U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                  FORM 10-QSB/A
                                 Amendment No.1


[X]    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
       of 1934 For the quarterly period ended June 30, 2004

[ ]    Transition report under Section 13 or 15(d) of the Securities Exchange
       Act of 1934 For the transition period from _________ to ________



                                 SURGICARE, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)



             DELAWARE                                    58-1597246
  (STATE OR OTHER JURISDICTION OF                     (I.R.S. EMPLOYER
   INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)



 10700 RICHMOND AVE., SUITE 300, HOUSTON, TEXAS             77042
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)               (ZIP CODE)



ISSUER'S TELEPHONE NUMBER:   (713) 973-6675



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

Yes [X]        No [ ]



As of August 10, 2004, 28,948,685 shares of Common Stock, $0.005 par value per
share, were outstanding.





<PAGE>


INTRODUCTORY NOTE: SurgiCare, Inc. ("the Company") is filing this Amendment
No. 1 to Form 10-QSB to restate our financial statements originally included in
our Form 10-QSB as of and for the period ended June 30, 2004, which was
originally filed with the Securities and Exchange Commission on August 16, 2004
("the Original Filing").

The amount of impairment expense on the Company's investment in land was
increased $658,536 to $2,046,124 for the three and six months ended June 30,
2004 from $1,387,588 in the Original Filing in order to reflect the fair market
value of the land. As a result, the Company's net loss for the three months
ended June 30, 2004 changed to $3,480,567, or $0.12 per share from $2,822,031,
or $0.10 per share in the Original Filing. The Company's net loss for the six
months ended June 30, 2004 changed to $5,227,817, or $0.18 per share from
$4,569,281, or $0.16 per share in the Original Filing. Corresponding adjustments
were made to the Company's balance sheet, statement of operations and statement
of cash flows as of that date. In addition, corresponding changes related to the
above have been made in Item 2, Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Except as described in the preceeding paragraph, no other changes have been
made to the Original Filing and other than Item 1 and Item 2, this amendment
does not otherwise update information in the Original Filing. Pursuant to Rule
12b-15, currently dated certifications of the Chief Exceutive Officer and Chief
Financial Officer are provided.


PART I
                              FINANCIAL INFORMATION


ITEM 1.  Financial Statements.
------------------------------

The information required hereunder is included in this report as set forth in
the "Index to Financial Statements"


                          INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003

Consolidated Statements of Operations for the three months ending June 30, 2004
and 2003

Consolidated Statements of Operations for the six months ending June 30, 2004
and 2003

Consolidated Statements of Cash Flows for the six months ending June 30, 2004
and 2003

Notes to Consolidated Financial Statements






                                       2
<PAGE>

                                 SURGICARE, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                   June 30,        December 31,
                                                2004 - restated        2003
                                                --------------    --------------
                     ASSETS                      (unaudited)
Current Assets
     Cash and cash equivalents                 $      280,001    $      141,553
     Accounts Receivable:
        Trade (less allowance for contractual
         adjustments and doubtful accounts of
         $3,115,867 and $3,768,846 at June 30,
         2004 and December 31, 2003,
         respectively)                                868,285         1,309,682
         Other receivables                             25,161            59,909
     Income tax receivables                                             159,846
     Inventory                                        341,957           338,470
     Prepaid expenses                                 133,373           133,293
     Other current assets                              61,375            23,027
                                                --------------    --------------
           Total Current Assets                     1,710,152         2,165,780

Property and Equipment
     Office furniture and equipment                   399,912           399,912
     Medical and surgical equipment                 4,802,979         3,748,559
     Leasehold improvements                         1,184,890           946,890
     Computer equipment                               384,910           382,263
     Transportation equipment                          19,015            19,015
                                                --------------    --------------
                                                    6,791,706         5,496,639
     Less: Accumulated depreciation and
      amortization                                  3,613,004         3,237,657
                                                --------------    --------------

           Total Property and Equipment             3,178,702         2,258,982

Goodwill                                            8,110,235         8,105,735
Real Estate                                         1,953,876         4,000,000
Investment in Limited Partnerships                    387,609           381,434
Prepaid Limited Partner Distributions                 440,423           440,423
Loan fees (net of amortization of $217,471 at
 June 30, 2004 and $198,249 at December 31,
 2003)                                                 84,566           103,788
                                                --------------    --------------
           TOTAL ASSETS                        $   15,865,563    $   17,456,142
                                                ==============    ==============



                                       3
<PAGE>

                                 SURGICARE, INC.
                     CONSOLIDATED BALANCE SHEETS (continued)

                                                   June 30,        December 31,
                                                2004 - restated        2003
                                                --------------    --------------
                     LIABILITIES                 (unaudited)
Current Liabilities
     Accounts payable                          $    3,378,588    $    2,864,199
     Accrued expenses                               2,139,011         1,274,340
     Line of credit                                 1,402,588         1,331,475
     Current maturities of long-term debt           8,083,173         6,928,542
     Current portion of capital leases                359,587           265,251

                                                --------------    --------------
           Total Current Liabilities               15,362,947        12,663,807

Long-Term Capital Lease Obligations                   545,057           103,341
                                                --------------    --------------
           Total Liabilities                       15,908,004        12,767,148



             SHAREHOLDERS' EQUITY
Preferred Stock, Series A, par value  $.001,
 1,650,000 authorized, 1,137,700 issued and
 outstanding at December 31, 2003 (Redemption
 and liquidation value $5,688,500).                                       1,138
Preferred Stock, Series AA, par value $.001,
 1,200,000 shares authorized, 900,000 issued
 and outstanding at June 30, 2004 and December
 31, 2003                                                 900               900

Common Stock, par value $.005, 50,000,000
 shares authorized; 28,948,685 issued and
 28,857,285 outstanding at June 30, 2004;
 27,082,843 issued and 26,991,143 outstanding
 at December 31, 2003.                                144,743           135,414
Additional Paid-In Capital                         17,604,714        17,116,523

Retained Earnings                                 (17,746,230)      (12,518,413)
Less: Treasury Stock-at cost, 91,400 at June
 30, 2004 and December 31, 2003.                      (38,318)          (38,318)
     Shareholders receivable                           (8,250)           (8,250)
                                                --------------    --------------
           Total Shareholders' Equity                 (42,441)        4,688,994
                                                --------------    --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY     $   15,865,563    $   17,456,142
                                                ==============    ==============



                 See notes to consolidated financial statements.



                                       4
<PAGE>

                                 SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                   For the Three Months Ending
                                                            June 30,
                                                --------------------------------
                                               2004 - restated         2003
                                                --------------    --------------
Revenues, net                                  $    1,652,960    $    1,939,008

Direct Cost of Revenues:
     Surgical costs                                   391,919           399,109
     Clinical salaries & benefits                     469,601           455,739
     Other                                            223,170           213,783
                                                --------------    --------------
           Total Direct Surgical Expenses           1,084,690         1,068,631

General and Administrative Expenses:
     Salaries and benefits                            365,491           383,975
     Rent                                             226,514           235,062
     Depreciation and amortization                    188,986           225,085
     Professional fees                                406,885           299,487
     Provision for doubtful accounts                   60,161           291,530
     Other                                            301,639           333,102
                                                --------------    --------------
           Total General & Administrative
            Expenses                                1,549,676         1,768,241

Other Operating Expenses (Income):
     Gain on sale of partnership interest                              (319,086)
     Impairment on investment in land               2,046,124
                                                --------------    --------------
           Total Other Operating Expenses
            (Income)                                2,046,124          (319,086)
                                                --------------    --------------
                 Total Operating Expenses           4,680,490         2,517,786
                                                --------------    --------------
     Operating Loss                                (3,027,530)         (578,778)
                                                --------------    --------------
Other Income (Expense):
     Miscellaneous income                                  28             8,250
     Equity in Earnings of Limited Partnerships        18,451            80,297
     Interest Expense                                (471,516)         (468,906)
                                                --------------    --------------
     Total Other Income (Expense)                    (453,037)         (380,359)

Loss Before Minority Interest and Federal
 Income Tax Benefit                                (3,480,567)         (959,137)
                                                --------------    --------------
Minority Interest in Losses of Partnerships                              49,984
                                                --------------    --------------
Loss Before Income Tax Expenses                    (3,480,567)         (909,153)
Federal Income Tax Benefit
                                                --------------    --------------
Net Loss                                       $   (3,480,567)   $     (909,153)
                                                ==============    ==============
Loss per share - Basic                         $         (.12)   $         (.04)
                                                ==============    ==============
Loss per share - Diluted                       $         (.12)   $         (.04)
                                                ==============    ==============

Weighted Average Shares Outstanding:
  Basic                                            28,794,399        24,877,900
                                                ==============    ==============
  Diluted                                          28,794,399        24,877,900
                                                ==============    ==============



                 See notes to consolidated financial statements.



                                       5
<PAGE>

                                SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                   For the Six Months Ending
                                                            June 30,
                                                --------------------------------
                                               2004 - restated          2003
                                                --------------    --------------
Revenues, net                                  $    3,343,484    $    4,219,129

Direct Cost of Revenues:
     Surgical costs                                   792,745           871,686
     Clinical salaries & benefits                     950,837           927,167
     Other                                            418,060           506,108
                                                --------------    --------------
           Total Direct Surgical Expenses           2,161,642         2,304,961

General and Administrative Expenses:
     Salaries and benefits                            751,156           770,371
     Rent                                             453,028           468,105
     Depreciation and amortization                    375,348           444,103
     Professional fees                                940,983           514,584
     Provision for doubtful accounts                  116,488           300,692
     Other                                            643,173           667,590
                                                --------------    --------------
           Total General & Administrative
            Expenses                                3,280,176         3,165,445

Other Operating Expenses (Income):
     Gain on sale of partnership interest                              (319,086)
     Loss on sale of assets                                                 168
     Impairment on investment in land               2,046,124
     Forgiveness of debt                              (58,625)
                                                --------------    --------------
           Total Other Operating Income
            (Expense)                               1,987,499          (318,918)
                                                --------------    --------------
                 Total Operating Expenses           7,429,317         5,151,488
                                                --------------    --------------

     Operating Loss                                (4,085,833)         (932,359)

Other Income (Expense):
     Miscellaneous income                               2,549            20,219
     Equity in Earnings of Limited Partnerships        20,586           167,939
     Interest Expense                              (1,165,119)         (909,018)
                                                --------------    --------------
     Total Other Income (Expense)                  (1,141,984)         (720,860)
                                                --------------    --------------
Loss Before Minority Interest and Federal
 Income Tax Benefit                                (5,227,817)       (1,653,219)
                                                --------------    --------------
Minority Interest in Losses of Partnerships                              52,018
                                                --------------    --------------
Loss Before Income Tax Expenses                    (5,227,817)       (1,601,201)
Federal Income Tax Benefit                                              (13,561)
                                                --------------    --------------
Net Loss                                           (5,227,817)       (1,587,640)
                                                ==============    ==============
Loss per share - Basic                         $         (.18)   $         (.07)
                                                ==============    ==============
Loss per share - Diluted                       $         (.18)   $         (.07)
                                                ==============    ==============

Weighted Average Shares Outstanding:
  Basic                                            28,373,482        24,232,458
                                                ==============    ==============
  Diluted                                          28,373,482        24,232,458
                                                ==============    ==============



                 See notes to consolidated financial statements.



                                       6
<PAGE>

                                 SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (unaudited)

                                                   For the Six Months Ending
                                                            June 30,
                                                --------------------------------
                                              2004 - restated          2003
                                                --------------    --------------
Cash Flows From Operating Activities:
Net loss                                       $   (5,227,817)   $   (1,587,640)
Adjustments to reconcile net earnings to net
 cash provided by operations:
   Equity in earnings of limited partnerships         (20,586)         (167,939)
   Minority interest in loss of partnerships                            (52,018)
   Depreciation and amortization                      375,348           444,102
   Amortization of debt discount                       37,718            74,920
   Amortization of loan fees                           19,222
   Gain on sale of interest in limited
    partnership                                                        (319,086)
   Interest expense recognized on beneficial
    conversion features of convertible notes
    payable                                           206,693
   Provision for doubtful accounts                    116,488           300,692
   Impairment on investment in land                 2,046,124
   Forgiveness of debt                                (58,625)
   Change in:
       Accounts receivable                            359,657           186,050
       Inventory                                       (3,487)           31,289
       Prepaid expenses                                   (80)          (64,057)
       Other current assets                           (38,348)           23,250
       Federal income tax                             159,846
       Accounts payable                               846,168           274,311
       Accrued expenses                               864,671           296,041
                                                --------------    --------------

       Net Cash Used in Operating Activities         (317,008)         (560,085)

                                                --------------    --------------
Cash Flows From Investing Activities:
   Capital expenditures                              (695,068)          (25,795)
   Distributions from partnerships                     14,411
   Proceeds from sale of interest in limited
    partnership                                                         425,000
   Buyout of limited partners                          (4,500)
                                                --------------    --------------
       Net Cash Provided by (Used in)
        Investing Activities                         (685,157)          399,205
                                                --------------    --------------
Cash Flows From Financing Activities:
   Borrowings on lines of credit                      196,625         2,796,768
   Payments on lines of credit                       (125,512)       (3,146,527)
   Borrowings on debt                               1,325,411
   Payments on debt                                  (208,498)         (502,099)
   Principal payments on capital lease                (63,948)          (50,892)
   Proceeds from issuance of common stock                             1,069,897
   Proceeds from exercise of warrants                  16,535             1,375
   Purchase of treasury stock                                            (6,068)
                                                --------------    --------------
       Net Cash Provided by Financing
        Activities                                  1,140,613           162,454
                                                --------------    --------------
Net Increase in Cash and Cash Equivalents             138,448             1,574
Cash and Cash Equivalents - Beginning of
 Period                                               141,553           262,327
                                                --------------    --------------
Cash and Cash Equivalents - End of Period      $      280,001    $      263,901
                                                ==============    ==============



                                       7
<PAGE>

                                 SURGICARE, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                   (unaudited)

                                                   For the Six Months Ending
                                                            June 30,
                                                --------------------------------
                                              2004 - restated          2003
                                                --------------    --------------

Supplemental Cash Flow Information:
   Cash paid during the year for:
       Interest                                $       76,930    $      667,828

   Non-cash investing and financing
    activities:
       Issuance of common shares in payment
        of accounts payable                           273,154            70,000
       Equipment acquired under capital lease
        obligation                                    600,000








                 See notes to consolidated financial statements.



                                       8
<PAGE>

                                 SURGICARE, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                   (Unaudited)


Note 1 - General

     SurgiCare, Inc. ("SurgiCare", the "Company", "we", "us", or "our"), through
its wholly owned subsidiaries, owns a majority interest in limited partnerships
or corporations that operate three surgery centers. The Company also owns a
minority interest as general partner in a limited partnership that operates a
surgery center. The consolidated statements include the accounts of the Company
and its subsidiaries and its majority owned limited partnerships.

     These financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") for interim financial reporting and in
accordance with Securities and Exchange Commission ("SEC") Rule 310(b) of
Regulation S-B. In the opinion of management, the accompanying unaudited
consolidated financial statements include all adjustments consisting of only
normal recurring adjustments necessary for a fair presentation of the Company's
financial position and the results of operations and cash flows for the interim
periods presented. The results of operations for any interim period are not
necessarily indicative of results for the full year.

     The accompanying unaudited consolidated financial statements should be read
in conjunction with the financial statements and related notes included in
SurgiCare's 2003 Annual Report on Form 10-KSB.

     Restatement - These financial statements were restated in order to increase
the amount of impairment expense on the Company's investment in land by $658,536
to $2,046,124 for the three and six months ended June 30,2004 from $1,387,588 in
the Form 10-QSB filed with the Securities and Exchange Commission on August 16,
2004 ("Original Filing") in order to reflect the fair market value of the land.
As a result, the Company's net loss for the three months ended June 30, 2004
changed to $3,480,567, or $0.12 per share from $2,822,031, or $0.10 per share in
the Original Filing. The Company's net loss for the six months ended June 30,
2004 changed to $5,227,817, or $0.18 per share from $4,569,281, or $0.16 per
share in the Original Filing. Corresponding adjustments were mad to the
Company's balance sheet, statement of operations and statement of cash flows as
of that date.

Note 2 - Use of Estimates

     The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could vary
from those estimates.

     The determination of contractual allowances constitutes a significant
estimate. In determining the amount of contractual allowances, management
considers such factors as historical trends of billing and cash collections,
established fee schedules, accounts receivable agings and contractual
relationships with third-party payers. Contractual adjustments and accounts
deemed uncollectible are applied against the allowance account.


Note 3 - Revenue Recognition

     Surgical revenue is recognized on the date the procedures are performed,
and accounts receivable are recorded at that time. Such revenues are reported at
the estimated net realizable amounts from patients and third-party payers. If
such third-party payers were to change their reimbursement policies, the effect
on revenue could be significant. Earnings are charged with a provision for
contractual adjustments and doubtful accounts based on such factors as
historical trends of billing and cash collections, established fee schedules,
accounts receivable agings and contractual relationships with third-party
payers. Contractual allowances are estimated primarily using each surgery
center's collection experience. Contractual rates and fee schedules are also
helpful in this process. On a rolling average basis, the Company tracks
collections as a percentage of related billed charges. This percentage, which is
adjusted on a quarterly basis, has proved to be the best indicator of expected
net realizable amounts from patients and third-party payers. Contractual
adjustments and accounts deemed uncollectible are applied against the allowance
account. The Company is not aware of any material claims, disputes or unsettled
matters with third-party payers.



                                       9
<PAGE>

Management fees are based on a percentage of customers' collected revenues and
are recognized during the period which services were performed.


Note 4 - Goodwill

     Goodwill represents the excess of cost over the fair value of net assets of
companies acquired in business combinations accounted for using the purchase
method. Goodwill acquired in business combinations prior to June 30, 2001 had
been amortized using the straight-line method over an estimated useful life of
20 years. In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 142 requires that goodwill
no longer be amortized but instead be reviewed periodically for possible
impairment. The Company has adopted SFAS No. 142 effective January 1, 2002 and
is no longer amortizing goodwill.

     Under SFAS No. 142, goodwill is required to be tested annually and more
frequently if an event occurs which indicates the goodwill may be impaired. Upon
adoption of SFAS 142, as well as on December 31, 2003 and 2002, the Company
performed an impairment test of its goodwill and determined that no impairment
of the recorded goodwill existed.


Note 5 - Recent Accounting Pronouncements

     In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities," and subsequently revised the Interpretation in
December 2003 ("FIN 46R"). This Interpretation of Accounting Research Bulletin
No. 51, "Consolidated Financial Statements," addresses consolidation by business
enterprises of variable interest entities, which have certain characteristics.
As revised, FIN 46R is now generally effective for financial statements for
interim periods or annual periods ending on or after March 15, 2004. We have not
identified any variable interest entities and the requirements of FIN 46R have
not had a material impact on our consolidated financial statements.


Note 6 - Land Impairment

     On June 23, 2004, the Company agreed to sell its five tracts of undeveloped
land along with accelerated conversion of its 900,000 shares of Series AA
Redeemable Preferred Stock (see Note 12 -Subsequent Events below for further
discussion). As a result, the Company recorded an impairment charge of
$2,046,124 in the second quarter of 2004.


Note 7 - Debt

     Loan agreements relating to the majority of the Company's credit lines,
notes payable and capital leases contain requirements for maintenance of defined
minimum financial ratios. The Company is not in compliance with all such
provisions as of June 30, 2004. Further, the Company is delinquent in payments
on the majority of its outstanding debt. All notes and capital leases in default
have been shown as current in these financial statements. On August 25, 2003 the
Company's senior lender, DVI Business Credit Corp. and DVI Financial Services,
Inc. ("DVI") announced that it is seeking protection under Chapter 11 of the
United States Bankruptcy laws.



                                       10
<PAGE>

     In July 2004, SurgiCare and Integrated Physician Solutions, Inc. (see Note
12 - Subsequent Events) completed negotiations to settle the companies' combined
debt with DVI and U.S. Bank Corp., which totals $10.1 million. The settlement
calls for $6.5 million in payments to be made as follows: $2,000,000 payment at
the closing of the Transactions; $500,000 on the date 12 months after the
closing; $250,000 on the date 18 months after the closing; $2,500 per month for
the first 24 months after closing; $45,628 per month in years starting in the
25th month and continuing through the 72nd month after closing; and a $1,500,000
balloon payment at the completion of 72 months after closing.

     The Company has historically financed its growth primarily though the
issuance of equity and secured and/or convertible debt. As of June 30, 2004, the
Company does not have any credit facilities available with financial
institutions or other third parties to provide for working capital shortages.
Although the Company believes it will generate cash flow from operations in
future quarters, due to its debt load, it is not able to fund its current
operations solely from its cash flow.

     In November 2003, SurgiCare completed a $470,000 financing for working
capital through the issuance of one-year convertible unsecured promissory notes
bearing interest at 10% per annum. The notes are convertible into shares of
Company common stock, at any time, at the option of the note holders. The
conversion price for the notes was equal to (a) $.35 per share, if the notes had
been converted on or prior to January 31, 2004, or (b) if the notes are
converted after January 31, 2004, the lower of (i) $0.25 or (ii) seventy-five
percent (75%) of the average closing price for the 20 trading days immediately
prior to the conversion date. Based on the relative fair value of the beneficial
conversion feature of the notes, a charge of $123,566 was recorded to interest
expense in the fourth quarter of 2003 and $206,693 in the first quarter of 2004.
The notes were not converted prior to January 31, 2004, and the charge in the
first quarter of 2004 reflects the change in conversion price after January 31,
2004. The note holders also received five-year warrants to purchase an aggregate
of 335,713 shares of Company common stock. The warrants may be exercised at an
exercise price of $0.35 per share, and may be exercised on a cashless basis at
the option of the holder. Based on the relative fair value of the warrants, a
discount of $76,834 was recorded at the time of issuance and is being amortized
to interest expense over the one-year term of the notes. The notes will mature
on October 31, 2004.

     In the six months ended June 30, 2004, the Company borrowed $1,325,411 from
a participant in the proposed restructuring transactions (See Note 12) to make
necessary payments on debt and to fund operations.

     The Company believes that additional sales of debt and/or equity securities
will be required to continue operations. See Note 12- Subsequent Events for a
description of a series of transactions recently announced by the Company that,
if consummated, will involve an equity investment and recapitalization of the
Company. Prior to the closing of such contemplated transactions, any additional
sales of debt and/or equity by the Company will be subject to the prior approval
of the counterparties to the applicable transactions. The Company can provide no
assurance that it will be successful in any future financing effort to obtain
the necessary working capital to support its operations, or fund acquisitions
for its anticipated growth. In the event that any future financing efforts are
not successful, the Company will be forced to liquidate assets and/or curtail
operations.


Note 8 - Earnings Per Share

     Basic earnings per share are calculated on the basis of the weighted
average number of shares outstanding. Diluted earnings per share, in addition to
the weighted average determined for basic loss per share, include common stock
equivalents, which would arise from the exercise of stock options and warrants
using the treasury stock method, and assumes the conversion of the Company's
preferred stock for the period outstanding, since their issuance.



                                       11
<PAGE>

<TABLE>
<CAPTION>

                                          For the Three Months Ended         For the Six Months Ended
                                                   June 30,                          June 30,
                                       -----------------------------------------------------------------
                                            2004             2003             2004             2003
                                       --------------   --------------   --------------   --------------
   <S>                                 <C>              <C>              <C>              <C>
   Basic Loss Per Share:

   Net Loss                              $(3,480,567)       $(909,153)     $(5,227,817)     $(1,587,640)
                                       ==============   ==============   ==============   ==============
   Weighted average shares                28,794,399       24,877,900       28,373,482       24,232,458
    outstanding
   Dilutive stock options and
    warrants                                 (a)              (a)              (a)              (a)
   Conversion of preferred shares            (b)              (b)              (b)              (b)
   Conversion of debt                        (c)              (c)              (c)              (c)
                                       --------------   --------------   --------------   --------------
   Weighted average common shares
    outstanding for diluted net loss
    per share                             28,794,399       24,877,900       28,373,482       24,232,458
                                       ==============   ==============   ==============   ==============
   Net loss per share - Basic                  $(.12)           $(.04)           $(.18)           $(.07)
                                       ==============   ==============   ==============   ==============
   Net loss per share - Diluted                $(.12)           $(.04)           $(.18)           $(.07)
                                       ==============   ==============   ==============   ==============
</TABLE>


The following potentially dilutive shares are not included because their effect
would be anti-dilutive due to the net loss for the period:

     a.   8,085,261 and 10,942,807 options and warrants outstanding as of June
          30, 2004 and June 30, 2003, respectively.

     b.   900,000 shares of Series AA Preferred Stock convertible into
          $4,500,000 of common shares as of June 30 2004 and June 30, 2003.
          1,225,000 shares of Series A Preferred stock convertible into
          1,225,000 common shares as of June 30, 2003.

     c.   $1,000,000 of debentures convertible into common stock at a price
          equal to $1.50 per share at June 30, 2004. $470,000 of notes payable
          were convertible into common stock at a price of $.25 per share as of
          June 30, 2004.


Note 9 - Litigation

     On July 7, 2003, SurgiCare, Inc. was named as a party in the arbitration
entitled Brewer & Pritchard, P.C. vs. SurgiCare, Inc. before the American
Arbitration Association. Brewer & Pritchard have claimed breach of contract and
demanded payment of $131,294.88 in billed and unbilled legal fees plus third
party expenses, interest at the highest legal rate, costs, legal fees and
damages from breach of contract. This case was settled in November 2003 and
SurgiCare issued shares of common stock valued at $117,500 as compensation for
past legal fees.

     On February 10, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled S.E. Altman v. SurgiCare. S.E. Altman has sued for breach of contract,
alleging that SurgiCare did not pay monies owed under a "Finders Fee Contract."
Plaintiff asserts damages in the amount of $217,000, plus interest and
attorneys' fees. International Diversified Corporation, Limited has indemnified
SurgiCare with respect to any fees owed to Altman under the Finders Fee
Contract. The case has been dismissed in favor of arbitration. In March 2004,
the parties executed a Settlement Agreement and Release of Claims to resolve the
dispute in which SurgiCare issued Mr. Altman 540,000 shares of common stock,
which was registered with the Securities and Exchange Commission on Form S-8.



                                       12
<PAGE>

     On April 14, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled A.I. International Corporate Holdings, Ltd. v. SurgiCare, Inc. in the
U.S. District Court for the Southern District of New York. Subsequently,
SurgiCare filed suit against A.I. International Corporate Holdings, Ltd. and
First National Bank, S.A.L. of Lebanon in the 215th Judicial District Court of
Harris County, Texas. The New York case involves allegations that SurgiCare
defaulted on its loan agreement. The plaintiffs in the New York case are suing
SurgiCare for $834,252 representing the loan amount and interest, plus $219,000,
representing damages for "No-filing Charges" and "Non-Effective Charges" under
the contract. SurgiCare's lawsuit in Texas asserted that the loan agreement is
usurious. The parties signed an agreement to settle this matter, which will
close after the consummation of the Transactions. Pursuant to this settlement,
SurgiCare will pay Plaintiffs $220,000 in cash and issue 2,100,000 shares of
SurgiCare common stock (210,000 shares after giving effect to the reverse stock
split contemplated in connection with the merger and equity transactions set
forth above), to be paid and issued after the closing of such transactions.

     On November 24, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled Vincent A. Giammalva, Trustee v. SurgiCare, Inc., Keith G. LeBlanc, and
Phillip C. Scott; in the 344th Judicial District Court of Chambers County,
Texas. This case involves allegations that SurgiCare defaulted on a contract to
sell a parcel of real estate to plaintiff. Plaintiff also claims that LeBlanc
and Scott committed fraud. SurgiCare states that it could not sell the parcel of
land because of a lien on the property. The plaintiff seeks specific
performance, forcing SurgiCare to sell the property, as well as actual damages.
SurgiCare is negotiating with the plaintiff in an effort to settle this matter.
AII has agreed to indemnify SurgiCare, Inc., Keith LeBlanc and Phillip Scott for
all claims asserted in this litigation by agreement dated June 23, 2004.

     In addition, we are involved in various other legal proceedings and claims
arising in the ordinary course of business. Our management believes that the
disposition of these additional matters, individually or in the aggregate, is
not expected to have a materially adverse effect on our financial condition.
However, depending on the amount and timing of such disposition, an unfavorable
resolution of some or all of these matters could materially affect our future
results of operations or cash flows in a particular period.


Note 10 - Employee Stock-Based Compensation

     The Company accounts for its employee stock options and warrants under the
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. No stock-based employee compensation
cost is reflected in net loss, as all employee options and warrants granted had
an exercise price equal to the market value of the underlying common stock on
the date of grant.

     The Company also grants options and warrants to non-employees for goods and
services and in conjunction with certain agreements. These grants are accounted
for under FASB Statement No. 123, "Accounting for Stock-Based Compensation"
based on the grant date fair values.





                                       13
<PAGE>

     The following table illustrates the effect on net loss and loss per share
if the Company had applied the fair value recognition provisions of FASB
Statement No. 123 to stock-based employee compensation.

<TABLE>
<CAPTION>

                                                      Three Months Ended                  Six Months Ended
                                             ------------------------------------------------------------------------
                                               June 30, 2004     June 30, 2003     June 30, 2004     June 30, 2003
                                               -------------     -------------     -------------     --------------
<S>                                           <C>               <C>               <C>               <C>
Net loss - as reported                        $  (3,480,567)    $    (909,153)    $  (5,227,817)    $   (1,587,640)
Deduct: Total stock-based employee
 compensation (expense determined under the
 fair value based method for all awards),
 net of tax effect                                  (52,725)          (52,725)         (105,450)          (105,450)
Pro forma net loss                            $  (3,533,292)    $    (961,878)    $  (5,333,267)    $   (1,693,090)

Loss per share:
Basic net loss per share - as reported                $(.12)            $(.04)            $(.18)             $(.07)
Basic net loss per share - pro forma                  $(.12)            $(.04)            $(.18)             $(.07)
Diluted net loss per share - as reported              $(.12)            $(.04)            $(.18)             $(.07)
Diluted net loss per share - pro forma                $(.12)            $(.04)            $(.18)             $(.07)
</TABLE>


The above pro forma effects on net loss and net loss per share are not likely to
be representative of the effects on reported net earnings (loss) for future
years because options vest over several years and additional awards could be
made each year.


Note 11 - Guarantees

     The Company is guarantor on a working capital line of credit for San
Jacinto Surgery Center, L.P. ("San Jacinto"), in which the Company owns a 10%
general partnership interest through a wholly-owned subsidiary. As of June 30,
2004, the line of credit facility had a balance of $337,054 and is recorded on
San Jacinto's balance sheet, which is not consolidated with the Company's
financial statements. The line is secured by the accounts receivable and
equipment of San Jacinto. The line expires on February 2, 2005.


Note 12 - Subsequent Events

     We have negotiated a series of transactions that will restructure SurgiCare
and result in a change of control. The transactions include the acquisition of
three new businesses and issuance of new equity securities for cash and
contribution of outstanding debt. We also intend to complete a reverse stock
split and change our name to Orion. Our board of directors has approved all of
these actions and a special meeting of stockholders in lieu of an annual meeting
will be held to approve them. The highlights of the financial transactions
include:

     o    Effecting a one-for-ten reverse stock split and re-designating our
          outstanding common stock as Class A common stock.


     o    Issuing a new class of common stock Class B common stock to Brantley
          Partners IV, L.P., a private investor ("Brantley IV") or its
          assignees. Brantley IV will purchase the Class B common stock for $10
          million in cash plus cash in the amount of the accrued but unpaid
          interest immediately prior to the closing of the transactions owed to
          a subsidiary of Brantley IV by SurgiCare and Integrated Physician
          Solutions, Inc. ("IPS") on amounts advanced prior to October 24, 2003,
          which as of August 10, 2004 was $92,510. A portion of Brantley IV's
          cash investment will be used to pay off the indebtedness owed by
          SurgiCare and IPS to the subsidiary of Brantley IV. Based on the
          interest accrued on such indebtedness through August 10, 2004, it is
          estimated that the net cash proceeds to SurgiCare will be
          approximately $5,361,287. The shares to be received by Brantley IV or
          its assignees will constitute approximately 58.9% of SurgiCare's
          outstanding equity after the transactions on an as-converted basis.
          Brantley IV will also receive the option to purchase shares of Class A
          stock for cash in an amount up to an aggregate of $3 million after the
          closing of the transactions.



                                       14
<PAGE>

     o    Acquiring IPS, a holding company whose two business units provide
          business management services dedicated to the practice of pediatrics
          and integrated business and clinical software applications for
          physicians, in a merger in which we will issue Class A common stock to
          the IPS stockholders and certain IPS creditors. After the
          transactions, former IPS stockholders and creditors will own
          approximately 18.2% of our outstanding equity on an as-converted
          basis.


     o    Acquiring Medical Billing Services, Inc. ("MBS"), and Dennis Cain
          Physician Solutions, Ltd. ("DCPS"), two providers of physician
          management, billing, consulting and collection services in an
          acquisition in which we will pay between $2.9 million and $3.5 million
          cash and issue promissory notes in the aggregate principal amount of
          $500,000 and Class C common stock to the current equity holders of MBS
          and DCPS. The amount of consideration received depends upon the fair
          market value of our common stock at the time of the closing of the
          transactions, and the consideration is also subject to retroactive
          increase or decrease, including the issuance of additional shares of
          Class A common stock. We will also issue shares of Class A common
          stock as directed by the DCPS and MBS equity holders, and may be
          required to make additional payments in certain circumstances.
          Immediately after the transactions, the equity holders of these two
          companies and their designees will own Class A common stock and Class
          C common stock which may amount to as much as approximately 6.7% of
          our outstanding equity on an as-converted basis.


     These transactions are contingent upon refinancing SurgiCare's, IPS's and
MBS's debt. The transactions and the refinancing will provide SurgiCare with
increased revenues and earnings, an improved balance sheet and the opportunity
to grow the business. Please review our proxy statement for our special meeting
of stockholders in lieu of an annual meeting, filed with the SEC for the full
details of the proposed restructuring.




     On August 2, 2004, the Company sold its five tracts of undeveloped land to
American International Industries, Inc. ("AII") and agreed to accelerate the
conversion of SurgiCare's 900,000 shares of Series AA Redeemable Preferred Stock
("Preferred Stock") held by AII into 8,750,000 shares of SurgiCare common stock,
subject to approval of the listing of the shares on the American Stock Exchange
and certain other conditions. The Preferred Stock had a preference value of $4.5
million. Under the previous agreement, 300,000 shares of the Preferred Stock
were to be converted or redeemed annually through June 2006. At a floor price of
$0.41 per share, the potential maximum conversion was 10,975,610 common shares.
As part of this agreement, AII paid SurgiCare $250,000 and paid off SurgiCare's
loan (collateralized by the land) of approximately $1.1 million.



                                       15
<PAGE>

ITEM 2.  Management's Discussion and Analysis of Financial Condition and Results
of Operations.


Forward-Looking Statements

     The information contained herein contains certain forward looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended,
which are intended to be covered by the safe harbors created thereby. Investors
are cautioned that all forward looking statements involve risks and uncertainty,
including, without limitation, our ability to continue our expansion strategy,
changes in federal or state healthcare laws and regulations or third party payor
practices, our historical and current compliance with existing or future
healthcare laws and regulations and third party payor requirements, changes in
costs of supplies, labor and employee benefits, as well as general market
conditions, competition and pricing. Although we believe that the assumptions
underlying the forward looking statements contained herein are reasonable, any
of the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward looking statements included in this Form 10-QSB/A will prove to
be accurate. In view of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by management or any other person
that our objectives and plans will be achieved. We undertake no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.


Critical Accounting Policies

     In December 2001, the SEC requested that reporting companies discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one that is important to the portrayal of a
company's financial condition and operating results and requires management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain.

     We have identified the policies below as critical to our business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on our business operations is
discussed throughout Management's Discussion and Analysis of Financial Condition
and Results of Operations where such policies affect our reported and expected
financial results. For a detailed discussion on the application of this and
other accounting policies, see Notes 1 and 2 in the Notes to the Consolidated
Financial Statements of our Annual Report on Form 10-KSB. Our preparation of
this Form 10-QSB/A and our Annual Report on Form 10-KSB requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities as of the date of
our financial statements. Therefore, actual results may differ from those
estimates.

     Revenue Recognition - Revenue is recognized on the date the procedures are
performed, and accounts receivable are recorded at that time. Revenues are
reported at the estimated net realizable amounts from patients and third-party
payers. If such third-party payers were to change their reimbursement policies,
the effect on revenue could be significant. Earnings are charged with a
provision for contractual adjustments and doubtful accounts based on such
factors as historical trends of billing and cash collections, established fee
schedules, accounts receivable agings and contractual relationships with
third-party payers. Contractual allowances are estimated primarily using each
surgery center's collection experience. Contractual rates and fee schedules are
also helpful in this process. On a rolling average basis, the Company tracks
collections as a percentage of related billed charges. This percentage, which is
adjusted on a quarterly basis, has proved to be the best indicator of expected
net realizable amounts from patients and third-party payers. Contractual
adjustments and accounts deemed uncollectible are applied against the allowance
account. The Company is not aware of any material claims, disputes or unsettled
matters with third-party payers.



                                       16
<PAGE>

     Investment in Limited Partnerships - The investments in limited
partnerships are accounted for by the equity method. Under the equity method,
the investment is initially recorded at cost and is subsequently increased to
reflect the Company's share of the income of the investee and reduced to reflect
the share of the losses of the investee or distributions from the investee.

     These general partnership interests were accounted for as investment in
limited partnerships due to the interpretation of FAS 94/ARB 51 and the
interpretations of such by Issue 96-16 and SOP 78-9. Under those
interpretations, SurgiCare could not consolidate its interest in those
facilities in which it held a minority general interest partnership interest due
to management restrictions, shared operating decision- making, capital
expenditure and debt approval by limited partners and the general form versus
substance analysis. Therefore, SurgiCare recorded these general partnership
interests as investments in limited partnerships.

     Goodwill - Goodwill represents the excess of cost over the fair value of
net assets of companies acquired in business combinations accounted for using
the purchase method. Goodwill acquired in business combinations prior to June
30, 2001 had been amortized using the straight-line method over an estimated
useful life of 20 years. In July 2001, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting be used
for all business combinations initiated after June 30, 2001. SFAS No. 142
requires that goodwill no longer be amortized but instead be reviewed
periodically for possible impairment. The Company has adopted SFAS No. 142
effective January 1, 2002 and is no longer amortizing goodwill.

     Upon adoption of SFAS 142, as well as December 31, 2003 and 2002, the
Company performed an impairment test of its goodwill and determined that no
impairment of the recorded goodwill existed. Under SFAS No. 142, goodwill is
tested annually and more frequently if an event occurs which indicates the
goodwill may be impaired.


Overview

     SurgiCare's principal business strategies are to (a) increase physician
utilization of existing facilities, (b) increase both the revenue and profits
from current cases and procedures being performed in existing facilities (c)
achieve growth and expand revenues by pursuing strategic acquisitions of
existing, and the development of new, physician owned ambulatory surgical
centers, and (d) expand into related healthcare facilities, including imaging,
surgical hospitals and practice management.

     SurgiCare is in the process of identifying ambulatory surgical centers,
imaging centers and practice management companies as potential acquisition
targets and has, in some cases, conducted preliminary discussions with
representatives of these organizations. No commitments were made for new
acquisitions in the first six months of 2004. Although there are no commitments,
understandings, or agreements with any other potential acquisition targets,
talks are ongoing for the acquisition of additional entities. All of such
discussions have been tentative in nature and there can be no assurance that we
will acquire any entity with whom discussions have been conducted.

Restatement

     The accompanying financial statements were restated in order to increase
the amount of impairment expense of the Company's investment in land by $658,536
to the $2,046,124 for the three and six months ended June 30,2004 from
$1,387,588 in the Form 10-QSB filed with the Securities and Exchange Comission
on August 16, 2004 ("Original Filing") in order to reflect the fair market value
of the land. As a result, the Company's net loss for the three months ended June
30, 2004 changed to $3,480,567, or $0.12 per share from $2,822,031, or $0.10 per
share in the Original Filing. The Company's net loss for the six months ended
June 30, 2004 changed to $5,227,817, or $0.18 per share from $4,569,281, or
$0.16 per share in the Original Filing. Corresponding adjustments were made to
the Company's balance sheet, statement of operations and statement of cash flows
as of that date.


                                       17
<PAGE>

Financial Condition and Results of Operations

     The following table sets forth for the periods indicated the percentages of
revenues represented by income statement items.
<TABLE>
<CAPTION>


                                                           Three Months Ended     Six Months Ended
                                                                June 30,              June 30,
                                                          --------------------  --------------------
                                                             2004       2003       2004       2003
                                                          ---------  ---------  ---------  ---------
       <S>                                                <C>        <C>        <C>        <C>
       Revenues, net                                        100.0%     100.0%     100.0%    100.00%

       Expenses:
           Direct Cost of Services                           65.6%      55.1%      64.6%      54.6%
           General & Administrative Expenses                 93.8%      91.2%      98.1%      75.0%
           Other Operating Expenses (Income)                123.8%     (16.4%)     59.4%      (7.5%)
               Total Operating Expenses                     283.2%     129.9%     222.2%     122.1%
       Operating Loss                                      (183.2%)    (29.9%)   (122.2%)    (22.1%)
       Other Loss                                           (27.4%)    (19.6%)    (34.2%)    (17.1%)
       Minority Interest in Losses of Partnerships              -        2.6%         -        1.2%
       Loss Before Federal Income Tax Expense              (210.6%)    (46.9%)   (156.4%)    -38.0%
       Federal Income Tax Expense Benefit                       -          -          -         .3%
       Net Earnings (Loss)                                 (210.6%)    (46.9%)   (156.4%)    -37.6%
</TABLE>


Results of Operations


THREE MONTHS ENDED JUNE 30, 2004 vs. THREE MONTHS ENDED JUNE 30, 2003


     Net Revenue. Case volume decreased 18.6% to 1,409 in the three months ended
June 30, 2004 from 1,731 in the 2003 comparable period. Revenue declined
$286,048, or 14.8% to $1,652,960 in the three months ended June 30, 2004, from
$1,939,008 in the comparable 2003 period. On a per-case basis, revenue increased
to $1,173 in the three months ended June 30, 2004 from $1,120 in the 2003
comparable period. The average contractual allowance from gross revenues was
75.4% in the three months ended June 30, 2004 compared to 69.5% in the
comparable 2003 period. The decrease in revenue is predominantly due to the
related decrease in case volume, although the Company has lost minimal doctors
who perform cases. Due to the length of time to complete the pending transaction
(see Note 12 to the accompanying consolidated financial statements), and due to
the uncertainty surrounding the Company's financial condition, some physicians
are splitting their caseload with other competing surgery centers, which has
resulted in the decrease in cases.

     Direct Cost of Revenues. Direct Cost of Revenues increased $16,059, or 1.5%
to $1,084,690 in the three months ended June 30, 2004 from $1,068,631 in the
comparable 2003 period. Surgical costs decreased $7,190 or 1.8% to $391,919 in
the three months ended June 30, 2004 from $399,109 in the comparable 2003
period. Direct clinical salaries and benefits increased $13,862, or 3.0% to
$469,601 in the three months ended June 30, 2004 compared to $455,739 in the
comparable 2003 period. These costs are predominantly fixed and the centers were
already at base staffing levels in 2003. Other direct costs increased $9,387, or
4.4% to $223,170 in the three months ended June 30, 2004 from $213,783 in the
comparable 2003 period. The increase is primarily due to pre-lease interim
rental costs on MRI equipment for the Company's new imaging center in Ohio,
which opened in July 2004.



                                       18
<PAGE>

     General and Administrative Expenses. General and administrative costs
decreased $218,565, or 12.4% to $1,549,676 in the three months ended June 30,
2004 from $1,768,241 in the 2003 comparable period, primarily due to a decrease
in the provision for doubtful accounts. The provision for doubtful accounts
decreased $231,369, or 79.4% to $60,161 in the three months ended June 30, 2004
from $291,530 in the comparable 2003 period primarily due to an increased focus
on more timely and accurate billings, which included outsourcing the billing and
collections at its centers in Houston, Texas. To a lesser extent, approximately
$43,000 of the decrease in the provision for doubtful accounts is due to the
related decrease in revenues.

     Other Operating Expenses (Income). In the three months ended June 30, 2004,
the Company recorded an impairment charge of $2,046,124 against its investment
in land in connection with its sale of the land in August 2004 (see Note 12,
Subsequent Events to the accompanying consolidated financial statements). In the
three months ended June 30, 2003, the Company recorded a gain of $319,086
recognized on the sale of the Company's 10% interest in Physicians Endoscopy
Center.

     Total Operating Expenses. Total Operating Expenses increased $2,162,704, or
85.9% to $4,680,490 in the three months ended June 30, 2004 from $2,517,786 in
the comparable 2003 period. As a percent of revenue, total expenses increased to
283.2% of revenue in the three months ended June 30, 2004 from 129.9% in the
2003 comparable period. The increased costs, expressed both in dollars and as a
percentage of revenue, are related to the factors discussed above.

     Other Income (Expense). Total Other Income (Expense) increased $72,678, or
19.1% to $453,037 in the three months ended June 30, 2004 from $380,359 in the
2003 comparable period. The increase was primarily due to a decrease in Equity
in Earnings of Limited Partnerships of $61,846, or 77.0% between the two
comparable three-month periods. The decrease is primarily attributable to the
Company's sale of its interest in Physicians Endoscopy Center in June 2003,
where in the three months ended June 30, 2003, the Company's equity in that
center's earnings was $68,162.

     Federal Income Tax Benefit. For the three months ended June 30, 2004, the
Company did not record a tax benefit on its pre-tax loss of $3,480,567 due to a
valuation allowance recorded against the Company's deferred tax assets. The
valuation allowance was necessary due to the uncertainty of recovery of the
deferred tax assets.

     Net Loss. Due to the factors discussed above, the Company's net loss
increased $2,571,414, or 282.8% to $3,480,567 in the three months ended June 30,
2004 from $909,153 in the 2003 comparable period. The Company's operating
results were negatively impacted by the land impairment of $2,046,124 and the
decrease in gross margin of $302,107 (revenue minus direct cost of revenues).


SIX MONTHS ENDED JUNE 30, 2004 vs. SIX MONTHS ENDED JUNE 30, 2003


     Net Revenue. Case volume decreased 17.9% to 2,886 in the six months ended
June 30, 2004 from 3,517 in the 2003 comparable period. Revenue declined
$875,645, or 20.8% to $3,343,484 in the six months ended June 30, 2004, from
$4,219,129 in the comparable 2003 period. On a per-case basis, revenue decreased
to $1,159 in the six months ended June 30, 2004 from $1,200 in the 2003
comparable period. The average contractual allowance from gross revenues was
76.0% in the six months ended June 30, 2004 compared to 68.2% in the comparable
2003 period. The decrease in revenue is predominantly due to the related
decrease in case volume, although the Company has lost minimal doctors who
perform cases. However, due to the length of time to complete the pending
transaction (see Note 12 to the accompanying consolidated financial statements),
and due to the uncertainty surrounding the Company's financial condition, some
physicians are splitting their caseload with other competing surgery centers,
which has resulted in the decrease in cases performed.



                                       19
<PAGE>

     Direct Cost of Revenues. Direct Cost of Revenues decreased $143,319, or
6.2% to $2,161,642 in the six months ended June 30, 2004 from $2,034,961 in the
comparable 2003 period. Surgical costs decreased $78,941, or 9.1% to $792,745 in
the six months ended June 30, 2004 from $871,686 in the comparable 2003 period.
Direct clinical salaries and benefits increased $23,670, or 2.6% to $950,837 in
the six months ended June 30, 2004 compared to $927,167 in the comparable 2003
period. These costs are predominantly fixed and the centers were already at base
staffing levels in 2003. Other direct costs decreased $88,048, or 17.4% to
$418,060 in the six months ended June 30, 2004 from $506,108 in the comparable
2003 period. The decrease is primarily related to the revenue decrease and
included decreases in contract nursing ($44,720), patient transportation
($25,874) and equipment repairs ($23,754).

     General and Administrative Expenses. General and administrative costs
increased $114,731, or 3.6% to $3,280,176 in the six months ended June 30, 2004
from $3,165,445 in the 2003 comparable period, primarily due to a an increase in
professional fees. Professional fees increased $426,399, or 82.9% to $940,983 in
the six months ended June 30, 2004 from $514,584 in the comparable 2003 period.
In 2004, the Company recorded a charge of $202,000 to professional fees related
to a settlement with S.E. Altman on a "Finders Fee Contract." The remaining
increase is due to legal, professional and accounting fees related to the series
of pending transactions that will restructure SurgiCare and result in a change
in control. The transactions include the acquisition of three new businesses and
issuance of new equity securities for cash and debt forgiveness (see Note 12 to
the accompanying consolidated financial statements). The increase in
professional fees was offset by a decrease in the Company's provision for
doubtful accounts of $184,204, or 61.3% to $116,488 in the six months ended June
30, 2004 from $300,692 in the comparable 2003 period primarily due to an
increased focus on more timely and accurate billings, which included outsourcing
the billing and collections at its centers in Houston, Texas. To a lesser
extent, approximately $62,000 of the decrease in the provision for doubtful
accounts is due to the related decrease in revenues.

     Other Operating Expenses (Income). Other Operating Expenses (Income)
increased $2,306,417 to a net expense of $1,987,499 in the six months ended June
30, 2004 from a net gain of $318,918 in the comparable 2003 period. In the six
months ended June 30, 2004, the Company recorded an impairment charge of
$2,046,124 against its investment in land in connection with its sale of the
land in August 2004 (see Note 12, Subsequent Events to the accompanying
financial statements). In the six months ended June 30, 2003, the Company
recorded a gain of $319,086 recognized on the sale of the Company's 10% interest
in Physicians Endoscopy Center.

     Total Operating Expenses. Total Operating Expenses increased $2,277,829, or
44.2% to $7,429,317 in the six months ended June 30, 2004 from $5,151,488 in the
comparable 2003 period. As a percent of revenue, total expenses increased to
222.2% of revenue in the six months ended June 30, 2004 from 122.1% in the 2003
comparable period. The increased costs, expressed both in dollars and as a
percentage of revenue, are related to the factors discussed above.

     Other Income (Expense). Total Other Income (Expense) increased $421,124, or
58.4% to $1,141,984 in the six months ended June 30, 2004 from $720,860 in the
2003 comparable period. The increase was primarily due to an increase in
interest expense of $256,101, or 28.2% to $1,165,119 from $909,018 in the 2003
period. In the six months ended June 30, 2004, the Company recorded a $206,693
charge to interest expense, based on the change in relative fair value of its
convertible unsecured promissory notes (see Note 6 to the accompanying
consolidated financial statements). Since the notes were not converted by
January 31, 2004, the conversion price changed from $.35 per share to $.25 per
share. The remaining increase in interest expense of $49,408 was due to
additional borrowings for working capital purposes. Additionally, Equity in
Earnings of Limited Partnerships decreased by $147,353, or 87.7% between the two
comparable six-month periods. The decrease is primarily attributable to the
Company's sale of its interest in Physicians Endoscopy Center in June 2003,
where in the six months ended June 30, 2003, the Company's equity in that
center's earnings was $131,490.



                                       20
<PAGE>

     Federal Income Tax Benefit. For the six months ended June 30, 2004, the
Company did not record a tax benefit on its pre-tax loss of $5,227,817 due to a
valuation allowance recorded against the Company's deferred tax assets. The
valuation allowance was necessary due to the uncertainty of recovery of the
deferred tax assets.

     Net Loss. Due to the factors discussed above, the Company's net loss
increased $3,640,177, or 229.3% to $5,227,817 in the six months ended June 30,
2004 from $1,587,640 in the 2003 comparable period. The Company's operating
results were negatively impacted by: the land impairment of $2,046,124; the
decrease in gross margin of $732,326 (revenue minus direct cost of revenues);
the increase in professional fees of $426,399 due to the Altman settlement and
expenses related to the pending series of transactions; and the increase in
interest expense of $256,101 due to the charge related to the beneficial
conversion factor of the convertible notes and additional borrowings for working
capital purposes.


Liquidity and Capital Resources

     Net cash used in operating activities was $317,008 and $560,085 for the six
months ended June 30, 2004 and 2003, respectively. The primary reason for the
usage of cash is due to continued operating losses in both periods.

     Net cash used in investing activities was $685,157 for the six months ended
June 30, 2004. In the second quarter of 2004, the Company purchased open MRI
(magnetic resonance imaging) equipment and related build-out totaling
approximately $1.2 million, of which $600,000 was financed through a capital
lease. The Company also purchased approximately $86,000 of replacement equipment
for it existing centers. Cash provided by investing activities for the six
months ended June 30, 2003 was $399,205, primarily due to the Company selling
its ownership interest in Physicians Endoscopy Center for $425,000 cash.

     Net cash provided by financing activities increased to $1,140,613 for the
six months ended June 30, 2004 from $162,454 in the 2003 comparable period. The
Company has financed its working capital needs primarily through the issuance of
equity, secured and/or convertible debt. As of June 30, 2004, SurgiCare does not
have any credit facilities available with financial institutions to provide for
working capital shortages. In the six months ended June 30, 2004, the Company
borrowed $1,325,411 from a participant in the proposed restructuring
transactions (See Note 12 to the accompanying unaudited financial statements) to
make necessary payments on debt and to fund operations.

     In the six months ended June 30, 2003, the Company raised cash of
$1,069,897 through the sale of common stock offset by net pay downs of credit
lines and other outstanding debt of approximately $903,000.

     In the first six months of 2004, the Company did not raise any substantial
funds through the sale of equity securities, though $16,535 was recorded on the
exercise of outstanding warrants. Although the Company believes it will generate
cash from operations in the future, due to its debt load, it is not able to fund
its current operations solely from its cash flow.



                                       21
<PAGE>

     The Company believes that additional sales of debt and/or equity securities
will be required to continue operations. See Note 12 to the accompanying
unaudited financial statements for a description of a series of transactions
recently announced by the Company that, if consummated, will involve an equity
investment and recapitalization of the Company. Prior to the closing of such
contemplated transactions, any additional sales of debt and/or equity by the
Company will be subject to the prior approval of the counterparties to the
applicable transaction documents. The Company can provide no assurance that it
will be successful in any future financing effort to obtain the necessary
working capital to support its operations, or fund acquisitions for its
anticipated growth. In the event that any future financing efforts are not
successful, the Company will be forced to liquidate assets and/or curtail
operations.

     As of June 30, 2004, the Company had cash and cash equivalents of $280,001
and negative working capital of $13,652,796. SurgiCare has a total of $6,267,762
in long-term debt and an additional $1,402,588 in revolving lines of credit
currently in default. SurgiCare has defaulted on certain provisions of its Loan
and Security Agreement with its senior lender, DVI Business Credit Corporation
and DVI Financial Services, Inc. ("DVI"). On August 25,2003, DVI filed for
protection under Chapter 11 of the U.S. Bankruptcy laws. Integrated Physician
Solutions, Inc. ("IPS") and SurgiCare completed negotiations with DVI, which
resulted in a decrease of their combined debt of approximately $10.1 million to
a combined payout of approximately $6.5 million including a buy-out of the
revolving lines of credit. As part of that agreement, the companies have
executed a new loan agreement with U.S. Bank Portfolio Services ("USBPS"), as
servicer for payees, for payment of the revolving line of credit and
renegotiated the term loan amounts. The sum due to DVI at the closing of the
aforementioned merger and equity transactions is $2,000,000. As a part of that
transaction, the companies have signed a term sheet for a new revolving line of
credit, which will be used to pay off the DVI revolving line of credit.


Item 3.  Controls and Procedures
--------------------------------

Evaluation of Disclosure Controls and Procedures

     We maintain a set of disclosure controls and procedures that are designed
to ensure that information required to be disclosed by us in the reports filed
by us under the Securities and Exchange Act of 1934, as amended ("Exchange
Act"), is recorded, processed, summarized and reported within the time periods
specified in the SEC's rules and forms. As of the end of the period covered by
this report, we evaluated, under the supervision and with the participation of
our management, including our President and Chief Executive Officer and our
Secretary and Chief Financial Officer, the effectiveness of our disclosure
controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on
that evaluation, our President and Chief Executive Officer and our Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.


Changes in Internal Controls

     During the most recent fiscal quarter, there have been no changes in our
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.



                                       22
<PAGE>

PART II
                                OTHER INFORMATION


ITEM 1.  Legal Proceedings.
---------------------------

     On February 10, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled S.E. Altman v. SurgiCare. S.E. Altman has sued for breach of contract,
alleging that SurgiCare did not pay monies owed under a "Finders Fee Contract."
Plaintiff asserts damages in the amount of $217,000, plus interest and
attorneys' fees. International Diversified Corporation, Limited has indemnified
SurgiCare with respect to any fees owed to Altman under the Finders Fee
Contract. The case has been dismissed in favor of arbitration. In March 2004,
the parties executed a Settlement Agreement and Release of Claims to resolve the
dispute in which SurgiCare agreed to issue Mr. Altman 540,000 shares of common
stock, which were registered with the Securities and Exchange Commission on Form
S-8 in April 2004.

     On April 14, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled A.I. International Corporate Holdings, Ltd. v. SurgiCare, Inc. in the
U.S. District Court for the Southern District of New York. Subsequently,
SurgiCare filed suit against A.I. International Corporate Holdings, Ltd. and
First National Bank, S.A.L. of Lebanon in the 215th Judicial District Court of
Harris County, Texas. The New York case involves allegations that SurgiCare
defaulted on its loan agreement. The plaintiffs in the New York case are suing
SurgiCare for $834,252 representing the loan amount and interest, plus $219,000,
representing damages for "No-filing Charges" and "Non-Effective Charges" under
the contract. SurgiCare's lawsuit in Texas asserts that the loan agreement is
usurious. The parties signed an agreement to settle this matter, which will
close after the consummation of the Transactions. Pursuant to this settlement,
SurgiCare will pay Plaintiffs $220,000 in cash and issue 2,100,000 shares of
SurgiCare common stock (210,000 shares after giving effect to the reverse stock
split contemplated in connection with the merger and equity transactions
discussed in Note 12 to the accompanying consolidated financial statements) to
be paid and issued after the closing of such transactions.

     On November 24, 2003, SurgiCare, Inc. was named as a defendant in a suit
entitled Vincent A. Giammalva, Trustee v. SurgiCare, Inc., Keith G. LeBlanc, and
Phillip C. Scott; in the 344th Judicial District Court of Chambers County,
Texas. This case involves allegations that SurgiCare defaulted on a contract to
sell a parcel of real estate to plaintiff. Plaintiff also claims that LeBlanc
and Scott committed fraud. SurgiCare states that it could not sell the parcel of
land because of a lien on the property. The plaintiff seeks specific
performance, forcing SurgiCare to sell the property, as well as actual damages.
SurgiCare is negotiating with the plaintiff in an effort to settle this matter.
American International Industries, Inc. ("AII") has agreed to indemnify
SurgiCare, Inc., Keith LeBlanc and Phillip Scott for all claims asserted in this
litigation by agreement dated June 23, 2004.

     In addition, we are involved in various other legal proceedings and claims
arising in the ordinary course of business. Our management believes that the
disposition of these additional matters, individually or in the aggregate, is
not expected to have a materially adverse effect on our financial condition.
However, depending on the amount and timing of such disposition, an unfavorable
resolution of some or all of these matters could materially affect our future
results of operations or cash flows in a particular period.


ITEM 2.  Change in Securities.
------------------------------

     On April 26, 2004, the Company issued 540,000 shares of common stock to
S.E. Altman, an accredited investor, for services rendered. The stock was issued
in a privately negotiated transaction in reliance on the exemption provided by
Section 4(2) of the Securities Act.


ITEM 3.  Default Upon Senior Securities.
----------------------------------------

     SurgiCare has defaulted on certain provisions of its Loan and Security
Agreement with its senior lender, DVI Business Credit Corporation and DVI
Financial Services, Inc. ("DVI"). On August 25,2003, DVI filed for protection
under Chapter 11 of the U.S. Bankruptcy laws. IPS and SurgiCare completed
negotiations with DVI, which resulted in a decrease of their combined debt of
approximately $10.1 million to a combined payout of approximately $6.5 million
including a buy-out of the revolving lines of credit. As part of that agreement,
the companies have executed a new loan agreement with U.S. Bank Portfolio
Services ("USBPS"), as servicer for payees, for payment of the revolving line of
credit and renegotiated the term loan amounts. The sum due to DVI at the closing
of the aforementioned merger and equity transactions is $2,000,000. As a part of
that transaction, the companies have signed a term sheet for a new revolving
line of credit, which will be used to pay off the DVI revolving line of credit.



                                       23
<PAGE>

     SurgiCare has defaulted on its convertible Debenture Agreement for failure
to file a registration statement for the resale of certain securities pursuant
to the agreement and has been sued by the primary debenture holder. The parties
signed an agreement to settle this matter, which will close after the
consummation of the Transactions. Pursuant to this settlement, SurgiCare will
pay Plaintiffs $220,000 in cash and issue 2,100,000 shares of SurgiCare common
stock (210,000 shares after giving effect to the reverse stock split
contemplated in connection with the merger and equity transactions discussed in
Note 12 to the accompanying consolidated financial statements) to be paid and
issued after the closing of such transactions.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.
------------------------------------------

(a)  Exhibits

Exhibit No.                Description
-----------                -----------

31.1                       Rule 13a-14(a)/15d-14(a) Certification
31.2                       Rule 13a-14(a)/15d-14(a) Certification
32.1                       18 U.S.C. ss. 1350 Certification
32.2                       18 U.S.C. ss. 1350 Certification


(b) Reports on Form 8-K

       During the quarter ended June 30, 2004, we filed the following reports on
       Form 8-K:

       Dated May 10, 2004, SurgiCare issued a press release to announce that on
       April 27,2004, it filed amended preliminary proxy materials with the
       Securities and Exchange Commission.

       Dated May 14, 2004, SurgiCare issued a press release announcing its first
       quarter 2004 financial results.

       Dated June 17, 2004, to provide clarification of unauthorized information
       posted on an Internet message board.

       Dated July 2, 2004 (after the close of the second fiscal quarter),
       SurgiCare issued a press release to announce that it had entered into
       agreements to: convert its Series AA Redeemable Preferred Stock to
       common; sell its five tracts of undeveloped land; and settle its debt
       with its senior lender. SurgiCare also announced a change in its CFO
       position.




                                       24
<PAGE>


SIGNATURES



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


Date: September 2, 2004                        REGISTRANT:

                                               SurgiCare, Inc.

                                               By: /s/ Keith G. LeBlanc
                                               ------------------------
                                               Keith G. LeBlanc
                                               Chief Executive Officer


                                               By: /s/ Roger S. Huntington
                                               ---------------------------
                                               Roger S. Huntington
                                               Chief Financial Officer







                                       25