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



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FORM 10-Q

|           |                                                                                          
|---------- | -----------------------------------------------------------------------------------------
|(Mark One)
|           |                                                                                          
|þ          | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934

For the quarterly period ended June 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          |  | (I.R.S.
 Employer   
|incorporation
 or organization)           |  | Identification
 No.)
|                                          |  |                     
|1617 W. 6th Street, Suite C               |  |                     
|Austin, TX                                |  | 78703               
|(Address
 of principal executive offices) |  | (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.  Yes  þ    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
 filer     o                                              |  | Accelerated filer
      o       
|                                                                            |  |                                 
|Non-accelerated filer
      o(Do not check if a smaller reporting
 company) |  | Smaller reporting
 company     þ

Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes  o    No þ

As of June 30, 2008,
 2,033,966 shares of common stock, par value $.001 per share, were
 outstanding, of which 850,976 shares were held by non-affiliates.

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SECURECARE TECHNOLOGIES, INC.
FORM 10-Q
CONTENTS

|               |  |                                                                                         |  |   
|-------------- |  | --------------------------------------------------------------------------------------- |  | --
|PART
 I        |  | FINANCIAL
 INFORMATION                                                                  |  |   
|               |  |                                                                                         |  |   
|Item 1.        |  | Financial
 Statements                                                                   |  |   
|               |  |                                                                                         |  |   
|               |  | Balance Sheets at June 30, 2008 (unaudited) and December 31,
 2007                      |  | 2 
|               |  |                                                                                         |  |   
|               |  | Statements of Operations (unaudited) for the three months
 ended June 30, 2008 and 2007 |  | 3 
|               |  |                                                                                         |  |   
|               |  | Statements of Operations (unaudited) for the six months
 ended June 30, 2008 and 2007   |  | 4 
|               |  |                                                                                         |  |   
|               |  | Statements of Cash Flows (unaudited) for the six months
 ended June 30, 2008 and 2007   |  | 5 
|               |  |                                                                                         |  |   
|               |  | Notes to Interim Financial Statements (unaudited)                                       |  | 6 
|               |  |                                                                                         |  |   
|Item 2.        |  | Managements Discussion and Analysis of Financial Condition
 and Results of Operations  |  | 16
|               |  |                                                                                         |  |   
|Item 4.        |  | Controls and Procedures                                                                 |  | 21
|               |  |                                                                                         |  |   
|PART II        |  | OTHER INFORMATION                                                                       |  |   
|               |  |                                                                                         |  |   
|Item 1.        |  | Legal Proceedings                                                                       |  | 22
|               |  |                                                                                         |  |   
|Item 2.        |  | Changes in Securities and Use of Proceeds                                               |  | 22
|               |  |                                                                                         |  |   
|Item 3.        |  | Defaults Upon Senior Securities                                                         |  | 22
|               |  |                                                                                         |  |   
|Item 4.        |  | Submission of Matters to a Vote of Security Holders                                     |  | 22
|               |  |                                                                                         |  |   
|Item 5.        |  | Other Information                                                                       |  | 22
|               |  |                                                                                         |  |   
|Item 6.        |  | Exhibits and Reports on Form 8-K                                                        |  | 22
|               |  |                                                                                         |  |   
|SIGNATURES     |  | 23                                                                                     
|               |  |                                                                                         |  |   
|CERTIFICATIONS |  | 24                                                                                     

---



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

|                                                                                                                                                                     |  |             |             |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                                     |  | 2008        |             | 2007 |  
|                                                                                                                                                                     |  |             |             |      |  
|                                                                                                                                                                     |  | (Unaudited) |             |      |  
|ASSETS                                                                                                                                                              
|Current assets                                                                                                                                                       |  |             |             |      |   |             |  
|Cash and cash equivalents                                                                                                                                            |  | $           | 229,685     |      | $ | 161,680     |  
|Accounts receivable - trade, net of
 allowance for doubtful accounts of $2,000                                                                                       |  |             | 9,277       |      |   | 19,569      |  
|Prepaid expenses                                                                                                                                                     |  |             | 8,152       |      |   | 12,253      |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total current assets                                                                                                                                                 |  |             | 247,114     |      |   | 193,502     |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Property and equipment, net of accumulated
 depreciation of $328,923 and $484,263, respectively                                                                      |  |             | 64,672      |      |   | 88,049      |  
|Deposits                                                                                                                                                             |  |             | 26,404      |      |   | 5,852       |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total assets                                                                                                                                                         |  | $           | 338,190     |      | $ | 287,403     |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|LIABILITIES AND SHAREHOLDERS DEFICIT                                                                                                                               
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Current Liabilities                                                                                                                                                  |  |             |             |      |   |             |  
|Current portion of notes payable (including
 $1,576,794 and $696,500 to related parties, respectively), net of debt
 discount of $530,429 and $400,633, respectively |  | $           | 2,129,865   |      | $ | 856,867     |  
|Accounts payable - trade                                                                                                                                             |  |             | 146,509     |      |   | 213,175     |  
|Accrued payroll                                                                                                                                                      |  |             | 101,417     |      |   | 101,417     |  
|Accrued payroll taxes and penalties and
 interest - current                                                                                                          |  |             | 147,509     |      |   | 125,517     |  
|Deferred revenue                                                                                                                                                     |  |             | 10,386      |      |   |            |  
|Accrued interest, including $52,104 and
 $24,835 to related parties, respectively                                                                                    |  |             | 112,641     |      |   | 60,012      |  
|Other accrued liabilities                                                                                                                                            |  |             | 8,416       |      |   | 30,590      |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total current liabilities                                                                                                                                            |  |             | 2,656,743   |      |   | 1,387,578   |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Notes payable (including $0 and $323,000 to
 related parties, respectively), less current portion and net of debt discount
 of $0 and $264,382, respectively         |  |             |            |      |   | 186,118     |  
|Non-current accrued payroll taxes and
 penalties and interest                                                                                                        |  |             | 127,964     |      |   | 147,437     |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total liabilities                                                                                                                                                    |  |             | 2,784,707   |      |   | 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, 2,033,966 and 1,658,706 shares issued and outstanding,
 respectively                                 |  |             | 2,034       |      |   | 1,659       |  
|Additional paid-in capital                                                                                                                                           |  |             | 36,635,802  |      |   | 36,365,516  |  
|Accumulated deficit                                                                                                                                                  |  |             | (39,086,696 | )    |   | (37,804,116 | )
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total shareholders deficit                                                                                                                                          |  |             | (2,446,517  | )    |   | (1,433,730  | )
|                                                                                                                                                                     |  |             |             |      |   |             |  
|                                                                                                                                                                     |  |             |             |      |   |             |  
|Total liabilities and shareholders
deficit                                                                                                                          |  | $           | 338,190     |      | $ | 287,403     |  
|                                                                                                                                                                     |  |             |             |      |   |             |  

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

2

---



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

|                                                                                  |  |      |           |      |   |          |  
|--------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | -------- | -
|                                                                                  |  | 2008 |           | 2007 |  
|                                                                                  |  |      |           |      |  
|                                                                                  |  |      |           |      |   |          |  
|Revenues                                                                          |  | $    | 39,064    |      | $ | 34,041   |  
|                                                                                  |  |      |           |      |   |          |  
|Operating expenses                                                                |  |      |           |      |   |          |  
|Cost of revenues                                                                  |  |      | 30,621    |      |   | 24,236   |  
|Selling, general and administrative                                               |  |      | 356,800   |      |   | 316,197  |  
|Loss on early extinguishment of debt                                              |  |      |          |      |   | 381,358  |  
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Operating loss                                                                    |  |      | (348,357  | )    |   | (687,750 | )
|                                                                                  |  |      |           |      |   |          |  
|Other income (expense)                                                            |  |      |           |      |   |          |  
|Other income                                                                      |  |      | 244       |      |   |         |  
|Interest expense (including $21,632 and
 $6,748 to related parties, respectively) |  |      | (257,017  | )    |   | (102,438 | )
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Net loss                                                                          |  | $    | (605,130  | )    | $ | (790,188 | )
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Amortization of deemed dividend upon
 issuance of convertible preferred stock     |  |      |          |      |   | (56,154  | )
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Net loss attributable to common
 shareholders                                     |  | $    | (605,130  | )    | $ | (846,342 | )
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Net loss per common share - basic and
 diluted                                    |  | $    | (0.31     | )    | $ | (0.92    | )
|                                                                                  |  |      |           |      |   |          |  
|                                                                                  |  |      |           |      |   |          |  
|Weighted average number of common shares
 outstanding - basic and diluted         |  |      | 1,929,470 |      |   | 922,164  |  
|                                                                                  |  |      |           |      |   |          |  

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

3

---



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

|                                                                                   |  |      |            |      |   |            |  
|---------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                   |  | 2008 |            | 2007 |  
|                                                                                   |  |      |            |      |  
|                                                                                  
|Revenues                                                                           |  | $    | 75,819     |      | $ | 68,882     |  
|                                                                                   |  |      |            |      |   |            |  
|Operating expenses                                                                 |  |      |            |      |   |            |  
|Cost of revenues                                                                   |  |      | 55,210     |      |   | 51,629     |  
|Selling, general and administrative                                                |  |      | 844,431    |      |   | 550,283    |  
|Loss on early extinguishment of debt                                               |  |      |           |      |   | 381,358    |  
|                                                                                   |  |      |            |      |   |            |  
|                                                                                   |  |      |            |      |   |            |  
|Operating loss                                                                     |  |      | (823,822   | )    |   | (914,388   | )
|                                                                                   |  |      |            |      |   |            |  
|Other income (expense)                                                             |  |      |            |      |   |            |  
|Other income                                                                       |  |      | 405        |      |   | 1,621      |  
|Interest expense (including $38,248 and
 $10,108 to related parties, respectively) |  |      | (459,163   | )    |   | (163,561   | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                  
|Net loss                                                                           |  | $    | (1,282,580 | )    | $ | (1,076,328 | )
|                                                                                   |  |      |            |      |   |            |  
|Amortization of deemed dividend upon
 issuance of convertible preferred stock      |  |      |           |      |   | (393,080   | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                  
|Net loss attributable to common
 shareholders                                      |  | $    | (1,282,580 | )    | $ | (1,469,408 | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                  
|Net loss per common share - basic and
 diluted                                     |  | $    | (0.70      | )    | $ | (2.86      | )
|                                                                                   |  |      |            |      |   |            |  
|                                                                                  
|Weighted average number of common shares
 outstanding - basic and diluted          |  |      | 1,820,330  |      |   | 514,109    |  
|                                                                                   |  |      |            |      |   |            |  

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

4

---



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

|                                                                                         |  |      |            |      |   |            |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                                                                         |  | 2008 |            | 2007 |  
|                                                                                         |  |      |            |      |  
|                                                                                        
|Cash flows
 from operating activities                                                    |  |      |            |      |   |            |  
|Net loss                                                                                 |  | $    | (1,282,580 | )    | $ | (1,076,328 | )
|Adjustments to reconcile net loss to net cash used in operating activities:              |  |      |            |      |   |            |  
|Depreciation and amortization                                                            |  |      | 30,363     |      |   | 13,659     |  
|Bad debt expense                                                                         |  |      | 442        |      |   | 2,524      |  
|Common stock issued for services                                                         |  |      |           |      |   | 45,000     |  
|Stock compensation expense                                                               |  |      | 12,356     |      |   |           |  
|Loss on early extinguishment of debt                                                     |  |      |           |      |   | 381,358    |  
|Amortization of debt discount                                                            |  |      | 390,056    |      |   | 129,175    |  
|Increases and decreases in working capital
 accounts:                                    |  |      |            |      |   |            |  
|Accounts receivable - trade                                                              |  |      | 9,851      |      |   | (9,388     | )
|Prepaid expenses                                                                         |  |      | 4,101      |      |   | 1,245      |  
|Deposits                                                                                 |  |      | (20,552    | )    |   |           |  
|Deferred revenue                                                                         |  |      | 10,386     |      |   |           |  
|Accounts payable - trade                                                                 |  |      | (66,666    | )    |   | (49,263    | )
|Accrued liabilities                                                                      |  |      | 34,941     |      |   | (29,575    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows used in operating activities                                                  |  |      | (877,302   | )    |   | (591,593   | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows
 from investing activities                                                    |  |      |            |      |   |            |  
|Capital expenditures                                                                     |  |      | (6,987     | )    |   |           |  
|Capitalized software development costs                                                   |  |      |           |      |   | (31,250    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows used in investing activities                                                  |  |      | (6,987     | )    |   | (31,250    | )
|                                                                                         |  |      |            |      |   |            |  
|Cash flows
 from financing activities                                                    |  |      |            |      |   |            |  
|Payment of notes payable                                                                 |  |      | (50,000    | )    |   |           |  
|Proceeds from notes payable                                                              |  |      | 1,002,294  |      |   | 729,501    |  
|                                                                                         |  |      |            |      |   |            |  
|Cash flows provided by financing activities                                              |  |      | 952,294    |      |   | 729,501    |  
|                                                                                         |  |      |            |      |   |            |  
|Net increase
 in cash and cash equivalents                                               |  |      | 68,005     |      |   | 106,658    |  
|                                                                                         |  |      |            |      |   |            |  
|Cash and
 cash equivalents, beginning of period                                          |  |      | 161,680    |      |   | 130,150    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                        
|Cash and
 cash equivalents, end of period                                                |  | $    | 229,685    |      | $ | 236,808    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|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 |  | $    | 257,437    |      | $ | 196,942    |  
|                                                                                         |  |      |            |      |   |            |  
|                                                                                         |  |      |            |      |   |            |  
|Conversion of notes payable and accrued
 interest into common stock                      |  | $    |           |      | $ | 244,018    |  
|                                                                                         |  |      |            |      |   |            |  

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

5

---



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 ande-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 ande-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 six months ended
June 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.

6

---



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 $1,282,580 for the six
months ended June 30, 2008. The Company has accumulated losses through June 30,
2008 of $39,086,696 (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 June 30, 2008 aggregated $877,302.
Total liabilities at June 30, 2008 of $2,784,707 significantly exceed total
assets of $338,190. 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.

7

---



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 setup 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 June 30, 2008, capitalized software development costs totaled
$235,750, less accumulated amortization of $197,396. No software development
costs were incurred or capitalized during the three and six month periods ended
June 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
six months ended June 30, 2008 and 2007 was $30,363 and $13,659, 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.

8

---



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.

The 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 June 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 second quarter of 2008.

The 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 June 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 six
months ended June 30, 2008.

For the six months ended
June 30, 2008 and 2007, the compensation expense associated with stock options
was $12,356 and $0, respectively. The impact on the Companys results of
operations of recording stock-based compensation for the three and six months
ended June 30, 2008 was as follows:

|                                                                         |  |                                 |        |                                   |   |   | 
|------------------------------------------------------------------------ |  | ------------------------------- | ------ | --------------------------------- | - | - | 
|                                                                         |  | Six Months Ended
 June 30, 2008 |        | Three Months Ended
 June 30, 2008 |  
|                                                                         |  |                                 |        |                                   |  
|Selling, general and administrative                                      |  | $                               | 12,356 |                                   | $ |  | 
|                                                                         |  |                                 |        |                                   |   |   | 
|Impact on net loss to common
 shareholders                               |  | $                               | 12,356 |                                   | $ |  | 
|                                                                         |  |                                 |        |                                   |   |   | 
|Impact on net loss per share to
 common shareholders (basic and diluted) |  | $                               | .01    |                                   | $ |  | 
|                                                                         |  |                                 |        |                                   |   |   | 

9

---



STOCK-BASED COMPENSATION (Continued)

The following
tables summarize the activity under both stock option plans for the six months
ended June 30, 2008:

|                                              |  |                                 |         |                                   |   |                                                |  |                            |       |  |   |   | 
|--------------------------------------------- |  | ------------------------------- | ------- | --------------------------------- | - | ---------------------------------------------- |  | -------------------------- | ----- |  | - | - | 
|                                              |  | 2007 Stock Option Plan          |        
|                                              |  |                                 |        
|                                              |  | Six Months Ended June
 30, 2008 |        
|                                              |  |                                 |        
|                                              |  | Shares                          |         | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic Value |      
|                                              |  |                                 |         |                                   |   |                                                |  |                            |      
|Outstanding
 at January 1, 2008               |  |                                 | 411,667 |                                   | $ | 0.80                                           |  | 9.08                       | years |  |   |   | 
|                                              |  |                                 |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Granted                                       |  |                                 | 10,000  |                                   | $ | 1.25                                           |  | 9.58                       | years |  |   |   | 
|Exercised                                     |  |                                 |        |                                   | $ |                                               |  |                           | years |  |   |   | 
|                                              |  |                                 |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Cancelled                                     |  |                                 | (833    | )                                 | $ |                                               |  |                           | years |  |   |   | 
|Forfeitures                                   |  |                                 |        |                                   | $ |                                               |  |                           | years |  |   |   | 
|                                              |  |                                 |         |                                   |   |                                                |  |                            |       |  |   |   | 
|Outstanding
 at June 30, 2008                 |  |                                 | 420,834 |                                   | $ | 0.81                                           |  | 9.10                       | years |  | $ |  | 
|                                              |  |                                 |         |                                   |   |                                                |  |                            |       |  |   |   | 
|                                             
|Vested
 and expected to vest at June 30, 2008 |  |                                 | 420,834 |                                   | $ | 0.81                                           |  | 9.10                       | years |  | $ |  | 
|Options
 exercisable at June 30, 2008         |  |                                 | 420,834 |                                   | $ | 0.81                                           |  | 9.10                       | years |  | $ |  | 

|                                              |  |                                 |       |                                   |   |                                                 |  |                             |       |  |   |   | 
|--------------------------------------------- |  | ------------------------------- | ----- | --------------------------------- | - | ----------------------------------------------- |  | --------------------------- | ----- |  | - | - | 
|                                              |  | 2004 Stock Option
 Plan         |      
|                                              |  |                                 |      
|                                              |  | Six Months Ended June
 30, 2008 |      
|                                              |  |                                 |      
|                                              |  | Shares                          |       | Weighted
 Average
 Exercise Price |   | Weighted 
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic
 Value |      
|                                              |  |                                 |       |                                   |   |                                                 |  |                             |      
|Outstanding
 at January 1, 2008               |  |                                 | 1,250 |                                   | $ | 200.00                                          |  | 6.42                        | years |  |   |   | 
|Granted                                       |  |                                 |      |                                   |   |                                                 |  |                             |       |  |   |   | 
|Exercised                                     |  |                                 |      |                                   |   |                                                 |  |                             |       |  |   |   | 
|Cancelled                                     |  |                                 |      |                                   |   |                                                 |  |                             |       |  |   |   | 
|                                              |  |                                 |       |                                   |   |                                                 |  |                             |       |  |   |   | 
|Outstanding
 at June 30, 2008                 |  |                                 | 1,250 |                                   | $ | 200.00                                          |  | 6.42                        | years |  | $ |  | 
|                                              |  |                                 |       |                                   |   |                                                 |  |                             |       |  |   |   | 
|Vested
 and expected to vest at June 30, 2008 |  |                                 | 1,250 |                                   | $ | 200.00                                          |  | 6.42                        | years |  | $ |  | 
|Options
 exercisable at June 30, 2008         |  |                                 | 1,250 |                                   | $ | 200.00                                          |  | 6.42                        | years |  | $ |  | 

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

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.

10

---



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 six month periods ended June 30, 2008 and 2007 totaling
958,936 and 543,297, respectively, have been excluded from the computation
since such inclusion would have an anti-dilutive effect.

11

---



NOTE 3. NOTES PAYABLE

Notes payable
at June 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%, (9.5% after default) Note is in default as of May 1, 2005, unsecured                                         |  |            | 63,500    |           |   |           |  |           | 63,500    |   |   |         |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal and interest due December 4, 2008,
  unsecured                               |  |            | 60,000    |           |   |           |  |           | 60,000    |   |   |         |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal and interest due December 6, 2008,
  unsecured                               |  |            | 15,000    |           |   |           |  |           | 15,000    |   |   |         |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal and interest due December 18, 2008, unsecured                                              |  |            | 50,000    |           |   |           |  |           | 50,000    |   |   |         |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal and interest due December 18, 2008,
  unsecured                              |  |            | 12,500    |           |   |           |  |           | 12,500    |   |   |         |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal and interest due December 27, 2008, unsecured                                              |  |            | 50,000    |           |   |           |  |           | 50,000    |   |   |         |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal and interest due January 18, 2009, unsecured                                               |  |            | 50,000    |           |   |           |  |           |          |   |   | 50,000   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal and interest due January 18, 2009,
  unsecured                               |  |            | 12,500    |           |   |           |  |           |          |   |   | 12,500   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due February 7, 2009, interest
  payable semi-annually, unsecured            |  |            | 83,500    |           |   |           |  |           |          |   |   | 83,500   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due February 12, 2009, interest
  payable semi-annually, unsecured           |  |            | 83,500    |           |   |           |  |           |          |   |   | 83,500   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due February 15, 2009, interest
  payable semi-annually, unsecured           |  |            | 83,500    |           |   |           |  |           |          |   |   | 83,500   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due April 17, 2009, interest payable
  semi-annually, unsecured              |  |            | 25,000    |           |   |           |  |           |          |   |   | 25,000   |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal due April 17, 2009, interest payable semi-annually,
  unsecured                            |  |            | 7,500     |           |   |           |  |           |          |   |   | 7,500    |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal due April 19, 2009, interest payable semi-annually,
  unsecured                            |  |            | 25,000    |           |   |           |  |           |          |   |   | 25,000   |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal due April 26, 2009, interest payable semi-annually,
  unsecured                            |  |            | 25,000    |           |   |           |  |           |          |   |   | 25,000   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due May 9, 2009, interest payable
  semi-annually, unsecured                 |  |            | 15,000    |           |   |           |  |           |          |   |   | 15,000   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due May 9, 2009, interest payable
  semi-annually, unsecured                 |  |            | 10,000    |           |   |           |  |           |          |   |   | 10,000   |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal due May 9, 2009, interest payable semi-annually,
  unsecured                               |  |            | 10,000    |           |   |           |  |           |          |   |   | 10,000   |  
|                                                                                                                                                             
|Convertible bridge note payable bearing
  interest at 6% Principal due May 9, 2009, interest payable semi-annually,
  unsecured                               |  |            | 10,000    |           |   |           |  |           |          |   |   | 10,000   |  
|                                                                                                                                                             
|Related party convertible bridge note
  payable bearing interest at 6% Principal due May 11, 2009, interest payable
  semi-annually, unsecured                |  |            | 10,000    |           |   |           |  |           |          |   |   | 10,000   |  
|                                                                                                                                                             
|Related party note payable bearing interest
  at 6% Principal and interest due May 30, 2008, unsecured                                                        |  |            |          |           |   |           |  |           | 50,000    |   |   |         |  
|                                                                                                                                                             
|Related party note payable bearing interest
  at 6% Principal and interest due December 03, 2008, unsecured                                                   |  |            | 75,000    |           |   |           |  |           |          |   |   |         |  
|                                                                                                                                                             
|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 |  |            | 1,883,794 |           |   |           |  |           | 956,500   |   |   |         |  
|                                                                                                                                                              |  |            |           |           |   |            |  |           |           |   |   |          |  
|                                                                                                                                                              |  | $          | 2,660,294 |           | $ |           |  |           | 1,257,500 |   | $ | 450,500  |  
|Less: unamortized debt discount                                                                                                                               |  |            | (530,429  | )         |   |           |  |           | (400,633  | ) |   | (264,382 | )
|                                                                                                                                                              |  |            |           |           |   |            |  |           |           |   |   |          |  
|Total notes payable                                                                                                                                           |  | $          | 2,129,865 |           | $ |           |  |           | 856,867   |   | $ | 186,118  |  
|                                                                                                                                                              |  |            |           |           |   |            |  |           |           |   |   |          |  

12

---



NOTE 3. NOTES PAYABLE (Continued)

Bridge Financing Summary  June 2007 through June 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 753,518 shares have been issued as of June 30, 2008.

From January
1, 2008 through June 30, 2008 the Company received a total of $927,294 in gross
proceeds from the Financing and Extension. In addition, the Company issued
370,918 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 $1,292,368. 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 $257,437 of the $927,294 in proceeds to the shares of common
stock issued and the remaining $669,857 to the notes payable. The debt discount
amount of $257,437 is being amortized as a component of interest expense over
the life of the notes, ranging from six to twelve months.

As of June 30,
2008, the Company has received a total of $1,883,794 in gross proceeds from
issuance of notes payable in the Financing and the Extension. In addition, the
Company has issued 753,518 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 $3,254,068. 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 $674,520 of the
$1,883,794 in proceeds to the shares of common stock issued and the remaining
$1,209,274 to the notes payable. The debt discount amount of $674,520 is being
amortized as a component of interest expense over the life of the notes,
ranging from six to eighteen months.

Bridge Financing Summary  January 2007 through May 2007

At June 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) is being amortized as a component of interest expense over the life of
the notes (twenty-four months).

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 its Bridge IV Financing
notes payable that require semi-annual interest payments.

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

13

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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 six
months ended June 30, 2008, in conjunction with $927,294 in gross proceeds from
issuance of notes payable, the Company issued 370,918 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 June 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 June 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.

NOTE 5. ACCRUED PAYROLL TAXES

At June 30,
2008, the Company owes $164,675 in accrued payroll taxes and $110,798 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  |  | $       | 86,795  |             | $ | 77,880  |  | $ | 164,675 | 
|Penalties and Interest |  |         | 60,714  |             |   | 50,084  |  |   | 110,798 | 
|                       |  |         |         |             |   |         |  |   |         | 
|Total                  |  | $       | 147,509 |             | $ | 127,964 |  | $ | 275,473 | 
|                       |  |         |         |             |   |         |  |   |         | 

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 to pay a majority of the delinquent payroll taxes and related interest and
penalties totaling $162,366 at June 30, 2008. The Company will make monthly
payments of $5,000 over the course of the five year plan.

14

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NOTE 5. ACCRUED PAYROLL TAXES (Continued)

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. The installment agreement commenced on March 1, 2007 and the Company
remains current on all payments required under the agreement.

As of the date
of this filing, the Company continues to make attempts to contact the
appropriate IRS representative to resolve the above matters. In the event of
termination of its previously approved installment agreement by the IRS the
company intends to file an automatic request for appeal, an appeal for which
the Company has a legal right to request within 30 days from the date the
agreement is terminated. At June 30, 2008 the Company has accrued approximately
$31,000 in additional penalties and interest related to these assessments.

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

Subsequent to
June 30, 2008 and through August 1, 2008, the Company received an additional
$81,206 in gross proceeds from the issuance of notes payable. The Company also
issued 32,482 shares of common stock to the participating investors.

On July 2,
2008 the Board of Directors of the Company approved the SecureCare
Technologies, Inc. 2008 Stock Option Plan. Upon approval of the plan not more
than an aggregate of 500,000 shares were reserved to be available for issuance
pursuant to grants of stock options under the 2008 Stock Option Plan. A total
of 480,000 stock options were granted under the plan on July 29, 2008,
including 310,000 options granted to the board members, which vested
immediately, and 170,000 options granted to management and employees, which
will vest over a two year period. These options were all granted at an
exercise price of $0.75 per share, in accordance with the terms of the 2008
Stock Option Plan.

15

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ITEM 2. MANGEMENT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.

16

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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.

17

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RESULTS OF OPERATIONS

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

Revenues for
the three months ended June 30, 2008 were $39,064 compared to $34,041 for the
three months ended June 30, 2007. This 15% 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. 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 $30,621 for the three months ended June 30, 2008 compared to $24,236 for
the three months ended June 30, 2007. This 26% increase is primarily
attributable to higher depreciation expense related to the capitalization of
the Sfax-related assets put into service during 2007.

Selling,
general and administrative expenses were $356,800 for the three months ended
June 30, 2008 compared to $316,197 for the three months ended June 30, 2007.
This 13% increase in expenses was primarily attributable to increased salaries
and benefits and other employee-related expenses, including travel and
entertainment, of $67,661. Investor and public relations expenses increased
$19,000 in 2008, reflecting the Companys investments into these programs in
mid-2007. In 2008, marketing and marketing consulting increased $2,000
resulting from expenses incurred in association with the full-scale expansion
of its Sfax product with Digital signature and annotation features. In
addition, occupancy charges have increased $5,000 in relation to expenses
associated with the new office space. Other corporate selling, general and
administrative expenses increased $7,300 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. In addition, corporate legal
expenses were $15,400 lower in 2008.

Interest
expense for the three months ended June 30, 2008 was $257,017 compared to
$102,438 for the same period in 2007. Higher debt discount amortization in 2008
of $136,954 resulted from the issuance of notes payable from December 2006
through June 2008. This issuance of notes payable resulted in a higher debt
load, contributing to an increase of $19,218 in interest expense.

Six months ended June 30, 2008 compared to six months ended June 30,
2007:

Revenues for
the six months ended June 30, 2008 were $75,819 compared to $68,882 for the six
months ended June 30, 2007. This 10% 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. 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.

18

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RESULTS OF OPERATIONS (Continued)

Costs of
revenues were $55,210 for the six months ended June 30, 2008 compared to
$51,629 for the six months ended June 30, 2007. This 7% increase is primarily
attributable to higher depreciation expense related to the capitalization of
the Sfax-related assets put into service during 2007.

Selling,
general and administrative expenses were $844,431 for the six months ended June
30, 2008 compared to $550,283 for the six months ended June 30, 2007. This 54%
increase in expenses was primarily attributable to increased salaries and
benefits and other employee-related expenses, including travel and
entertainment, of $215,760, and higher stock compensation expense of $12,356.
Investor and public relations expenses increased $40,000 in 2008, reflecting
the Companys investments into these programs in mid-2007. In 2008, marketing
and marketing consulting increased $19,000 resulting from expenses incurred in
association with the full-scale expansion of its Sfax product with Digital
signature and annotation features. Occupancy charges increased $25,000 in
relation to expenses resulting from the new office space and property tax.
Professional fees, including SOX compliance consulting services and audit fees
increased $23,000 in 2008, and Director and Officer insurance expense increased
$14,000 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. In addition, corporate legal expenses were $8,000 lower in
2008.

Interest
expense for the six months ended June 30, 2008 was $459,163 compared to
$163,561 for the same period in 2007. Higher debt discount amortization in 2008
of $262,849 resulted from the issuance of notes payable from December 2006
through June 2008. This issuance of notes payable resulted in a higher debt
load, contributing to an increase of $36,052 in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows
used in operating activities for the six month period ended June 30, 2008
totaled $877,302. Net cash flows used in operating activities for the six month
period ended June 30, 2007 was $591,593. 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
$215,760. Investor and public relations expenses increased $40,000 in 2008
reflecting the Companys investments into these programs in mid-2007 and
marketing and marketing consulting expenses increased $19,000 resulting from
expenses incurred in association with the full-scale expansion of its Sfax
product with Digital signature and annotation features.

Cash flows
used in investing activities totaled $6,987 for the six months ended June 30,
2008 and consisted entirely of capitalized expenditures. Cash flows used in
investing activities totaled $31,250 for the six months ended June 30, 2007 and
consisted entirely of capitalized software development costs.

Net cash flow
provided by financing activities was $952,294 for the six months ended June 30,
2008 and consisted entirely of the issuance of notes payable totaling
$1,002,294 partially offset by repayment of a note payable totaling $50,000.
Cash flow provided by financing activities was $729,501 for the six months
ended June 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 for the six months ended June 30, 2008 were prepared on the
assumption that the Company will continue as a going concern. The Company
sustained a net loss of $1,282,580 for the six months ended June 30, 2008. The
Company has accumulated losses through June 30, 2008 of $39,086,696 (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 six month period ended June 30, 2008 totaled $877,302. Total liabilities at
June 30, 2008 of $2,784,707 significantly exceed total assets of $338,190. 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.

19

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From January
1, 2008 through June 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 June 30, 2008, the Company paid interest of $9,315 to related
parties on the portion of its Bridge IV Financing notes payable that require
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 June 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. 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 June 30,
2008, the Company has outstanding a $75,000 six month 6% unsecured note payable
to a related party.

At June 30,
2008, the Company has $52,104 in accrued interest on the notes payable to
related parties.

20

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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 June 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.

21

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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

4.1 Form of 6%
Promissory Note, initially due December 31, 2008 issued in the Financing
Extension

4.2 The Financing
Extension Form of Subscription Agreement

10.1
SecureCare Technologies, Inc. Year 2008 Stock Option Plan

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

On April 4,
2008, the Company filed a Form 8-K dated April 2, 2008 reporting under item
5.02 (Departure of Directors or Certain Officers; Election of Directors;
Appointment of Certain Officers; Compensatory Arrangements of Certain Officers)
that it had appointed two new members to its Board of Directors, Mr. Joseph
Larter and Mr. Tom Linhard. In
addition, the Company reported that Mr. Allen Stamy had retired from the Board
of Directors.

22

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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: August 11, 2008

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