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                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

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


                 DELAWARE                              58-1597246

   00(STATE OR OTHER JURISDICTION OF       (I.R.S. EMPLOYER IDENTIFICATION NO.)
      INCORPORATION OR ORGANIZATION)

   12727 KIMBERLEY  LANE, SUITE 200 HOUSTON, TX             77024
     (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)             (ZIP CODE)

ISSUER'S TELEPHONE NUMBER: (713) 973-6675
SECURITIES REGISTERED UNDER SECTION 12(B) OF THE ACT:

                                             NAME OF EACH EXCHANGE ON
        TITLE OF EACH CLASS                  WHICH REGISTERED
        -------------------                  ------------------------

        COMMON STOCK, $.005 PAR VALUE        THE AMERICAN STOCK EXCHANGE
        SERIES A REDEEMABLE PREFERRED
        STOCK, $.001 PAR VALUE

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes |X| No |_|

Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained, and no disclosure will be contained in this form, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

SurgiCare's revenues for fiscal year ended December 31, 2003: $8,064,523.

As of March 31, 2004, 28,408,685 shares of the registrant's common stock were
outstanding. The aggregate market value of the shares of common stock of the
registrant held by non-affiliates on March 31, 2004 was approximately $9,386,036
based upon a per share price of $0.38, the closing price per share for the
company's common stock on the American Stock Exchange on that day.

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                                      - 1 -


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                                 SURGICARE, INC.

                                   FORM 10-KSB

                                TABLE OF CONTENTS

PART I

Item 1. Description of Business                                         3

Item 2. Description of Property                                        16

Item 3. Legal Proceedings                                              16

Item 4. Submission or matters to a Vote of Security Holders            17

PART II

Item 5. Market for Common Equity and Related Stockholder Matters.      18

Item 6. Management's Discussion and Analysis or Plan of Operation      19

Item 7. Financial Statements                                           27

Item 8. Changes in and Disagreements with Accountants                  54

Item 8A. Controls and Procedures                                       54

PART III

Item 9. Directors, Executive Officers, Promoters, and Control
Persons; Compliance With 16(a) of the Exchange Act.                    55

Item 10. Executive Compensation                                        55

Item 11. Security Ownership of Certain Beneficial Owners
and Management                                                         55

Item 12. Certain Relationships and Related Transactions                55

Item 13. Exhibits and Reports on Form 8K                               56

Item 14. Principal Accountant Fees and Services                        57


                                       2
<PAGE>

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

THE COMPANY

     SurgiCare, Inc. ("SurgiCare," "Company," "we," "us," or "our") was
incorporated in Delaware on February 24, 1984 as Technical Coatings
Incorporated. On September 10, 1984, its name was changed to Technical Coatings,
Inc. ("TCI"). Immediately prior to July 1999, TCI was an inactive company. On
July 11, 1999, TCI changed its name to SurgiCare Inc., and at that time changed
its business strategy to developing, acquiring and operating freestanding
ambulatory surgery centers ("ASC"). On July 21, 1999, SurgiCare acquired all of
the issued and outstanding shares of common stock of Bellaire SurgiCare, Inc. a
Texas corporation ("Bellaire"), in exchange for the issuance of 9.86 million
shares of common stock, par value $.005 per share ("Common Stock") and 1.35
million shares of Series A Redeemable Preferred Stock, par value $.001 per share
("Series A Preferred"), of SurgiCare to the holders of Bellaire's common stock.
For accounting purposes, this reverse acquisition was effective July 1, 1999.

     As of December 31, 2003, the company owned a majority interest in three
surgery centers and a minority interest as general partner in one additional
center. Three of SurgiCare's centers are located in Texas and one is located in
Ohio. In limited circumstances, SurgiCare, or its subsidiaries may also furnish
anesthesia services in support of the activities of the surgery centers. Our
ASCs perform various types of procedures including: orthopedic surgery,
colonoscopy, ophthalmic laser surgery, pain injections and various pediatric
surgeries. The most common procedures performed in our ASCs include knee
arthroscopy, lumbar nerve block and sacral injection, colonoscopy, hammertoe
correction, sinus endoscopic biopsy, cataract removal, breast biopsy, Mitchell
procedures and cystourethroscopy.

     With a view to SurgiCare consolidating the operations of some or all of
these surgery centers, SurgiCare anticipates that it will need to adjust its
ownership interest in such centers to establish an ownership interest of
approximately 35% in each surgery center in keeping with our strategy of
maximizing our investor pool. SurgiCare believes that physician owned and
operated centers are typically more profitable because physicians who own and
operate an ambulatory surgery center are the center's most significant source of
patients and benefactors. Generally, it is the operating physician, not the
patient, who chooses the facilities where surgical procedures are to be
performed. By allowing physicians to own approximately sixty-five percent of the
interest in the surgery centers, there is more opportunity for more physicians
to own an interest in the center. When physicians have an ownership interest in
surgery centers, they have an incentive to make the centers as profitable as
possible. Therefore, we have begun the process of restructuring the ownership of
the surgery center owned and operated by Bellaire to allow for the sale of
investment interests to operating physicians in the surgery center, but have not
conducted any offerings at this time.

     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 debt
forgiveness. We also intend to complete a reverse stock split and change our
name to Orion HealthCorp, Inc. 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:

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


     --   Issuing a new class of common stock (Class B common stock) to Brantley
          Partners IV, L.P., a private  investor  ("Brantley  IV").  Brantley IV
          will forgive  indebtedness owed by SurgiCare and Integrated  Physician
          Solutions,  Inc. ("IPS") to its subsidiary in the aggregate  principal
          amount of $1.28  million and will  contribute up to $6 million in cash
          (as reduced for additional debt owing by SurgiCare and IPS to Brantley
          IV's subsidiary at the time of the closing of the transactions,  which
          will also be forgiven) in exchange for shares of Class B common stock.

                                       3

<PAGE>

     --   Acquiring  IPS in a merger in which we will issue Class A common stock
          to the IPS stockholders  and certain IPS creditors.  IPS is a provider
          of business  management  services  for  pediatric  practices  and also
          provides software and technology solutions for physicians.

     --   Acquiring  Medical Billing  Services,  Inc.  ("MBS"),  and Dennis Cain
          Physician  Solutions,   Ltd.  ("DCPS"),  two  providers  of  physician
          management, billing, consulting and collection services in a merger 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.

     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.

     Prior to the proposed amendments to its certificate of incorporation ,
SurgiCare is authorized to issue up to 50,000,000 shares of common stock, par
value $.005 per share, and 20,000,000 shares of preferred stock, par value $.001
per share.

     SurgiCare, Inc.'s principal executive offices are located at 12727
Kimberley Lane, Suite 200, Houston, TX 77024, and its telephone number is
713-973-6675.


     Bellaire SurgiCare, Inc.

     Bellaire owns and operates an ASC located in Houston, Texas. The ASC has
been in operation for 14 years, first as The Institute for Eye Surgery, and
since March of 1995, as Bellaire SurgiCare, Inc. This center provides the venue
for a wide range of high volume, lower-risk surgical procedures within a
multi-specialty environment. Surgeons specializing in podiatry, orthopedics,
pain management, gynecology, as well as reconstructive and general surgery
utilize this facility. The surgeons performing surgery at Bellaire generally
charge their patients for the professional services they provide, while Bellaire
only charges the patients for the facility fee. While Bellaire is currently a
wholly-owned subsidiary of SurgiCare, we have begun the process of restructuring
the ownership of the surgery center owned and operated by Bellaire to allow for
the sale of investment interests to operating physicians in such surgery center.
In 2003, there were 1,803 patients treated at Bellaire by approximately 30
doctors, 14 of which have an ownership interest in the Company.

     SurgiCare Memorial Village, L.P.

     SurgiCare, through its wholly owned subsidiary Town & Country SurgiCare,
Inc., owns a 60% General Partnership interest in SurgiCare Memorial Village,
L.P. ("Memorial Village"). This center provides the venue for a wide range of
high volume, lower-risk surgical procedures within a multi-specialty
environment. Surgeons specializing in podiatry, orthopedics, pain management,
gynecology, reconstructive, as well as general surgery utilize this facility.
The surgeons performing surgery at Memorial Village generally charge their
patients for the professional services they provide, while Memorial Village only
charges the patients for the facility fee. In 2003, there were 2,226 patients
treated at Memorial Village by approximately 60 doctors, 25 of which have an
ownership interest in Memorial Village.


                                       4

<PAGE>
     San Jacinto Surgery Center, L.P.

     SurgiCare through its wholly owned subsidiary Baytown SurgiCare, Inc. owns
a 10% General Partnership interest in San Jacinto Surgery Center, L.P. ("San
Jacinto"). This center provides the venue for a wide range of high volume,
lower-risk surgical procedures within a multi-specialty environment. Surgeons
specializing in podiatry, orthopedics, pain management, gynecology, plastics, as
well as general surgery, utilize this facility. The surgeons performing surgery
at San Jacinto generally charge their patients for the professional services
they provide, while San Jacinto only charges the patients for the facility fee.
In 2003, there were 4,214 patients treated at San Jacinto by approximately 43
doctors, 19 of which have an ownership interest in San Jacinto.

     Tuscarawas Ambulatory Surgery Center, LLC

     SurgiCare owns a 51% interest in Tuscarawas Ambulatory Surgery Center, LLC
(Tuscarawas) located in Dover, Ohio. This center provides the venue for a wide
range of high volume, lower-risk surgical procedures within a multi-specialty
environment. Surgeons specializing in orthopedics, ENT and general surgery
utilize this facility. The surgeons performing surgery at the center generally
charge their patients for the professional services they provide, while
Tuscarawas only charges the patients for the facility fee. In 2003, there were
2,762 patients treated at Tuscarawas by approximately 25 doctors, 12 of which
have an ownership interest in Tuscarawas.


INDUSTRY OVERVIEW

     ASCs are licensed outpatient surgery centers, generally equipped and
staffed for a wide variety of surgical procedures. These procedures are
generally lower-risk and considered appropriate for the freestanding ambulatory
setting. In recent years, government programs, private insurance companies,
managed care organizations and self-insured employers have implemented various
cost-containment measures to limit the growth of healthcare expenditures. These
cost-containment measures, together with technological advances, have resulted
in a significant shift in the delivery of healthcare services away from
traditional inpatient hospitals to more cost-effective alternative sites,
including ASCs. This shift is illustrated by an outpatient market study,
performed by Verispan, L.L.C. shows an 81% increase in surgeries provided
outside traditional hospitals, over a 7 year period from 1996 to 2003.



SurgiCare believes that the following factors have contributed to the growth of
ASCs:

     Cost-effective Alternative. ASCs are not usually saddled with the high cost
and overhead of the ancillary services such as administration, laboratory,
radiology, or dietary, that are generally found in the hospital settings.
Therefore, surgery is generally less expensive than hospital inpatient surgery.
In addition, SurgiCare believes that surgery performed at a freestanding ASC is
also less expensive than hospital-based ambulatory surgery for a number of
reasons, including:

     --   Lower facility development costs;

     --   More efficient use of staffing and space utilization;

     --   Specialized operating environment focused on cost containment.

     SurgiCare believes that interest in ASCs has grown as managed care
organizations have continued to seek a cost-effective alternative to inpatient
services.

     Physician and Patient Preference. Operating physicians, who have determined
that their patients are in need of a surgical procedure, generally choose in
which facility the surgery will be performed. In most cases, patients will have
their surgery performed at the facility that their doctor determines is most
appropriate.

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<PAGE>

     Freestanding ASCs subject neither doctors nor their patients to the large
institutional environment found at both acute care inpatient hospitals, and
outpatient surgery centers located within a hospital.

     SurgiCare believes that because of the ease of admission and discharge,
many physicians prefer ASCs. SurgiCare believes that such centers enhance
physicians' productivity by providing them with greater scheduling flexibility,
more consistent nurse staffing and faster turnaround time between cases. This
allows the physician to perform more surgeries in a defined period.

     In contrast, hospitals generally serve a broader group of physicians,
including those involved with emergency procedures, resulting in postponed or
delayed surgeries. Additionally, many physicians choose to perform surgery in a
freestanding ASC because their patients prefer the simplified admissions and
discharge procedures and the less institutional atmosphere.

     New Technology. The increased use of minimally invasive surgery, enhanced
endoscopic techniques and fiber optics, have reduced the trauma and recovery
time associated with many surgical procedures. Improved anesthesia has shortened
recovery time by minimizing postoperative side effects such as nausea and
drowsiness, thereby avoiding, in some cases, overnight hospitalization. These
new technologies and advances in anesthesia, which have been increasingly
accepted by physicians, have significantly expanded the types of surgical
procedures that are being performed in ASCs.



BUSINESS PHILOSOPHY

     SurgiCare believes that physician owned and operated ASCs are typically
profitable. This profitability results primarily from the fact that physicians
who own and operate an ASC are the center's most significant source of patients
and benefactors. Generally, it is the operating physician, not the patient, who
chooses the facilities where surgical procedures are to be done. Because this
decision is made at the physician level, it is in fact the physicians bringing
patients to the outpatient surgical facility.

     SurgiCare believes that ASCs receive their patient referrals almost
exclusively from the operating physicians. Therefore, it becomes an extremely
important role of a center's management to insure that the operating physicians
have everything they need, and that they are pleased with the results that they
are able to obtain at the center. If management and the operating physicians are
substantially the same, it becomes much easier to insure that physician needs
are meet, and that their experiences at the centers are pleasant.

     Furthermore, SurgiCare believes that physicians become more cost conscious
when they own and manage the ASCs in which they practice. This increased cost
consciousness can have a significant positive effect on the overall
profitability of the center without detrimentally affecting the patients.

     SurgiCare believes that the profitability of freestanding ASCs tends to
make them attractive to acquirers. Nevertheless, following the acquisition of a
physician owned center, evidence suggests that the typical center's
profitability will significantly decrease. SurgiCare believes that this typical
decline in profitability can be explained, in part, because in many of such
acquisitions, the operating physicians lose control of the center. After a
typical acquisition of an ASC, the control of the center is typically vested in
non-physician management. The factors motivating the physician users to insure
the center's profitability are therefore typically removed.

     SurgiCare's management structure consists of physicians and healthcare
professionals. SurgiCare's management has substantial experience in the
operation and management of ASCs. SurgiCare also expects that it will issue its
own shares, or other equity interests to the physicians who own and operate
other centers in which SurgiCare may acquire an interest. SurgiCare believes
that it will thereby be able to substantially align the interests of SurgiCare's
management and shareholders with those of the physician

                                       6

<PAGE>

owners of centers in which  SurgiCare  may acquire an interest.  SurgiCare  also
presently  intends to permit each surgery center to be substantially  managed by
its own board,  which is  anticipated  to consist  of a majority  of  physicians
associated with the center and one or more  representatives of SurgiCare.  Based
upon this approach,  SurgiCare expects that it will benefit from the substantial
unity of goals and motivations of its own management and shareholders with those
of  physicians  who have  previously  owned and operated a  freestanding  center
acquired, in whole or in part, by SurgiCare.

     SurgiCare believes that if the goals and motivations for each center are
substantially aligned, then SurgiCare can achieve profitability for every center
in which it acquires an interest. However, there are numerous factors that
affect the profitability of ASCs, including regulatory and liability matters.
Therefore, there can be no assurance that the profitability of any center or
SurgiCare as a whole will be maintained.

     SurgiCare intends to apply its philosophy in the acquisition, development
and operation of physician owned / managed freestanding ASCs.

STRATEGY

     SurgiCare's market strategy is to accelerate penetration of key markets and
expand into new markets by:

     --   Attracting and retaining top quality,  highly productive  surgeons and
          other   physicians.    Recognizing   the   importance   of   physician
          satisfaction,  SurgiCare  operates its facilities and has designed its
          operating  model to  encourage  physicians  to choose our  facilities.
          SurgiCare has identified and seeks to accommodate the key factors in a
          physician's decision making process, which SurgiCare believes includes
          quality  of  care,   patient   comfort,   streamlined   administrative
          processes,  efficient  operation and overall opportunity for increased
          physician productivity.


     --   Enhance physician productivity. SurgiCare intends to enhance physician
          productivity and promote increased  same-center volumes,  revenues and
          profitability  by  increasing  physician  involvement,   and  creating
          operating   efficiencies,   including   improved   scheduling,   group
          purchasing programs and clinical efficiencies.


     --   Growth through  selective  domestic  acquisitions  and  development of
          surgical  facilities.  SurgiCare  typically targets the acquisition or
          development   of   surgery   centers   that   provide   high   volume,
          non-emergency,  lower risk procedures in several medical  specialties.
          Our focus is on under-performing  centers where acquisition prices are
          modest  and  the   leverage   returns  for   operational   performance
          improvements is high.  SurgiCare's  development staff first identifies
          existing  centers  that  are  potential  acquisition  candidates.  The
          candidates are then evaluated  against  SurgiCare's  project  criteria
          which may be expected  to include  several  factors  such as number of
          procedures  currently being performed by the center,  competition from
          and the fees  being  charged  by other  surgical  providers,  relative
          competitive   market   position   of   the   surgery   centers   under
          consideration, ability to contract with payers in the market and state
          certificate  of need ("CON")  requirements  for  development  of a new
          center.  SurgiCare is in the process of identifying  ASCs as potential
          acquisition  targets  and has, in some  cases,  conducted  preliminary
          discussions  with  representatives  of centers,  although there are no
          signed  letters of intent or any verbal offers to acquire such surgery
          centers.  SurgiCare  expects  that the  acquisition  of other  surgery
          centers  will take the form of mergers,  stock-for-stock  exchanges or
          stock-for-assets  exchanges  and that in most  instances,  the  target
          company will wish to structure the business  combination  to be within
          the definition of a tax-free  reorganization  under Section 368 of the
          Internal Revenue Code of 1986, as amended. SurgiCare may, however, use
          other acquisition structuring techniques including purchases of assets
          or stock for cash or cash and stock,  or through  formation  of one or
          more limited

                                       7


<PAGE>


partnerships or limited liability companies.  SurgiCare will typically acquire a
minority interest in a particular center.

     --   Enhance  operating  efficiencies.  We use  systems  and  protocols  to
          enhance operating  efficiencies at both existing and newly acquired or
          developed  facilities.  These systems and protocols  include:  patient
          scheduling  and   pre-certification   process,   block  scheduling  by
          physicians,  dedicating  multiple operating rooms to each physician to
          speed turn-around time, and not offering emergency room services which
          ensures  ease in  scheduling  and  availability.  We believe that this
          focus on efficient  operations  increases  our own  profitability  and
          encourages  physicians  to use  our  facilities  by  increasing  their
          productivity.  In addition,  efficient  operations are critical to our
          lower cost  model and our  competitive  advantage  in  attracting  and
          negotiating with payers.


     --   Creation of operationally efficient clusters of ASCs. We seek to build
          a core management team in each  geographical  market,  which will gain
          increased marketing and operational efficiencies as we add new centers
          to the market.  Spreading the overhead  burdens  across more operating
          units not only  reduces the total  overhead per center but also allows
          us to attract increasingly more competent operating managers.


     --   Diversification into complimentary  healthcare  businesses.  SurgiCare
          expects to diversify into related healthcare markets and are targeting
          imaging  centers  and  practice  management  companies.  SurgiCare  is
          looking  to  develop  and/or  acquire  imaging  centers  that  are  in
          conjunction with our surgery centers. This will strategically position
          us to service  medical  outpatient  needs and enhance the practices of
          the  healthcare  providers  who utilize  our  services.  SurgiCare  is
          planning  to  expand  into  practice  management,   which  is  a  core
          discipline  that  SurgiCare  will  need to  continue  to  grow  and be
          profitable.   Servicing  surgery  centers  with  practice   management
          functions can be a source of potential acquisitions.


ACQUISITION AND DEVELOPMENT OF SURGERY CENTERS

     SurgiCare's development staff works to identify existing centers that are
potential acquisition candidates and identify physician practices that are
potential partners for new center development in the medical specialties that
SurgiCare has targeted for development.

     The candidates are then evaluated against SurgiCare's project criteria
which may be expected to include several factors such as number of procedures
currently being performed by the practice, competition from and the fees being
charged by other surgical providers, relative competitive market position of the
physician practice under consideration, ability to contract with payers in the
market and state CON requirements for development of a new center.

     In presenting the advantages to physicians of developing a new freestanding
ASC in partnership with SurgiCare, we anticipate that our development staff will
emphasize the following factors, among others:

1.   SurgiCare's model of minority interest, allowing the physicians or limited
     partners to own a majority of the center.

2.   Simplified administrative procedures.

3.   The ability to schedule consecutive cases without preemption by inpatient
     or emergency procedures.

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<PAGE>

4.   Rapid turnaround time between cases.

5.   The high technical competency of the center's clinical staff that performs
     only a limited number of specialized procedures, and state-of-the-art
     surgical equipment.

     SurgiCare expects that it will provide the following developmental
services: financial feasibility pro forma analysis; assistance in state CON
approval process; site selection; assistance in space analysis and schematic
floor plan design; analysis of local, state, and federal building codes;
negotiation of equipment financing with lenders; equipment budgeting,
specification, bidding, and purchasing; construction financing; architectural
oversight; contractor bidding; construction management; assistance with
licensing; assistance with Medicare certification and third party managed care
contracts.

     SurgiCare, under previous management, developed Bellaire surgery center.
SurgiCare, under current management developed Physicians Endoscopy Center, L.P.
("Physicians Endoscopy"). SurgiCare sold its interest in Physicians Endoscopy in
June 2003 and SurgiCare acquired Memorial Village, San Jacinto and Tuscarawas as
already established and operating surgery centers. SurgiCare's current
management has experience in developing surgery centers and was responsible for
developing five new centers and managing two centers prior to working for
SurgiCare.

     In addition, SurgiCare is opening the Tuscarawas MRI center to expand our
operations in Dover, Ohio. Sixty percent of the funding is being provided by a
third party lease finance company called Maxus Leasing Group ("Maxus"). The
Maxus financing is a typical equipment lease financed over five years. The
remaining portion of the funding was loaned to SurgiCare by a wholly-owned
subsidary of Brantley IV.

     Going forward, SurgiCare anticipates that its ownership interests in most
of its ASCs will be approximately 35%. However, from time to time, SurgiCare may
identify centers where it is advantageous to acquire a majority interest.
Regardless of the percentage of each center that SurgiCare acquires, the
physicians who had owned and operated a center acquired by SurgiCare, or who
have newly developed a center in partnership with SurgiCare, generally will
become shareholders in SurgiCare. The local physicians will continue to oversee
their operations through an executive committee that interacts with SurgiCare on
a regular basis to provide feedback and set policy.


SURGERY CENTER LOCATIONS

         The following table sets forth information related to SurgiCare's
surgical centers in operation as of December 31, 2003:


<TABLE>
<CAPTION>
                           SURGERY CENTER LOCATIONS

                                                                 Acquisition          SurgiCare
               Name                        Location                 Date              Ownership
-----------------------------------  ------------------------  --------------  ----------------------
<S>                                                                    <C>              <C>
Bellaire SurgiCare                      Houston, Texas            July 1999             100%
SurgiCare Memorial Village              Houston, Texas            Oct. 2000              60%
San Jacinto Surgery Center              Baytown, Texas            Oct. 2000              10%
Tuscarawas Ambulatory
 Surgery Center                         Dover, Ohio               June 2002              51%
</TABLE>

AAAHC ACCREDITATION

     Two of SurgiCare's surgery centers are accredited by the Accreditation
Association for Ambulatory Health Care Inc. ("AAAHC"). SurgiCare's Bellaire and
Memorial Village facilities are not yet

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<PAGE>

accredited.  SurgiCare will seek  accreditation  for the Bellaire  facility upon
completion of the facility's  renovation.  In the future,  SurgiCare's  Memorial
Village  facility  will  re-apply  for  accreditation.  Although  not  required,
SurgiCare believes that obtaining an AAAHC  accreditation is useful in competing
for, and contracting with, certain managed care organizations.  SurgiCare, where
practical, will strive to obtain AAAHC accreditation.

REVENUES

     SurgiCare's principal source of revenues is a surgical facility fee charged
to patients for surgical procedures performed in its surgery centers. SurgiCare
depends upon third-party programs, including governmental and private health
insurance programs to pay these fees on behalf of their patients. Patients are
responsible for the co-payments and deductibles when applicable. The fees vary
depending on the procedure, but usually include all charges for operating room
usage, special equipment usage, supplies, recovery room usage, nursing staff and
medications. Facility fees do not include the charges of the patient's surgeon,
anesthesiologist or other attending physicians, which are billed directly to
third-party payers by such physicians. In addition to the facility fee revenues,
SurgiCare also earns management fees from its operating facilities and
development fees from centers that it develops.

     ASCs, such as those in which SurgiCare owns or intends to acquire an
interest depend upon third-party reimbursement programs, including governmental
and private insurance programs, to pay for services rendered to patients.
SurgiCare derived approximately 21% of its gross revenues from governmental
healthcare programs, including Medicare and Medicaid, in 2003. The Medicare
program currently pays ASCs and physicians in accordance with fee schedules,
which are prospectively determined.

     The Department of Health and Human Services ("DHHS") currently bases its
reimbursement system to ASCs on a 1986 cost survey. The Medicare Prescription
Drug, Improvement and Modernization Act of 2003 ("MMA") enacted in December 2003
requires that the current ASC reimbursement methodology based on cost surveys be
replaced with a new ASC payment system that will be effective prior to 2008.
This new system will be based on recommendations made by the General Accounting
Office after studying the relative costs of procedures furnished in ASCs to
those furnished in hospital outpatient departments. The new payment methodology
could adversely impact surgery center reimbursement and therefore our financial
condition, results of operations and business prospects. The MMA also reduces
Medicare payments to ASC by 1% starting April 1, 2004 and freezes the payment
rates from October 1, 2004 through December 31, 2009.

         In January 2003, the Medicare Payment Advisory Commission ("MedPac")
voted to recommend to Congress that the reimbursement by Medicare for procedures
performed in surgery centers be no higher than the reimbursement rate for the
same procedures performed in hospital outpatient departments. Also, in January
2003, the Office of Inspector General ("OIG") issued a report that included a
similar recommendation, and a recommendation that DHHS conduct a new cost
survey. It is uncertain if Congress will act on either or both recommendations.
While the majority of procedures are reimbursed at a higher rate in hospital
outpatient departments than in ASCs, several procedures are reimbursed at a
higher rate in ASCs. Although there is no certainty that these recommendations
will be implemented, we have determined that, based on our current procedure
mix, the MedPac recommendation, if implemented, would have an immaterial effect
on revenues.

         In addition to payment from governmental programs, ASCs derive a
significant portion of their net revenues from private healthcare reimbursement
plans. These plans include both standard indemnity insurance programs as well as
managed care structures such as preferred provider organizations (" PPOs"),
health maintenance organizations ("HMOs") and other similar structures.

         The strengthening of managed care systems nationally has resulted in
substantial competition among providers of services, including providers of
surgery center services. This competition includes companies with greater
financial resources and market penetration than SurgiCare. In some cases,
national managed care systems require that a provider, in order to participate
in a specific plan, be able to cover an expanded geographical area.

                                       10


<PAGE>

     SurgiCare believes that all payers, both governmental and private, will
continue their efforts over the next several years to reduce healthcare costs
and that their efforts will generally result in a less stable market for
healthcare services. While no assurances can be given concerning the ultimate
success of SurgiCare's efforts to contract with healthcare payers, SurgiCare
believes that its position as a low-cost alternative for certain surgical
procedures should enable its current centers, and additional centers which it
may acquire, to compete effectively in the evolving healthcare marketplace.

COMPETITION

     There are several companies, many in niche markets, that acquire existing
freestanding ASCs. Many of these competitors have greater resources than
SurgiCare. The principal competitive factors that affect the ability of
SurgiCare and its competitors to acquire surgery centers are price, experience,
reputation, and access to capital.

     SurgiCare's most significant competitors include: Symbion, Inc., Amsurg
Corporation, Surgis, Inc., Foundation Surgery Affiliates, Inc., HealthSouth
Corporation, United Surgical Partners International, Inc. Dynacq Healthcare,
Inc., NovaMed Eyecare, Inc., TLC Vision Corporation, LCA Vision, Inc., Hospital
Partners of America, Inc. and National Surgical Care, Inc.


MANAGED CARE CONTRACTS

     SurgiCare's participation in managed care contracts, often referred to as
HMOs and PPOs, in most cases simply makes it more convenient and cost effective
for a potential patient to allow their doctor to choose a SurgiCare facility.
Participation in most managed care contracts is helpful, but not material to
SurgiCare's business. SurgiCare believes that its current centers can provide
lower-cost, high quality surgery in a more comfortable environment for the
patient in comparison to hospitals and to hospital-based surgery centers with
which SurgiCare competes for managed care contracts. SurgiCare intends that any
additional center, which it may acquire, will be similarly situated. In
competing for managed care contracts, it is important that SurgiCare be able to
show insurance companies that it provides quality healthcare at affordable,
competitive prices.


GOVERNMENT REGULATION

     The healthcare industry is subject to extensive regulation by a number of
governmental entities at the federal, state and local levels. Regulatory
activities affect the business activities of SurgiCare by controlling its
growth, requiring licensure and certification for its facilities, regulating the
use of SurgiCare's properties, and controlling reimbursement to SurgiCare for
the services provided at those facilities.

     Certificates of Need and State Licensing. CON regulations control the
development of ASCs in certain states. CON statutes generally provide that prior
to the expansion of existing centers, the construction of new centers, the
acquisition of major items of equipment or the introduction of certain new
services, approval must be obtained from the designated state health-planning
agency based on a determination that a need exists for those facilities or
services. SurgiCare expects that its development of ASCs will generally focus on
states that do not require CONs. However, acquisitions of existing surgery
centers, even in states that require CONs for new centers, generally do not
require CON regulatory approval. The large population states that require CON
regulatory approval are New York, Michigan and Illinois.

     State licensing of ASCs is generally a prerequisite to the operation of
each center and to participation in federally funded programs, such as Medicare
and Medicaid. Once a center becomes licensed and operational, it must continue
to comply with federal, state and local licensing and certification requirements
in addition to local building and life safety codes. In addition, each center is
also subject to

                                       11

<PAGE>

federal,  state and local laws dealing with issues such as occupational  safety,
employment,   medical   leave,   insurance   regulations,   civil   rights   and
discrimination, and medical waste and other environmental issues.

     Insurance Laws. Laws in all states regulate the business of insurance and
the operation of HMOs. Many states also regulate the establishment and operation
of networks of healthcare providers. SurgiCare believes that its operations are
in compliance with these laws in the states in which it currently does business.
The National Association of Insurance Commissioners (the "NAIC") recently
endorsed a policy proposing the state regulation of risk assumption by
healthcare providers. The policy proposes prohibiting providers from entering
capitated payment contracts (which are contracts that compensate the provider
based on the number of members in the plan rather than based on the services the
provider performs) or other risk sharing contracts, except through HMOs or
insurance companies. Several states have adopted regulations implementing the
NAIC policy in some form. In states where such regulations have been adopted,
healthcare providers will be precluded from entering into capitated contracts
directly with employers and benefit plans other than HMOs and insurance
companies.

     SurgiCare and its affiliated groups currently do not and currently do not
intend to enter into contracts with managed care organizations, such as HMOs,
whereby SurgiCare and its affiliated groups would assume risk in connection with
providing healthcare services under capitated payment arrangements, although
certain of the subsidiaries of SurgiCare that will exist after the transactions
currently do so, and may continue to do so in the future. If SurgiCare or its
affiliated entities are considered to be in the business of insurance as a
result of entering into such arrangements, they could become subject to a
variety of regulatory and licensing requirements applicable to insurance
companies or HMOs, which could have a material adverse effect upon SurgiCare's
ability to enter into such contracts. SurgiCare has not made a determination
regarding whether it will be deemed to be in the insurance business after the
transactions close.

     With respect to managed care contracts that do not involve capitated
payments or some other form of financial risk sharing, federal and state
antitrust laws restrict the ability of healthcare provider networks such as
SurgiCare's specialty physician networks to negotiate payments on a collective
basis.

     Reimbursement. SurgiCare depends upon third-party programs, including
governmental and private health insurance programs to reimburse its ASCs for
services rendered to patients in its centers. In order to receive Medicare
reimbursement, each ASC must meet the applicable conditions of participation set
forth by DHHS relating to the type of facility, its equipment, personnel and
standard of medical care, as well as compliance with state and local laws and
regulations, all of which are subject to change from time to time. ASCs undergo
periodic on-site Medicare certification surveys. SurgiCare's existing centers
are certified as Medicare providers. SurgiCare believes that its current centers
will participate in Medicare and other government programs. However, SurgiCare's
current centers may or may not continue to qualify for participation in Medicare
and other government programs. Additionally, the centers that SurgiCare acquires
in the future may not qualify for participation in Medicare or other government
programs.

     Medicare-Medicaid Illegal Remuneration Provisions. The anti-kickback
statute makes unlawful knowingly and willfully soliciting, receiving, offering
or paying any remuneration (including any kickback, bribe, or rebate) directly
or indirectly to induce or in return for referring an individual to a person for
the furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Violation is
a felony punishable by a fine of up to $25,000 or imprisonment for up to five
years, or both. The Medicare and Medicaid Patient Program Protection Act of 1987
(the "1987 Act") provides administrative penalties for healthcare practices
which encourage over utilization or illegal remuneration when the costs of
services are reimbursed under the Medicare program. Loss of Medicare
certification and severe financial penalties are included among the 1987 Act's
sanctions. The 1987 Act, which adds to the criminal penalties under preexisting
law, also directs the Inspector General of the DHHS to investigate practices
which may constitute over utilization, including investments by healthcare
providers in medical diagnostic facilities and to promulgate regulations
establishing

                                       12

<PAGE>

exemptions or "safe  harbors" for  investments by medical  service  providers in
legitimate  business  ventures  that will be deemed not to violate  the law even
though those  providers may also refer  patients to such a venture.  Regulations
identifying  safe  harbors  were  published  in  final  form in July  1991  (the
"Regulations").

     If an operating physician has a financial interest in a facility through a
partnership interest or as a shareholder, the operating physician has the
potential to benefit from the profitability of the facility. Where a physician
is in a position to direct referrals or business to an entity or facility in
which such physician has an ownership interest, and, therefore will benefit from
the financial profitability of such entity or facility, there is risk under
federal and state law, including the Medicare-Medicaid Illegal Remuneration
Provisions. If the facility where a surgeon performs surgery is considered an
extension of the surgeon's practice, this may reduce the risk of a violation of
the anti-kickback statutes of the Medicare-Medicaid Illegal Remuneration
Provisions.

     The Regulations set forth two specific exemptions or "safe harbors" related
to "investment interests": the first concerning investment interests in large
publicly traded companies ($50 million in net tangible assets) and the second
for investments in smaller entities. The corporate structure of SurgiCare and
its centers meet all of the criteria of either existing "investment interests"
safe harbor as announced in the Regulations.

     While several federal court decisions have aggressively applied the
restrictions of the anti-kickback statute, they provide little guidance as to
the application of the anti-kickback statute to SurgiCare or its subsidiaries.
There is safe harbor protection under the anti-kickback statute for
physician-owned ASCs that are structured to meet certain tests set out in the
regulations. SurgiCare's surgery centers may not currently satisfy all
components of the tests for the safe harbor applicable to the ASCs. Nonetheless,
SurgiCare believes that it is in compliance with the current requirements of the
anti-kickback statute.

     Notwithstanding SurgiCare's belief that the relationship of physician
partners to SurgiCare's surgery center should not constitute illegal
remuneration under the anti-kickback statute, no assurances can be given that a
federal or state agency charged with enforcement of the anti-kickback statute or
similar state laws might not assert a contrary position or that new federal or
state laws might not be enacted that would cause the physician partners'
ownership interest in SurgiCare to become illegal, or result in the imposition
of penalties on SurgiCare or certain of its facilities. Even the assertion of a
violation could have a material adverse effect upon SurgiCare.

     Prohibition on Physician Ownership of Healthcare Facilities. The "Stark II"
provisions of the Omnibus Budget Reconciliation Act of 1993 amend the federal
Medicare statute to prohibit a referral by a physician for "designated health
services" to an entity in which the physician has an investment interest or
other financial relationship, subject to certain exceptions. A referral under
Stark II that does not fall within an exception is strictly prohibited. This
prohibition took effect on January 1, 1995. Sanctions for violating Stark II can
include civil monetary penalties and exclusion from Medicare and Medicaid.

     Ambulatory surgery is not identified as a "designated health service" and
Stark II regulations state that items and services provided in any ASC and
reimbursed under the composite payment rate are not designated health services.
Because all items and services provided at SurgiCare's surgery centers are
billed to Medicare under a composite payment rate, as discussed below, SurgiCare
believes that it is not subject to the physician self-referral restrictions set
forth in Stark II. However, in the event that SurgiCare in the future offers
services that are not ASC services covered by a composite payment rate and are
"designated health services" under Stark II, SurgiCare would be subject to the
Stark II physician self-referral prohibition with respect to those services.

     Medicare pays ASCs a composite rate, or fixed facility payment, as payment
in full for all items and services furnished to a patient in connection with a
surgical procedure. For example, the Medicare ASC facility fee includes payment
for all lab work that might be furnished in connection with a surgical

                                       13

<PAGE>

procedure. As such, the physician who furnishes a surgical procedure in an ASC
in which he or she has an ownership interest has no incentive to unnecessarily
order lab services. The Centers for Medicare and Medicaid Services ("CMS') cited
this as the primary basis for expressly protecting ASC services, and items and
services that otherwise would constitute designated health services when
furnished in the ASC setting.

     Most payers pay using a composite payment rate based on the various
procedure groups used by ASCs. Some payers will pay separately for supplies and
implants. The compensation paid by each payer for the facility fees varies by
insurance carrier. Most pay at a percentage of Medicare or a fixed amount per
procedure group. If a facility has a mix of patients whose payers pay better
rates than average, the margins of that center are typically higher. If a
facility has a mix of patients whose payers pay less than the average rates, the
margins of that center are typically lower. The margins achieved at each center
are primarily a function of volume, payer, mix and operating efficiency, in that
order.

     However, unfavorable future Stark II regulations or subsequent adverse
court interpretations concerning the Stark II law or regulations or similar
provisions found in similar state statutes could prohibit reimbursement for
treatment provided by the physicians affiliated with SurgiCare or its current or
future centers to their patients. The negative effect of such unfavorable future
Stark II regulations or court rulings may be that investor physicians would not
admit their patients to SurgiCare ASCs because of the prohibition on
reimbursement for services. This would have a chilling effect on the revenues of
SurgiCare and would make its continuing viability questionable. However, due to
the positive financial benefits ASCs offer over hospitals, as discussed in
"Industry Overview" in this section, SurgiCare believes it is unlikely that the
legislature or court will take such unfavorable actions because of the
overwhelming financial benefits enjoyed by Medicare by allowing procedures to be
performed at ASCs.

     Neither SurgiCare nor its subsidiaries are engaged in the corporate
practice of medicine. SurgiCare does not employ any physicians to practice
medicine on its behalf. SurgiCare and its subsidiaries merely provide the venue
for its physicians to perform surgical procedures. SurgiCare submits claims and
bills to patients for the facility fee only, and in no way are involved with the
billing or submission of claims for any professional medical fees.


     Administrative Simplification and Privacy Requirements. There are currently
numerous legislative and regulatory initiatives at the state and federal levels
addressing patient privacy concerns. In particular, on December 28, 2000, DHHS
released final health privacy regulations implementing portions of the
Administrative Simplification Provisions of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA"), and in August 2002 published revisions to
the final rules. These final health privacy regulations generally require
compliance by April 14, 2003 and extensively regulate the use and disclosure of
individually identifiable health-related information. In addition, HIPAA
requires DHHS to adopt standards to protect the security of health-related
information. DHHS released final security regulations on February 20, 2003. The
security regulations will generally become mandatory on April 20, 2005. These
security regulations will require healthcare providers to implement
administrative, physical and technical practices to protect the security of
individually identifiable health-related information that is electronically
maintained or transmitted. Further, as required by HIPAA, DHHS has adopted final
regulations establishing electronic data transmission standards that all
healthcare providers must use when submitting or receiving certain healthcare
transactions electronically. Compliance with these regulations became mandatory
on October 16, 2002. However, entities that filed for an extension before
October 16, 2002 have until October 16, 2003 to comply with the regulations.
SurgiCare filed extensions for its centers before October 16, 2002, and we
believe that we were in compliance with the standards by October 16, 2003. We
believe that the cost of compliance with these regulations will not have a
material adverse effect on our business, financial position or results of
operations. If we fail to comply with these regulations, we could suffer civil
penalties up to $25,000 per calendar year for each provision violated and
criminal penalties with fines of up to $250,000 per violation. In addition, our
facilities will continue to remain subject to any state laws that are more
restrictive than the privacy regulations issued under HIPAA. These statutes vary
by state and could impose additional penalties.


                                       14

<PAGE>

     SurgiCare cannot predict whether other regulatory or statutory provisions
will be enacted by federal or state authorities which would prohibit or
otherwise regulate relationships which SurgiCare has established or may
establish with other healthcare providers or the possibility of material adverse
effects on its business or revenues arising from such future actions. SurgiCare
believes, however, that it will be able to adjust its operations to be in
compliance with any regulatory or statutory provision, as may be applicable.

     SurgiCare is subject to state and federal laws that govern the submission
of claims for reimbursement. These laws generally prohibit an individual or
entity from knowingly and willfully presenting a claim (or causing a claim to be
presented) for payment from Medicare, Medicaid or other third party payers that
is false or fraudulent. The standard for "knowing and willful" often includes
conduct that amounts to a reckless disregard for whether accurate information is
presented by claims processors.

     Penalties under these statutes include substantial civil and criminal
fines, exclusion from the Medicare program, and imprisonment. One of the most
prominent of these laws is the federal False Claims Act, which may be enforced
by the federal government directly, or by a qui tam plaintiff (a private person
suing on the government's behalf under a statute that assigns a certain part of
the penalty award to the government). Under the False Claims Act, both the
government and the private plaintiff, if successful, are permitted to recover
substantial monetary penalties, as well as an amount equal to three times actual
damages. In recent cases, some qui tam plaintiffs have taken the position that
violations of the anti-kickback statute and Stark II should also be prosecuted
as violations of the federal False Claims Act. Even though SurgiCare believes
that it has procedures in place to ensure the accurate completion of claims
forms and requests for payment, the laws and regulations defining the proper
parameters of proper Medicare or Medicaid billing are frequently unclear and
have not been subjected to extensive judicial or agency interpretation. Billing
errors can occur despite SurgiCare's best efforts to prevent or correct them,
and no assurances can be given that the government will regard such errors as
inadvertent and not in violation of the False Claims Act or related statutes.

     SurgiCare does not believe it has materially failed to comply with the any
of the regulations described above during the past two years.

EMPLOYEES

     As of December 31, 2003, SurgiCare and its subsidiaries employed
approximately 96 persons, 67 of whom were full-time employees and 29 of whom
were part-time employees. Of the above, eight were employed at SurgiCare's
corporate office in Houston, Texas and the remaining employees were employed by
SurgiCare's surgery centers. These employees work in the following positions:
corporate management (8); business office (14); administrators (4); nurses (47);
and technicians (23). SurgiCare believes its relationship with its employees to
be good. SurgiCare does not have any employment or labor contracts, except for
its Chief Executive Officer and Chief Financial Officer (see Note 18 to the
accompanying financial statements). Additionally, SurgiCare does not currently
plan on having any such contracts with any operating physician on staff at any
of its facilities. At this time, SurgiCare believes that all of its nurses and
other employees have at-will employment relationships with the SurgiCare.


PHYSICIAN STOCKHOLDERS

     SurgiCare has never entered into any arrangement, nor does it plan on
entering into any arrangement with any physicians that operate at any of its
facilities, to assure their continued use of its facilities. However, many of
the surgeons operating in SurgiCare facilities own SurgiCare common stock.
Depending on SurgiCare's profitability, the potential exists for all
stockholders, both physician and non-physician, to benefit financially.

                                       15

<PAGE>

     Surgeons specializing in podiatry, orthopedics, pain management,
gynecology, ophthalmology, reconstructive, as well as general surgery, utilize
SurgiCare's facilities. SurgiCare is not dependent on the revenue generated by
patients brought by any single operating physician. At certain facilities,
SurgiCare derives a large portion of its revenue from procedures performed
within specific specialties. Currently, podiatry and pain management are the
dominant specialties at Bellaire. Since Bellaire has over twenty podiatrist and
three pain management physicians bringing patients to the surgery center, none
are considered to be a major customer.



ITEM 2. DESCRIPTION OF PROPERTY.

     SurgiCare's principal office is located at 12727 Kimberley Lane, Suite 200,
Houston, Texas, 77024. This property is approximately 3,900 square feet, located
on the 2nd floor of the Kimberley Medical Office Building above our Memorial
Village surgery center. The property is leased from an unaffiliated third party
for an initial term that expires in August 2006, but with an option to renew for
an additional five years thereafter. Annual rental of $55,272.96 is payable
monthly in the amount of $4,606.08. SurgiCare maintains tenant fire and casualty
insurance on its property located in such building in an amount deemed adequate
by SurgiCare. The four surgery centers in operation at December 31, 2003, lease
space ranging from 10,000 to 14,000 square feet with remaining lease terms
ranging from month-to-month to nine years.

     In June 2002, SurgiCare acquired five properties from American
International Industries, Inc., Texas Real Estate Enterprises, Inc. and MidCity
Houston Properties, Inc. in exchange for 1.2 million shares of Series AA
Redeemable Preferred Stock. The land holdings are undeveloped properties.
SurgiCare is currently marketing the properties for sale. The properties include
735.66 acre tract of vacant land located on the east side of a shell paved road
leading to the Anahuac National Wildlife Refuse, approximately two miles South
of FM 1985, in Chambers County, Texas; a 22.36 acre tract of land located on the
east side of US 59 at the Old Humble/Atascocita Road exit, and an adjacent 14.80
acre tract of land on the west side of Homestead Road in Houston, Harris County,
Texas; a 22,248 square foot tract of land located on the northeast corner of
Almeda Road and Riverside Drive, in Houston, Harris County, Texas; four tracts
of land totaling 26.856 acres located on the southeast, northwest, and northeast
corners of Airport Boulevard and Sims Bayou and east side of 4th Street south of
Airport Boulevard in Houston, Harris County, Texas; and a 12.216 net acre tract
of land located on the southwest corner of Airport Boulevard and Sims Bayou,
Houston, Harris County, Texas. SurgiCare currently has contracts to sell two of
these properties - the tract adjacent to the Anahuac National Wildlife Refuge
and the tract on Almeda Road. Pursuant to a December 11, 2002 agreement,
American International Industries, Inc. guaranteed a resale price on the land of
$4 million and agreed to make up any shortfall.


ITEM 3. LEGAL PROCEEDINGS.

     In March 2003, SurgiCare Memorial Village, L.P. and Town & Country
SurgiCare, Inc. were named as defendants in a suit entitled MarCap Corporation
vs. Health First Surgery Center-Memorial, Ltd.; HFMC, L.C.; SurgiCare Memorial
Village, L.P.; and Town & Country SurgiCare, Inc. MarCap has sued for default
under a promissory note and refusing to remit payment on a promissory note in
the amount of $215,329.36. SurgiCare has paid $53,832.34 of this balance and
settlement has been reached whereby SurgiCare will pay MarCap $150,000 over the
next year with interest at 10%, with an underlying settlement of approximately
$200,000 in the event of a breach in the payment plan.

     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.

                                       16

<PAGE>

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 agreed to issue Mr. Altman 540,000 shares of common
stock to be registered with the Securities and Exchange Commission on Form S-8.

     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 defendants in the Texas case have moved for sanctions against
SurgiCare in that forum. The New York case has been ordered to mediation, which
has not yet been scheduled. In conjunction with the mediation order, the parties
agreed to stay the litigation in both states until completion of the mediation.

     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.

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

None.


                                       17
<PAGE>

                                     PART II


ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.


MARKET INFORMATION

     In April 2000, the company began trading on the OTC Bulletin Board. In July
2001, SurgiCare qualified for listing on the American Stock Exchange and began
trading on this exchange at that time under the symbol SRG. The following table
sets forth the high and low sales prices relating to SurgiCare's common stock
for the last two fiscal years:


FISCAL 2003
                                                 HIGH             LOW
                                               --------         --------
Quarter ended March 31, 2003                    $ 0.50           $ 0.27
Quarter ended June 30, 2003                     $ 0.45           $ 0.23
Quarter ended September 30, 2003                $ 0.54           $ 0.22
Quarter ended December 31, 2003                 $ 0.72           $ 0.36


FISCAL 2002
                                                 HIGH             LOW
                                               --------         --------
Quarter ended March 31, 2002                    $ 2.50           $ 1.90
Quarter ended June 30, 2002                     $ 3.70           $ 1.76
Quarter ended September 30, 2002                $ 2.68           $ 0.30
Quarter ended December 31, 2002                 $ 0.93           $ 0.22


HOLDERS

     SurgiCare believes that as of March 31, 2004, there were approximately 402
holders of record of the Company's Common Stock and one holder of the Company's
Series AA Preferred Stock.

DIVIDENDS

     SurgiCare has not paid dividends on shares of its common stock within the
last two years, and does not expect to declare or pay any cash dividends on its
common shares in the foreseeable future.

OPTION PLAN DATA

     In October 2001, SurgiCare established our 2001 Stock Option Plan, which
authorized 1.4 million shares of our common stock to be made available through
an incentive program for employees. The 2001 Stock Option Plan was approved by
the stockholders. The options were granted at an exercise price equal to the
fair market value of the common stock at the date of grant. The options had a
ten year term. There were 81,955 options granted under the 2001 Stock Option
Plan in 2002. There were none granted under the 2001 Stock Option Plan in 2003.
As of December 31, 2003, there were 62,706 options outstanding.

     The number of warrants outstanding as of the beginning of 2003 to employees
was 7,265,899. The number of warrants outstanding as of the end of 2003 to
employees or former employees was

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<PAGE>

6,855,899  with  exercise  prices  ranging from $0.32 to $2.00,  with a weighted
average  exercise  price of $0.407  per  share.  There  were no  changes  in the
exercise price of outstanding  warrants through  cancellation and re-issuance or
otherwise,   except  price  changes  resulting  from  the  normal  operation  of
anti-dilution provisions of the warrants.


RECENT SALES OF UNREGISTERED SECURITIES

     Set forth below is certain information concerning issuances of securities
by SurgiCare during the quarter ended December 31, 2003.

     On October 24, 2003, the Company issued 228,310 shares of common stock to
Charles Cohen, a former officer and director, in settlement of claims by Cohen
for compensation for services while he was employed by the Company. The stock
was issued to Mr. Cohen, an accredited investor, for services rendered in
reliance on the exemption provided by Section 4(2) of the Securities Act.

     On November 10, 2003, the Company issued 682,035 shares of common stock to
Long Nguyen, M.D., David Roberts, Gerald McIntosh, Hank Moore, and SMT
Marketing, LLC, each of whom are accredited investors for services rendered by
each of them under separate agreements with the Company. The stock was issued in
reliance on the exemption provided by Section 4(2) of the Securities Act.

     On December 9, 2003, the Company issued 41,833 shares of common stock to
U.S. Billing & Contracting, LLC, an accredited investor, for services rendered,
in reliance on to the exemption provided by Section 4(2) of the Securities Act.

     No underwriters were involved in any of the foregoing sales or issuance of
securities. Such sales or issuance were made in reliance upon an exemption from
the registration provisions of the Securities Act set forth in Section 4(2)
thereof relative to sales by an issuer not involving any public offering, or the
rules and regulations there under. Each recipient either received adequate
information about SurgiCare or had access, through employment or other
relationships, to such information, and SurgiCare determined that each recipient
had such knowledge and experience in financial and business matters that they
were able to evaluate the merits and risks of an investment in SurgiCare. All of
the foregoing securities are deemed restricted securities for the purposes of
the Securities Act.


ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

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 payer
practices, our historical and current compliance with existing or future
healthcare laws and regulations and third party payer 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-KSB 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.

                                       19

<PAGE>

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 to the accompanying Consolidated
Financial Statements. Our preparation of this 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 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
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 them 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

                                       20

<PAGE>

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
and practice management.

     Surgical supply costs are the single largest cost component of any
ambulatory surgical center. Therefore, SurgiCare's goal is to minimize the cost
of surgical supplies. Through participation in national buying groups, SurgiCare
has been able to negotiate discounts on most of the commonly used surgical
supplies. SurgiCare has also implemented a "Just in Time" approach to inventory.
This allows the center to minimize the amount of supplies that it is required to
keep in inventory.

     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. 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 center with whom discussions have been conducted.


FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

                                                         2003        2002
                                                     ----------- -----------
    Revenues, net                                       100.00%     100.00%
    Expenses:
        Direct Cost of Services                          56.16%      46.55%
        General & Administrative Expenses                75.64%     106.54%
        Other Operating Expenses                          8.97%      31.60%
            Total Operating Expenses                    140.77%     184.69%
    Operating Loss                                      -40.77%     -84.69%
    Other Loss                                          -21.03%     -12.62%
    Minority Interest in Losses of Limited Partnerships       -       6.77%
    Loss Before Federal Income Tax Expense              -61.80%     -90.54%
    Federal Income Tax Benefit:
        Current                                          -2.15%      -1.94%
        Deferred                                                    -11.99%
    Net Loss                                            -59.65%     -76.60%


                                       21

<PAGE>

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2003 ("2003") vs. YEAR ENDED DECEMBER 31, 2002 ("2002")


     Net Revenue. On a consolidated basis, case volume decreased 7.9% to 6,791
in 2003 compared to 7,374 cases in 2002. On a same-center basis (which includes
unconsolidated centers and pre-acquisition cases-see paragraph below), total
utilization increased 6.1% to 13,371 cases in 2003 from 12,603 in 2002. However,
revenue declined $3,487,916, or 30.2% to $8,064,523 in 2003 from $11,552,439 in
2002. On a per-case basis, revenue decreased to $1,188 in 2003 from $1,567 in
2002. In both comparable years, the average contractual allowance was
approximately 68%. Of the decrease, approximately $900,000 is attributable to
the decrease in case volume. The remaining decrease is due to the shift in types
of cases performed, where the company experienced decreases in cases with higher
reimbursement, including pain management, podiatry and urology, and increases in
ophthalmology cases, with lower reimbursement.

     The measure of unconsolidated centers and pre-acquisition cases using the
same-center basis provides a more accurate reflection of the true growth rate of
the centers and cases over comparable time periods. Unconsolidated centers
included those entities in which the Company previously held an equity interest,
but which later came under the management of the Company. Using the same-center
basis provides a better depiction of a particular entity before and after it
came under the Company's management. Similarly, using the same-center basis to
measure the performance of cases pre-acquisition and post-acquisition by the
Company provides a more accurate reflection of the performance of the individual
cases.

     Following a change in management of the Company in September 2002, the
Company determined that it was in the best interest of the Company to adopt a
change in accounting policy resulting in a more conservative method of
estimating contractual allowances based on a rolling average ratio of actual
cash collections to related billed charges. The adoption of this policy resulted
in insurance contractual allowances being increased by approximately $2.17
million, or approximately 6% of gross billings. This increase in allowance did
not represent a material change in the revenues and collections of the Company.

     The increase in contractual allowances was a result of a change in internal
controls as disclosed in Item 14 of our Form 10-KSB for the year ended December
31, 2002. The Company's management determined that it was in the best interest
of the Company to use a conservative method of estimating such contractual
allowances. The method uses a rolling average based upon the trend of actual
cash collected compared to related billings.

     The previous method used to calculate the allowances contained such
deficiencies as not accounting for the payer mix or service mix associated with
the gross billings or the historical collections based on that payer mix and
service mix. This did not represent a correction of error but an improvement on
the estimation of the contractual allowance. The Company has made changes to its
internal controls in this area by measuring the actual collections against the
gross billings on a rolling average on a quarterly basis, that accounts for
changes in payer and service mix that directly affect the contractual allowance.

     Direct Cost of Revenues. Direct Cost of Revenues decreased $849,554, or
15.8% to $4,528,644 in 2003 from $5,378,198 in 2002. Surgical costs decreased
$1,085,148, or 40.0% to $1,629,661 in 2003 from $2,714,809 in 2002. As a
percentage of revenue, surgical costs decreased to 20.2% of revenue in 2003 from
23.5% in 2002. The decrease primarily corresponds to the 30.2% decrease in
revenue and case volume as discussed above. Additionally, based on the age of
some of the inventory items, new management determined in the third quarter of
2002 that it was appropriate to adjust the value of inventory. As a result,
surgical costs for 2002 reflect an adjustment of $300,000 to allow for potential
obsolescence of inventory. Direct clinical salaries and benefits increased
$226,104 or 13.3% to $1,928,822 in 2003 from

                                       22
<PAGE>

$1,702,718  in 2002  primarily  due to the full year  impact  of the  Tuscarawas
acquisition,  which  occurred in June 2002. As a whole,  Direct Cost of Revenues
per case decreased 8.6% to $666 in 2003 compared to $729 in 2002, resulting from
the factors discussed above.

     General and Administrative Expenses. General and administrative costs
decreased $6,207,882, or 50.4% to $6,100,192 in 2003 from $12,308,073 in 2002.
The decrease is primarily due to charges of $5.4 million to bad debt expense
taken in 2002 related to a change in the Company's policies regarding doubtful
accounts. Additionally, professional fees decreased by $1.1 million in 2003
compared to 2002, where the Company incurred substantial professional fees in
2002 related to raising equity, medical oversight and legal issues. These
expense decreases were partially offset by an increase of approximately $445,000
in expenses related to Tuscarawas (of which $233,000 included an increase in
rent), which was acquired in June 2002.

     In early 2002, the Company's existing management implemented a
centralization of the collection functions of its centers and an outsourcing of
the collection of certain aged receivables, which did not result in the cost
reduction it was intended to. In September 2002, the Company's new management
instituted a change in policy resulting in a methodology of calculating the
allowance for doubtful accounts based upon age. For example, as a receivable
gets older, the percentage of required allowance increases. Management considers
this a change in estimate that results in a more conservative valuation of net
accounts receivable.


     Other Operating Expenses.

     Loss on sale of assets. In August 2003, the Company sold a promissory note
with a face amount of $223,177 to International Diversified Corporation ("IDC")
for $160,000, incurring a loss of $63,177. The Company also agreed to release
IDC from its $400,000 obligation to the Company, which had been included in
other receivables. In addition to the cash consideration, SurgiCare was released
from any and all obligations regarding the raising of additional funds for
working capital and was released of all liabilities regarding the lawsuit filed
by IDC claiming breach of contract requesting the return of $1 million or
2,439,024 shares under a previous agreement with IDC and American International
Industries, Inc. A total loss of $463,177 was recorded as a loss on sale of
assets. As part of the sale agreement, the Company was released of any liability
of the center and removed as a guarantor on the center's bank note payable.
Other than IDC's ownership of certain shares of the Company's common stock, IDC
has no relationship with the Company.

     Loss (gain) on sale of partnership interests. In June 2003, the Company
sold its 10% interest in Physician's Endoscopy Center, Ltd for $425,000 and
recognized a gain on the sale of $319,086. As part of the sale agreement, the
Company was released of any liability of the center and removed as a guarantor
on the center's bank note payable. In 2002, the Company sold its 20% interest in
Bayside Surgical Partners, LP for a loss of $169,934.

     Loss on terminated acquisition. In 2002, the Company incurred a loss of
$1,977,382 associated with its termination of the Aspen Healthcare acquisition.

     Impairment on investment in land. In 2002, under the Company's previous
management, the Company acquired five tracts of land. Management's purpose for
acquiring the land was for the future development of additional surgery centers
for the Company. Management obtained an appraisal from Associated National
Appraisal Services, Inc. in January 2002, to determine the fair market value of
the transaction to purchase the land. The land was acquired from Texas Real
Estate Enterprises, Inc. and MidCity Houston Properties, Inc. The Company has no
relationship with either of these entities, other than the purchase of this
land.

     The Company entered into a resale guarantee agreement with American
International Industries, Inc., as a part of the agreement of December 11, 2002,
described below. The guarantee provides the

                                       23

<PAGE>

Company with a land resale  guarantee if, by June 1, 2006, the Company is unable
to sell any or all of the  tracts  of land for net sales  proceeds  of less than
$4,000,000.  If the proceeds are less than  $4,000,000,  American  International
Industries,  Inc.  agrees to  compensate  the Company in an amount  equal to the
difference between $4,000,000 and the net sales proceeds received by the Company
from the sale of any of the land prior to June 1, 2006.  American  International
Industries,  Inc.  shall  have the  option to make such  payment  in the form of
shares of the  Company's  common stock valued at $0.41 per share or cash. In the
event  that  American  International  Industries,  Inc.  does not own any of the
Company's  common stock on that date, it agrees to pay such  difference in cash.
Other than this  guarantee and its ownership of certain  shares of the Company's
common and Series AA Preferred stock, American  International  Industries,  Inc.
has no relationship with the Company.

     The land was re-appraised in November 2002, in connection with a
refinancing and at the request of a lender. The Company's new management
determined that the development of surgery centers on these locations was not in
the best interest of the Company. The new management determined that the Company
would be better served by selling the land and using the proceeds to help fund
the operations of the Company.

     The Company incurred an impairment of its investment in land of $1,500,000
during the third quarter of 2002 to reflect the investment's estimated valuation
at that time. In September 2003, the Company recorded additional impairment on
its investment in land amounting to $579,385. Such impairment was based on the
information gathered during the marketing of the land holdings. This information
indicated that SurgiCare would not receive in excess of the land resale
guarantee from American International Industries, Inc., and thus the value was
written down to the resale guarantee amount of $4 million. The Company is
continuing to market the tracts of land for sale and is protected by the
guarantee by American International Industries, Inc. of a $4 million resale
price and does not believe it will generate sale prices greater than the
guarantee in the next year or two. We valued the land at $4 million because of
the existence of the guarantee by American International Industries, Inc. of $4
million on our sales price.

     Total Operating Expenses. Total operating expenses decreased $9,983,255, or
46.8% to $11,352,481in 2003 from $21,335,736 in 2002. As a percent of net
revenue, such expenses decreased to 140.8% in 2003 from 184.7% in 2002. Such
expense fluctuations, expressed both in dollars and as a percentage of revenue,
are related to the factors discussed above.

     Other Income (Loss). Total Other Expense increased $237,384, or 16.3% to
$1,695,667 in 2003 from $1,458,283 in 2002 primarily due to the following:


     In 2003, the Company's equity in earnings (losses) from limited
partnerships was $194,444 compared to $(103,874) in 2002. In 2003, the limited
partnerships (in which the Company had a 10% equity interest) were profitable,
in contrast to 2002 when losses were incurred, resulting primarily from the
centers' adoption of the Company's policies and procedures surrounding
contractual allowances, provision for doubtful accounts and inventory valuation.
Additionally, the Company recorded a loss of approximately $40,000 for its 10%
interest in Physicians Endoscopy Center, which was a start up center and began
operations in December 2002.

     Interest expense increased $563,255, or 41.4% to $1,922,315 in 2003 from
$1,359,060 in 2002 due to additional borrowings to complete an acquisition, to
attempt to acquire Aspen Healthcare, and to finance the Company's working
capital needs during 2003.


     Minority Interest in Earnings (Losses) of Partnerships. In 2003, no credit
for minority interest in losses of partnerships was recorded because cumulative
losses exceeded the limited partners' minority interest in equity capital of the
partnerships. In 2002, $782,386 was recorded due to significant losses incurred
by the partnerships (whose financial results are consolidated with the
Company's), resulting

                                       24

<PAGE>

primarily  from  the  partnerships'  adoption  of  the  Company's  policies  and
procedures surrounding contractual  allowances,  provision for doubtful accounts
and inventory valuation.


     Federal Income Tax. In 2003, the Company recorded a tax benefit of
$173,407, or 3.5% of its pre-tax loss of $4,983,624. In 2002, the Company
recorded a tax benefit of $1,609,576, or 15.4% of its pre-tax loss of
$10,459,194. In both years, the percentage is less than the normally expected
rate due to valuation allowances against the Company's deferred tax assets.


     Net Loss. Due to the factors discussed above, the Company's net loss in
2003 decreased to a loss of $4,810,217 compared to a net loss of $8,849,618 in
2002.



LIQUIDITY and CAPITAL RESOURCES

     Net cash used in operating activities was $1,743,143 in 2003 compared to
$462,422 in 2002. The primary reason for usage of cash is due to continued
operating losses in both years.

     Net cash provided by investing activities was $492,038 in 2003 compared to
net cash used in investing activities of $1,667,443 in 2002. In 2003, the
Company sold its ownership interest in Physicians Endoscopy Center for $425,000
cash and sold a note receivable for $160,000. In 2002, the increased use of cash
was primarily for the investment in Tuscarawas Ambulatory Surgery Center
($426,859) and Aspen Healthcare ($1.1 million).

     Net cash provided by financing activities decreased to $1,130,331 in 2003
from $2,315,918 in 2002. In 2003, cash raised through the sale of common stock,
the exercise of warrants and additional loans was predominantly used to pay down
debt and for working capital purposes. In 2002, the Company used portions of the
cash raised through debt and issuance of common stock to fund acquisitions and
other capital expenditures.

     As of December 31, 2003, the Company had cash and cash equivalents of
$141,553 and negative working capital of $10,498,027. SurgiCare has a total of
$6,928,542 in long-term debt and an additional $1,331,475 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. The Company
is currently pursuing a buyout of their debt with DVI (through its bankruptcy
trustee) and certain other debt holders.

     The Company has financed its working capital needs primarily though the
issuance of equity, secured and/or convertible debt. See CHANGE OF CONTROLS
under Item 14 - Controls & Procedures. As of December 31, 2003, 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 the future, due to its
debt load, it is not able to fund its current operations solely from its cash
flow.

     On March 6, 2003, the Company received a $1.2 million investment from
existing physician shareholders, local physicians, and select individuals. The
investment was made via a private placement, under which 3,418,544 shares of the
company's common stock were issued. The shares are restricted under Rule 144. In
addition, the investors received a warrant for every two shares of common stock
purchased. The warrants are exercisable for one year and are priced at $0.35.
The proceeds of the financing are being used for working capital purposes.


                                       25

<PAGE>

     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, at any time, at the option of the note holder. The conversion
price for the notes will be equal to (a) $.35 per share, if the note is
converted on or prior to January 31, 2004, or (b) if the note is 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. The
note holders also received a five-year warrant to purchase shares of Company
common stock. The number of shares of common stock that may be purchased upon
the exercise of the warrant will be equal to 25% of the number of shares of
common stock into which the note is convertible. The warrant 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 and is being amortized to interest expense over
the one-year term of the notes. The promissory notes will mature on October 31,
2004.

     The Company believes that additional sales of debt and/or equity securities
will be required to continue operations. See Item 1 - DESCRIPTON OF THE BUSINESS
under the caption "THE COMPANY" 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.




                                       26

<PAGE>

ITEM 7. FINANCIAL STATEMENTS


                                TABLE OF CONTENTS

                                                               Page Number


Independent Auditors' Reports                                       28

Consolidated Balance Sheets                                         30

Consolidated Statements of Operations                               32

Consolidated Statements of Shareholders' Equity                     34

Consolidated Statements of Cash Flows                               35

Notes to Consolidated Financial Statements                          37

                                       27

<PAGE>



                          Independent Auditors' Report


The Board of Directors
SurgiCare, Inc.
Houston, Texas

We have audited the accompanying Consolidated Balance Sheet of SurgiCare, Inc.
and Subsidiaries as of December 31, 2003 and the related Consolidated Statements
of Operations, Shareholders' Equity, and Cash Flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SurgiCare, Inc. and Subsidiaries as of December 31, 2003 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that SurgiCare, Inc. and Subsidiaries will continue as a going concern. As
described more fully in Note 2, the Company has incurred operating losses, cash
deficits from operations and is in default of certain loan agreements. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plan in regards to these matters is also described
in Note 2. The consolidated financial statements do not reflect any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.


Mann, Frankfort, Stein & Lipp CPAs, LLP
Houston, Texas
March 18, 2004

                                       28

<PAGE>



                          Independent Auditors' Report


The Board of Directors
SurgiCare, Inc.
Houston, Texas

We have audited the accompanying Consolidated Balance Sheet of SurgiCare, Inc.
and Subsidiaries as of December 31, 2002 and the related Consolidated Statements
of Operations, Shareholders' Equity, and Cash Flows for the year then ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
SurgiCare, Inc. and Subsidiaries as of December 31, 2002 and the consolidated
results of their operations and their cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

The accompanying consolidated financial statements have been prepared assuming
that SurgiCare, Inc. and Subsidiaries will continue as a going concern. As
described more fully in Note 2, the Company has incurred operating losses, cash
deficits from operations and is in default of certain loan agreements. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plan in regards to these matters is also described
in Note 2. The consolidated financial statements do not reflect any adjustments
to reflect the possible future effects on the recoverability and classification
of assets or the amounts and classification of liabilities that may result from
the outcome of this uncertainty.


WEINSTEIN SPIRA & COMPANY, P.C.
Houston, Texas
March 19, 2003


                                       29

<PAGE>

                                 SURGICARE, INC.
                           CONSOLIDATED BALANCE SHEETS

                                                    December 31,
                                              ------------------------
                                                     2003        2002
                                              ------------------------

ASSETS
Current Assets
 Cash and cash equivalents                       $141,553    $262,327
 Accounts Receivable:
   Trade (less allowance for contractual
    adjustments and doubtful accounts of
    $3,768,846 and $6,496,000 at December 31,
    2003 and 2002, respectively)                1,309,682   1,324,944
   Other                                           59,909     398,834
 Note receivable                                              223,178
 Income tax receivable                            159,846
 Inventory                                        338,470     397,772
 Prepaid expenses                                 133,293      69,380
 Other current assets                              23,027      76,313
                                              ------------ -----------

Total Current Assets                            2,165,780   2,752,748
                                              ------------ -----------

Property and Equipment
 Office furniture and equipment                   399,912     378,901
 Medical and surgical equipment                 3,748,559   3,576,721
 Leasehold improvements                           946,890     941,440
 Computer equipment and software                  382,263     377,495
 Transportation equipment                          19,015      19,015
                                              ------------ -----------

                                                5,496,639   5,293,572
 Less:  Accumulated depreciation and
  amortization                                  3,237,657   2,468,662
                                              ------------ -----------

                                                2,258,982   2,824,910

Goodwill                                        8,105,735   8,045,735

Real Estate                                     4,000,000   4,579,385

Investment in Limited Partnerships                381,434     306,654

Advances to Limited Partners                      440,423     403,748

Loan Fees (net of amortization of $198,249 and
 $108,321 in 2003 and 2002, respectively)         103,788     193,716
                                              ------------ -----------




                                              $17,456,142 $19,106,896
                                              =========== ============
                                       30

<PAGE>

                                 SURGICARE, INC.
                     CONSOLIDATED BALANCE SHEETS (continued)


                                                 December 31,
                                         -----------------------------
                                                  2003           2002
                                         -------------- --------------

LIABILITIES

Current Liabilities
 Accounts payable                           $2,864,199      2,362,378
 Accrued expenses                            1,274,340        472,645
 Lines of credit                             1,331,475      1,665,657
 Current maturities of long-term debt        6,928,542      6,295,389
 Current portion of capital leases             265,251        313,725
 Payable to a related party                                   116,909
                                         -------------- --------------

Total Current Liabilities                   12,663,807     11,226,703

Long-Term Capital Lease Obligations            103,341

Long-Term Debt                                                454,328

Minority Interest in Partnerships
                                         -------------- --------------

                                            12,767,148     11,681,031

SHAREHOLDERS' EQUITY

Preferred Stock, Series A, par value
 $.001, 1,650,000 authorized; 1,137,700
 and 1,225,100 issued and outstanding at
 December 31, 2003 and 2002;
 respectively; redemption and liquidation
 value $5,688,500 and $6,125,500,
 respectively                                    1,138          1,225

Preferred Stock, Series AA, par value
 $.001, 1,200,000 authorized; 900,000
 issued and outstanding at December 31,
 2003 and 2002                                     900            900

Common Stock, par value $.005, 50,000,000
 shares authorized; 27,082,843 issued and
 26,991,443 outstanding at December 31,
 2003; 21,327,131 issued and 21,252,131
 outstanding at December 31, 2002              135,414        106,635

Additional Paid-In Capital                  17,116,523     15,065,801

Retained Earnings (Deficit)                (12,518,413)    (7,708,196)

Less: Treasury Stock - at cost, 91,400
 and 75,000 shares at December 31, 2003
 and 2002, respectively                        (38,318)       (32,250)

Less: Shareholder receivables                   (8,250)        (8,250)
                                         -------------- --------------

                                             4,688,994      7,425,865
                                         -------------- --------------

                                          $ 17,456,142   $ 19,106,896
                                         ============== ==============


                                       31

                 See notes to consolidated financial statements.

<PAGE>

                                 SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS



                                                 For the Year Ended
                                                    December 31,
                                              ------------------------
                                                    2003         2002
                                              ----------- ------------

Revenues:
 Surgical, net                                $7,772,955  $11,164,043
 Management fees                                 291,568      388,396
                                              ----------- ------------

                                               8,064,523   11,552,439
                                              ----------- ------------

Direct Cost of Revenues:
 Surgical costs                                1,629,661    2,714,809
 Clinical salaries and benefits                1,928,822    1,702,718
 Other                                           970,161      960,671
                                              ----------- ------------

                                               4,528,644    5,378,198
                                              ----------- ------------

General and Administrative Expenses:
 Salaries and benefits                         1,576,831    1,604,562
 Management and affiliation fees                 110,829      130,979
 Rent                                            931,425      741,124
 Depreciation                                    768,996      671,880
 Amortization                                     89,928       73,851
 Professional fees                             1,097,264    2,223,374
 Provision for doubtful accounts                 289,823    5,753,734
 Other                                         1,235,096    1,108,569
                                              ----------- ------------

                                               6,100,192   12,308,073
                                              ----------- ------------
Other Operating Expenses:
 Loss on sale of assets                          463,346        2,149
 Loss (gain) on sale of partnership interests   (319,086)     169,934
 Loss on terminated acquisition                             1,977,382
 Impairment on investment in land                579,385    1,500,000
                                              ----------- ------------

                                                 723,645    3,649,465
                                              ----------- ------------

            Total Operating Expenses          11,352,481   21,335,736
                                              ----------- ------------

Operating Loss                                (3,287,958)  (9,783,297)
                                              ----------- ------------

Other Income (Expense)
 Miscellaneous income                             32,205        4,651
 Equity in earnings (loss) of limited
  partnerships                                   194,444     (103,874)
 Interest expense                             (1,922,315)  (1,359,060)
                                              ----------- ------------

                                              (1,695,667)  (1,458,283)
                                              ----------- ------------

                                       32
<PAGE>

                                 SURGICARE, INC.
                CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)


                                               For the Year Ended
                                                  December 31,
                                          ----------------------------
                                                  2003           2002
                                          ------------- --------------

Loss Before Minority Interest and Federal
Income Tax Benefit                          (4,983,624)   (11,241,580)

Minority Interest in Loss of Partnerships                     782,386
                                          ------------- --------------

Loss Before Federal Income Tax Benefit      (4,983,624)   (10,459,194)
                                          ------------- --------------

Federal Income Tax Benefit
 Current                                      (173,407)      (224,576)
 Deferred                                                  (1,385,000)
                                          ------------- --------------

                                              (173,407)    (1,609,576)
                                          ------------- --------------

Net Loss                                   $(4,810,217)   $(8,849,618)
                                          ============= ==============


Net Loss Per Share - Basic                       $(.19)         $(.56)
                                          ============= ==============

Net Loss Per Share - Diluted                     $(.19)         $(.56)
                                          ============= ==============

Weighted Average Common Shares Outstanding
Basic                                       24,754,050     15,831,748
                                          ============= ==============
Diluted                                     24,754,050     15,831,748
                                          ============= ==============

                                       33

<PAGE>
<TABLE>
<CAPTION>
                                 SURGICARE, INC.
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 For the Years Ended December 31, 2003 and 2002


                              $.001 Series A     $.001 Series AA  $.005 Par Value
                              Preferred Stock    Preferred Stock    Common Stock Additional          Retained
                            ------------------ ------------------ --------------- Paid-In  Treasury  Earnings  Shareholder Total
                              Shares   Amount    Shares   Amount  Shares  Amount  Capital   Stock    (Deficit) Receivables Equity
                            --------  --------  ------- --------  ------ -------- -------- --------- --------- ----------  ------

<S>               <C>       <C>       <C>                       <C>        <C>     <C>              <C>         <C>      <C>
Balance - January 1, 2002   1,316,100 $ 1,316                   14,089,320 $70,446 $4,991,301       $1,141,422  $(8,250) $6,196,235

Issuance of preferred stock
 for land                                      1,200,000  $1,200                   5,998,800                              6,000,000

Sale of common stock                                             3,039,024 15,195  1,955,805                              1,971,000

Conversion of preferred stock (91,000)    (91)  (300,000)   (300)3,749,537 18,748    (18,357)

Exercise of warrants                                               125,000    625     11,875                                 12,500

Issuances of stock for
 consulting services                                               136,250    681    220,360                                221,041

Issuances of stock and
 warrants for acquisitions                                         188,000    940    770,313                                771,253

Issuances of warrants                                                                923,114                                923,114

Beneficial conversion feature
 of debt                                                                             212,590                                212,590

Purchase of treasury stock                                                                  $(32,250)                       (32,250)

Net loss                                                                                             (8,849,618)         (8,849,618)
                          ---------  ----- -------   ----  --------- ---------  ---------  --------    --------- ----------  ------

Balance - December
 31, 2002                 1,225,100 $1,225 900,000  $ 900 21,327,131 $106,635 $15,065,801 $(32,250) $(7,708,196) $(8,250) $7,425,865
                          ---------  ----- -------   ----  --------- ---------  ---------  --------    --------- ----------  ------

Sale of common stock                                       3,418,544   17,093     885,992                                   903,085

Warrants issued in connection
 with sale of common stock                                                        236,811                                   236,811

Warrants issued in connection
 with debt                                                                         76,834                                    76,834

Beneficial conversion feature
 of debt                                                                          123,566                                   123,566

Exercise of warrants                                       1,384,990    6,925     299,723                                   306,648

Issuances of stock for
 consulting services                                         952,178    4,761     427,796                                   432,557

Redemption of preferred
 stock                      (87,400)   (87)                                                                                     (87)

Purchase of treasury stock                                                                  (6,068)                          (6,068)

Net loss                                                                                             (4,810,217          (4,810,217)
                          ---------  ----- -------  ----  --------- -------- ----------  --------    --------- ----------  --------
Balance - December 31,
 2003                    1,137,700  $1,138 900,000  $900 27,082,843 $135,414 $17,116,523 $(38,318) $(12,518,413)$(8,250) $4,688,994
                          =========  ===== =======  ==== =========== ======== =========  =========   ========== ========  =========
</TABLE>

                                       34
                 See notes to consolidated financial statements.

<PAGE>

                                 SURGICARE, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                               For the Year Ended
                                                  December 31,
                                           ---------------------------
                                                   2003          2002
                                           ------------- -------------

Cash Flows From Operating Activities
 Net loss                                   $(4,810,217)  $(8,849,618)
 Adjustments to reconcile net loss to net
  cash provided by (used in) operating
  activities:
     Equity in (earnings) loss of limited
      partnerships                             (194,444)      103,874
     Minority interest in loss of
      partnerships                                           (782,386)
     Depreciation and amortization              858,924       745,731
     Amortization of debt discount               95,134
     Interest expense recognized on
      beneficial conversion features
      on notes payable                          123,566
     Provision for doubtful accounts            289,823     5,753,734
     Deferred federal income tax (benefit)                 (1,385,000)
     Loss (gain) on sale of interest in
      limited partnerships                     (319,086)      169,934
     Loss on sale of assets                     463,346         2,118
     Loss on terminated acquisition                         1,977,382
     Impairment on investment in land           579,385     1,500,000
     Other                                         (256)
     Change in:
       Accounts receivable                     (335,636)   (1,166,934)
       Income tax receivable                   (159,846)
       Inventory                                 59,302       230,804
       Prepaid expenses                         (63,913)      113,350
       Other current assets                      16,612      (163,170)
       Loan fees                                             (139,537)
       Accounts payable                         852,468     1,555,074
       Federal income tax payable                            (224,576)
       Accrued expenses                         801,695        96,767
                                           ------------- -------------

Net Cash Used in Operating Activities        (1,743,143)     (462,422)
                                           ------------- -------------

Cash Flows From Investing Activities
 Purchase of Tuscarawas                                      (426,859)
 Capital expenditures                           (46,712)     (226,203)
 Distributions from partnerships                 13,750        81,000
 Investment in limited partnerships                           (14,865)
 Sale of note receivable                        160,000
 Proceeds from sale of interest in limited
  partnership                                   425,000
 Buyout of limited partners                     (60,000)
 Proceeds from sale of assets                                  19,484
 Investment in terminated acquisition                      (1,100,000)
                                           ------------- -------------

Net Cash Provided by (Used in) Investing
 Activities                                     492,038    (1,667,443)
                                           ------------- -------------

Cash Flows From Financing Activities
 Borrowings on lines of credit                3,789,996     8,569,165
 Payments on lines of credit                 (4,124,178)   (9,044,054)
 Proceeds from debt                             883,166     3,867,689
 Payments on debt                              (751,975)   (2,527,036)
 Principal payments on capital lease           (101,489)     (113,991)

                                       35

<PAGE>


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

                                                For the Year Ended
                                                   December 31,
                                            --------------------------
                                                   2003          2002
                                            ------------ -------------
Cash Flows From Financing Activities
 (continued)
 Distributions to limited partners                           (536,946)
 Issuance of warrants with debt                  76,834       149,841
 Purchase of treasury stock                      (6,068)      (32,250)
 Exercise of warrants                           294,148        12,500
 Proceeds from issuance of common stock with
  warrants                                    1,069,897     1,971,000
                                            ------------ -------------

Net Cash Provided by Financing Activities     1,130,331     2,315,918
                                            ------------ -------------

Net Increase (Decrease) in Cash and Cash
 Equivalents                                   (120,774)      186,053

Cash and Cash Equivalents - Beginning of
 Period                                         262,327        76,274
                                            ------------ -------------

Cash and Cash Equivalents - End of Period     $ 141,553     $ 262,327
                                            ============ =============

Supplemental Disclosures of Cash Flow
 Information

Cash paid during the year for:

Interest                                      $ 784,503   $ 1,205,353
                                            ============ =============

Supplemental Schedule of Non-Cash Investing
 and Financing Activities

Purchase of land with preferred stock                     $ 6,000,000
                                                         =============

Issuance of shares for investment                            $ 74,750
                                                         =============
 Issuance of shares and warrants in payment
  of debt                                      $ 47,500
                                            ============
 Issuance of shares in payment of accounts
  payable                                     $ 467,556     $ 404,314
                                            ============ =============
 Beneficial conversion feature of
  convertible notes                           $ 123,566     $ 212,590
                                            ============ =============

Equipment acquired with capital lease
 obligation                                   $ 156,356      $ 67,032
                                            ============ =============

                                       36
                 See notes to consolidated financial statements.

<PAGE>

                                 SURGICARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 2003 and 2002


   Note 1 - Organization and Accounting Policies

   SurgiCare, Inc. and Subsidiaries (the Company) maintains their accounts on
   the accrual method of accounting in accordance with accounting principles
   generally accepted in the United States of America. Accounting principles
   followed by the Company and the methods of applying those principles, which
   materially affect the determination of financial position, results of
   operations and cash flows are summarized below:

   Description of Business

   Bellaire SurgiCare, Inc. ("Bellaire") was formed in January 1995 as a Texas
   corporation  to operate an ambulatory  surgery  center  ("ASC") in Houston,
   Texas. Effective July 1, 1999, Bellaire acquired SurgiCare,  Inc. (formerly
   Technical  Coatings,  Inc.) in a reverse  acquisition.  Bellaire SurgiCare,
   Inc. is now a wholly-owned subsidiary of SurgiCare, Inc.

   In September  2000, Town & Country  SurgiCare,  Inc. ("Town & Country") was
   formed as a Texas  corporation and a wholly-owned  subsidiary of SurgiCare,
   Inc. Town & Country is a 60% general partner in SurgiCare Memorial Village,
   L.P., which operates an ASC in Houston,  Texas. During 2002, Town & Country
   acquired a 10% general  partner  interest in Physicians  Endoscopy  Center,
   Ltd., L.L.P.  ("Physicians  Endoscopy"),  which operates an ASC in Houston,
   Texas.  During  2003,  Town &  Country  sold  its  interest  in  Physicians
   Endoscopy. See Note 3.

   In October 2000, Baytown SurgiCare, Inc. ("Baytown") was formed as a Texas
   corporation and a wholly-owned subsidiary of SurgiCare, Inc. Baytown is a 10%
   general partner of San Jacinto Surgery Center, Ltd ("San Jacinto"), which
   operates an ASC in Baytown, Texas.

   In May 2001,  Southeast  SurgiCare,  Inc. was formed as a Texas corporation
   and a wholly-owned subsidiary of SurgiCare,  Inc. Southeast SurgiCare, Inc.
   is a 20% general  partner of Bayside  Surgical  Partners,  L.P.  (Bayside),
   which operates an ASC in Pasadena, Texas. During 2002, Southeast SurgiCare,
   Inc. sold their 20% interest in Bayside. See Note 3.

   On May 31, 2002, SurgiCare, Inc. acquired a 51% ownership in Tuscarawas
   Ambulatory Surgery Center, LLC (Tuscarawas), an Ohio limited liability
   company, which operates an ASC in Dover, Ohio. See Note 3.

   Principles of Consolidation

   These consolidated financial statements include the accounts of the Company
   and its wholly-owned  subsidiaries,  Bellaire  SurgiCare,  Inc.,  Southeast
   SurgiCare,  Inc., Town & Country SurgiCare,  Inc., Baytown SurgiCare,  Inc.
   and Tuscarawas  Ambulatory  Surgery Center,  LLC (51% owned).  All material
   intercompany   balances   and   transactions   have  been   eliminated   in
   consolidation.

   Cash and Cash Equivalents

   The Company considers all short-term  investments with an original maturity
   of three months or less to be cash equivalents.

   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 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



                                       37
<PAGE>


   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  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.

   Net surgical revenue is comprised of the following components:

                                                    2003          2002
                                            ------------ -------------
   Gross surgical revenue                  $ 25,108,526  $ 35,759,108
   Contractual adjustments                  (17,335,571)  (24,595,065)
                                           ------------- -------------

   Net surgical revenue                    $  7,772,955  $ 11,164,043
                                           ============= =============

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


   Inventory

   Inventory consists of medical and pharmaceutical supplies, which are stated
   at the lower of cost or market. Cost is determined under the first-in,
   first-out method.

   Property and Equipment

   Property and equipment are presented at cost. Depreciation and amortization
   are computed at rates considered sufficient to amortize the cost of the
   assets, using the straight-line method over their estimated useful lives as
   follows:

                  Office furniture and equipment               7  years
                  Medical and surgical equipment               5  years
                  Leasehold improvements                 Remaining life of lease
                  Computer equipment and software              5  years
                  Transportation equipment                     5  years

   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 them as investments in
   limited partnerships.


   As of December 31, 2003 and 2002, the Company has a 10% general partnership
   interest in San Jacinto Surgery Center, Ltd., a Texas limited partnership. As
   of December 31, 2003, the difference in the carrying amount of the investment
   and the underlying equity in net assets of San Jacinto was approximately
   $237,000. This amount is considered goodwill and is not being amortized. As
   of December 31, 2003, there is no impairment to this goodwill. As of December
   31, 2003, San Jacinto had a $1,000,000 draw note payable to a bank with an
   outstanding balance of $457,054, which is guaranteed by the Company. The note
   bears interest at the prime rate plus 1% (4% as of December 31, 2003) and is
   secured by the accounts receivable of San Jacinto.

   As of December 31, 2002, the Company had a 10% general partnership interest
   in Physicians Endoscopy Center, Ltd., L.L.P., a Texas limited partnership. As
   described in Note 3, the Company sold its 10% interest during 2003.


                                       38
<PAGE>

   Segments of an Enterprise and Related Information

   The Company has adopted Statement of Financial Accounting Standards No. 131
   ("SFAS 131"), "Disclosures about Segments of an Enterprise and Related
   Information." SFAS 131 changes the way public companies report information
   about segments of their business in their annual financial statements and
   requires them to report selected segment information in their quarterly
   reports issued to shareholders. It also requires entity-wide disclosures
   about the products and services an entity provides, the material countries in
   which it holds assets and reports revenues and its major customers. As
   substantially all of the Company's revenues, loss from operations and
   identifiable assets are from the ambulatory surgical segment, the Company has
   not made segment disclosures in the accompanying consolidated financial
   statements.

   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  December  31,  2003 and 2002,  the
   Company performed an impairment test of its goodwill and determined that no
   impairment of the recorded goodwill existed.

   Real Estate

   Real estate is presented at the lower of cost or current market value based
   on a current appraisal.

   Loan Fees

   Fees paid in connection  with obtaining debt financing are being  amortized
   over the terms of the loans.

   Income Taxes

   Provisions for income taxes are based on taxes payable or refundable for the
   current year and deferred taxes on temporary differences between the tax
   bases of assets and liabilities and their reported amounts in the financial
   statements. Deferred tax assets and liabilities are included in the financial
   statements at currently enacted income tax rates applicable to the period in
   which the deferred tax assets and liabilities are expected to be realized or
   settled as prescribed in SFAS No. 109, Accounting for Income Taxes. As
   changes in tax laws or rates are enacted, deferred tax assets and liabilities
   are adjusted through the current period's provision for income taxes. A
   valuation allowance is provided for deferred tax assets if it is more likely
   than not that such asset will not be realizable.

   Stock-Based Compensation

   SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
   not require, companies to record compensation cost for stock-based employee
   compensation plans at fair value. In December 2002, the FASB issued SFAS No.
   148, Accounting for Stock-Based Compensation--Transition and Disclosure--an
   amendment of FASB Statement No. 123, to provide alternative methods of
   transition for a voluntary change to the fair value based method of
   accounting for stock-based employee compensation. The statement also amends
   the disclosure requirements of SFAS No. 123 to require prominent disclosures
   in both annual and interim financial statements about the method of
   accounting for stock-based compensation and the effect of the method used on
   reported results.

   The Company has chosen to continue to account for stock-based compensation
   issued to employees using the intrinsic value method prescribed in Accounting
   Principles Board (APB) Opinion No. 25, Accounting for Stock


                                       39
<PAGE>

   Issued to Employees, and related interpretations. Accordingly, compensation
   cost for stock  options is measured  as the  excess,  if any, of the quoted
   market  price of the  Company's  stock at the  date of the  grant  over the
   amount an  employee  must pay to acquire  the  stock.  The  Company  grants
   options  at or above the market  price of its  common  stock at the date of
   each grant.

   The fair value of options is calculated using the Black-Scholes
   option-pricing model. Had the Company adopted the fair value method of
   accounting for stock based compensation, compensation expense would have been
   higher, and net loss and net loss attributable to common shareholders would
   have increased for the periods presented. No change in cash flows would
   occur. The effects of applying SFAS No. 123 in this pro forma disclosure are
   not indicative of future amounts.

                                                  2003           2002
                                         -------------- --------------

Net loss - as reported                    $ (4,810,217)  $ (8,849,618)
                                         -------------- --------------
Deduct:  Total stock-based employee
 compensation (expense determined under
 the fair value based method for all
 awards), net of tax effect                   (210,900)      (742,034)
                                         -------------- --------------
Net loss - pro forma                      $ (5,021,117)  $ (9,591,652)
                                         ============== ==============

Net Loss per share:

     Basic - as reported                        $ (.19)        $ (.56)
                                         ============== ==============

     Basic - pro forma                          $ (.20)        $ (.61)
                                         ============== ==============

     Diluted - as reported                      $ (.19)        $ (.56)
                                         ============== ==============

     Diluted - pro forma                        $ (.20)        $ (.61)
                                         ============== ==============

   No options were granted to employees during 2003. The weighted average fair
   value of options granted as employee compensation during 2002 was $0.18. The
   fair values were determined using the Black-Scholes option pricing model with
   the following weighted average assumptions, and a forfeiture rate that is
   assumed to be negligible.

                                                                 2002
                                               -----------------------

Risk-free interest rate                                          3.00%

Expected life                                               3.14 years

Expected dividends                                                None

Expected volatility                                                57%


   New 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 or annual periods ending on or after March 15, 2004.
   We have not identified any variable interest entities. In the event a
   variable interest entity is identified, we do not expect the requirements of
   FIN 46R to have a material impact on our consolidated financial statements.

   In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
   Instruments with Characteristics of Both Liabilities and Equity. SFAS No. 150
   establishes standards for how an issuer classifies and measures certain
   financial instruments with characteristics of both liabilities and equity. An
   issuer is required to classify a financial instrument that is within the
   scope of this statement as a liability (or an asset in some circumstances).
   SFAS No. 150 is effective for financial instruments entered into or modified
   after May 31, 2003, and otherwise is effective at the beginning of the first
   interim period beginning after June 15, 2003. We adopted the standard on July
   1, 2003, and the adoption did not have a material impact on our consolidated
   financial statements.



                                       40
<PAGE>

   Advertising

   The Company's policy is to expense advertising costs as incurred, which
   amounted to $80,366 and $248,386 for the years ended December 31, 2003 and
   2002, respectively.

   Reclassifications

   Certain reclassifications have been made in the 2002 financial statements to
   conform to the reporting format in 2003. Such reclassifications had no effect
   on previously reported earnings.

   Use of Estimates

   The preparation of financial statements in conformity with accounting
   principles generally accepted in the United States of America requires
   management to make estimates and assumptions that affect the reported amounts
   of assets and liabilities 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 differ from
   those estimates.

   Note 2 - Going Concern

   The accompanying consolidated financial statements have been prepared in
   conformity with accounting principles generally accepted in the United States
   of America, which contemplate continuation of the Company as a going concern.
   However, the Company has incurred substantial operating losses during 2003.
   In addition, the Company has used substantial amounts of working capital in
   their operations and is in default of certain loan agreements. These
   conditions raise substantial doubt about the Company's ability to continue as
   a going concern.

   The Company has financed its growth primarily through the issuance of equity,
   secured and/or convertible debt. As of December 31, 2003, 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 the future, due to its
   debt load, it is not able to fund its current operations solely from its cash
   flow. As such, additional sales of debt and/or equity securities will be
   required to continue operations.

         The Company believes that additional sales of debt and/or equity
   securities will be required to continue operations. See Note 19 - 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
   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.


   Note 3 - Acquisitions / Dispositions

   On May 31, 2002, the Company acquired a 51% interest in Tuscarawas for an
   aggregate of $725,000 in cash and warrants to purchase 200,000 shares of the
   Company's common stock at an exercise price of $0.01 per share expiring May
   31, 2007. The warrants were valued at $590,000. The Company has also entered
   into a Management Agreement with Tuscarawas to act as exclusive manager of
   the center in exchange for 5% of the center's net monthly collected revenue.

   In June 2003, the Company sold its 10% interest in Physician's Endoscopy
   Center, Ltd for $425,000 and recognized a gain on the sale of $319,086. As
   part of the sale agreement, the Company was released of any liability of the
   center and removed as a guarantor on the center's bank note payable.

   In 2002, under the Company's previous management, the Company acquired five
   tracts of land. Management's purpose for acquiring the land was for the
   future development of additional surgery centers for the Company. Management



                                       41
<PAGE>

obtained an appraisal from Associated National Appraisal Services, Inc. in
January 2002, to determine the fair market value of the transaction to
purchase the land. The land was acquired from Texas Real Estate Enterprises,
Inc. and Midcity Houston Properties, Inc. The Company has no relationship
with either of these entities, other than the purchase of this land.

The Company entered into a resale guarantee agreement with American
International Industries, Inc., as a part of the agreement of December 11,
2002, (See Note 14 - Preferred Stock). The guarantee provides the Company
with a land resale guarantee if, by June 1, 2006, the Company is unable to
sell any or all of the tracts of land for net sales proceeds of less than
$4,000,000. If the proceeds are less than $4,000,000, American International
Industries, Inc. agrees to compensate the Company in an amount equal to the
difference between $4,000,000 and the net sales proceeds received by the
Company from the sale of any of the land prior to June 1, 2006. American
International Industries, Inc. shall have the option to make such payment in
the form of shares of the Company's common stock valued at $0.41 per share or
cash. In the event that American International Industries, Inc. does not own
any of the Company's common stock on that date, it agrees to pay such
difference in cash. Other than this guarantee and its ownership of certain
shares of the Company's common and Series AA Preferred stock, American
International Industries, Inc. has no relationship with the Company.

The land was re-appraised in November 2002 in connection with a refinancing
and at the request of a lender. The Company's new management determined that
the development of surgery centers on these locations was not in the best
interest of the Company. The new management determined that the Company would
be better served by selling the land and using the proceeds to help fund the
operations of the Company.

The Company incurred an impairment of its investment in land of $1,500,000
during the third quarter of 2002 to reflect the investment's estimated
valuation at that time. In September 2003, the Company recorded additional
impairment on its investment in land amounting to $579,385. Such impairment
was based on the information gathered during the marketing of the land
holdings. This information indicated that SurgiCare would not receive in
excess of the land resale guarantee from American International Industries,
Inc., and thus the value was written down to the resale guarantee amount of
$4 million. The Company is continuing to market the tracts of land for sale
and is protected by a guarantee by American International Industries, Inc. of
a $4 million resale price and does not believe it will generate sales prices
greater than the guarantee in the next year or two. We valued the land at $4
million because of the existence of the guarantee by American International
Industries, Inc. of $4 million on our sales price.


Note 4 - Certain Transactions

In August 2003, the Company sold a promissory note with a face amount of
$223,177 to International Diversified Corporation (IDC) for $160,000, incurring
a loss of $63,177. The Company also agreed to release IDC from its $400,000
obligation to the Company, which had been included in other receivables. In
addition to the cash consideration, SurgiCare was released from any and all
obligations regarding the raising of additional funds for working capital and
was released of all liabilities regarding the lawsuit filed by IDC claiming
breach of contract requesting the return of $1 million or 2,439,024 shares under
a previous agreement with IDC and American International Industries, Inc. A
total loss of $463,177 was recorded as a loss on sale of assets.


Note 5 - Intangible Assets Subject to Amortization

Intangible assets subject to amortization consist of loan fees, net of
accumulated amortization of $198,249 and $108,321 at December 31, 2003 and 2002,
respectively. The loan fees are amortized on a straight-line basis over the loan
terms. Amortization expense recorded for the years ended December 31, 2003 and
2002 was $89,928 and $73,851, respectively. Estimated future amortization
expense is as follows:

       Year Ending December 31,
       -------------------------------

                 2004                                   $      38,443
                 2005                                          38,443
                 2006                                          18,746
                 2007                                           8,156
                                                        --------------
                                                        $     103,788
                                                        ==============


                                       42
<PAGE>

Note 6 - 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.

                                               For the Year Ended
                                                  December 31,
                                           ---------------------------
                                                   2003          2002
                                           ------------- -------------
Basic Loss Per Share:
Net Loss                                    $(4,810,217)  $(8,849,618)
Weighted average shares outstanding          24,754,050    15,831,748
Dilutive stock options and warrants             (A)           (A)
Conversion of preferred shares                  (B)           (B)
Conversion of debt                              (C)           (C)
Weighted average common shares outstanding
 for diluted net loss per share              24,754,050    15,831,748
Net loss per share - Basic                        $(.19)        $(.56)
                                           ============= =============
Net loss per share - Diluted                      $(.19)        $(.56)
                                           ============= =============


The following potentially dilutive securities are not included in the 2003 and
2002 calculation of common shares outstanding for diluted net earnings per
share, because their effect would be anti-dilutive due to the net loss for the
year:

(A)  9,654,297 and 8,897,020  options and warrants  outstanding  at December 31,
     2003 and 2002,respectively.


(B)  900,000 shares of Series AA Preferred stock are convertible into $4,500,000
     of  common  shares.  1,137,700  shares  of  Series A  Preferred  stock  are
     convertible into 1,137,700 common shares.

(C)  $1,000,000 of debentures are convertible into common stock at a price equal
     to $1.50 per share.  $470,000 of notes are convertible into common stock at
     a price equal to $0.35 per share until  January 31, 2004.  If the notes are
     converted after January 31, 2004, the conversion price will be equal to the
     lower of $0.25 or 75% of the average  closing price for the 20 trading days
     immediately prior to the conversion date.


Note 7 - Lines-of-Credit

Lines-of-credit as of December 31 are as follows:
                                                       2003          2002
                                                   ------------  ------------

 $2,500,000 revolving lines-of-credit with
   a financial institution,  secured by
   accounts receivable, bearing interest at
   prime  (4.00% at December  31,  2003) plus
   2%,  interest  payable monthly, matured
   March 31, 2003                                 $ 1,284,577    $ 1,665,657
                                                   ------------  ------------

$150,000 revolving line-of-credit with a
   financial institution, secured by
   accounts receivable, bearing interest
   at prime (4.00% at December 31, 2003)
   plus 2%, interest payable monthly, due
   upon demand                                         43,711              -
                                                   ------------  ------------
Total                                             $ 1,331,475    $ 1,665,657
                                                   ============  ============



                                       43
<PAGE>


Note 8 - Long-Term Debt

Long-term debt as of December 31, 2003 and 2002, is as follows:

                                                   2003          2002
                                           ------------- -------------

Note payable to a financial institution,
 secured by all assets of the Company, due
 in monthly installments of $81,068
 including interest at 10.75%, due April
 2006                                       $ 2,682,536   $ 2,845,407

Note payable to a financial institution,
 secured by all assets of the Company and
 400,000 shares of SurgiCare, Inc. common
 stock pledged by certain shareholders,
 $375,000 due February 2002, remaining
 principal refinanced, due in monthly
 installments of $11,060 including interest
 at 12%, due January 2006                       332,995       355,730

Notes payable to a financial institution,
 secured by inventory and equipment, due in
 monthly installments of $12,222 including
 interest at 11.5%, due November 2002           122,368       175,122
Notes payable to an private equity
 organization, unsecured, interest at
 8.00%, payable on demand                       490,000             -

   $470,000 convertible notes payable,
    bearing interest at 10%,
   maturing October 2004, net of discount
    for warrants (see below)                    407,136             -

Note payable to a financial institution,
 secured by an automobile, due in monthly
 installments of $550 including interest at
 7.99%, due November, 2004                        6,318        12,147

Note payable to a bank, secured by land,
 due in monthly installments of $29,740
 including interest at the prime rate
 (4.00% at December 31, 2003) plus 1.5%,
 due December, 2007                           1,240,651     1,500,000

Note payable to a shareholder, unsecured,
 interest at the prime rate (4.00% at
 December 31, 2003) plus 2% due March 2003        2,500        50,000

Note payable to a unrelated entity,
 unsecured, due in monthly payments of
 $4,303 including interest of 6%, due
 October, 2003                                   50,000        50,000

Note payable to a financial institution,
 secured by accounts receivable, inventory
 and equipment, due in monthly installments
 of $3,297 including interest of 15.9%, due
 December, 2003                                  24,649        32,966

$1,000,000 convertible debentures, bearing
 interest at 25%, maturing June, 2003         1,000,000       918,836

Note payable to a financial institution,
 secured by equipment, furniture and
 fixtures, due in monthly installments of
 $25,955 including interest of 10%, due
 July, 2005                                     562,445       706,463

Note payable to a bank, due on demand or in
 monthly installments of $6,944 plus
 interest at the prime rate (4.00% at
 December 31, 2003) plus 1%, due December,
 2003                                             6,944        83,334
                                           ------------- -------------

                                              6,928,542     6,749,717
Less: Current maturities                      6,928,542     6,295,389
                                           ------------- -------------

                                            $         -     $ 454,328
                                           ============= =============



                                       44
<PAGE>

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 December 31, 2003. 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. (DVI) announced
that it is seeking protection under Chapter 11 of the United States Bankruptcy
laws. The Company is currently negotiating a buyout of its debt with DVI through
the bankruptcy trustee and certain other debt holders.

The Company has financed its growth primarily though the issuance of equity,
secured and/or convertible debt. As of December 31, 2003, 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, at any time, at the option of the note holder. The conversion price for
the notes will be equal to (a) $.35 per share, if the note is converted on or
prior to January 31, 2004, or (b) if the note is 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. The note holders
also received a five-year warrant to purchase shares of Company common stock.
The number of shares of common stock that may be purchased upon the exercise of
the warrant will be equal to 25% of the number of shares of common stock into
which the note is convertible. The warrant 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 and is being amortized to interest expense over the
one-year term of the notes. The promissory notes will mature on October 31,
2004.

The Company believes that additional sales of debt and/or equity securities will
be required to continue operations. See Note 19 - 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 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.


Note 9 - Long-Term Capital Leases

The Company leases certain equipment from third parties. The leases expire
through 2008. As of December 31, 2003, certain leases were in default and have
been classified as current in these financial statements.

The following is a schedule of future minimum lease payments under the capital
leases, together with the present value of the net minimum lease payments as of
December 31, 2003:


                                       45
<PAGE>

                For the Year Ending
                    December 31,
               ---------------------

                        2004                                $ 302,826

                        2005                                   36,844

                        2006                                   18,422

                        2007                                   18,422

                        2008                                   12,281
                                                    ------------------

                       Total                                  425,638

Less: Amount representing interest                            (57,046)
                                                    ------------------

Present value of minimum lease payments                       368,592

Less: Current obligations                                     265,251
                                                    ------------------

Long-term obligations under capital lease                   $ 103,341
                                                    ==================


Property and equipment includes the following amounts for leases that have been
capitalized:

Office furniture and equipment                   $             65,994
Medical and surgical equipment                                409,276
Computer equipment and software                               162,904
                                                 ---------------------
                                                              638,174
Less:  accumulated depreciation                               269,214
                                                 ---------------------

                                                 $            368,960
                                                 =====================

Depreciation for property and equipment under capital leases is included in
depreciation expense.


Note 10 - Operating Leases

The Company leases its treatment facilities and corporate office space under
operating leases that expire in various years through 2008. The leases provide
for annual operating expense increases. The Company also leases medical
equipment under an operating lease, which expires in 2006. Base rental payments
under these lease agreements are as follows:

        For the Year Ending
            December 31,
     --------------------------

               2004                                         $ 718,030
               2005                                           701,482
               2006                                           507,869
               2007                                           400,505
               2008                                           267,003

                                                         -------------

                                                          $ 2,594,889
                                                         =============


Note 11 - Management Fees

The Company has contracted with affiliated outpatient surgical centers to manage
the operation of the treatment facilities. Under the contracts, the Company
receives fees ranging from 2.5% to 5% of



                                       46
<PAGE>

revenues  collected by the facilities  under contract.  The Company recorded the
following fees during 2003 and 2002:

                                                     2003        2002
                                               ----------- -----------

SurgiCare Memorial Village, L.P.                 $ 57,223   $ 102,630
San Jacinto Surgery Center, Ltd.                  103,772     219,918
Bayside Surgical Partners, L.P.                         -      37,500
Physicians Endoscopy Center, L.P.                  76,967      28,348
Tuscarawas Ambulatory Surgery Center               53,606           -
                                               ----------- -----------

                                                $ 291,568   $ 388,396
                                               =========== ===========
The contract with Bayside was terminated in 2002 with the sale of the investment
in Bayside. The contract with Physicians Endoscopy was terminated in June 2003
with the sale of the Company's investment in Physicians Endoscopy.


Note 12 - Related Party Transactions

As of December 31, 2003 and 2002, the Company had a non-interest-bearing
receivable from a shareholder of $8,250 for the purchase of stock.

As of December 31, 2003, the Company had a receivable from San Jacinto of
$13,364. As of December 31, 2002, the Company had a payable to San Jacinto of
$126,086.

As of December 31, 2002, the Company had a receivable from Physicians' Endoscopy
of $9,177.

Bellaire leases space for its offices in a medical office building owned by a
partnership in which Dr. Mineo, a director and shareholder, has a 25% interest.
The lease expired in 2003 and is now month-to-month. During 2003 and 2002,
Bellaire paid approximately $179,000 and $195,000 as rent to the partnership.

A group of doctors who own 35% of Tuscarawas also have an ownership interest in
Oxford Capital Enterprises Two, which owns the medical building where the center
is located. The lease expires in 2008. During 2003 and 2002, Tuscarawas paid
approximately $401,000 and $234,000 as rent to Oxford Capital Enterprises Two.

The Company entered into a resale guarantee agreement with American
International Industries, Inc., which also owns shares of the Company's common
and Series AA Preferred stock. See Note 3 - Acquisitions / Dispositions and Note
14 - Preferred Stock for further discussion.


Note 13 - Income Taxes

A reconciliation of the statutory federal income tax rate to the effective tax
rate for the years ended December 31, 2003 and 2002, is as follows:
                                                    2003         2002
                                             ------------ ------------
Federal income tax benefit at statutory rate $(1,635,474) $(3,474,002)
Increase in valuation allowance and estimates  1,808,881    1,864,426
                                             ------------ ------------
                                             $  (173,407) $(1,609,576)
                                             ============ ============



                                       47
<PAGE>

Components of deferred taxes as of December 31, 2003 and 2002, were as follows:

                                                     2003        2002
                                               ----------- -----------
Deferred tax liabilities:
Accrual to cash conversion                     $        -  $ (595,000)

Goodwill                                         (150,000)   (595,000)
                                               ----------- -----------
     Total deferred tax liabilities              (150,000)   (595,000)
Deferred tax assets:
Net operating loss                              4,950,000   3,274,000
Contractual and bad debt allowance              1,281,000   2,209,000
                                               ----------- -----------
     Total deferred tax assets                  6,231,000   5,483,000
         Net deferred tax asset                 6,081,000   4,888,000
Valuation allowance                            (6,081,000) (4,888,000)
                                               ----------- -----------
         Net deferred taxes                    $       -   $        -
                                               =========== ===========

The Company has a net operating loss carry forward of approximately $14.5
million, which will begin to expire in 2021. The valuation allowance increased
$1,193,000 and $4,888,000 in 2003 and 2002, respectively.

Note 14 - Preferred Stock

The Series A preferred stock is convertible at a rate of one share of preferred
stock into one share of $.005 par value common stock. The Company can redeem the
stock at $5 per share. The stock also has a liquidation preference of $5 per
share. Holders of Series A preferred stock are entitled to one vote for each
share of Series A preferred stock held. The Series A preferred stock was
converted on January 29, 2004. See Note 19 - Subsequent Events.

In 2002, the Company issued 1,200,000 shares of Series AA Preferred Stock to
fund the acquisition of land (see Note 3). Under the original terms, 25% of the
preferred shares were convertible each year into common stock on a one-to-one
basis beginning June 1, 2003. If the common stock was trading at less than $5
per share, the difference between the redemption value ($5) and the market value
was to be paid in cash or in Class B shares. The number of Class B shares issued
would be the amount of cash due divided by the average stock price over the
previous five trading days. Class B shares required redemption at $5 per share
plus 16% interest, payable quarterly on the first anniversary of their issuance.
The Company also had the option to redeem the preferred stock for $5 per share
at any time.

In an agreement dated December 11, 2002, the terms of the Series AA Preferred
Stock were modified as follows: 300,000 shares converted immediately to
3,658,537 shares of common stock. On June 1, 2004, June 1, 2005 and June 1,
2006, 300,000 shares convert to a number of common shares equivalent to
$1,500,000 divided by the average closing price over the previous 20 trading
days. The Company has the option to redeem the Series AA Preferred shares on the
above dates for $5 per share. Holders of Series AA Preferred Stock are entitled
to one vote for each share of Series AA Preferred Stock held at all shareholders
meetings for all purposes.

The Company negotiated a modification to the original terms of the Series AA
Preferred Stock for several reasons, including: a) Management determined that it
was unlikely that the Company's common share price would be greater than $5
within the next few years and the Company would not have the cash to redeem the
shares, thus requiring the Company to issue Class B shares, which carried the
same redemption plus a 16% interest rate; b) It was in the best interest of the
Company to obtain the land resale guarantee, obtain the refinancing of the land
debt and to obtain an additional equity investment of $1million at the time the
terms were renegotiated; c) It allowed the Company to redeem the Series AA
Preferred Stock with common shares regardless of the price of the common shares
and maintain a floor of $0.41 per share for conversion.



                                       48
<PAGE>

The Company has authorized 20 million shares of total Preferred stock, including
those authorized for Series A, Series AA and any future series of Preferred
stock. The accompanying balance sheets reflect the shares allocated to such
series.

Note 15 - Warrants and Options

Transactions with Other Than Employees

The Company accounts for equity instruments issued to non-employees based on the
fair value of the equity instruments issued.

During 2003, the Company issued warrants as follows:

 Number of Shares      Exercise
                        Price           Expiration      In connection
                                                             with
------------------ ---------------- ------------------- --------------

          526,531            $ .35  January 31,2008      Consulting
           80,000              .45  January 31, 2008     Private Placement
        1,629,272              .35  February 29,2004     Private Placement
          335,713              .35  September 30, 2008   Debt
------------------

        2,571,516
==================


During 2002, the Company issued warrants as follows:

 Number of Shares      Exercise
                        Price           Expiration      In connection
                                                             with
------------------ ---------------- ------------------- --------------

          235,849           $ 2.12  July 15, 2005        Debt
          200,000              .01  June 1, 2007         Acquisition
           50,000             1.00  March 1, 2005        Consulting
          336,786              .32  September 15, 2007   Acquisition
          526,531              .35  November 12, 2007    Consulting
------------------

        1,349,166
==================

Information with respect to warrants for December 31, 2003 and 2002, is as
follows:
<TABLE>
<CAPTION>
                                                                                       2003                        2002
                                                                ---------------------------- ---------------------------
                                                                                Price Per                   Price Per
                                                                  Warrants        Share        Warrants       Share
                                                                ------------- -------------- ------------ --------------

<S>                    <C>                                         <C>         <C>     <C>       <C>       <C>     <C>
Outstanding on January 1,                                          1,549,166   $ .32 - 3.00      325,000   $ .10 - 3.00

Issued                                                             2,571,516      .35 - .45    1,349,166     .01 - 2.95

Exercised                                                         (1,384,990)     .01 - .25     (125,000)           .10
                                                                -------------                ------------

Outstanding on December 31                                         2,735,692   $ .01 - 3.00    1,549,166   $ .32 - 3.00
                                                                =============                ============

Weighted average exercise price                                        $ .70                       $ .93
                                                                =============                ============
</TABLE>

                                       49
<PAGE>
<TABLE>
<S>                                                                   <C>                            <C>
Weighted average fair value of warrants granted during the year
                                                                       $ .12                       $ .85
                                                                =============                ============

Weighted average remaining life of warrants at December 31
                                                                1.51 years                   4.26 years
                                                                =============                ============
</TABLE>

The fair value of the warrants at date of issuance was estimated using the
Black-Scholes Model with the following weighted average assumptions:


                                                2002             2001
                        ----------------------------------------------
Risk-free interest rate                         3.00%            3.01%
Expected life                               1.9 years        2.7 years
Expected dividends                               None             None
Expected volatility                               55%              74%

Transactions with Employees
---------------------------

The Company accounts for its employee stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," for which no
compensation expense is recognized for employee stock options if there is no
intrinsic value at the date of grant.

In October 2001, the Company established a stock option plan which authorized
1,400,000 shares of common stock to be made available through an incentive
program for employees. The options are granted at an exercise price equal to the
fair market value of the common stock at the date of grant. The options have a
ten-year term. No options were granted under this plan in 2003. There were
81,955 granted under this plan in 2002.

During 2002, the Company granted options to an employee to purchase 175,000
shares of common stock with an exercise price of $2.00 and a term of 5 years.
The options are fully vested.

During 2002, the Company also granted options to executives to purchase
6,489,232 shares of common stock with an exercise price of $.32 and a term of 10
years. One fourth of these options vested immediately upon grant, with the
remainder vesting over 3 years.

On October 5, 2001, the Company granted options to purchase 860,000 shares of
common stock to employees. The options vest over various periods, have an
exercise price of $1.90 and a term of 10 years.



Information with respect to employee stock options for December 31, 2003 and
2002, is as follows:
<TABLE>
<CAPTION>
                                                                            2003                        2002
                                                                 --------------------------- ---------------------------
                                                                                Price Per                   Price Per
                                                                   Options        Share        Options        Share
                                                                 ------------ -------------- ------------ --------------

<S>                    <C>                                         <C>               <C>         <C>              <C>
Outstanding on January 1                                           7,347,854         $ 1.90      860,000          $1.90

Granted                                                                    -     .32 - 2.05    6,746,187     .32 - 2.05

Forfeited                                                           (429,249)          1.90     (258,333)          1.90
                                                                 ------------                ------------

Outstanding on December 31                                         6,918,605   $ .32 - 2.05    7,347,854   $ .32 - 2.05
                                                                 ============                ============

Exercisable on December 31                                         3,788,279   $ .32 - 2.05    2,657,853   $ .32 - 2.05
                                                                 ============                ============

</TABLE>




                                       50
<PAGE>
<TABLE>
<S>                                                                  <C>                           <C>
Weighted average fair value of options granted during the year
                                                                       $ .00                       $ .18
                                                                 ============                ============

Weighted average exercise price

 Outstanding                                                           $ .42                       $ .51
                                                                 ============                ============

 Exercisable                                                           $ .50                       $ .84
                                                                 ============                ============

Weighted average remaining life of  options at December 31

 Outstanding                                                      8.69 years                  9.64 years
                                                                 ============                ============

 Exercisable                                                      8.55 years                  9.23 years
                                                                 ============                ============
</TABLE>


Note 16 - 401(k) Plan

The Company has an employee benefit plan under Section 401(k) of the Internal
Revenue Code for all eligible employees. Participants are permitted to defer
compensation up to a maximum of 15% of their income. On a discretionary basis,
the Company may match 25% of the employees' deferrals up to 4% of their income.
The Company contributions vest 20% after two years of service and 20% each year
thereafter, being fully vested after six years of service. During 2003, the
Company did not make a matching contribution to the plan. In 2002, the Company
contributed approximately $7,000 to the Plan.

Note 17 - Litigation

In March 2003,  SurgiCare  Memorial Village,  L.P. and Town & Country SurgiCare,
Inc. were named as defendants in a suit entitled  MarCap  Corporation vs. Health
First Surgery  Center-Memorial,  Ltd.; HFMC, L.C.;  SurgiCare  Memorial Village,
L.P.;  and Town & Country  SurgiCare,  Inc.  MarCap has sued for default under a
promissory note and refusing to remit payment on a promissory note in the amount
of $215,329.36. SurgiCare has paid $53,832.34 of this balance and settlement has
been reached whereby  SurgiCare will pay MarCap $150,000 over the next year with
interest at 10%, with an underlying settlement of approximately  $200,000 in the
event of a breach in the payment plan.

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 agreed to issue Mr. Altman 540,000 shares of common
stock to be registered with the Securities and Exchange Commission on Form S-8.


 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 defendants in the Texas case have moved for sanctions against
SurgiCare in that forum. The New York case has been ordered to mediation, which
has not yet been scheduled. In conjunction with the mediation order, The Parties
agreed to stay the litigation order in both states until the completion of the
mediation.

                                       51
<PAGE>

 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.

 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 18 - Commitments

On November 10, 2002, the Company entered into employment agreements with its
executives. The term of the agreements is three years. These agreements provide
for annual salaries and incentive bonuses of up to 30% of the employee's base
compensation. The criteria for earning the bonus is established by the Board of
Directors at the beginning of each 12-month period. In addition, the agreements
provide for payments of two times annual base salary if the executives are
terminated without cause. All options would also vest at that time. The
Company's aggregate base salary commitment under the employment agreements
through their respective terms is $1,588,000.


Note 19 - Subsequent Events

     On January 29, 2004, the Company converted all of its Series A Redeemable
Preferred Stock with the rights and preferences set forth in the Certificate of
Designation, Powers, Preferences, and Rights filed with the Secretary of State
of Delaware on September 12, 2001 (the "Preferred Stock") to common stock of the
Company. This conversion was approved by the majority vote of the Preferred
Stock shareholders in a written consent effective as of October 20, 2003, which
granted the Company the right to convert the Preferred Stock and in which the
shareholders disclaimed any past or possible future rights regarding the
Preferred Stock, including but not limited to the liquidation preference upon
the liquidation, dissolution or winding upon of the Company, pursuant to the
aforementioned Certificate of Designation.

     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 debt
forgiveness. We also intend to complete a reverse stock split and change our
name to Orion HealthCorp, Inc. 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:

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

     --   Issuing a new class of common stock (Class B common stock) to Brantley
          Partners IV, L.P., a private  investor  ("Brantley  IV").  Brantley IV
          will forgive  indebtedness owed by SurgiCare and Integrated  Physician
          Solutions,  Inc. ("IPS") to its subsidiary in the aggregate  principal
          amount of $1.28  million and will  contribute up to $6 million in cash
          (as reduced for additional debt owing by SurgiCare and IPS to Brantley
          IV's subsidiary at the time of the closing of the transactions,  which
          will also be forgiven) in exchange for shares of Class B common stock.

     --   Acquiring IPS, in a merger in which we will issue Class A common stock
          to the IPS stockholders and certain IPS creditors. IPS is a provider
          of business management services for pediatric practices and also
          provides software and technology solutions for physicians.

     --   Acquiring  Medical Billing  Services,  Inc.  ("MBS"),  and Dennis Cain
          Physician  Solutions,   Ltd.  ("DCPS"),  two  providers  of  physician
          management, billing, consulting and collection services in a merger 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


                                       52
<PAGE>

          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.

     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.



                                       53
<PAGE>


ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE.

     On July 28, 2003, we dismissed Weinstein Spira & Company, P.C. ("WSC") as
our independent auditors and retained Mann Frankfort Stein & Lipp CPAs, LLP
("MSFL") as our new independent auditors. The decision to change auditors was
approved by our board of directors.

     WSC reported on our financial statements for each of the fiscal years ended
December 31, 2002 and 2001. WSC did not include in any report on our financial
statements, an adverse opinion or a disclaimer of opinion, or a qualification or
modification as to uncertainty, audit scope or accounting principles.

     During our two most recent fiscal years ended December 31, 2002, and the
subsequent interim period through July 28, 2003, there were no disagreements
between us and WSC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to WSC's satisfaction, would have caused WSC to
make reference to the subject matter of the disagreement in connection with its
reports on our financial statements. WSC's report on our financial statements
for the year ended December 31, 2002, was modified by the inclusion of an
explanatory paragraph addressing our ability to continue as a going concern.


ITEM 8A.  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 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 Secretary and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective.

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

CHANGES IN INTERNAL CONTROLS

     During 2002, under prior management, SurgiCare issued restricted common
stock in some circumstances in which restrictive transfer legends were
improperly omitted from stock certificates. SurgiCare's current management has
conferred with counsel about these past issuances, and has instituted procedures
to ensure that future issuances of unregistered shares of securities include
appropriate legends and safeguards against transfer. SurgiCare has issued
instructions to its transfer agent warning against permitting transfers of
shares or removal of restrictive legends without assurance that such actions are
permissible under federal securities laws. SurgiCare also plans, after
completion of the transactions described in Item 1 - Description of Business
under the caption "The Company," to switch to a new transfer agent, which has
better protections in place for maintaining internal control over issuance and
transfer of securities.

Disclosure controls are controls and other procedures that are designed to
ensure that information required to be disclosed by us in reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules and
forms. Our disclosure controls and procedures are designed to insure that the
information required to be filed is accumulated and communicated to our
management in a manner designed to enable them to make timely decisions
regarding required disclosure.

     Our management, including our CEO and CFO, does not expect that our
disclosure controls or internal controls over financial reporting will prevent
all error or fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, but not absolute, assurance that the objectives of
a control system are met. Any control system contains limitations imposed by
resources and relevant cost considerations. Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues have teen addressed. These inherent limitations include
the realities that judgments can be faulty and that breakdowns can



                                       54
<PAGE>

occur  because  of  simple  error  or  mistake.  In  addition,  controls  can be
circumvented by the individual acts of some persons, by collusion of two or more
people,  or by management  override of a control.  Our control  system design is
also based on assumptions  about the likelihood of future events,  and we cannot
be sure that we have considered all possible future circumstances and events.


                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
               COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

     The information with respect to the directors, executive officers,
promoters and control persons; compliance with Section 16(a) of the Exchange Act
and other information under this item is incorporated herein by reference to the
proxy statement for our special meeting of shareholders in lieu of an annual
meeting for 2004.



ITEM 10.  EXECUTIVE COMPENSATION.

     Information with respect to executive compensation is incorporated herein
by reference to the proxy statement for our special meeting of shareholders in
lieu of an annual meeting for 2004.



ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

     Information with respect to security ownership of certain beneficial owners
and management and related shareholder matters is incorporated herein by
reference to the proxy statement or our special meeting of shareholders in lieu
of an annual meeting for 2004.




ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information with respect to certain relationships and related
transactions is incorporated herein by reference to the proxy statement for our
special meeting of shareholders in lieu of an annual meeting for 2004.






                                       55
<PAGE>


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit No.         Description

Exhibit 3.1         Amended and Restated Certificate of Incorporation
                    of SurgiCare, Inc. (Incorporated by reference to
                    Exhibit 3.1 of the Company's Registration
                    Statement on Form 10-SB/A filed on January 28,
                    2000)
Exhibit 3.2         Articles of Incorporation of Bellaire SurgiCare,
                    Inc. (Incorporated by reference to Exhibit 3.2 of
                    the Company's Registration Statement on Form
                    10-SB/A filed on January 28, 2000)
Exhibit 3.3         By-Laws of Technical Coatings Incorporated (now
                    SurgiCare, Inc.) (Incorporated by reference to
                    Exhibit 3.3 of the Company's Registration
                    Statement on Form 10-SB/A filed on January 28,
                    2000)
Exhibit 4.1         Certificate of Designation, Powers, Preferences
                    and Rights of Series A Redeemable (Incorporated by
                    reference to Exhibit 4.1 of the Company's
                    Registration Statement on Form 10-SB/A filed on
                    January 28, 2000)
Exhibit 4.2         Amended Certificate of Designation, Powers,
                    Preferences and Rights of Series AA Preferred
                    Stock, par value $.001 per share (Incorporated by
                    reference to Exhibit 10.3 of the Company's Form
                    8-K filed on January 29, 2003)
Exhibit 4.3         Form of SurgiCare, Inc. Common Stock Certificate
                    (Incorporated by reference to Exhibit 4.3 of the
                    Company's Form 10-KSB for the year ended December
                    31, 2002 filed April 14, 2003)
Exhibit 10.1        Agreement between SurgiCare, Inc. and American
                    International Industries, Inc., Texas Real Estate
                    Enterprises, Inc., and MidCity Houston Properties,
                    Inc. dated December 11, 2002 (Incorporated by
                    reference to Exhibit 10.2 of the Company's Form
                    8-K filed on January 29, 2003)
Exhibit 10.2        Employment Agreement with Keith G. LeBlanc dated
                    November 10, 2002 (Incorporated by reference to
                    Exhibit 10.2 of the Company's Form 10-KSB for the
                    year ended December 31, 2002 filed on April 14,
                    2003)
Exhibit 10.3        Employment Agreement with Phillip C. Scott dated
                    November 10, 2002 (Incorporated by reference to
                    Exhibit 10.2 of the Company's Form 10-KSB for the
                    year ended December 31, 2002 filed on April 14,
                    2003)

Exhibit 16.1        Letter to the Securities and Exchange Commission
                    from Weinstein Spira & Company, P.C., dated July
                    31, 2003, regarding Item 4 to the Registrant's
                    Form 8-K filed August 1, 2003 (Incorporated by
                    reference to Exhibit 16.1 of the Company's Form
                    8-K/A filed on August 4, 2003)

Exhibit 21          List of Subsidiaries of SurgiCare, Inc.

Exhibit 99.1        Certification Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.

Exhibit 99.2        Certification Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

         For the quarter ended December 31, 2003, the following reports on Form
8-K were filed:

                  Dated November 18, 2003 to announce that the SurgiCare had
                  entered into agreements relating to business combinations with
                  three other companies, an equity investment and a
                  recapitalization that will result in a new healthcare company
                  named Orion HealthCorp, Inc.

                  Dated November 24, 2003 to report issuance of a press release
                  summarizing SurgiCare's third quarter 2003 financial results.


                                       56
<PAGE>

                  Dated January 29, 2004 to report SurgiCare's conversion of all
                  of its Series A Redeemable Preferred Stock.

                  Dated February 17, 2004 to announce that SurgiCare has
                  executed a definitive agreement to acquire Dennis Cain
                  Physician Solutions, Ltd and Medical Billing Services, Inc. In
                  addition, SurgiCare announced that it has filed preliminary
                  proxy materials with the Security and Exchange Commission
                  relating to a meeting of stockholders to be held to approve
                  various matters relating to the aforementioned acquisitions as
                  well as the previously announced recapitalization, equity
                  investment and acquisition of Integrated Physician Solutions,
                  Inc.


ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

     The aggregate fees billed by Mann Frankfort Stein & Lipp CPAs, LLP ("MFSL")
for professional services rendered for the review of financial statements
included in SurgiCare's quarterly reports on Form 10-QSB for the fiscal year
2003 were $5,365. During fiscal years 2002 and 2003 the aggregate fees billed by
Weinstein Spira & Company, P.C. ("WSC") totaled $73,776 and $72,434.

Tax Fees

     The aggregate fees billed by MFSL during fiscal year 2003 for tax-related
services totaled $6,728. The aggregate fees billed by WSC during fiscal years
2002 and 2003 for tax related services totaled $18,167 and $25,900,
respectively.

All Other Fees

     During fiscal years 2002 and 2003, all other fees billed by WSC totaled
$374 and $1,500, which primarily consisted of finance charges and Form S-8
consents.

                                       57
<PAGE>


                                   SIGNATURES


     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                     SurgiCare, Inc.


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


                           ---------------------------

     In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.


Signature                        Title                             Date
---------                        -----                             ----


/s/ Keith G. LeBlanc
---------------------          President &                    April 13, 2004
Keith G. LeBlanc               Chief Executive Officer
(principal executive officer)


/s/ Phillip C. Scott
---------------------          Secretary &                    April 13, 2004
Phillip C. Scott               Chief Financial Officer
(principal financial and accounting officer)

/s/ Jeffrey Penso
------------------             Director                       April 13, 2004
Jeffrey Penso, DPM

/s/ Sherman Nagler
-------------------            Director                       April 13, 2004
Sherman Nagler, DPM

/s/ Michael Mineo
------------------             Director                       April 13, 2004
Michael Mineo, DPM

/s/ Bruce Miller
-----------------              Director                       April 13, 2004
Bruce Miller, DPM


                                       58
<PAGE>



 I, Keith G. LeBlanc, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of SurgiCare, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15) for the Registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

         b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls over financial reporting which could adversely affect the Registrant's
ability to record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in internal
controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    April 13, 2004


 /s/ Keith G. LeBlanc
--------------------------------------------------
Keith G. LeBlanc, Chief Executive Officer(1)



----------------------
( 1)   A signed original of this written statement required by Section
906 has been provided to SurgiCare, Inc. and will be retained by
SurgiCare, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.


                                       59
<PAGE>

I, Phillip C. Scott, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-KSB of SurgiCare, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15) for the Registrant and have:

         a) designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

         b) evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

         c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our evaluation
as of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on our
most recent evaluation to the Registrant's auditors and the audit committee of
Registrant's board of directors (or persons performing the equivalent
functions):

         a) all significant deficiencies in the design or operation of internal
controls over financial reporting which could adversely affect the Registrant's
ability to record, process, summarize and report financial data and have
identified for the Registrant's auditors any material weaknesses in internal
controls; and

         b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date:    April 13, 2004


 /s/ Phillip C. Scott
---------------------------------------------
Phillip C. Scott, Chief Financial Officer1





-------------------------------
( 1)   A signed original of this written statement required by Section
906 has been provided to SurgiCare, Inc. and will be retained by
SurgiCare, Inc. and furnished to the Securities and Exchange
Commission or its staff upon request.


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<PAGE>

                                  Exhibit Index
                                  -------------

Exhibit No.                   Description

Exhibit 3.1         Amended and Restated Certificate of Incorporation
                    of SurgiCare, Inc. (Incorporated by reference to
                    Exhibit 3.1 of the Company's Registration
                    Statement on Form 10-SB/A filed on January 28,
                    2000)
Exhibit 3.2         Articles of Incorporation of Bellaire SurgiCare,
                    Inc. (Incorporated by reference to Exhibit 3.2 of
                    the Company's Registration Statement on Form
                    10-SB/A filed on January 28, 2000)
Exhibit 3.3         By-Laws of Technical Coatings Incorporated (now
                    SurgiCare, Inc.) (Incorporated by reference to
                    Exhibit 3.3 of the Company's Registration
                    Statement on Form 10-SB/A filed on January 28,
                    2000)
Exhibit 4.1         Certificate of Designation, Powers, Preferences
                    and Rights of Series A Redeemable (Incorporated by
                    reference to Exhibit 4.1 of the Company's
                    Registration Statement on Form 10-SB/A filed on
                    January 28, 2000)
Exhibit 4.2         Amended Certificate of Designation, Powers,
                    Preferences and Rights of Series AA Preferred
                    Stock, par value $.001 per share (Incorporated by
                    reference to Exhibit 10.3 of the Company's Form
                    8-K filed on January 29, 2003)
Exhibit 4.3         Form of SurgiCare, Inc. Common Stock Certificate
                    (Incorporated by reference to Exhibit 4.3 of the
                    Company's Form 10-KSB for the year ended December
                    31, 2002 filed April 14, 2003)

Exhibit 10.1        Agreement between SurgiCare, Inc. and American
                    International Industries, Inc., Texas Real Estate
                    Enterprises, Inc., and MidCity Houston Properties,
                    Inc. dated December 3, 2002 (Incorporated by
                    reference to Exhibit 10.2 of the Company's Form
                    8-K filed on January 29, 2003)
Exhibit 10.2        Employment Agreement with Keith G. LeBlanc dated
                    November 10, 2002.
Exhibit 10.3        Employment Agreement with Phillip C. Scott dated
                    November 10, 2002.
Exhibit 16.1        Letter to the Securities and Exchange Commission
                    from Weinstein Spira & Company, P.C., dated July
                    31, 2003, regarding Item 4 to the Registrant's
                    Form 8-K filed August 1, 2003 (Incorporated by
                    reference to Exhibit 16.1 of the Company's Form
                    8-K/A filed on August 4, 2003)

Exhibit 21          List of Subsidiaries of SurgiCare, Inc.

Exhibit 99.1        Certification Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.

Exhibit 99.2        Certification Pursuant to 18 U.S.C. Section 1350,
                    as Adopted Pursuant to Section 906 of the
                    Sarbanes-Oxley Act of 2002.


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<PAGE>

Exhibit 21

                                 SURGICARE, INC.
                                 SUBSIDIARY LIST
                              AS OF MARCH 31, 2004

                              State of
Name of Subsidiary              Org.        Owned By               Ownership %
------------------             -----        --------               -----------

Bellaire SurgiCare, Inc.       Texas        SurgiCare, Inc.           100%
Town & Country SurgiCare, Inc. Texas        SurgiCare, Inc.           100%
SurgiCare Memorial
Village, L.P.                  Texas        Town & Country             60%
                                            SurgiCare, Inc.
Baytown SurgiCare, Inc.        Texas        SurgiCare, Inc.           100%
San Jacinto Surgery
Center, L.P.                   Texas        Baytown SurgiCare, Inc.    10%
Tuscarawas Ambulatory
Surgery Center, LLP            Ohio         SurgiCare, Inc.            51%
Southeast SurgiCare, Inc.      Texas        SurgiCare, Inc.           100%
Tuscarawas Open MRI, L.P.      Ohio         SurgiCare, Inc            100%
Bellaire ASC, L.P.             Texas        Bellaire SurgiCare, Inc.  100%
TASC Anesthesia, LLC           Ohio         Tuscarawas Ambulatory     100%
                                            Surgery Center, LLC



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