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



                                   FORM 10-QSB



[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 IDENTIFICATION NO.)
 INCORPORATION OR ORGANIZATION)



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>


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

<TABLE>
<CAPTION>

                                                                      JUNE 30,     DECEMBER 31,
                                                                        2004          2003
                                                                     -----------   -----------
                           ASSETS                                    (unaudited)
CURRENT ASSETS
<S>                                                                  <C>           <C>
         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                                              384,911       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                                                            2,612,412     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                                       $16,524,099   $17,456,142
                                                                     ===========   ===========
</TABLE>




                                       3

<PAGE>



                                 SURGICARE, INC.
                     CONSOLIDATED BALANCE SHEETS (CONTINUED)


<TABLE>
<CAPTION>


                                                                        JUNE 30,      DECEMBER 31,
                                                                          2004            2003
                                                                      ------------    ------------
                          LIABILITIES                                 (unaudited)
CURRENT LIABILITIES
<S>                                                                   <C>             <C>
         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  28,857,285outstanding  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                                                      (17,087,694)    (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                                616,095       4,688,994
                                                                      ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                            $ 16,524,099    $ 17,456,142
                                                                      ============    ============
</TABLE>



                 See notes to consolidated financial statements.

                                       4
<PAGE>



SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                    FOR THE THREE MONTHS ENDING
                                                                              JUNE 30,
                                                                    ----------------------------
                                                                        2004            2003
                                                                    ------------    ------------
<S>                                                                 <C>             <C>
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                              1,387,588
                                                                    ------------    ------------
                          Total Other Operating Expenses (Income)      1,387,588        (319,086)
                                                                    ------------    ------------
                                    Total Operating Expenses           4,021,954       2,517,786
                                                                    ------------    ------------
         OPERATING LOSS                                               (2,368,994)       (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          (2,822,031)       (959,137)
                                                                    ------------    ------------
MINORITY INTEREST IN LOSSES OF PARTNERSHIPS                                               49,984
                                                                    ------------    ------------
Loss Before Income Tax Expenses                                       (2,822,031)       (909,153)
FEDERAL INCOME TAX BENEFIT

NET LOSS                                                            $ (2,822,031)   $   (909,153)
                                                                    ============    ============
Loss per share - Basic                                              $       (.10)   $       (.04)
                                                                    ============    ============
Loss per share - Diluted                                            $       (.10)   $       (.04)
                                                                    ============    ============
Weighted Average Shares Outstanding:
     Basic                                                            28,794,399      24,877,900
                                                                    ============    ============
     Diluted                                                          28,794,399      24,877,900
                                                                    ============    ============
</TABLE>


                 See notes to consolidated financial statements.

                                       5
<PAGE>



                                SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                      FOR THE SIX MONTHS ENDING
                                                                              JUNE 30,
                                                                   -----------------------------
                                                                       2004            2003
                                                                   ------------    ------------
<S>                                                                <C>             <C>
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                             1,387,588
         Forgiveness of debt                                            (58,625)
                                                                   ------------    ------------
                          Total Other Operating Income (Expense)      1,328,963        (318,918)
                                                                   ------------    ------------
                                    Total Operating Expenses          6,770,781       5,151,488
                                                                   ------------    ------------
         OPERATING LOSS                                              (3,427,297)       (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         (4,569,281)     (1,653,219)
                                                                   ------------    ------------
MINORITY INTEREST IN LOSSES OF PARTNERSHIPS                                              52,018
                                                                   ------------    ------------
Loss Before Income Tax Expenses                                      (4,569,281)     (1,601,201)
FEDERAL INCOME TAX BENEFIT                                                              (13,561)
                                                                   ------------    ------------
NET LOSS                                                             (4,569,281)     (1,587,640)
                                                                   ============    ============
Loss per share - Basic                                             $       (.16)   $       (.07)
                                                                   ============    ============
Loss per share - Diluted                                           $       (.16)   $       (.07)
                                                                   ============    ============
Weighted Average Shares Outstanding:
     Basic                                                           28,373,482      24,232,458
                                                                   ============    ============
     Diluted                                                         28,373,482      24,232,458
                                                                   ============    ============
</TABLE>


                 See notes to consolidated financial statements.

                                       6




<PAGE>

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


<TABLE>
<CAPTION>
                                                                            FOR THE SIX MONTHS ENDING
                                                                                      JUNE 30,
                                                                            --------------------------
                                                                               2004           2003
                                                                            -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                         <C>            <C>
Net loss                                                                    $(4,569,281)   $(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                                           1,387,588
   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
                                                                            ===========    ===========
</TABLE>

                                       7

<PAGE>



                                 SURGICARE, INC.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                               FOR THE SIX MONTHS ENDING
                                                                        JUNE 30,
                                                                  -------------------
                                                                     2004    2003
                                                                  ---------- --------
<S>                                                               <C>        <C>
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
</TABLE>




                 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.


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
$1,387,588 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
                                   -----------   ----------   -----------   -----------
Basic Loss Per Share:

<S>                                <C>           <C>          <C>           <C>
Net Loss                           $(2,822,031)  $ (909,153)  $(4,569,281)  $(1,587,640)
                                   ===========   ==========   ===========   ===========
Weighted average shares
 outstanding                        28,794,399   24,877,900    28,373,482    24,232,458
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                          24,877,900   28,373,482    24,232,458    28,794,399
                                   ===========   ==========   ===========   ===========
Net loss per share - Basic         $      (.10)  $     (.04)  $      (.16)  $      (.07)
                                   ===========   ==========   ===========   ===========
Net loss per share - Diluted       $      (.10)  $     (.04)  $      (.16)  $      (.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.

     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.


                                       13
<PAGE>

<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                       $  (2,822,031)   $    (909,153)    $  (4,569,281)   $  (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                           $  (2,874,756)   $    (961,878)       (4,674,731)      (1,693,090)

Loss per share:
Basic net loss per share - as reported       $        (.10)   $        (.04)    $        (.16)   $        (.07)
Basic net loss per share - pro forma         $        (.10)   $        (.04)    $        (.16)   $        (.07)
Diluted net loss per share - as reported     $        (.10)   $        (.04)    $        (.16)   $        (.07)
Diluted net loss per share - pro forma       $        (.10)   $        (.04)    $        (.16)   $        (.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 has 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.


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,


                                       15
<PAGE>


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 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  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.

     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.


                                       16
<PAGE>

     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.







                                       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
                                             JUNE 30,        ENDED 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)                          83.9%    (16.4%)    39.8%     (7.5%)
             Total Operating Expenses   243.3%    129.9%    202.5%    122.1%
Operating Loss                          (143.3%)  (29.9%)   (102.5%)  (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                              (170.7%)  (46.9%)   (136.7%)  -38.0%
Federal Income Tax Expense Benefit       --        --        --          .3%
Net Earnings (Loss)                     (170.7%)  (46.9%)   (136.7%)  -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.

     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.


                                       18
<PAGE>

     OTHER OPERATING EXPENSES (INCOME). In the three months ended June 30, 2004,
the Company recorded an impairment  charge of $1,387,588  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 $1,504,168, or
59.7% to $4,021,954  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
243.3% 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 $2,822,031  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 $1,912,878, or 210.4% to $2,822,031 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 $1,387,588 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.

     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).

                                       19
<PAGE>

     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 $1,647,881 to a net expense of $1,328,963 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
$1,387,588  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 $1,619,293, or
31.4% to $6,770,781 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
202.5% 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.

     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 $4,569,281  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.


                                       20
<PAGE>

     NET LOSS.  Due to the  factors  discussed  above,  the  Company's  net loss
increased  $2,981,641,  or 187.8% to $4,569,281 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  $1,387,588;  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.

     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.


                                       21
<PAGE>

     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.



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.

                                       22
<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 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>




<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:    August 13, 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