   |         |  |   |         | 
|                                                                        
|Impact on net loss to common
 shareholders                               |  | $                                | 253,250 |                                  | $ | 318,878                           |  | $                                 | 240,894 |  | $ | 318,878 | 
|                                                                         |  |                                  |         |                                  |   |                                   |  |                                   |         |  |   |         | 
|Impact on net loss per share to
 common shareholders (basic and diluted) |  | $                                | .13     |                                  | $ | .38                               |  | $                                 | .12     |  | $ | .22     | 
|                                                                         |  |                                  |         |                                  |   |                                   |  |                                   |         |  |   |         | 

The following tables
summarize the activity under all stock option plans for the nine months ended
September 30, 2008:

|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|-------------------------------------------------- |  | ------------------------------------- | ------- | ----------------------------- | - | ---------------------------------------------- |  | -------------------------- | ----- |  | - | - | 
|                                                   |  | 2008 Stock Option Plan                |        
|                                                   |  |                                       |        
|                                                   |  | Nine Months Ended
 September 30, 2008 |        
|                                                   |  |                                       |        
|                                                   |  | Shares                                |         | WeightedAverageExercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic Value |      
|                                                   |  |                                       |         |                               |   |                                                |  |                            |      
|Outstanding at January 1, 2008                     |  |                                       |        |                               | $ |                                               |  |                           | years |  |   |   | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|Granted                                            |  |                                       | 490,000 |                               | $ | 0.76                                           |  | 9.83                       | years |  |   |   | 
|Exercised                                          |  |                                       |        |                               | $ |                                               |  |                           | years |  |   |   | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|Cancelled                                          |  |                                       |        |                               | $ |                                               |  |                           | years |  |   |   | 
|Forfeitures                                        |  |                                       |        |                               | $ |                                               |  |                           | years |  |   |   | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|Outstanding at September 30, 2008                  |  |                                       | 490,000 |                               | $ | 0.76                                           |  | 9.83                       | years |  | $ |  | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|Vested and expected to vest at
 September 30, 2008 |  |                                       | 490,000 |                               | $ | 0.76                                           |  | 9.83                       | years |  | $ |  | 
|Options exercisable at September
 30, 2008         |  |                                       | 325,000 |                               | $ | 0.76                                           |  | 9.83                       | years |  | $ |  | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 
|                                                   |  |                                       |         |                               |   |                                                |  |                            |       |  |   |   | 

|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|-------------------------------------------------- |  | ------------------------------------- | ------- | --------------------------------- | - | ---------------------------------------------- |  | -------------------------- | ----- |  | - | - | 
|                                                   |  | 2007 Stock Option Plan                |        
|                                                   |  |                                       |        
|                                                   |  | Nine Months Ended
 September 30, 2008 |        
|                                                   |  |                                       |        
|                                                   |  | Shares                                |         | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic Value |      
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |      
|Outstanding at January 1, 2008                     |  |                                       | 411,667 |                                   | $ | 0.80                                           |  | 8.83                       | years |  |   |   | 
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Granted                                            |  |                                       | 10,000  |                                   | $ | 1.25                                           |  | 9.33                       | years |  |   |   | 
|Exercised                                          |  |                                       |        |                                   | $ |                                               |  |                           | years |  |   |   | 
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Cancelled                                          |  |                                       | (833    | )                                 | $ |                                               |  |                           | years |  |   |   | 
|Forfeitures                                        |  |                                       |        |                                   | $ |                                               |  |                           | years |  |   |   | 
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Outstanding at September 30, 2008                  |  |                                       | 420,834 |                                   | $ | 0.81                                           |  | 8.85                       | years |  | $ |  | 
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|                                                   |  |                                       |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Vested and expected to vest at
 September 30, 2008 |  |                                       | 420,834 |                                   | $ | 0.81                                           |  | 8.85                       | years |  | $ |  | 
|Options exercisable at September
 30, 2008         |  |                                       | 420,834 |                                   | $ | 0.81                                           |  | 8.85                       | years |  | $ |  | 

|                                                   |  |                                       |       |                                   |   |                                                |  |                             |       |  |   |   | 
|-------------------------------------------------- |  | ------------------------------------- | ----- | --------------------------------- | - | ---------------------------------------------- |  | --------------------------- | ----- |  | - | - | 
|                                                   |  | 2004 Stock Option Plan                |      
|                                                   |  |                                       |      
|                                                   |  | Nine Months Ended
 September 30, 2008 |      
|                                                   |  |                                       |      
|                                                   |  | Shares                                |       | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic
 Value |      
|                                                   |  |                                       |       |                                   |   |                                                |  |                             |      
|Outstanding at January 1, 2008                     |  |                                       | 1,250 |                                   | $ | 200.00                                         |  | 6.17                        | years |  |   |   | 
|Granted                                            |  |                                       |      |                                   |   |                                                |  |                             |       |  |   |   | 
|Exercised                                          |  |                                       |      |                                   |   |                                                |  |                             |       |  |   |   | 
|Cancelled                                          |  |                                       |      |                                   |   |                                                |  |                             |       |  |   |   | 
|                                                   |  |                                       |       |                                   |   |                                                |  |                             |       |  |   |   | 
|Outstanding at September 30, 2008                  |  |                                       | 1,250 |                                   | $ | 200.00                                         |  | 6.17                        | years |  | $ |  | 
|                                                   |  |                                       |       |                                   |   |                                                |  |                             |       |  |   |   | 
|Vested and expected to vest at
 September 30, 2008 |  |                                       | 1,250 |                                   | $ | 200.00                                         |  | 6.17                        | years |  | $ |  | 
|Options exercisable at September
 30, 2008         |  |                                       | 1,250 |                                   | $ | 200.00                                         |  | 6.17                        | years |  | $ |  | 

The aggregate intrinsic
value is calculated as the difference between the exercise price of the
underlying awards and the quoted price of the Companys common stock, $0.75 at
September 30, 2008.

11

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COMMITMENTS AND CONTINGENCIES

On March 7,
2008, the Company received a letter from an attorney for an investor demanding
payment on a promissory note issued in 2004 with a principal balance of
$63,500. Another party has advised the Company that it is the legal owner of
the promissory note. No legal action has been commenced and the Company is
attempting to resolve the matter between the parties. As of the date of this
filing the matter has not been resolved between the two parties. The promissory
note has been carried on the Companys books as a liability and management does
not believe that the outcome of this matter will have a material effect on the
Companys financial position, operating results or cash flows. However, there
can be no assurance that any legal proceeding that develops as a result of this
matter will not have a material impact.

USE OF ESTIMATES

The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reporting period. The Companys most
significant estimates relate to fair value for stock based compensation,
software services revenue recognition, capitalization of software development
costs and depreciation of fixed assets. Actual results could differ from these
estimates.

INCOME TAXES

Deferred
income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory tax rates applicable to future years to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities. Under the asset and liability method, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.

Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the payable or
refund for the period plus or minus the change during the period in deferred
tax assets and liabilities.

In January
2007, the Company adopted the Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of FASB
Statement No. 109 (FIN 48). This Interpretation clarifies the accounting for
uncertainty in income taxes recognized in a companys financial statements. FIN
48 requires companies to determine whether it is more likely than not that a
tax position will be sustained upon examination by the appropriate taxing
authorities before any part of the benefit can be recorded in the financial
statements. It also provides guidance on the recognition, measurement and
classification of income tax uncertainties, along with any related interest and
penalties. The Company did not recognize any adjustments to its financial
statements as a result of the implementation of FIN 48.

LOSS PER COMMON SHARE

Basic net loss
per share is computed by dividing net loss by the weighted average number of
common shares outstanding for the year. Diluted net loss per share is computed
by dividing net loss by the weighted average number of common shares and
dilutive common stock equivalents outstanding for the year. Common stock
equivalents for the nine month periods ended September 30, 2008 and 2007
totaling 1,516,356 and 964,131, respectively, have been excluded from the
computation since such inclusion would have an anti-dilutive effect.

12

---



NOTE 3. NOTES PAYABLE

Notes payable
at September 30, 2008 and December 31, 2007 consist of the following:

|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- | --------- | --------- | - | ---------- | - | --------- | --------- | - | - | -------- | -
|                                                                                                                                                                                                                                                                                                                            |  | 2008       |           | 2007      |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |  
|                                                                                                                                                                                                                                                                                                                            |  | Short Term |           | Long Term |   | Short Term |   | Long Term |          
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |          
|Note payable to Phoebe Holdings, Inc. at 7.5%, unsecured. Note is in
 default as of May 1, 2005. Interest rate increased to 9.5% after default.                                                                                                                                                                             |  | $          | 63,500    |           | $ |           |   | $         | 63,500    |   | $ |         |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Related party note payable bearing interest at 6% Principal and
interest
 due December 03, 2008, unsecured                                                                                                                                                                                                                  |  |            | 75,000    |           |   |           |   |           |          |   |   |         |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |          
|Related party note payable bearing interest at 6% Principal and
 interest due May 30, 2008, unsecured                                                                                                                                                                                                                       |  |            |          |           |   |           |   |           | 50,000    |   |   |         |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Bridge Financing Summary                                                                                                                                                                                                                                                                                                    |  |            |           |           |   |            |   |           |           |   |   |          |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Convertible bridge notes payable bearing interest at 6%,
 including $87,500 to related parties, unsecured. Principal and interest
 originally due during the month of December 2008; however, note extensions of
 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5%
 during the extension period. |  |            |          |           |   | 187,500    |   |           | 187,500   |   |   |         |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Convertible bridge notes payable bearing interest at 6%,
 including $12,500 to related parties, unsecured. Principal and interest
 originally due during the month of January 2009; however, note extensions of
 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5%
 during the extension period.  |  |            |          |           |   | 62,500     |   |           |          |   |   | 62,500   |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Related party convertible bridge notes payable bearing interest at 6%,
 unsecured. Principal and interest originally due during the month of February
 2009; however, note extensions of 1 year were approved during Q3 2008, with
 an adjusted interest rate of 7.5% during the extension period.                          |  |            |          |           |   | 250,500    |   |           |          |   |   | 250,500  |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Convertible bridge notes payable bearing interest at 6%,
 including $25,000 to related parties, unsecured. Principal and interest
 originally due during the month of April 2009; however, note extensions of 1
 year were approved during Q3 2008, with an adjusted interest rate of 7.5%
 during the extension period.    |  |            |          |           |   | 82,500     |   |           |          |   |   | 82,500   |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Convertible bridge notes payable bearing interest at 6%,
 including $35,000 to related parties, unsecured. Principal and interest
 originally due during the month of May 2009; however, note extensions of 1
 year were approved during Q3 2008, with an adjusted interest rate of 7.5%
 during the extension period.      |  |            |          |           |   | 55,000     |   |           |          |   |   | 55,000   |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Bridge notes payable bearing interest at 6% Principal and interest due
 December 31, 2008, including $1,091,294 and $559,000 to related parties,
 unsecured                                                                                                                                                                 |  |            | 1,965,000 |           |   |           |   |           | 956,500   |   |   |         |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|                                                                                                                                                                                                                                                                                                                            |  | $          | 2,103,500 |           | $ | 638,000    |   | $         | 1,257,500 |   | $ | 450,500  |  
|Less: unamortized debt discount                                                                                                                                                                                                                                                                                             |  |            | (177,217  | )         |   | (164,521   | ) |           | (400,633  | ) |   | (264,382 | )
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  
|Total notes payable                                                                                                                                                                                                                                                                                                         |  | $          | 1,926,283 |           | $ | 473,479    |   | $         | 856,867   |   | $ | 186,118  |  
|                                                                                                                                                                                                                                                                                                                            |  |            |           |           |   |            |   |           |           |   |   |          |  

13

---



NOTE 3. NOTES PAYABLE (Continued)

Bridge Financing Summary  June 2007 through September 2008

On June 13,
2007, the Board of Directors approved, effective June 1, 2007, the issuance of
a series of Notes Payable (the Financing) totaling $1,500,000 maturing on
December 31, 2008, with a stated interest rate of 6% per annum, with principal
and interest payable at maturity. The Company has the option to extend the
maturity date of the notes an additional twelve months. The stated interest
rate on these notes during the optional extension period is 9% per annum.

On April 2,
2008, the Board of Directors approved a $500,000 increase (the Extension) to
the $1,500,000 Financing, initially approved June 13, 2007, to a total of
$2,000,000. The Financing and Extension Notes Payable have attached shares of
the Companys stock in the form of one share of common stock for each $2.50
invested into the offering for a total of up to 800,000 shares of common stock
to be issued, of which 786,000 shares have been issued as of September 30,
2008.

From January
1, 2008 through September 30, 2008 the Company received a total of $1,008,500
in gross proceeds from the Financing and Extension. In addition, the Company
issued 403,400 shares of common stock to the participating investors. These
shares were valued at a range of $0.51 to $1.65 per share resulting in a total
fair value of $1,397,936. The Company allocated the proceeds received between
the notes payable and the shares of common stock issued based on the relative
fair values at the date of issuance. Based on the relative fair value
calculations, the Company allocated $276,177 of the $1,008,500 in proceeds to
the shares of common stock issued and the remaining $732,323 to the notes
payable. The debt discount amount of $276,177 is being amortized as a component
of interest expense over the life of the notes, ranging from five to twelve
months.

As of
September 30, 2008, the Company has received a total of $1,965,000 in gross
proceeds from issuance of notes payable in the Financing and the Extension. In
addition, the Company has issued 786,000 shares of common stock to the participating
investors. These shares were valued at a range of $0.51 to $6.00 per share
resulting in a total fair value of $3,359,636. The Company allocated the
proceeds received between the notes payable and the shares of common stock
issued based on the relative fair values at the date of issuance. Based on the
relative fair value calculations, the Company allocated $693,260 of the
$1,965,000 in proceeds to the shares of common stock issued and the remaining
$1,271,740 to the notes payable. The debt discount amount of $693,260 is being
amortized as a component of interest expense over the life of the notes,
ranging from five to eighteen months.

Bridge Financing Summary  January 2007 through May 2007

At September
30, 2008, the Company has $638,000 in outstanding two year 6% convertible
bridge notes payable, for which the Company has issued 255,200 warrants to
purchase common stock at $5.00 per share. These warrants were valued at a range
of $5.91 to $29.91 per warrant resulting in a total fair value of $3,249,819.
The Company allocated the proceeds received between the notes payable and the
detachable warrants based on the relative fair values at the date of issuance.
Based on the relative fair value calculations, the Company allocated $512,817
of the $638,000 in proceeds to the detachable warrants and the remaining
$125,183 to the notes payable. The notes also contained a conversion feature
allowing the note holders to convert the notes into common shares at a
conversion price of $2.50 per share. The Company calculated a beneficial
conversion feature in the amount of $3,146,817; however, the value of the
beneficial conversion feature may not exceed the proceeds allocated to the
notes payable under the relative fair value calculations. As a result, the
value of the beneficial conversion feature is limited to $125,183, which is the
amount of the proceeds allocated to notes payable. The debt discount amount of
$638,000 ($512,817 related to the fair value of the warrants and $125,183
related to the beneficial conversion feature) was being amortized as a
component of interest expense over the original life of the notes (twenty-four
months).

On August 6,
2008, the Board of Directors approved a Note Extension Terms and Conditions
Offer (the Offer), to the note holders who have invested in this financing,
totaling $638,000 in principal amounts between December 2006 and May 2007 (the
Notes). The Notes and the related accrued interest originally mature between
December 2008 and May 2009; however, the Offer included a one-year extension
of the maturity date of the Notes. In exchange for agreeing to the one-year
extension the Note holders were offered an increased interest rate from 6% to
7.5% during the extension period, a re-pricing of the stock purchase warrants sold
in connection with the Notes from $5.00 per share to $2.50 per share, and the
Offer granted the Note holders the right, exercisable at their sole discretion,
to receive common stock at a price of $1.50 per share in lieu of accrued
interest at the extended maturity date (representing a total of up to 67,420
shares of common stock to be issued). An analysis of the fair value of the
warrants after the Offer consideration resulted in immaterial changes to the
original fair value calculation; therefore, no accounting adjustment has been
made, with the exception of the debt discount amortization, which the remaining
amount is now being amortized over the 12 month extension period.

As of
September 30, 2008 the Company has received written consents to the Offer from
Note holders representing the entire $638,000 principal amount of notes
outstanding.

14

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NOTE 3. NOTES PAYABLE (Continued)

Other

On June 3,
2008, the Company received a $75,000 six month 6% unsecured note payable from a
related party.

On June 20, 2008,
the Company paid in full an unsecured note payable due to a related party in
the amount of $50,000, plus accrued interest of $1,664.

In 2008, the
Company paid interest of $11,640 on the portion of the $638,000 in principal of
notes outstanding that required semi-annual interest payments. As of September
30, 2008, upon acceptance of the Offer by all the Note holders representing the
entire $638,000 principal amount of notes outstanding, all of the notes now
require payment of interest at the extended maturity date.

As of
September 30, 2008, the Company is in default on the principal amount of
$63,500 in an unsecured note payable.

NOTE 4. SHAREHOLDERS DEFICIT

In February
2008, the holder of 100,000 shares of Series A Convertible preferred stock and 113,636
shares of Series B Convertible preferred stock voluntarily converted these
preferred stock shares to 500 and 569 shares of common stock, respectively.

In April 2008,
the holder of 45,455 shares of Series B Convertible preferred stock voluntarily
converted these preferred stock shares to 227 shares of common stock.

In May 2008,
the holder of 200,000 shares of Series A Convertible preferred stock and
409,090 shares of Series B Convertible preferred stock voluntarily converted
these preferred stock shares to 1,000 and 2,046 shares of common stock,
respectively.

During the
nine months ended September 30, 2008, in conjunction with $1,008,500 in gross
proceeds from issuance of notes payable, the Company issued 403,400 shares of
common stock to the participating investors (see Note 3 for additional
information).

The holders of
the Series A preferred stock are entitled to vote upon all matters upon which
holders of the common stock have the right to vote, and shall be entitled to
the number of votes equal to the largest number of full shares of common stock
into which the shares of preferred stock, pursuant to certain conversion and
anti-dilution rights, could be converted on the appropriate record date. The
holders of the Series A preferred stock are entitled to receive out the assets
of the corporation legally available therefore, dividends at the rate of 5
percent of the stated value ($1.00 per share), payable on an annual basis,
either in cash or in shares of the Companys common stock, par value $0.001 per
share, based on the fair market value of the common stock on the date the
dividend is declared, at the option of the Company. The holders of the Series A
preferred stock will have preference in payment of dividends over the holders
of common stock. Dividends on the Series A preferred stock are payable when
declared by the board of directors. As of September 30, 2008, no dividends on
the Series A preferred stock have been declared. The period for which dividends
will be paid will be determined by the board of directors at the time of
dividend declaration. The Certificate of Designation for the Series A preferred
stock does not provide a specific provision for the accumulation of dividends;
therefore no dividends or dividends payable have been recorded as of September
30, 2008. In the event of a liquidation, dissolution or winding-up of the
Company, either voluntary or involuntary, the holders of the shares of Series A
preferred stock then issued and outstanding are entitled to be paid out of the
assets of the Company available for distribution to its shareholders, before
any payment is made to the holders of shares of common stock or upon any other
series of preferred stock of the Company that is junior to the Series A
preferred stock, an amount per share equal to the stated value.

The holders of
the Series B preferred stock are entitled to vote upon all matters upon which
holders of the common stock have the right to vote, and shall be entitled to
the number of votes equal to the largest number of full shares of common stock
into which the shares of preferred stock, pursuant to certain conversion and
anti-dilution rights, could be converted on the appropriate record date. The
holders of the Companys Series B preferred stock are not entitled to receive any
dividends. In the event of a liquidation, dissolution or winding-up of the
Company, either voluntary or involuntary, the holders of the shares of the
Companys Series A preferred stock and the Series B preferred stock then issued
and outstanding are entitled to be paid out of the assets of the Company
available for distribution to its shareholders on a pari passu basis, before
any payment is made to the holders of shares of common stock or upon any other
series of Preferred Stock of the Company that is junior to the Series A
Preferred Stock and the Series B preferred stock, an amount per share equal to
the stated value.

15

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NOTE 5. ACCRUED PAYROLL TAXES

At September
30, 2008, the Company owes $146,972 in accrued payroll taxes and $113,257 in
related penalties and interest, the majority of which is related to taxes owed
from calendar year 2005. These amounts are classified as follows on the
accompanying balance sheet:

|                        |  |         |         |             |   |         |  |   |         | 
|----------------------- |  | ------- | ------- | ----------- | - | ------- |  | - | ------- | 
|                        |  | Current |         | Non-Current |   | Total   | 
|                        |  |         |         |             |   |         | 
|                        |  |         |         |             |   |         |  |   |         | 
|Accrued
 Payroll Taxes  |  | $       | 76,255  |             | $ | 70,717  |  | $ | 146,972 | 
|Penalties
 and Interest |  |         | 67,068  |             |   | 46,189  |  |   | 113,257 | 
|                        |  |         |         |             |   |         | 
|Total                   |  | $       | 143,323 |             | $ | 116,906 |  | $ | 260,229 | 
|                        |  |         |         |             |   |         | 

The Company
received a Notice of Federal Tax Lien by the Internal Revenue Service (IRS) dated
May 24, 2006. The Tax Lien was filed with the Secretary of State in Texas. The
Lien is in favor of the United States on all property and rights to property
belonging to the Company for the amount of these taxes, and additional
penalties, interest, and costs that may accrue. The Lien will remain in place
until such time that the Company pays its obligations in full to the IRS. On
March 1, 2007 the Company commenced an IRS-approved five year monthly payment
plan (the Installment Agreement) to pay a majority of the delinquent payroll
taxes and related interest and penalties totaling $154,010 at September 30,
2008. The Company will make monthly payments of $5,000 over the course of the
five year plan.

On June 23,
2008 the Company received a series of notices of Intent to Levy from the IRS
regarding assessments of additional penalties and interest related to prior
period payroll taxes, including but not limited to penalties assessed for
non-use of the IRS Electronic Federal Tax Payment System (EFTPS). The notices
also indicated that due to the non-payment of these additional penalties and
interest amounts assessed, of approximately $31,000, the IRS intends to
terminate the Companys previously approved installment agreement on July 23,
2008. At September 30, 2008 the Company has accrued approximately $31,000 in
additional penalties and interest related to these assessments.

As of the date
of this filing, and after meeting with an IRS Revenue Agent on October 14,
2008, the Company has received a verbal acknowledgement from the IRS that after
processing an abatement of a portion of the additional penalties and interest
previously assessed to the Company, the total amounts owed will be recalculated
and reflected in the Installment Agreement. The Company was informed in its
meeting with the IRS on October 14, 2008 that the Installment Agreement had
been cancelled in late June of 2008. The Company had received no prior notice
of this action. The Company has, since June, continued to make monthly payments
of $5,000 on the installment agreement, and remains current on all payments
required under the agreement. The Company anticipates the Installment Agreement
will be reinstated by the IRS during the fourth quarter of fiscal 2008.

NOTE 6. LEASE COMMITMENTS

The Company
relocated its principal executive office to a new location in Austin, Texas in
February of 2008. The new location was leased until February 28, 2010. This
lease required the Company to prepay six months of rent totaling $17,617, as
well as pay a refundable lease deposit of $2,936. The lease agreement also
contains provisions for future rent increases. The total amount of rental
payments due over the lease term is being charged to rent expense on the
straight-line method over the term of the lease. The difference between rent
expense recorded and the amount paid is recorded as Deferred Rent Obligation,
which is included in Other Accrued Liabilities in the accompanying balance
sheet.

NOTE 7. SUBSEQUENT EVENTS

On September
22, 2008 the Board of Directors approved the issuance of a new series of notes
payable (the New Notes) totaling $500,000 maturing on December 31, 2009, with
a stated interest rate of 8% per annum with principal and interest payable at
maturity. The New Notes have attached shares of the Companys common stock in
the form of one share of common stock for each $1.00 invested into the offering
for a total of up to 500,000 shares to be issued.

Subsequent to
September 30, 2008 and through October 31, 2008, the Company has received
$60,000 in gross proceeds from the issuance of New Notes. The Company also
issued 60,000 shares of common stock to these participating investors.

16

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

This Quarterly
Report on Form 10-Q contains forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company that is based on the beliefs of the Companys
management as well as assumptions made by and information currently available
to the Companys management. When used in this report, the words anticipate,
believe, estimate, expect and intend and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other
filings made by the company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.

OVERVIEW

SecureCares
management believes that the Company is a leading provider of Internet-based
document exchange and e-signature solutions for the healthcare industry.

The Companys
proprietary technology offers workflow solutions that enable documents to be
sent, retrieved, signed and remotely viewed anywhere in the world, between
providers of healthcare, while protecting patient privacy as required by law.

The Companys
Internet-based Sfax with Digital Signature and annotation features is the only
secure EFR (electronic fax record) that is 100 percent dedicated to the
healthcare industry. The product is a HIPAA-ready (Health Insurance Portability
and Accountability Act) work flow solution that saves end-users up to 95
percent of the time and up to 80 percent of the cost of manual faxing. It
provides a complete log and audit trail for all fax documents and completely
eliminates the manual paper processing of fax documents. Sfax is distributed
to end-users through the Companys network of health care software vendors and
value-added resellers and is sold as an easily integrated, add-on module to
existing health care applications or as a stand-alone solution.

The Companys
Internet-based SecureCare.net portal is an electronic document exchange and
e-signature workflow solution that was built with Microsofts dotNet
state-of-the art development tools. The SecureCare.net portal is tailored to
the needs of physicians, clinics and home healthcare, hospice and durable
medical equipment providers. This end-to-end solution offers a money-saving
approach to accessing information and managing time-consuming forms and
authorizations. It eliminates paper while enhancing the physicians ability to
capture fees for otherwise unbilled time and services.

The Company
markets its services to customers throughout the United States; currently
operating from its Austin, Texas-based corporate headquarters.

The Company
intends to continue to utilize the Internet to provide browser-initiated
healthcare document exchange and e-signature solutions that facilitate the
confidential, on-line exchange of healthcare information for many participants
in the healthcare industry. Based on the technology and products in place,
other applications can and will be developed that will enhance the Companys
position in the physicians office and in the offices of other providers of
healthcare. These services using Internet technology in the healthcare industry
are subject to risks, including but not limited to those associated with
competition from existing companies offering similar services, rapid
technological change, development risks, management of growth and a minimal
previous record of operations or earnings.

CRITICAL ACCOUNTING POLICIES AND USE OF
ESTIMATES

The discussion
and analysis of our financial condition and results of operations are based on
our unaudited financial statements, which have been prepared according to U.S.
generally accepted accounting principles. In preparing these financial
statements, we are required to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities. We evaluate these estimates
on an on-going basis. We base these estimates on historical experience and on
various other assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities. Actual results may differ from
these estimates under different assumptions or conditions. We consider the
following accounting policies to be the most important to the portrayal of our
financial condition and that require the most subjective judgment.

17

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REVENUE RECOGNITION

The Company
derives its revenues from the following healthcare provider sources - recurring
monthly service fees, one-time training and set-up fees and integration and
customization services as contracted.

The Company
recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 104 generally requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed and determinable; and (4) collectability is
reasonably assured. Determination of criteria (3) and (4) are based on
managements judgments regarding the fixed nature of the fee charged for
services rendered and the collectability of those fees. Should changes in
conditions cause management to determine these criteria are not met for certain
sales, revenue recognized for any reporting period could be adversely affected.
In instances where any one of the four criteria is not met, the Company will
either defer recognition of the monthly service fees until the criteria are met
or will recognize the recurring monthly service fees on a ratable basis.
Recognition of revenue resulting from one-time training and set-up fees, which
are billed upfront, is deferred and amortized over the life of the
corresponding arrangements.

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company
capitalizes costs related to computer software developed or obtained for
internal use in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and is depreciated
using the straight-line method over the estimated useful life of the software,
generally two years. SOP 98-1 provides guidance on determining whether computer
software is internal-use software and guidance on accounting for proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. It also provides guidance on capitalization of
the costs incurred for computer software developed or obtained for internal
use.

LONG-LIVED ASSETS

Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the undiscounted future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the net asset exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

STOCK-BASED COMPENSATION

On January 1,
2006, the Company adopted the modified prospective method of SFAS No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R), which is a revision of
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS
No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of
Cash Flows. SFAS No. 123R requires that all share-based payments to employees,
including the grant of employee stock options, be recognized in the income
statement based on their fair values. Under the modified prospective
application, SFAS No. 123R is applied to new awards and awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The Compensation cost for the portion
of awards is based on the grant date fair value of those awards, less estimated
forfeitures.

Stock-based
compensation expense recognized during the period is based on the value of the
portion of the stock-based payment awards that is ultimately expected to vest
less estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

The Company
accounts for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 as amended and Emerging Issues Task Force (EITF)
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterpartys performance is complete or the date on which it is
probable that performance will occur.

18

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RESULTS OF OPERATIONS

Three months ended September 30, 2008 compared to three months ended
September 30, 2007:

Revenues for
the three months ended September 30, 2008 were $48,505 compared to $32,034 for
the three months ended September 30, 2007. This 51% increase in revenues is
primarily attributed to revenue from the Companys new flagship product, Sfax.
The Company launched Sfax, with its initial functionality in October of 2007.
The Company completed significant functionality upgrades in February of 2008
with the addition of the Digital Signature and annotation features. The Sfax
digital signature feature provides every registered user with a true digital
certificate, enabling users to sign each fax digitally from a secure,
HIPAA-ready platform. This feature saves health care providers significant
amounts of time and money that otherwise would be spent scanning and printing
faxes in order to physically sign them. Special annotation features allow users
to edit faxed documents with tools such as check marks, boxes and rubber
stamps.

In March of
2008 the Company completed development of its web service integration tools to
provide its channel partners, health care information technology (HIT)
companies and software vendors, with a simple, rapid and cost-effective method
of integrating Sfax into any application architecture.

Enabled by its
Sfax product launch and a series of additional development activities,
management believes it has positioned the Company for significant revenue
growth in 2008 and into 2009. With an estimated 14.9 billion fax pages sent and
received annually in its targeted medical industry segments, the Company
believes that the potential work-flow efficiencies to be realized and the
corresponding reductions in overhead costs to be achieved by end-users of Sfax
are on an industry-transforming order of magnitude.

Costs of
revenues were $31,710 for the three months ended September 30, 2008 compared to
$25,477 for the three months ended September 30, 2007. This 24% increase is
primarily attributable to higher depreciation expense related to the
capitalization of the Sfax-related assets put into service during 2007, offset
by lower external IT development work.

Selling,
general and administrative expenses were $560,544 for the three months ended
September 30, 2008 compared to $593,887 for the three months ended September
30, 2007. This 6% decrease in expenses was primarily attributable to reduced
stock compensation expense of $77,984. Marketing expenses also decreased by
$16,749, reflecting the elimination of the outsourced marketing firm the
Company retained in 2007. Offsetting these reduced expenses were increased
salaries and benefits and other employee-related expenses, including travel and
entertainment, of $31,154. Outside consulting expenses other than marketing
increased $11,366, primarily attributable to tax and audit services performed
by our external audit firm in 2008. In addition, occupancy charges have
increased $3,917 in relation to expenses associated with the new office space.
Other corporate selling, general and administrative expenses increased approximately
$15,000 in 2008.

Interest
expense for the three months ended September 30, 2008 was $250,146 compared to
$137,305 for the same period in 2007. Higher debt discount amortization in 2008
of $89,254 resulted from the issuance of notes payable from December 2006
through September 2008. This issuance of notes payable resulted in a higher
debt load, contributing to an increase of $24,052 in interest expense.

Nine months ended September 30, 2008 compared to nine months ended
September 30, 2007:

Revenues for
the nine months ended September 30, 2008 were $124,323 compared to $100,916 for
the nine months ended September 30, 2007. This 23% increase in revenues is
primarily attributed to revenue from the Companys new flagship product, Sfax.
The Company launched Sfax, with its initial functionality in October of 2007.
The Company completed significant functionality upgrades in February of 2008
with the addition of the Digital Signature and annotation features. The Sfax
digital signature feature provides every registered user with a true digital
certificate, enabling users to sign each fax digitally from a secure,
HIPAA-ready platform. This feature saves health care providers significant
amounts of time and money that otherwise would be spent scanning and printing
faxes in order to physically sign them. Special annotation features allow users
to edit faxed documents with tools such as check marks, boxes and rubber
stamps.

In March of
2008 the Company completed development of its web service integration tools to
provide its channel partners, health care information technology (HIT)
companies and software vendors, with a simple, rapid and cost-effective method
of integrating Sfax into any application architecture.

Enabled by its
Sfax product launch and a series of additional development activities,
management believes it has positioned the Company for significant revenue
growth in 2008 and into 2009. With an estimated 14.9 billion fax pages sent and
received annually in its targeted medical industry segments, the Company
believes that the potential work-flow efficiencies to be realized and the
corresponding reductions in overhead costs to be achieved by end-users of Sfax
are on an industry-transforming order of magnitude.

19

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RESULTS OF OPERATIONS (Continued)

Costs of
revenues were $86,919 for the nine months ended September 30, 2008 compared to
$77,107 for the nine months ended September 30, 2007. This 13% increase is
primarily attributable to higher depreciation expense related to the
capitalization of the Sfax-related assets put into service during 2007, offset
by lower external IT development work.

Selling,
general and administrative expenses were $1,404,975 for the nine months ended
September 30, 2008 compared to $1,144,170 for the nine months ended September
30, 2007. This 23% increase in expenses was primarily attributable to increased
salaries and benefits and other employee-related expenses, including travel and
entertainment, of $246,914. Investor and public relations expenses increased
$36,701 in 2008, reflecting the Companys investments into these programs in
mid-2007. Occupancy charges increased $29,035 in relation to expenses resulting
from the new office space and property taxes. Marketing and outside
professional fees, primarily tax and audit services, increased $27,740 in 2008,
and Director and Officer insurance expense increased $20,961 in 2008. In
addition, other corporate selling, general, and administrative costs were
$10,000 higher in 2008. Offsetting these higher expenses is a decrease of
$45,000 in financial consulting expense in 2008 that resulted from the issuance
of 7,500 shares of common stock to Mercom Capital Group, LLC for investor
relation services in 2007 coupled with lower stock compensation expense of $65,628
in 2008.

Interest
expense for the nine months ended September 30, 2008 was $709,309 compared to
$300,866 for the same period in 2007. Higher debt discount amortization in 2008
of $352,102 resulted from the issuance of notes payable from December 2006
through September 2008. This issuance of notes payable resulted in a higher
debt load, contributing to an increase of $60,104 in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows
used in operating activities for the nine month period ended September 30, 2008
totaled $1,130,375. Net cash flows used in operating activities for the nine
month period ended September 30, 2007 was $950,242. The increase in net cash
used by operating activities in 2008 is primarily due to the Companys investments
in additional resources and programs, as required by its business plan, to
complete certain technology development projects and initiate growth in its
revised business model, primarily people and people-related expenses of
$246,914. Investor and public relations expenses increased $36,701 in 2008
reflecting the Companys investments into these programs in mid-2007. Other
marketing and professional fees, including tax compliance and audit services,
increased $27,740.

Cash flows
used in investing activities totaled $31,037 for the nine months ended
September 30, 2008 and consisted entirely of capitalized expenditures. Cash
flows used in investing activities totaled $77,940 for the nine months ended
September 30, 2007 and consisted partially of capitalized expenditures and
partially of capitalized software development costs.

Net cash flow
provided by financing activities was $1,033,500 for the nine months ended
September 30, 2008 and consisted entirely of the issuance of notes payable
totaling $1,083,500 partially offset by repayment of a note payable totaling
$50,000. Cash flow provided by financing activities was $997,000 for the nine
months ended September 30, 2007 and consisted entirely of the issuance of notes
payable.

The Company
has limited cash resources and intends to raise additional capital through the
issuance of debt or equity. The Company believes the additional capital will
allow it to continue its marketing efforts in its core products and develop and
add new functional enhancements to the browser-based versions of its products.
The availability of cash through such resources is not assured and if the
Company is not able to raise enough cash, the Company might be forced to limit
its operations and marketing activities, or ultimately cease operations.

The financial
statements have been prepared on the assumption that the Company will continue
as a going concern. The Company sustained a net loss of $2,076,047 for the nine
months ended September 30, 2008. The Company has accumulated losses through September
30, 2008 of $39,880,163 (including a non-recurring loss on early extinguishment
of debt totaling $19,030,648 incurred in the fourth quarter of 2006). Cash used
in operating activities for the period ended September 30, 2008 aggregated
$1,130,375. Total liabilities at September 30, 2008 of $3,140,295 significantly
exceed total assets of $159,944. As of the date of this report, the Company is
unable to meet all of its short-term obligations because of shortages of cash.
The Companys continued existence depends upon the success of managements
efforts to raise additional capital necessary to meet the Companys obligations
as they come due, and to obtain sufficient capital to execute its business
plan. The Company intends to obtain capital primarily through issuances of debt
or equity. There can be no degree of assurance that the Company will be
successful in completing additional financing transactions. Failure to generate
additional revenues, raise additional capital or manage discretionary spending could
have a material adverse effect on the Companys ability to continue as a going
concern and to achieve its intended business objectives. The accompanying
unaudited financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or
classification of liabilities which may result from the inability of the
Company to continue as a going concern.

20

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CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

From January
1, 2008 through September 30, 2008 the Company issued $532,294 in 6% notes
payable initially due December 31, 2008 and 212,918 shares of common stock, in
accordance with the terms and conditions of the Financing and the Extension to
related parties.

From January
1, 2008 through September 30, 2008, the Company paid interest of $9,315 to
related parties on the portion of its notes payable that required semi-annual
interest payments.

On June 20,
2008, the Company paid in full an unsecured note payable due to a related party
in the amount of $50,000 dollars, plus accrued interest of $1,664.

At September
30, 2008, the Company has outstanding $1,576,794 in related party notes
payable.

A total of
$410,500 of these related party notes payable were issued as two year, 6%
convertible bridge notes (convertible at $2.50 per share), for which the
Company issued 164,200 warrants to purchase common stock at $5.00 per share.
These related party notes begin maturing in December of 2008 through May of
2009. On August 6, 2008, the Board of Directors approved a Note Extension Terms
and Conditions Offer (the Offer), to the note holders who have invested in
this financing, totaling $638,000 in principal amounts between December 2006
and May 2007 (the Notes). The Notes and the related accrued interest originally
mature between December 2008 and May 2009; however, the Offer included a
one-year extension of the maturity date of the Notes. In exchange for agreeing
to the one-year extension the Note holders were offered an increased interest
rate from 6% to 7.5% during the extension period, a re-pricing of the stock
purchase warrants sold in connection with the Notes from $5.00 per share to
$2.50 per share, and the Offer granted the Note holders the right, exercisable
at their sole discretion, to receive common stock at a price of $1.50 per share
in lieu of accrued interest at the extended maturity date (representing a total
of up to 40,945 related party shares of common stock to be issued). An analysis
of the fair value of the warrants after the Offer consideration resulted in
immaterial changes to the original fair value calculation; therefore, no
accounting adjustment has been made, with the exception of the debt discount
amortization, which the remaining amount is now being amortized over the 12
month extension period also.

A total of
$1,091,294 in related party notes payable are 6% notes payable initially due
December 31, 2008 with principal and interest payable at maturity. The Company
has the option to extend the maturity date of the notes an additional twelve
months. The stated interest rate on these notes during the optional extension
period is 9% per annum. The notes have attached shares of the Companys common
stock in the form of one share of common stock for each $2.50 investing into
the offering. In addition, in conjunction with the issuance of the notes
payable, the Company has issued 436,518 shares of common stock to these related
parties.

At September
30, 2008, the Company has outstanding a $75,000 six month 6% unsecured note
payable to a related party.

At September
30, 2008, the Company has $76,938 in accrued interest due on the notes payable
to related parties.

21

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ITEM 4. CONTROLS AND
PRODCECURES

(a) Evaluation of Disclosure Controls and
Procedures

We maintain
disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our Securities Exchange Act reports is recorded,
processed, summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and
communicated to our management, including our Principal Executive Officer and
Principal Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving the desired control objectives, as ours are
designed to do, and management necessarily was required to apply its judgment
in evaluating the cost-benefit relationship of possible controls and
procedures.

As of
September 30, 2008, we carried out an evaluation, under the supervision and
with the participation of our management, including our Principal Executive
Officer and Principal Financial Officer, of the effectiveness of the design and
operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.
Based upon that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that our disclosure controls and procedures are
effective in enabling us to record, process, summarize and report information
required to be included in our periodic SEC filings within the required time
period.

(b) Changes in Internal Controls

There have
been no changes in our internal control over financial reporting that occurred
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.

22

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PART
II
OTHER INFORMATION

Item 1. Legal
Proceedings

On March 7,
2008, the Company received a letter from an attorney for an investor demanding
payment on a promissory note issued in 2004 with a principal balance of
$63,500. Another party has advised the Company that it is the legal owner of
the promissory note. No legal action has been commenced and the Company is
attempting to resolve the matter between the parties. As of the date of this
filing the matter has not been resolved between the two parties. The promissory
note has been carried on the Companys books as a liability and management does
not believe that the outcome of this matter will have a material effect on the
Companys financial position, operating results or cash flows. However, there
can be no assurance that any legal proceeding that develops as a result of this
matter will not have a material impact.

Item 2. Changes in
Securities

None.

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

31.1
Certification of the Principal Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended

31.2
Certification of the Principal Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as
amended

32
Certifications of the Principal Executive Officer and Principal Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002

b) REPORTS ON
FORM 8-K

None.

23

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SIGNATURES

Pursuant
to the requirements 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.

|                        |                                |                                               | 
|----------------------- | ------------------------------ | --------------------------------------------- | 
|                        | SECURECARE
 TECHNOLOGIES, INC.
|                        |                               
|                        | By:                            | /s/ DENNIS
 NASTO                            
|                        |                                |                                               | 
|                        |                                | DENNIS NASTO                                 
|                        |                                | Chief
 Executive Officer and Director        
|                        |                                | (Principal Executive
 Officer)               
|                        |                                |                                              
|                        | By:                            | /s/ NEIL
 BURLEY                             
|                        |                                |                                               | 
|                        |                                | NEIL BURLEY                                  
|                        |                                | Chief
 Financial Officer                     
|                        |                                | (Principal
 Financial and Accounting Officer)
|                        |                                |                                              
|Date:
 November 5, 2008 |                                |                                              

24

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