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, 2006

                TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission file number 0-29804

                          SecureCARE Technologies, Inc.

                            (Formerly eClickMD, Inc.)
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                                     NEVADA
         --------------------------------------------------------------
         (State or other jurisdiction of incorporation or organization)

                                   82-0255758
                     ---------------------------------------
                     (I.R.S. Employer Identification Number)

          3755 Capital of Texas Highway Suite 160E, Austin, Texas 78704
          -------------------------------------------------------------
                    (Address of principal executive offices)

Registrant's telephone number, including area code: (512) 447-3700 Securities
registered pursuant to Section 12(b) of the Act: None, Securities registered
pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $.001 PAR VALUE
                          -----------------------------
                                (Title of class)

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 Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Report on Form 10-KSB or any
amendment to this Report on Form 10-KSB. [ ]

The issuer's revenues for its most recent fiscal year ended December 31, 2006
were $244,477.

The aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the Registrant as of February 28,
2007 (based upon the closing price) was $325,212.

Issuers involved in Bankruptcy Proceedings During the Past Five Years. Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.

Yes [X] No [ ]

The number of shares of the issuer's Common Stock, par value $.001 per share,
outstanding as of December 31, 2006 was 20,304,000 of which 6,504,243 shares
were held by non-affiliates.

Documents Incorporated by Reference. Yes.

Transitional Small Business Issuer Format. Yes [ ] No [X]
<PAGE>

                          SecureCARE Technologies, Inc.
                                   Form 10-KSB
                   For the Fiscal Year Ended December 31, 2006
                                      INDEX

PART 1

Item 1.      Business                                                         2

Items 1A.    Risk Factors                                                     9

Item 2.      Properties                                                      14

Item 3.      Legal Proceedings                                               14

Item 4.      Submission of Matters to a Vote of Security Holders             14

PART 11

Item 5.      Market for Registrant's Common Equity, Related Stockholder
             Matters and Issuer Purchase of Equity Securities                14

Item 6.      Management's Discussion and Analysis of Financial Condition
             and Results of Operations                                       15

Item 7.      Financial Statements                                            22

Item 8.      Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosures                                       22

Item 8A.     Controls and Procedures                                         22

Item 8B.     Other Information                                               22

Part 111

Item 9.      Directors and Officers of the Registrant                        23

Item 10.     Executive Compensation                                          25

Item 11.     Security Ownership of Certain Beneficial Owners and
             Management and Related Stockholder Matters                      27

Item 12.     Certain Relationships and Related Transactions                  27

Item 13.     Principal Accountant Fees and Services                          28

Part IV

Item 14.     Exhibits and Financial Statement Schedules                      28

Signatures                                                                   29
<PAGE>

PART 1

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

This report on Form 10-KSB contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. SecureCARE
Technologies, Inc. ("SecureCARE" or the "Company") bases these forward-looking
statements on its expectations and projections about future events, which the
Company has derived from the information currently available to it. In addition,
from time to time, SecureCARE or its representatives my make forward-looking
statements orally or in writing. Furthermore, forward-looking statements maybe
included in SecureCARE's filings with the Securities and Exchange Commission or
press releases or oral statements made by or with the approval of one of
SecureCARE's executive officers. For each of these forward-looking statements,
SecureCARE claims the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
These forward-looking statements relate to future events or SecureCARE's future
performance, including but not limited to:

        o    Possible or assumed future results of operations
        o    Future revenue and earnings; and
        o    Business and growth strategies.

Forward-looking statements are those that are not historical in nature,
particularly those that use terminology such as may, could, will, should,
likely, expects, anticipates, contemplates, estimates, believes, plans,
projected, predicts, potential or continue or the negative of these or similar
terms. The statements contained in this Report that are not purely historical
are 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, including statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future.
Forward-looking statements are subject to certain known and unknown risks and
uncertainties that could cause actual results to differ materially from those
expressed in any forward-looking statements. These risks and uncertainties
include, but are not limited to, the following important factors with respect to
SecureCARE:

        o    the uncertainty of general business and economic conditions,
             including the potential for a slowdown in business and expenditures
             on medical information technology and software;
        o    the impact of competition, both expected and unexpected;
        o    our need for additional funds, and the difficulties we may face in
             obtaining such funds;
        o    the Company's inability to realize the anticipated benefits of
             strategic and operational initiatives related to increased
             productivity, new product development, technological advances, and
             the achievement of sales growth
        o    those described under Risk Factors included in Item 1A of this
             document.

Forward-looking statements are only predictions as of the date they are made and
are not guarantees of performance. All forward-looking statements included in
this document are based on information available to SecureCARE on the date of
this Report on Form 10-KSB. Readers are cautioned not to place undue reliance on
forward-looking statements. The forward-looking events discussed in this Report
on Form 10-KSB and any other statements made from time to time by SecureCARE or
its representatives may not occur and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about
SecureCARE including without limitation those discussed elsewhere in this Form
10-KSB under the heading Risk Factors as well as those discussed elsewhere in
this Form 10-KSB, and the risks discussed in our Securities and Exchange
Commission filings. Except for their on-going obligation to disclose material
information as required by federal securities laws, SecureCARE is not obligated
to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
Report on Form 10-KSB and in other statements made from time-to-time by
SecureCARE or its representatives might not occur.

                                       1
<PAGE>

ITEM 1. BUSINESS

OVERVIEW

SecureCARE's management believes that the Company is a leading provider of
Internet-based document exchange and e-signature solutions for the healthcare
industry. The Company's proprietary technology uses the Internet to enable
electronic document exchange for documents to be sent, retrieved, signed and
remotely viewed anywhere in the world, between providers of healthcare, while
protecting patient privacy as required by law. Built with state-of-the art
development tools from the Microsoft dotNET development solutions, the
SecureCARE.net portal is tailored to the needs of physicians, clinics and home
healthcare, hospice and durable medical equipment providers. This end-to-end
solution offers a money-saving approach to accessing information and managing
time-consuming forms and authorizations. SecureCARE's easy to use technology
eliminates paper, while enhancing the physicians ability to capture fees for
otherwise unbilled time and services, uniquely and directly impacting the
physicians revenue. SecureCARE.net is a highly secure, HIPAA-ready (Health
Insurance Portability and Accountability Act) tracking and reporting tool that
streamlines operations while providing physicians with additional revenue
opportunities. In the fourth quarter of 2006 the Company began development of an
additional product offering, its hosted electronic fax solution, "SecureFAX".
The beta test site of the application was up and running as of February, 2007.
The Company is continuing to develop features associated with SecureFAX and is
planning to bring this new product offering to market in the second quarter of
2007. The Company markets its services to customers throughout the United
States, currently operating from its Austin, Texas-based corporate headquarters.

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

General

SecureCARE Technologies, Inc., (the Company or SecureCARE) formerly eClickMD,
Inc., was incorporated in Idaho in 1961. During 1998, the Company changed its
domicile to the State of Nevada and is now a Nevada Corporation.

The September 20, 1999 Reorganization

On September 20, 1999, CSGM entered into an Agreement and Plan of Reorganization
(the Reorganization Agreement) with Link.com, Inc. Pursuant to the
Reorganization Agreement, the shareholders of privately-held Link.com agreed to
exchange 100% of the issued and outstanding shares of common stock or 25,000
shares, in exchange for 10,388,898 shares of the Company's common stock with a
par value of $0.001. For accounting purposes the acquisition of Link.com by the
Company was treated as a recapitalization of Link.com with Link.com as the
acquiror (a reverse acquisition). Accordingly, the historical financial
statements are those of Link.com and its predecessors. The Board of Directors
approved a change of the Company's name to Link.com, Inc. in September, 1999. On
May 26, 2000, the Company's name was changed to eClickMD, Inc.

Chapter 11 Reorganization - May 13, 2003

On May 13, 2003 (the Commencement Date) the Company (the Debtor) filed a
voluntary petition under Chapter 11 of Title 11 of the United States Bankruptcy
Code (the Bankruptcy Code) in the United States Bankruptcy Court for the Western
District of Texas (the Bankruptcy Court), Case No. 03-12387. During the course
of its Chapter 11 proceeding, the Company operated its business and managed its
assets as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.

On August 6, 2003, the Company filed a proposed disclosure statement and joint
plan of reorganization, dated August 5, 2003, (the Plan) with the bankruptcy
court. On October 23, 2003, after notice and a hearing, the bankruptcy court
signed the disclosure statement order, approving the Company's disclosure
statement. On October 24, 2003, the Debtors commenced the solicitation of
holders of claims entitled to vote to accept or reject the Plan. On December 2,
2003, after notice and a hearing, the bankruptcy court entered its findings of
fact, conclusions of law and order confirming the Debtor's joint plan of
reorganization dated as of August 5, 2003 (the Confirmation Order). The Plan
became final and non-appealable on December 13, 2003. The effective date of the
Plan was December 15, 2003.

A copy of the Plan (as amended by the bankruptcy court's confirmation order) is
incorporated by reference. Capitalized terms used but not defined herein shall
have the meaning assigned to them in the Plan.

The bankruptcy court's confirmation order is also incorporated herein by
reference.

The following is a summary of the material features of the Plan and is qualified
in its entirety by reference to the Plan itself.

                                       2
<PAGE>

Among other things, the Plan generally provided that all existing equity
interests and rights in the Debtor would be cancelled. The Debtor's sole secured
creditor received ninety seven and one-half percent (97.50%) of the new common
shares of the reorganized Debtor. Unsecured creditors received two and one-half
percent (2.50%) of the new common shares of the reorganized Debtor, a cash
payment equal to two and one-half Percent (2.50%) of the amount of their allowed
claim, and an assignment of the Debtor's rights under a pre-petition judgment in
the amount of approximately $1 million, entered in favor of the Debtor. Equity
interest holders in the Debtor each received 150 shares of new common stock,
regardless of the size of their pre-petition equity interests. In addition, in
connection with the Plan, the Company recorded $2,703,203 as a gain on debt
settlement and $168,667 as a gain on cancellation of an executory contract
during the year ended December 31, 2003.

On April 22, 2004 the Company submitted a motion to modify plan after
confirmation (the Motion) to the bankruptcy court. A copy of the Motion is
included as Exhibit 3.7. The Motion consisted of the following changes to the
original confirmed Plan:

     1.)  To change the Company name to SecureCARE Technologies, Inc. versus
          Secure Care, Inc. as stated in the original plan;
     2.)  To correct the par value of the New Common Stock to $0.001 from $0.01
          as stated in the original plan;
     3.)  To authorize 15,000,000 shares of New Common Stock (reflecting a 1.5
          for 1 forward stock split) versus 10,000,000 as stated in the original
          Plan;
     4.)  To add certain language to ensure that the New Common Stock is freely
          tradable and non-restricted in any way.

On May 18, 2004, the order granting motion to modify plan after confirmation was
approved by the bankruptcy court..

On October 19, 2004, the bankruptcy court judge signed the Company's order of
final decree which effectively closed the case.

Events Subsequent to the May 13, 2003 Reorganization

On January 19, 2004, the Board of Director's of eClickMD, Inc. approved a 1.5
for 1 forward Common Stock Split (the Stock Split). On January 19, 2004, the
shareholder holding shares representing more than a majority of the shares of
Common Stock entitled to vote consented in writing to the Stock Split. The Stock
Split increased the number of shares of Common Stock issued and outstanding, as
approved in The Plan, from 10,000,000 to 15,000,000.

On January 19, 2004, the Board of Director's of eClickMD, Inc. determined to
change the name of the Company to SecureCARE Technologies, Inc. The purpose of
the name change was to more accurately reflect the Company's present business
and its activities as well as to facilitate the future development of its
business. Approval of the name change required the affirmative consent of at
least a majority of the outstanding shares of the Common Stock of the Company.
The shareholder entitled to vote more than a majority of all the shares of
Common Stock entitled to vote consented to the name change on January 19, 2004.

The Company filed an Amendment to its Corporate Charter with the State of Nevada
on February 24, 2003 affecting the Stock Split and the name change of the
Company to SecureCARE Technologies, Inc.

On December 9, 2005, the Company implemented a staff reduction of approximately
sixteen employees in what was expected to be a temporary cost reduction in
response to the failure of the Company to obtain necessary financing to fund
operations. The Company intended to secure a banking or investment partner and
it downsized its cost structure to preserve its value and operate from its
current sales revenues during this interim period. A cost contained operating
plan, including four full-time employees and additional part-time resources, was
implemented at that time to support the Company's physician and home healthcare
provider customer base and to maintain its technology platform. When
implemented, this personnel and cost reduction program reduced the Company's
monthly cash requirements by approximately $200,000.

On April 4, 2006, the Company entered into a Loan Agreement (the "Loan
Agreement") with Euro Financial Fidelity, Inc. ("EFF") which provided for a loan
to the Company of $7,000,000 by June 15, 2006 (the "Loan"). The Company had the
right to terminate the Loan Agreement at any time by written notice to EFF if
the Loan was not funded by June 15, 2006. The Company notified EFF on October 6,
2006 that it was terminating the Loan Agreement, effective immediately, as no
funding was ever received.

In its efforts to position the Company to raise the additional capital required
to execute its business plan, during 2006, the Company affected a significant
restructuring of it balance sheet. On June 16, 2006, the Company's Board of
Directors ratified a letter agreement (the "Letter Agreement"), dated June 7,
2006, with a related party, Gryphon Opportunities Fund I, LLC ("GOF"), relating
to future financing and a recapitalization of the Company. Pursuant to the
Letter Agreement, GOF agreed to convert its notes payable and accrued interest
(as of September 15, 2006) to common stock of the Company and to release its
lien on the Company's assets. Both of these actions were conditioned upon the
Company receiving an aggregate of $570,000 in equity financing. The raising of
the equity financing was effectively completed on September 15, 2006 (the
"Commitment Date") in the amount of $570,518. As of October 2, 2006, the Company
had raised a total of $576,518 in the equity financing.

                                       3
<PAGE>

As of the Commitment Date, the Company had only approximately 30 million shares
of common stock authorized remaining to be issued. To complete the equity
financing of $576,518 (offered at a price of $0.01 per common shave equivalent)
and the conversion of the GOF notes payable and accrued interest of $544,490 and
$56,477, respectively, also offered at a conversion price of $0.01 per common
share equivalent, (the GOF conversion offer was triggered upon achievement of
the minimum required equity financing on September 15, 2006), the Company needed
approximately 104 million authorized common shares. As a result, the Company
authorized issuance of a new series of Mandatorially Convertible Series C
Preferred Stock (the "Series C Stock") to the new equity investors (251,093
shares of Series C Stock) and to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date, the Series C
Stock shares were authorized, designated and issuable to the new equity
investors and to effect the conversion of the GOF notes payable and accrued
interest. At September 30, 2006, because the Series C Stock had not been
authorized or designated, the equity financing of $570,518 was classified as
preferred stock pending issuance on the balance sheet.

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock.

In summary, as of December 31, 2006, the Company has issued a total of 1,058,835
shares of Series C Stock representing 211,766,248 common share equivalents as
follows:

<TABLE>
<CAPTION>
Description                              Series C Stock Shares      Common Share Equivalents
-----------                              ---------------------      ------------------------
<S>                                                 <C>                         <C>
$576,518 Equity Financing                             253,736                    50,746,681
GOF Note/Interest Conversion                          264,494                    52,898,765
All other Note/Interest Conversions                   540,605                   108,120,802
                                              ---------------          --------------------
        Total at 12/31/06                           1,058,835                   211,766,248
                                              ===============          ====================
</TABLE>

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split does not change the number of
shares of common stock that the Company is authorized to issue. With shareholder
approval of the reverse stock split, the 1,058,835 shares of Series C Stock will
automatically convert to 1,058,835 shares of common stock. The Company has
agreed to accept votes on its proposal until March 30, 2007, unless the Company
agrees to extend such date.

The Company's continued existence depends upon the success of management's
efforts to raise additional capital necessary to meet the Company's obligations
as they come due and to obtain sufficient capital to execute its business plan.
The Company intends to obtain capital primarily through issuances of debt or
equity. There can be no degree of assurance that the Company will be successful
in completing additional financing transactions.

Our Solutions

To solve inefficient and costly manual paper handling process in the healthcare
industry, SecureCARE Technologies has developed a proprietary Internet based
application, SecureCARE.net, that enables any health record, form or
prescription to move electronically, securely and effortlessly from the point of
generation - whether pharmacy or home health agency, to its destination, such as
a physician's private office. In the fourth quarter of 2006 the Company began
development of an additional product offering, its hosted electronic fax
solution, "SecureFAX". The beta test site of the application was up and running
as of February, 2007. The Company is continuing to develop features associated
with SecureFAX and is planning to bring this new product offering to market in
the second quarter of 2007. The Company markets its services to customers
throughout the United States, currently operating from its Austin, Texas-based
corporate headquarters. The Company's combined solutions allow providers of
health care to be able to send and receive the information in two different
ways:

     o    Electronic fax with a unique bar code to track document status and
          routing - SecureFAX
     o    An electronic form format with e-Signature - SecureCARE.net

The SecureCARE.net and SecureFAX applications are written in Microsoft.Net
programming language and are easily integrated into almost any enterprise
software application. This allows the healthcare providers to be able to give
the physician their information electronically, at a significant cost and time
savings, while complying with the stringent security and privacy regulations
under HIPAA. Physician practices will benefit as well. They can manage all faxes
and electronic documents in a single portal environment (no paper) and can route
them to the appropriate person within the practice for review and electronic
signature, and eventually route it for return to the sender. With integration
into their patient management system or the electronic medical record (EMR) the
documents can be mapped to the appropriate patient file. The same benefits of
saving time, money and the elimination of many inefficient steps are achieved by
the physician practice users. We believe this solution is a major step forward
in reducing the paper handling within a physician practice.

                                       4
<PAGE>

The Company's initial focus is on five segments of the healthcare delivery
model.

     o    National and Independent pharmacies
     o    Home Health Agencies and Hospice providers
     o    Durable Medical Equipment providers
     o    Long Term Care providers
     o    Physician practices

Within these industry segments SecureCARE's addressable market is the document
exchange and management of paperwork between the providers in each segment
listed above and their referring physicians.

SecureFAX - Electronic faxing and receiving of documents with SecureFAX. This
process includes bar coding for document traceability that integrates into
healthcare enterprise software vendors' applications. SecureFAX has the
following features and functionality:

     o    It can be sold as a stand-alone product or it can be designed to be
          integrated into software vendor applications, or combined with
          SecureCARE.net
     o    It is an easily integrated electronic fax service for almost all
          software applications - allowing users to type in or select a fax
          number from a directory and send the forms to a physician not on the
          system directly
     o    It tracks outbound faxes and matches back inbound faxes automatically
          through unique bar code identifiers
     o    It allows end-users to immediately increase their productivity, reduce
          costs, and efficiently communicate all healthcare information to their
          physician base or other healthcare facilities
     o    It is an automated, controlled, bi-directional fax process,
          facilitating document management and storage, and audit trails, while
          meeting all HIPAA and Centers for Medicare & Medicaid Services (CMS)
          requirements
     o    It can map electronically faxed documents to patient records

SecureCARE.net - A fully integrated information portal, SecureCARE.net,
processes electronic document exchange and e-Signature along with electronic
faxing, SecureFAX. This fully integrated portal is designed to completely
eliminate the need for all paper based forms or documents. SecureCARE.net has
the following features and functionality:

     o    It requires no download; this allows for quick access to SecureCARE
          and easy portability into newer designed web portal systems most
          common in physician offices today
     o    It is accessed by typing a web address into any browser, which
          connects to the SecureCARE servers and displays the appropriate login
          screen
     o    Its documents are saved, displayed and printed in PDF (Portable
          Document Format) format. PDF is a highly recognized document type and
          is being utilized in most healthcare document image systems
     o    Its integrated fax services (SecureFAX) allow users to type in a fax
          number and send the forms electronically to a physician who is not on
          SecureCARE.net
     o    Its documents can be exported in an image format to send to other EMR
          systems
     o    The SecureCARE system tracks, audits and provides history related to
          the status of the documents and the complete history of the document
          as it moves through the SecureCARE system; this audit and history
          trail can be used for the CMS documentation in case of audits
     o    Management reports give SecureCARE.net users information to track the
          status of a patient's document, including where the document is
          located and whether the physician or nurse has signed the document;
          turnaround time is monitored for the healthcare provider to better
          understand which physicians are prompt in returning documents; patient
          activity is reported to show a complete history of documents for each
          patient; all reports are saved, printed and displayed in the PDF
          format.

The Technology

SecureCARE.net's database is distributed, allowing for faster and broader
scalability. The multiple server and storage area network (SAN) configuration
provides for robust fail-over and scalability. The SecureCARE.net application
was built according to software standards currently in place, and in accordance
with healthcare regulations specific to using the Internet. The SecureCARE.net
platform uses:

     o    XML, SOAP, HTTP, HL7, HIPAA transaction sets
     o    ANSI X12N
     o    Microsoft development solutions

All database information is stored in Microsoft SQL Server 2000 using encrypted
XML data. CryptoAPI is the encryption tool. Several web servers and database
servers are co-located in a third party facility that meets Internet
requirements and federal regulations for storing healthcare data. The
application uses open standards allowing for integration of other software as
well as exchange of data with both new and older systems alike.

                                       5
<PAGE>

Electronic fax servers, SecureFAX, have been added and integrated into the
SecureCARE.net application that will allow us to create a virtual fax server. A
healthcare provider's patient management system is easily able to interface with
SecureFAX by sending our application data in an XML file.

The Internet has the full potential to design and deploy universal standards
such as those that govern email and electronic data transactions. Many major
vendors - especially Microsoft, IBM and Sun - have developed standards such as
XML (Extensible Markup Language) and SOAP (Simple Object Access Protocol) that
have been adopted by the World Wide Web Consortium (W3C) which is responsible
for defining Internet-based standards. Committed to the efficiencies of
universal standards, both the SecureCARE.net and SecureFAX platforms are built
around Microsoft's .NET (Dot Net) framework within the standards and regulations
of HIPAA and HL-7 (Health Level Seven messaging standards). The SecureCARE
platform provides multiple levels of data encryption and security meeting the
strictest regulatory guidelines of the CMS and the Food and Drug Administration.

HIPAA and Federal IT Initiatives

Recent and evolving federal regulations, several healthcare reform proposals,
and new government healthcare IT initiatives, are drivers of product development
and should accelerate industry adoption of SecureCARE's services. HIPAA is an
expansive regulatory scheme, which, among other objectives, is intended to
enhance the privacy and security of a patient's protected health information
(PHI). We believe the significant federally mandated security and privacy
requirements have created a high barrier to entry for new and existing IT
solutions. SecureCARE's technical infrastructure was designed with HIPAA
regulatory compliance in mind.

Sales and Marketing

Management believes the most effective way to penetrate our targeted markets is
to sell our services through established channel partners who have signed
reseller agreements with SecureCARE. Our channel partners are the enterprise and
billing software systems that are used to run our targeted end users businesses
(pharmacies, home health agencies, DME providers, Long Term Care facilities and
Physician practices). We intend to sell our service in an outsourced ASP
(application service provider) model that is integrated into the channel
partner's software. The channel partner will sell the service in an integrated
module or as an add-on service to their software platform. There are significant
advantages to this strategy for everyone in the supply chain including
SecureCARE, its channel partners and their customer base. SecureCARE's marketing
efforts will be focused on selling to and supporting its channel partner
strategy.

Competition

The markets in which we compete are highly competitive and rapidly changing.
Although we believe there is no single company that directly competes with our
SecureCARE.net and SecureFAX solutions, we are aware of efforts by other
companies to develop products or services to either compete directly with our
solutions or that could be used an alternatives to our solutions. These
companies offer fax products, web-based processing of medical forms and
signature solutions that could compete with our solutions. Our SecureFAX
solution will compete primarily against traditional fax machine manufacturers,
which are generally large and well established companies, providers of fax
serves and related software. In addition, Companies with which we do not
presently directly compete may be come competitors in the future through their
product development in the area of secure online services and such companies may
have greater financial, technological and marketing resources than we do.

The History of Our Current Products Offerings

In the fourth quarter of 2006 the Company began development of an additional
product offering, its hosted electronic fax solution, "SecureFAX". The beta test
site of the application was up and running as of February, 2007. The Company is
continuing to develop features associated with SecureFAX and is planning to
bring this new product offering to market in the second quarter of 2007. The
Company markets its services to customers throughout the United States,
currently operating from its Austin, Texas-based corporate headquarters. The
Company's combined solutions allow providers of health care to be able to send
and receive the information in two different ways:

On February 1, 2005, SCTI announced the release of its new application,
SecureCARE.net. This solution transforms the costly, labor- and paper-intensive
workflows between physicians and home health services providers into a highly
efficient and cost effective electronic document exchange process.
SecureCARE.net is easy to learn and simple to use, with current users learning
the solution in 10 minutes or less. It requires only a browser (such as Internet
Explorer) and access to the Internet. Users can manage their documents from
anywhere the Internet is available, whether at work, home or on vacation.

State-of-the art software development tools from the Microsoft dotNet
development solutions were used to speed the development and pave the road to an
efficient deployment. Additionally, early in development, Microsoft design
testing of the application was completed to allow for a full, world-class
evaluation of the application prior to release. A full review of the design and
code was completed in a simulated production environment with customized test
scripts, resulting in optimized performance and architecture.

SecureCARE.net offers extensive security, scalability and reliability. The new
application is fully redundant and scalable with a three-tier architecture that
enables the Company to add components as customer demand increases. The new
multiple server and SAN configuration, co-located in a third-party facility,
provides for robust fail-over. Data in the .net database is distributed among
tables, making information-finding faster, particularly for import functions.

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In July, 2003, the Company began transitioning its peer-to-peer software
solution to a highly scale-able platform for mid to large-sized enterprises.
This new platform allowed the Company to leverage its home healthcare and
physician network by adding connections to medical equipment companies,
pharmacies, nursing homes, hospice, hospitals, research communities, lab
companies and insurance payors.

In early November 2001, we began development of our third generation software.
In this generation of the product the SecureCARE platform included dynamic forms
presentation and new user features that were robust and user friendly. The
SecureCARE document viewer and forms presentation engine was designed to
accommodate larger enterprises in today's healthcare sectors. This new, third
generation technology, took advantage of the Windows(R) look and feel that is
most common in today's healthcare environment, and utilized the Internet as the
back-end communication pipeline to the SecureCARE web services platform located
in the data center. The SecureCARE database served up robust dynamic forms
through a small Windows client interface that was updated every time the user
began utilizing the application. User authentication and login was verified by
standard PKI (Public Key) with digital certificates. If the users name and
password did not match the digital certificates criteria then the users access
was disallowed. The digital certificate was stored in a certificate vault and
was only used during the current user session. SecureCARE has filed for patent
protection on the certificate vault concept. This concept is truly innovative
and allows for ease of use and portability for the user. The certificate vault
can accommodate other digital certificates that are issued by other certificate
authorities, (Verisign(TM), Digital Trust(TM), Baltimore Security(TM), and many
others). The vault concept allowed SecureCARE to manage the certificates for the
user. The third generation software was based on data manipulation and
presentation to the dynamic forms. This concept allowed SCTI to interface with
already available data from other healthcare software applications. The Company
was able to interface with these large software vendors that have market
penetration already established and allowed these vendors to become HIPAA -ready
at the same time. If the direct interface solution was not feasible or could not
be physically implemented, the Company developed a solution to accommodate this
problem. This solution included a printer driver that could be selected in all
Windows applications that converts any document into a XML image that the
SecureCARE platform could interpret and present to the user in an image of the
form. Signature/date templates could be created on this form image and then sent
on to the physicians and nurses for signature.

The Company has contracted with Sungard Availability Services ("Sungard") to
house and maintain the Company's server-farm which hosts our ASP application.
Sungard's MAX architecture begins with their direct connectivity to multiple
Tier 1 backbones. Inside, Sungard has built a fully redundant, self-healing
network, which consistently routes our customer traffic over the highest
performance backbone. Sungard engineers constantly monitor and upgrade this
architecture to stay ahead of the bandwidth growth. If a backbone goes down, a
local fiber gets cut or a hardware component fails, our customers can still
access the application through a sophisticated fail over system. Sungard will
protect the network perimeter with a security product called Check Point
FireWall-1TM, state-of-the art inspection Internet firewall technology. Residing
at the lowest software layer, FireWall-1TM inspects every packet that crosses
our link to the Internet. A comprehensive inspection policy will significantly
reduce the chances of unauthorized access to our data and applications.
FireWall-1TM does not affect system performance and is transparent to authorized
users and applications.

Currently, the SCTI products are licensed to approximately 1,400 active
physicians and 44 home health care provider locations located in Texas,
Louisiana, North Carolina, Pennsylvania, Florida, Minnesota, Wisconsin,
Michigan, Oklahoma, Missouri and Alabama. Home healthcare agencies are charged a
monthly fee per provider location utilizing the software. In addition there are
one-time training and set-up fees and integration and customization charges as
contracted. Currently, physicians are not charged for utilizing the software.

The Company intends to continue to utilize the Internet to provide
browser-initiated healthcare document exchange and e-signature solutions that
facilitate the confidential, on-line exchange of healthcare information for many
participants in the healthcare industry. Based on the technology and products in
place, other applications can and will be developed that will enhance the
Company's position in the physician's office and in the offices of other
providers of health care.

Product Evolution

The Company's first product, DocLink, was released in January 1997. This product
furnished health care providers with a means to send doctor's orders (and other
vital patient information) to a physician's office, where the orders would then
be reviewed and authorized by the physician on his or her desktop computer.
DocLink allowed a home care provider to scan a medical order and send it to a
physician. At the doctor's office, DocLink alerted the physician with a "you've
got mail" type icon, where the physician could read the order on the screen and
affix his or her electronic signature by invoking a password. DocLink
automatically delivered the signed order back to the home care provider and
automatically printed the order to be stored in the paper chart. While the
physician was reviewing orders, DocLink could provide him or her with a timing
routine, which also fed a database that furnished per-patient oversight billing
reports.

DocLink was a Microsoft Windows-based application that operated on the currently
available versions of Windows, and it provided an electronic link between
doctors and home health care agencies to expedite the processing of paperwork.
The electronic link consisted of original documents that must be electronically
sent to the physician, electronically signed by the physician, and returned to
the provider. A health care agency simply clicked on a graphical button on a
Windows screen to scan a document into the software, and clicked on another
graphical button to send the orders/documents to the physician for review. The
physician logged into the system using his/her encrypted password and began
reading and signing the orders with electronic signature verification on the
screen. Once completed, DocLink automatically sent this information back to the
health care agency. The Company's services reduced administrative paperwork,
resulting in savings for our clients and significantly expedited the
reimbursement process, which directly resulted in a lower average number of
outstanding accounts receivable days for our clients. Research had shown that
most physicians and home health care agencies neglected the signature attainment

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portion of the paper work process due to the overwhelming difficulties and
liabilities associated with the typical paper based process. Utilizing
SecureCARE Technologies' software, simplified and expedited a previously
difficult and tedious process into a significant income-producing component of a
physician's business practice through implementation of the Care Plan Oversight
(CPO) billings.

Medicare increased CPO billing rates between 17% and 22% for the year 2000 to
get more physicians to bill and review documents coming from home health
agencies. Many physicians overlooked the CPO billings, primarily due to the
increased paperwork to manually track the billing. In a research report prepared
for the Massachusetts Medical Society regarding care plan oversight charges from
Medicare, it was reported that 89.8% of respondents do not submit these charges
for payment. There was a significant relationship between physician specialty
and whether or not a respondent submitted this charge. A very low percentage of
overall respondents submitted this charge. When asked, "Why not?" the majority
of respondents (57.6%) reported that they were not aware of this charge. Forty
two percent (42.4%) reported other reasons. The verbatim responses indicated
that the respondents did not submit this charge because: 1) the time required is
not worth the compensation, 2) they are not paid even when they do submit the
charge, and 3) insufficient time is spent on care plan oversight. Fear of audit
and lack of billing system capability was also mentioned. Our software product,
DocLink automatically tracked the time spent on CPO and produced reports that
could be used as the source document for billing. DocLink solved these issues
and passed HCFA and OIG (Office of Inspector General) audits conducted by the
Federal Government.

In September 1999 the Company launched its first Internet site with its first
completely Web-based application called net.Care. This software provided
verification regarding whether services rendered to a patient were eligible for
reimbursement. The net.Care application was a Web-enabled product that was
developed by the Company in conjunction with several clinical and administrative
professionals in home health care to verify whether services rendered by a
provider to a patient were eligible for reimbursement. In 1999, the HCFA
implemented OASIS (the Outcomes Assessment Information Set). This program
allowed home health care providers to upload an OASIS file, which was a project
implemented by the HCFA. The primary focus of the project was to improve the
quality of care; however, OASIS became the financial determinant of
reimbursement for home health care. OASIS determined eligibility for Medicare as
well as appropriateness of care and actual payment rates. There were many
instances in the assessment form that allowed the home health care agency to
contradict other portions of the assessment, albeit minor, thereby disallowing
proper charges for payment. Using net.Care as an audit tool helped to discover
such discrepancies before the information was sent to the state clinical
regulatory agencies or HCFA. This allowed changes to be implemented prior to the
submission of the data. These changes could be performed in minutes, whereas a
manual audit could take one to two hours. The net.Care product reduced the labor
costs associated with the time nurses spent on reviewing data in a patient's
paper chart. It also reduced the chance of claims rejections for documentation
deficiencies. The product was also designed to detect conflicting nurse
responses; to assist with the coordination and preparation of a patient's plan
of care; to recognize patients who may not be eligible for particular services;
and to make suggestions for completion of the patient's plan of treatment.

On June 30, 2000, the Company acquired certain assets of LuRo Associates, dba
Health Tech, Inc., a developer of financial and accounting software designed for
the health care industry. The Company exited this business effective December
31, 2004.

On November 15, 2000, the Company released its Internet-based ASP software
product called ClickMD that enabled health care providers to communicate and
validate pertinent and private information to physicians and other ancillary
providers while keeping the data secure. It reduced costs typically incurred in
terms of the time and expense required to communicate such information manually.
This product furnished health care providers with a means to send doctor's
orders (and other vital patient information) to a physician's office, where the
orders would then be reviewed and authorized by the physician on his or her
desktop computer. ClickMD allowed a home care provider to scan in an order and
send it to a physician. At the doctor's office, ClickMD alerted the physician
with a "you've got mail" type icon, where the physician could read the order on
the screen and affix his or her electronic signature by invoking a password.
ClickMD automatically delivered the signed order back to the home care provider
through the ASP and automatically printed the order to be stored in the paper
chart. While the physician was reviewing orders, ClickMD could provide him or
her with a timing routine, which also fed a database that furnished per-patient
oversight billing reports.

Intellectual Property

Management believes that the SecureCARE business model and software products are
unique. Currently, the company is not pursuing any of the applications for
patents previously submitted that were in various stages of the patent-granting
process, some or all of which are now in the abandonment stage. No assurance can
be given that any patent will be granted, however, or that any patent granted
would provide meaningful protection, or that any patent granted to the Company
will not be found to infringe upon any patents granted to others. The Company
has already received trademarks and servicemarks on a number of its product
features and functions. In October 2003, the Company was granted trademark
protection to SecureCARE, the brand name of its primary product line.

                                       8
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Government Regulation

Participants in the healthcare industry are subject to extensive and frequently
changing regulation at the federal, state and local levels. The Internet and its
associated technologies are also subject to government regulation. Many existing
laws and regulations, when enacted, did not anticipate the methods of healthcare
Internet-based document exchange and e-signature capabilities that the Company
is developing. The Company believes, however, that these laws and regulations
may nonetheless be applied to the Company's healthcare business. The Company
believes that its products adhere to all applicable regulations including CMS
and HIPAA Internet based information mandates.

Current laws and regulations that may affect the healthcare Internet-based
electronic document exchange and e-signature industry relate to the following:

o  Confidential patient medical record information;

o  The electronic transmission of information from physicians' offices to
   agencies, pharmacies, and other healthcare providers;

o  The use of software applications in the diagnosis, cure, treatment,
   mitigation or prevention of disease;

o  Health maintenance organizations, insurers, healthcare service providers
   and/or employee health benefit plans; and

o  The relationships between or among healthcare providers.

Future developments in laws that govern online activities (for example, laws
that impose Internet taxes or require costly technical requirements) might
inhibit the growth of the Internet and create uncertainty in the market, or in
some other manner have an adverse effect on the Internet. These developments
could, in turn, increasingly have a material adverse effect on our business,
prospects, financial condition and results of operations.

Employees

As of December 31, 2006, the Company had three full-time employees, including
one employee in sales and marketing, one employee in technology development and
maintenance and one employee in finance and accounting. The Company also had two
part-time employees (two accounting interns). On December 9, 2005, the Company
implemented a staff reduction of approximately sixteen employees in what was
expected to be a temporary cost reduction in response to the failure of the
Company to obtain necessary financing to fund operations. The Company intended
to secure a banking or investment partner and it downsized its cost structure to
preserve its value and operate from its current sales revenues during the
interim period. A cost contained operating plan, including four full-time
employees and additional part-time resources, was implemented at that time to
support the Company's physician and home healthcare provider customer base and
to maintain its technology platform. The Company's ability to achieve its
operational and financial objectives in the future is dependent on its ability
to continue to attract, integrate, retain and motivate highly qualified
technical and customer support personnel. A competitive environment exists for
attracting such personnel. When the Company expands its operations, additional
employees will be necessary.

ITEM 1A. RISK FACTORS

Some of the information in this Report on Form 10-KSB contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as may, will, expect, anticipate,
believe, estimate, and continue or similar words. You should read statements
that contain these words carefully because they (1) discuss our future
expectations; (2) contain projections of our future results of operation or of
our future financial condition; or (3) state other forward-looking information.
We believe it is important to communicate our expectations to people that may be
interested. However, unexpected events may arise in the future that we are not
able to predict or control. The risk factors that we describe in this section,
as well as any other cautionary language in this Report on Form 10-KSB, give
examples of the types of uncertainties that may cause our actual performance to
differ materially from the expectations we describe in our forward-looking
statements. You should know that if the events described in this section and
elsewhere in this Report on Form 10-KSB occur, they could have a material
adverse effect on our business, operating results and financial condition.

DEPENDENCE ON MANAGEMENT. The Company's success depends to a large degree upon
the skills of its senior management team and current key employees and upon its
ability to identify, hire, and retain additional sales, marketing, technical and
financial personnel. The Company may be unable to retain its existing key
personnel or attract and retain additional key personnel. The Company depends
particularly upon the following key executives: Dr. Richard Corlin, Chairman of
the Board; Dennis Nasto, Chief Executive Officer and member of the Board of
Directors; Neil Burley, Chief Financial Officer and Principal Financial and
Accounting Officer; and Eugene Fry, Vice-President of Product Development and
Technology. The Company does not have employment contracts with these officers
and key employees. The Company does not maintain key person life insurance for
any of its officers or key employees. The Company also does not require its
executives or its employees to enter non-competition agreements with the
Company. However, the Company does seek to protect its confidential information
through confidentiality agreements and patents. The loss of any of its key
officers and employees or the failure to attract, integrate, motivate, and
retain additional key employees could have a material adverse effect on the
Company's business. Additionally, the Company must attract additional, qualified
sales staff.

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RISKS RELATED TO OUR HEALTHCARE ELECTRONIC DOCUMENT EXCHANGE AND E-SIGNATURE
SERVICES

WE ARE ENGAGED IN A BUSINESS THAT PROVIDES HEALTHCARE ELECTRONIC COMMERCE
SERVICES AND THAT ONLY RECENTLY BEGAN TO GENERATE REVENUES AND HAS INCURRED NET
LOSSES SINCE INCEPTION. We began our current operations in the fall of 1999 upon
the closing of our reorganization with Link.com, Inc., a privately-held Nevada
corporation. We were originally incorporated under the name Center Star Gold
Mines, Inc. for the prior purpose of exploring commercial gold deposits, and we
owned various unpatented mining claims near Grangeville, Idaho. We abandoned our
last mining claim in 1995. Upon our reorganization with Link.com, Inc. (the
Reorganization) we changed our business to the healthcare e-commerce industry,
specifically connecting physicians, home health agencies and nursing homes via
electronic document exchange and e-signature solutions. In August 2000 we
changed our name to eClickMD, Inc. (or eClickMD). In February of 2004 we changed
our name to SecureCARE Technologies, Inc. (the Company, or SecureCARE). While we
have developed or purchased and continue to develop Internet-based document
exchange and e-signature solutions for the healthcare industry, we have not yet
delivered some of our solutions. We did not generate our first electronic
document exchange and e-signature revenues until the quarter ended September 30,
1999. As of December 31, 2006, we had an accumulated deficit of $35,417,744. We
expect to continue to incur significant development, deployment and sales and
marketing expenses in connection with our business and to continue to incur
operating losses for at least the next fiscal year. We may never achieve or
sustain profitability. The provision of services using Internet technology in
the healthcare e-commerce industry is a developing business that is inherently
riskier than businesses in industries where companies have established operating
histories.

WE WILL NOT BECOME PROFITABLE UNLESS WE ACHIEVE SUFFICIENT LEVELS OF PHYSICIAN
PENETRATION AND MARKET ACCEPTANCE OF OUR SERVICES. Our business model depends
upon usage by a large number of physicians with a high volume of healthcare
transactions and the sale of home healthcare Internet-based document exchange
and e-signature solutions to home healthcare providers and other healthcare
constituents. The acceptance by physicians and other healthcare providers of our
products and services will require adoption of new methods of conducting
business and exchanging information. We cannot be assured that physicians or
other health care providers will integrate our services into their office
workflow, or that the healthcare market will accept our services as a
replacement for traditional methods of conducting healthcare transactions. The
healthcare industry uses existing computer systems that may be unable to access
our Web-based solutions. Customers using existing systems may refuse to adopt
new systems when they have made extensive investment in hardware, software and
training for existing systems or if they perceive that our products or services
will not adequately protect proprietary information. Failure to achieve broad
physician or health care organization penetration or successfully contracting
with healthcare participants, would have a material adverse effect on our
business.

Achieving market acceptance for our products and services will require
substantial marketing efforts and expenditure of significant funds to create
awareness and demand by participants in the healthcare industry. Our management
believes that we must gain significant market share with our services before our
competitors introduce alternative services with features similar to our
services. There can be no assurance that we will be able to succeed in
positioning our services as a preferred method for healthcare Internet-based
electronic document exchange and e-signature, or that any pricing strategy that
we develop will be economically viable or acceptable to the market. Failure to
successfully market our products and services would have a material adverse
effect on our business, financial condition and operating results.

OUR BUSINESS PROSPECTS WILL SUFFER IF WE ARE NOT ABLE TO QUICKLY AND
SUCCESSFULLY DEPLOY OUR SYSTEMS AND PRODUCTS. We believe that our business
prospects will suffer if we do not deploy our services quickly. We began
allowing access to our Web-based electronic document exchange and e-signature
solutions system in November of 2000 and intend to expand deployment of access
to our Web-based products and services during the year 2007, although there can
be no assurance that we will be able to continue to do so during this time, or
at all. In order to deploy our services, we must integrate our architecture with
physicians', payers' and home healthcare providers' systems. We will need to
expend substantial resources to integrate our systems with the existing computer
systems of large healthcare organizations, home health care organizations and
physicians. We have limited experience in doing so, and may experience delays in
the integration process. These delays would, in turn, delay our ability to
generate revenue from our services and may have a material adverse effect on our
business, financial condition and operating results. Once we have deployed our
electronic document exchange and e-signature products and services, we may need
to expand and adapt it to accommodate additional users, increased transaction
volumes and changing customer requirements. This expansion and adaptation could
be costly. We may be unable to expand or adapt our network infrastructure to
meet additional demand or our customers' changing needs on a timely basis and at
a commercially reasonable cost, or at all. Any failure to deploy, expand or
adapt our system quickly could have a material adverse effect on the Company's
business, financial condition and operating results.

WE DO NOT CURRENTLY HAVE A SUBSTANTIAL CUSTOMER BASE AND OUR REVENUES WILL
INITIALLY COME FROM HOME HEALTHCARE PROVIDERS IN A SMALL NUMBER OF GEOGRAPHIC
MARKETS. We currently do not have a substantial customer base. In addition, we
expect that initially we will generate a significant portion of our revenue from
providing our products and services in Texas, Louisiana, North Carolina,
Pennsylvania, Florida, Minnesota, Wisconsin, Michigan, Oklahoma, Missouri, and
Alabama. If we do not generate as much revenue in this market or from these home
healthcare providers as expected, or expand to additional markets and home
healthcare providers as expected, our revenue could be significantly reduced,
which would have a material adverse effect on our business, financial condition
and operating results.

WE ARE SUBJECT TO SIGNIFICANT COMPETITION. Our business operates in a highly
competitive environment. Many healthcare industry participants are consolidating
to create integrated healthcare delivery systems with greater market power. As
the healthcare industry consolidates, competition to provide products and
services to industry participants will become more intense and the importance of
establishing a relationship with each industry participant will become greater.
These industry participants may try to use their market power to negotiate price

                                       10
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reductions for our products and services. If forced to reduce our prices, our
operating results could suffer if we cannot achieve corresponding reductions in
our expenses.

WE MAY EXPERIENCE SIGNIFICANT DELAYS IN GENERATING REVENUES FROM OUR SERVICES
BECAUSE POTENTIAL CUSTOMERS COULD TAKE A LONG TIME TO EVALUATE THE PURCHASE OF
OUR SERVICES. A key element of our strategy is to market our services directly
to large healthcare organizations, including home health care and durable
medical equipment organizations. We do not control many of the factors that will
influence physicians', home healthcare providers' and suppliers' buying
decisions. We expect that the sales and implementation process will be lengthy
and will involve some technical evaluation and commitment of capital and other
resources by home healthcare agencies, physicians, payers and suppliers. The
sale and implementation of our services are subject to delays due to such
organizations' internal budgets and procedures for approving large capital
expenditures and deploying new workflow technologies within their networks.

OUR BUSINESS WILL SUFFER IF THE INTEGRITY AND SECURITY OF OUR SYSTEMS ARE
INADEQUATE. If we are successful in delivering our Internet-based electronic
document exchange and e-signature solutions to the healthcare industry, our
business could be harmed if we or our present or future customers were to
experience any system delays, failures or loss of data. Although we do have
significant safeguards in place for emergencies, the occurrence of a
catastrophic event or other system failure at our facilities could interrupt our
operations or result in the loss of stored data. In addition, we will depend on
the efficient operation of Internet connections from customers to our systems.
These connections, in turn, depend on the efficient operation of Web browsers,
Internet service providers and Internet backbone service providers. In the past,
Internet users have occasionally experienced difficulties with Internet and
online services due to system failures. Any disruption in Internet access
provided by third parties could have a material adverse effect on our business,
financial condition and operating results. Furthermore, we will be dependent on
hardware suppliers for prompt delivery, installation and services of equipment
used to deliver our services.

DESPITE THE IMPLEMENTATION OF SECURITY MEASURES, OUR INFRASTRUCTURE MAY BE
VULNERABLE TO DAMAGE FROM PHYSICAL BREAK-INS, COMPUTER VIRUSES, PROGRAMMING
ERRORS, ATTACKS BY HACKERS OR SIMILAR DISRUPTIVE PROBLEMS. A material security
breach could damage our reputation or result in liability to us. We retain
confidential customer information in our processing center and on our servers.
An experienced computer user who is able to access our computer systems could
gain access to confidential Company information. Furthermore, we may not have a
timely remedy to secure our system against any hacker who has been able to
penetrate our system. Therefore, it is critical that our facilities and
infrastructure remain and are perceived by the marketplace to be secure. The
occurrence of any of these events could result in the interruption, delay or
cessation of service, which could have a material adverse effect on our
business, financial condition and operating results. A significant barrier to
Internet-based electronic document exchange and e-signature are the issues
presented by the secure transmission of confidential information over public
networks. We rely on encryption and authentication technology licensed from
third parties to secure Internet transmission of and access to confidential
information. There can be no assurance that advances in computer capabilities,
new discoveries in the field of cryptography, or other events or developments
will not result in a compromise or breach of the methods used to protect
customer transaction data. A party who is able to circumvent security measures
could misappropriate or alter proprietary information or cause interruptions in
operations. If any such compromise of our security or misappropriation of
proprietary information were to occur, it could have a material adverse effect
on our business, financial condition and operating results. We may be required
to expend significant capital and other resources to protect against such
security breaches or to alleviate problems caused by security breaches. We may
also be required to spend significant resources and encounter significant delays
in upgrading our systems to incorporate more advanced encryption and
authentication technology as it becomes available. Concerns over the security of
the Internet and other online transactions and the privacy of users may also
inhibit the growth of the Internet and other online services generally, and our
services in particular, especially as a means of conducting commercial and/or
healthcare-related transactions. There can be no assurance that our security
measures will prevent security breaches or that failure to prevent such breaches
will not have a material adverse effect on our business, financial condition and
operating results.

OUR OPERATIONS WILL ALSO BE DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF
SOFTWARE. Although we intend to use all necessary means to ensure the efficient
and effective development and maintenance of software, both activities are
extremely complex, and thus, are frequently characterized by unexpected problems
and delays.

OUR PROPOSED EXPANSION THROUGH ACQUISITIONS MAY BE DIFFICULT TO IMPLEMENT AND
MAY EXPOSE US TO ADDITIONAL RISK. We may seek to acquire businesses that are
complementary to our core businesses. Such emphasis is not, however, intended to
limit, in any manner our ability to pursue acquisition opportunities in other
related businesses or in other industries. We may enter into further
acquisitions, joint ventures, strategic alliances or other business
combinations. These transactions may materially change the nature and scope of
our business. Although our management will endeavor to evaluate the risks
inherent in any particular transaction, there can be no assurance that we will
properly ascertain all such risks. In addition, no assurances can be given that
we will succeed in consummating any such transactions, that such transactions
will ultimately provide us with the ability to offer the services described or
that we will be able to successfully manage or integrate any resulting business.
The success of our acquisition program will depend on, among other things, the
availability of suitable candidates, the availability of funds to finance
transactions, and the availability of management resources to oversee the
operation of resulting businesses. Financing for such transactions may come from
several sources, including, without limitation cash and cash equivalents on
hand, proceeds from new indebtedness, or proceeds from the issuance of
additional common stock, preferred sotck, convertible debt or other securities.
The issuance of additional securities, including common stock, or other
convertible securities could result in substantial dilution of the percentage
ownership of the Company's stockholders at the time of any such issuance, and
substantial dilution of our earnings per share. The proceeds from any financing
may be used for costs associated with identifying and evaluating prospective
candidates, and for structuring, negotiating, financing and consummating any

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such transactions and for other general corporate purposes. We do not intend to
seek stockholder approval for any such transaction or security issuance unless
required by applicable law or regulation.

INTEGRATING OUR BUSINESS OPERATIONS WITH BUSINESSES WE MAY ACQUIRE IN THE
FUTURE, MAY BE DIFFICULT AND MAY HAVE A NEGATIVE IMPACT ON OUR BUSINESS. We may
acquire additional businesses in the future. The integration of companies or
businesses that we may acquire in the future involves the integration of
separate companies that have previously operated independently and have
different corporate cultures. The process of combining such companies may be
disruptive to their businesses and may cause an interruption of, or a loss of
momentum in, such businesses as a result of the following difficulties, among
others, loss of key employees or customers; possible inconsistencies in
standards, controls, procedures and policies among the companies being combined
and the need to implement and harmonize company-wide financials, accounting,
information and other systems; failure to maintain the quality of services that
such companies have historically provided; the need to coordinate geographically
diverse organizations; and the diversion of management's attention from our
day-to-day business and that of any company or business that we may acquire, as
a result of the need to deal with the above disruptions and difficulties and/or
the possible need to add management resources to do so. Such disruptions and
difficulties, if they occur, may cause us to fail to realize the benefits that
we currently expect to result from such integration and may cause material
adverse short- and long-term effects on our operating results and financial
condition.

UNCERTAINTIES IN REALIZING BENEFITS FROM A COMBINATION. Even if we are able to
integrate the operations of an acquired company or business into the company
successfully, there can be no assurance that such integration will result in the
realization of the full benefits that we expect to result from such integration
or that such benefits will be achieved within the time frame that we expect.
Revenue enhancements from cross-selling complementary services may not
materialize as expected. The benefits from the combination may be offset by
costs incurred in integrating the companies. The benefits from the transaction
may also be offset by increases in other expenses, by operating losses or by
problems in the business unrelated to the transaction.

RAPIDLY CHANGING TECHNOLOGY MAY ADVERSELY AFFECT OUR BUSINESS. All businesses
which rely on technology, including the healthcare electronic document exchange
and e-signature workflow solutions business that we are developing, are subject
to, among other risks and uncertainties, rapid technological change, changing
customer needs, frequent new product introductions, and evolving industry
standards.

Internet technologies are evolving rapidly, and the technology used by any
Internet-based business is subject to rapid change and obsolescence. These
market characteristics are exacerbated by the emerging nature of the market and
the fact that many companies are expected to introduce new Internet products and
services in the near future. In addition, use of the Internet may decrease if
alternative protocols are developed or if problems associated with increased
Internet use are not resolved. As the communications, computer and software
industries continue to experience rapid technological change, we must be able to
quickly and successfully modify our services so that we adapt to such changes.
There can be no assurance that we will not experience difficulties that could
delay or prevent the successful development and introduction of our healthcare
document exchange and e-signature work-flow solutions services or that we will
be able to respond to technological changes in a timely and cost-effective
manner. Moreover, technologically superior products and services could be
developed by competitors. These factors could have a material adverse effect
upon our business, financial condition and operating results.

DEPENDENCE ON PROPRIETARY TECHNOLOGY. The success of our business is dependent
to a significant extent on our ability to protect the proprietary and
confidential aspects of our technology. Although we have filed multiple
provisional patent applications on some of our processes, our technology is not
patented and existing copyright laws offer only limited practical protection.
Currently, the company is not pursuing any of the applications for patents
previously submitted that were in various stages of the patent-granting process,
some of all of which are now in the abandonment stage. No assurance can be given
that any patent will be granted, however, or that any patent granted would
provide meaningful protection, or that any patent granted to the Company will
not be found to infringe upon any patents granted to others. The Company has
already received trademarks and servicemarks on a number of its product features
and functions. In October 2003, the Company was granted trademark protection to
SecureCARE, the brand name of its primary product line. We rely on a combination
of trade secret, copyright and trademark laws, license agreements, nondisclosure
and other contractual provisions and technical measures to establish and protect
our proprietary rights. There can be no assurance that the legal protections
afforded to us or the steps taken will be adequate to prevent misappropriation
of our technology. In addition, these protections do not prevent independent
third-party development of competitive products or services. Our management
believes that our products, services, trademarks and other proprietary rights do
not infringe upon the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement claims
against us or that any such assertion will not require us to enter into a
license agreement or royalty arrangement with the party asserting the claim. As
competing healthcare information systems increase in complexity and overall
capabilities or the functionality of these systems further overlap, providers of
such systems may become increasingly subject to infringement claims. Responding
to and defending any such claims may distract the attention of our management
and otherwise have a material adverse effect on our business, financial
condition and operating results.

THE DESIRABILITY OF OUR SERVICES IS CONTINGENT ON OUR ABILITY TO CONTINUE TO
COMPLY WITH PRESENT AND FUTURE GOVERNMENT REGULATIONS. Our services may be
subject to extensive and frequently changing regulation at federal, state and
local levels. The Internet and its associated technologies are also subject to
government regulation. Many existing laws and regulations, when enacted, did not
anticipate the methods of healthcare solutions we are developing. We believe,
however, that these laws and regulations may nonetheless be applied to our
healthcare solutions business. It may take years to determine the extent to
which existing laws and regulations governing general issues of property
ownership, sales and other taxes, libel, negligence and personal privacy are
applicable to the Internet. Laws and regulations may also be adopted in the
future that address Internet-related issues, including security, privacy and
encryption, pricing, content, copyrights and other intellectual property;
contracting and selling over the Internet; and distribution of products and
services over the Internet. Accordingly, our healthcare solutions business may
be affected by current regulations as well as future regulations specifically

                                       12
<PAGE>

targeted to this new segment of the healthcare industry. While our products are
designed to aid our customers' compliance with certain government regulations,
changes in these regulations or their repeal could reduce the need for our
products.

WE HAVE OPERATED AT A SIGNIFICANT LOSS IN RECENT PERIODS AND MAY NOT HAVE
ADEQUATE FUNDS TO CONTINUE AS A GOING CONCERN. For the year ended December 31,
2006, our independent registered public accounting firm issued an opinion on our
financial statements which included an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. We have
incurred significant operating losses since our inception, and these losses will
continue for the near future. We may not ever achieve profitability. Even if we
do achieve profitability, we may not be able to sustain or increase profits on a
quarterly or annual basis.

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR REVENUES AND
EXPENSES. Our limited operating history makes it difficult to forecast our
future revenues and expenses. Although our revenues increased from the closing
of the Reorganization in December 2003 through December 2005, quarterly revenue
growth may not be indicative of future performance. Revenues for the twelve
months ended December 31, 2006 were $244,815 compared to $387,159 for the twelve
months ended December 31, 2005. This 37% decrease in sales reflects customer
attrition and reduced billings for application downtime in April and June of
2006. Since the Company implemented a staff reduction of approximately 16
employees on December 9, 2005, it has experienced a customer attrition rate near
63% of its paying home healthcare provider locations, resulting in lower revenue
in 2006. In addition, because of technological issues that resulted in periods
of application downtime in the months of April and June of 2006, the Company
provided two weeks of service free to each of its customers in these two months,
resulting in reduced billings. Our revenues and operating results may be
adversely affected by a number of risks and uncertainties, including those
listed elsewhere in these risk factors. As a result, our revenues may not grow
at similar levels in future periods and may remain flat or decline over any
given period.

We base our forecast for expenses, in part, on future revenue projections. We
incur expenses in advance of revenues, and we may not be able to quickly reduce
spending if our revenues are lower than expected. In particular, we expect to
incur additional costs and expenses related to the development of relationships
with our channel partners, the enterprise and billing software systems that are
used to run our targeted end users businesses (pharmacies, home health agencies,
DME providers, Long Term Care facilities and Physician practices), the
development and expansion of our sales force, the development and enhancement of
existing and new products and services, and the expansion of our management
team.

We expect that our business, stock price, operating results and financial
condition could be materially adversely affected if our revenues do not meet our
projections or our net losses are greater than expected.

The expected fluctuations of our quarterly results could cause our stock price
to fluctuate or decline.

We expect that our quarterly operating results will fluctuate significantly in
the future based upon a number of factors, many of which are not within our
control. We plan to further increase our operating expenses in order to expand
our sales and marketing activities and broaden our product offerings. We base
our operating expenses on anticipated market growth, and our operating expenses
are relatively fixed in the short term. As a result, if our revenues are lower
than we expect, our quarterly operating results may not meet the expectations of
public market analysts or investors, which could cause the market price of our
common stock to decline. Our quarterly results may fluctuate in the future as a
result of many other factors, including the following:

o  Our ability to retain our existing customers and to attract new channel
   partners;
o  Customer acceptance of our pricing model;
o  Changes in the level of demand for our products or services;
o  Our success in expanding our sales and marketing programs;
o  The number, timing and significance of product enhancements and new product
   announcements by us or our competitors;
o  The length of our sales cycle;
o  The level of Internet-based electronic document exchange and e-signature
   transactions;
o  The evolution of related technology and the emergence of standards and
   competing technology; and
o  Changes in the level of our operating expenses.

These risks and uncertainties are particularly significant for companies such as
ours that are in the evolving market for Internet-based products and services.
In addition, other factors that may affect our quarterly results are set forth
elsewhere in these risk factors. As a result of these and other factors, our
revenues and expenses may not be predictable.

Due to the uncertainty surrounding our revenues and expenses, we believe that
quarter-to-quarter comparisons of our historical operating results may not be
meaningful and our historical operating results should not be relied upon as an
indicator of our future performance.

WE MAY NOT BE ABLE TO SECURE FUNDING IN THE FUTURE NECESSARY TO OPERATE OUR
BUSINESS AS PLANNED. We require substantial working capital to fund our
business. We have had and are experiencing significant operating losses and
negative cash flow from operations since the closing of the Reorganization in
December 2003 and expect this to continue for the foreseeable future. In
addition, we may incur significant capital expenditures in connection with our
planned expansion of our products and services. Our capital requirements depend
on several factors, including the rate of market acceptance of our products and
services, our ability to expand our customer base, increased sales and marketing
expenses, the growth of the number of our employees and related expenses and
other factors. If capital requirements vary materially from those currently
planned, we will require additional financing sooner than anticipated. If
additional funds are raised through issuance of equity securities, the
percentage ownership of our stockholders will be reduced, and these equity
securities may have rights, preferences or privileges senior to those of the
holders of our common stock. Additional financing may not be available when
needed on terms favorable to us or at all. If adequate funds are not available
or are not available on acceptable terms, we may be unable to develop or enhance
our products and services, adequately support and maintain relationships with
key partners and customers, to take advantage of future opportunities or respond
to competitive pressures.

                                       13
<PAGE>

ITEM 2. PROPERTIES

The Company was notified on February 21, 2006, that it was in default under the
lease for its principal executive office located in Austin, Texas, due to its
failure to timely pay the base monthly rental. The lessor agreed to extinguish
the lease and will require the Company to pay its outstanding base monthly
rental amounts owed through February 28, 2006, totaling $47,433, including
applicable late fees. The Company was directed to vacate the premises no later
than February 28, 2006. The Company vacated the premises on February 28, 2006
and relocated its principal executive office to approximately 300 square feet of
leased office spaced at an alternative location in Austin, Texas. The new
premises are leased under a month-to month agreement. This agreement requires a
10 day written notice of cancellation. The company believes that its facilities
are adequate for the Company's current operations and that additional leased
space can be obtained when its expansion plans commence.

ITEM 3.  LEGAL PROCEEDINGS

On April 7, 2005 a lawsuit was filed by Norman K. Best, a former officer of the
Company, against SecureCARE Technologies, Inc. The lawsuit is identified as
cause number GN501073 and was filed in the 353rd Judicial District Court of
Travis County, Texas as "Norman K. Best versus SecureCARE Technologies, Inc."
The lawsuit alleges that the Company breached the terms of its agreements with
Mr. Best by failing to tender 50,000 shares of common stock of SecureCARE
Technologies, Inc. which were granted to him in January 2004. The grant date
fair value of the 50,000 shares was not material. The Company responded to this
lawsuit on May 13, 2005, by filing a general denial, denying all the allegations
raised by the Plaintiff. On July 8, 2005, the Company filed a series of
responses to the plaintiff's request for admission. The Company was initially
required to produce all documents related to the plaintiff's request for
production by August 14, 2006. On August 25, 2006, the Company settled this
lawsuit with Mr. Best. The Company agreed to tender the 50,000 shares of
SecureCARE Technologies, Inc. common stock that were previously granted to him.
The Company also agreed to a monetary payment of $10,000 to be paid in five
monthly installments of $2,000 each. Accordingly, at December 31, 2006, the
Company has recorded a liability of $2,000 for the balance of payments due on
the monetary portion of this settlement.

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

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split does not change the number of
shares of common stock that the Company is authorized to issue. The Company has
agreed to accept votes on its proposal until March 30, 2007, unless the Company
agrees to extend the date. The Definitive Proxy Statement, dated February 28,
2007, is incorporated herein by reference.

The Company has not declared or paid cash dividends on its common stock and
presently has no plans to do so. Any change in the Company's dividend policy
will be at the sole discretion of the Board of Directors and will depend on the
Company's profitability, financial condition, capital needs, future loan
covenants, general economic conditions, future prospects and other factors
deemed relevant by the Board of Directors. The Company currently intends to
retain earnings for use in the operation and expansion of the Company's business
and does not anticipate paying cash dividends in the foreseeable future.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

On December 28, 2004 the Company's stock began trading on the Over-The-Counter
Bulletin Board under the symbol SCUI. The following table sets forth the range
of high and low prices as reported on the National Association of Securities
Dealers OTCBB for the periods indicated. The quotations reflect inter-dealer
prices without retail mark-up, mark-down or commission, and may not necessarily
represent actual prices.


               Fiscal Year 2006                    High           Low
        -------------------------------            -----         -----
        Quarter Ended March 31                     $0.35         $0.18
        Quarter Ended June 30                      $0.25         $0.10
        Quarter Ended September 30                 $0.16         $0.09
        Quarter Ended December 31                  $0.16         $0.07

               Fiscal Year 2005                    High           Low
        -------------------------------            -----         -----
        Quarter Ended March 31                     $3.00         $0.75
        Quarter Ended June 30                      $1.08         $0.40
        Quarter Ended September 30                 $0.75         $0.41
        Quarter Ended December 31                  $0.69         $0.15

                                       14
<PAGE>

The Common Stock is deemed to be a "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act").

Penny stocks are stocks:

     o    with a price of less than $5.00 per share;

     o    that are not traded on a "recognized" national exchange;

     o    whose prices are not quoted on the Nasdaq automated quotation system
          (Nasdaq listed stock must have a price of not less than $5.00 per
          share); or

     o    issued by companies with net tangible assets less than $2.0 million
          (if the issuer has been in continuous operation for at least three
          years) or $5.0 million (if in continuous operation for less than three
          years), or with average revenues of less than $6.0 million for the
          last three years.

Section 15(g) of the Exchange Act and Rule 15g-2 promulgated under the
Securities Act require broker/dealers dealing in penny stocks to provide
potential investors with a document disclosing the risks of penny stocks and to
obtain manually signed and dated written receipt of the document before
effecting a transaction in a penny stock for the investor's account. Compliance
with such requirements may make it more difficult for holders of the Common
Stock to resell their shares to third parties or otherwise which could have a
material adverse affect on the liquidity and market price of the Common Stock.

As of December 31, 2006, the Company had 1,274 holders of record of its Common
Stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements of the Company and the notes thereto included elsewhere in
this Report on Form 10-KSB. The discussion in this section of this Report on
Form 10-KSB contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, those
discussed in Risk Factors and those discussed elsewhere in this Report on Form
10-KSB.

Forward Looking Statements

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

Overview

SecureCARE's management believes that the Company is a leading provider of
Internet-based document exchange and e-signature solutions for the healthcare
industry. The Company's proprietary technology uses the Internet to enable
electronic document exchange for documents to be sent, retrieved, signed and
remotely viewed anywhere in the world, between providers of healthcare, while
protecting patient privacy as required by law. Built with state-of-the art
development tools from the Microsoft dotNET development solutions, the
SecureCARE.net portal is tailored to the needs of physicians, clinics and home
healthcare, hospice and durable medical equipment providers. This end-to-end
solution offers a money-saving approach to accessing information and managing
time-consuming forms and authorizations. SecureCARE's easy to use technology
eliminates paper, while enhancing the physicians ability to capture fees for
otherwise unbilled time and services, uniquely and directly impacting the
physicians revenue. SecureCARE.net is a highly secure, HIPAA-ready (Health
Insurance Portability and Accountability Act) tracking and reporting tool that
streamlines operations while providing physicians with additional revenue
opportunities. In the fourth quarter of 2006 the Company began development of an
additional product offering, its hosted electronic fax solution, "SecureFAX".
The beta test site of the application was up and running as of February, 2007.
The Company is continuing to develop features associated with SecureFAX and is
planning to bring this new product offering to market in the second quarter of
2007. The Company markets its services to customers throughout the United
States, currently operating from its Austin, Texas-based corporate headquarters.

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

                                       15
<PAGE>

On December 9, 2005, the Company implemented a staff reduction of approximately
sixteen employees in what was expected to be a temporary cost reduction in
response to the failure of the Company to obtain necessary financing to fund
operations. The Company intended to secure a banking or investment partner and
it downsized its cost structure to preserve its value and operate from its
current sales revenues during this interim period. A cost contained operating
plan, including four full-time employees and additional part-time resources, was
implemented at that time to support the Company's physician and home healthcare
provider customer base and to maintain its technology platform. When
implemented, this personnel and cost reduction program reduced the Company's
monthly cash requirements by approximately $200,000.

On April 4, 2006, the Company entered into a Loan Agreement (the "Loan
Agreement") with Euro Financial Fidelity, Inc. ("EFF") which provided for a loan
to the Company of $7,000,000 by June 15, 2006 (the "Loan"). The Company had the
right to terminate the Loan Agreement at any time by written notice to EFF if
the Loan was not funded by June 15, 2006. The Company notified EFF on October 6,
2006 that it was terminating the Loan Agreement, effective immediately, as no
funding was ever received.

In its efforts to position the Company to raise the additional capital required
to execute its business plan, during 2006, the Company effected a significant
restructuring of it balance sheet. On June 16, 2006, the Company's Board of
Directors ratified a letter agreement (the "Letter Agreement"), dated June 7,
2006, with a related party, Gryphon Opportunities Fund I, LLC ("GOF"), relating
to future financing and a recapitalization of the Company. Pursuant to the
Letter Agreement, GOF agreed to convert its notes payable and accrued interest
(as of September 15, 2006) to common stock of the Company and to release its
lien on the Company's assets. Both of these actions were conditioned upon the
Company receiving an aggregate of $570,000 in equity financing. The raising of
the equity financing was effectively completed on September 15, 2006 (the
"Commitment Date") in the amount of $570,518. As of October 2, 2006, the Company
had raised a total of $576,518 in the equity financing.

As of the Commitment Date, the Company had only approximately 30 million shares
of common stock authorized remaining to be issued. To complete the equity
financing of $576,518 (offered at a price of $0.01 per common shave equivalent)
and the conversion of the GOF notes payable and accrued interest of $544,490 and
$56,477, respectively, also offered at a conversion price of $0.01 per common
share equivalent, (the GOF conversion offer was triggered upon achievement of
the minimum required equity financing on September 15, 2006), the Company needed
approximately 104 million authorized common shares. As a result, the Company
authorized issuance of a new series of Mandatorially Convertible Series C
Preferred Stock (the "Series C Stock") to the new equity investors (251,093
shares of Series C Stock) and to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date, the Series C
Stock shares were authorized, designated and issuable to the new equity
investors and to effect the conversion of the GOF notes payable and accrued
interest. At September 30, 2006, because the Series C Stock had not been
authorized or designated, the equity financing of $570,518 was classified as
preferred stock pending issuance on the balance sheet.

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock.

In summary, as of December 31, 2006, the Company has issued a total of 1,058,835
shares of Series C Stock representing 211,766,248 common share equivalents as
follows:

<TABLE>
<CAPTION>
Description                           Series C Stock Shares      Common Share Equivalents
-----------                           ---------------------      ------------------------
<S>                                              <C>                        <C>
$576,518 Equity Financing                          253,736                   50,746,681
GOF Note/Interest Conversion                       264,494                   52,898,765
All other Note/Interest Conversions                540,605                  108,120,802
                                         -----------------            -----------------
        Total at 12/31/06                        1,058,835                  211,766,248
                                         =================            =================
</TABLE>

                                       16
<PAGE>

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. The Company has agreed to accept votes on its proposal until March
30, 2007, unless the Company agrees to extend such date.

This proposed reverse stock split does not change the number of shares of common
stock that the Company is authorized to issue. With shareholder approval of the
reverse stock split, the 1,058,835 shares of Series C Stock will automatically
convert to 1,058,835 shares of common stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion and analysis of our financial condition and results of operations
are based on our financial statements, which have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). The preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and related disclosures of contingent assets
and liabilities. On an on-going basis, we evaluate these estimates, assumptions
and judgments. We base our estimates on historical experience and on various
other assumptions that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities. Actual results may materially differ from these
estimates under different assumptions or conditions. If actual results were to
differ from these estimates materially, the resulting changes could have a
material adverse effect on our financial statements. We consider the following
accounting policies to be the most important to the portrayal of our financial
condition and that require the most subjective judgment.

REVENUE RECOGNITION

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

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

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

LONG-LIVED ASSETS

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

STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted the modified prospective method of SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which is a
revision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95,
"Statement of Cash Flows". SFAS No. 123R requires that all share-based payments
to employees, including the grant of employee stock options, be recognized in
the income statement based on their fair values. Under the modified prospective
application, SFAS No. 123R is applied to new awards and awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The Compensation cost for the portion
of awards is based on the grant date fair value of those awards as calculated
for pro-forma disclosure under SFAS No. 123. The Company's financial statements
as of January 1, 2006 reflect the impact of adopting SFAS No. 123R. In
accordance with the modified prospective method, the Company's financial
statements for the prior periods have not been restated to reflect, and do not
include, the impact of SFAS No. 123R.

                                       17
<PAGE>

Stock-based compensation expense recognized during the period is based on the
value of the portion of the stock-based payment awards that is ultimately
expected to vest. As stock-based compensation expense recognized in the
statement of operations for the twelve months ended December 31, 2006 is based
on awards ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.

The adoption of SFAS No. 123R will require the Company to record material
non-cash stock compensation expenses. While the adoption of SFAS No. 123R is not
expected to have a substantial effect on the Company's financial condition or
cash flows, it is expected to have a significant effect on the Company's result
of operations. The future impact of the adoption of SFAS No. 123R cannot be
currently predicted as it will depend on the Company's future decisions to issue
share-based payments.

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and
complied with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure -- an Amendment of FASB
Statement No. 123". Under APB Opinion No. 25, compensation expense for employees
is based on the excess, if any, on the date of grant, of the fair value of the
Company's stock over the exercise price and is recognized on a straight-line
basis over the vesting term of the option.

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

Results of Operations

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues for the twelve months ended December 31, 2006 were $244,815 compared to
$387,159 for the twelve months ended December 31, 2005. This 37% decrease in
sales reflects customer attrition and reduced billings for application downtime
in April and June of 2006. Since the Company implemented a staff reduction of
approximately 16 employees on December 9, 2005, it has experienced a customer
attrition rate near 63% of its paying home healthcare provider locations,
resulting in lower revenue in 2006. In addition, because of technological issues
that resulted in periods of application downtime in the months of April and June
of 2006, the Company provided two weeks of service free to each of its customers
in these two months, resulting in reduced billings.

Management believes that significant revenue growth will begin in the next
twelve months if the Company is able to raise the additional capital required to
execute its marketing and sales strategy.

Costs of revenues were $181,668 for the twelve months ended December 31, 2006
compared to $860,961 for the twelve months ended December 31, 2005. This 79%
decrease in cost of revenues was primarily attributable to the staff reductions
the Company implemented in December 2005 resulting in lower salaries and
benefits and other employee-related expenses of $509,000, lower operating lease
expenses of $147,000, resulting from the Company returning approximately
$300,000 in leased hardware and software in February, 2006 and lower custom form
design expenses of $24,000.

Selling, general and administrative expenses were $987,077 for the twelve months
ended December 31, 2006 compared to $2,271,575 for the twelve months ended
December 31, 2005. This 57% decrease in expenses was primarily attributable to
the staff reductions the Company implemented in December 2005 resulting in lower
salaries and benefits and other employee-related expenses of $982,000 and lower
travel and entertainment expenses of $200,000. Investor relations and financial
consulting expenses decreased $99,000 in 2006. Other corporate general and
administrative expenses, including building rent, computer and software
expenses, insurance, telephone, cellular phone, office supplies and postage
expenses decreased $244,000 in 2006. Other marketing costs, including marketing
materials, product marketing and tradeshow press release and advertising
expenses were approximately $25,000 lower in 2006. On January 24, 2006 the
Company entered into a consulting agreement with an individual, Howard Alweil
(the "Consultant") for services related to locating qualified executive
personnel and reviewing the implementation strategy of the Company's public
relations and marketing efforts. As compensation for those services, the Company
agreed to issue 300,000 registered shares of the Company's Common Stock. During
2006, the Company recorded $75,000 in financial consulting expenses related to
the issuance of the 300,000 shares of common stock which were valued at $0.25
per share on January 24, 2006, resulting in higher financial consulting expense
in 2006. The Company also recognized $153,704 in stock compensation expense for
stock options vested during 2006 due to its January 1, 2006, adoption of SFAS
No. 123R using the modified prospective transition method, which contributed to
higher expenses in 2006. Other higher expenses in 2006 were outside accounting
and technical accounting research expenses of $15,000, penalties and interest
charges on state sales taxes of $8,400 and IT consulting costs of $7,000. In
addition, legal settlement expenses were $10,000 higher in 2006 due to the
settlement of a lawsuit.

                                       18
<PAGE>

Bad debt expense was $44,702 for the twelve months ended December 31, 2006
compared to $29,490 for the twelve months ended December 31, 2005. This $15,212
increase in bad debt expense in 2006 reflects the write-off of accounts
receivable the Company deemed uncollectible.

Management expects that operating expenses will increase over the next twelve to
eighteen months if the Company is able to raise the additional capital required
to make the necessary investments in technology enhancements and in its planned
marketing, sales and support programs.

Loss on debt settlement, net totaled $120,998 for the twelve months ended
December 31, 2006.

The Company was notified on January 20, 2006, that it was in default under its
master electronic equipment lease primarily due to its failure to pay the base
monthly rental payments after October 2005. On February 20, 2006, the Company
returned approximately $300,000 of the hardware and software to the lessor,
retaining approximately $14,000 of the original leased property. The notice of
default on the lease did not relieve, suspend or waive the Company's continued
responsibility for the monthly rental payments for the balance of the initial
lease term. As of February 20, 2006, the Company had approximately $59,000 of
its original lease deposit amount of $124,717 in tact. The Company restructured
the remaining amount owed under the lease for an additional twenty-four months.
The net amount owed included an offset credit given for the lease deposit of
$59,239. The restructured balance totaled $107,102. Accordingly, in conjunction
with the restructured lease, the Company recorded a loss on debt settlement in
the first quarter of 2006 totaling $166,341 to reflect complete consumption of
the lease deposit of $59,239 and the remaining lease liability of $107,102.

The Company made its first payment on the restructured lease in July 2006. In
August 2006, the Company was notified by the lessor that a partial credit of
$14,849 was being issued to the Company, against the restructured balance, for
the equipment returned to the lessor in February 2006. Therefore, the Company
recorded a gain on debt settlement of $14,849 in the third quarter of 2006. At
December 31, 2006, the restructured balance due totaled $77,071 (net of the
credit for returned equipment of $14,849 and payments made through the fourth
quarter totaling $15,182).

The Company was notified on February 21, 2006, that it was in default under the
lease for its principal executive office located in Austin, Texas, due to its
failure to timely pay the base monthly rental. The Company was directed to
vacate the premises no later than February 28, 2006. The Company vacated the
premises on February 28, 2006 and relocated its principal executive office to an
alternative location in Austin, Texas in approximately 300 square feet of leased
office space. The lessor has agreed to extinguish the lease and will require the
Company to pay its outstanding base monthly rental amounts owed through February
28, 2006, totaling $47,433, including applicable late fees. Because the original
lease was a three-year, sliding scale square-footage rate lease, and the
square-footage rates increased in years two and three, as of February 28, 2006
the Company had recorded $14,200 in additional rent expense to average out the
three-year total rent expense. Because the lessor agreed to extinguish the lease
as of February 28, 2006 the Company reversed its additional rent expense accrual
of $14,200, resulting in a reduction in the loss on debt settlement recognized
in the first quarter of 2006.

In addition, in the third quarter of 2006, the Company settled outstanding
payables with two of its trade vendors for less than the original amounts owed
and recorded $16,294 as gain on debt settlement.

Loss on early extinguishment of debt totaled $19,030,648 for the twelve months
ended December 31, 2006.

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

As of the Commitment Date, September 15, 2006, the Company had only
approximately 30 million shares of common stock authorized remaining to be
issued. To complete the conversion of the GOF notes payable and accrued interest
of $544,490 and $56,477, respectively, offered at a conversion price of $0.01
per common share equivalent, the Company needed approximately 53 million
authorized common shares (the GOF conversion offer was triggered upon
achievement of the minimum required equity financing on September 15, 2006). As
a result, the Company authorized issuance of a new Mandatorially Convertible
Series C Preferred Stock series to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date , the Series C
Stock shares were authorized, designated and issuable to effect the conversion
of the GOF notes payable and accrued interest. Effective November 13, 2006 the
Company issued 264,494 shares to GOF to affect the conversion of GOF's notes
payable and accrued interest of $544,490 and $56,477, respectively.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and

                                       19
<PAGE>

$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock representing 108,120,803 common share equivalents.

In summary, as of December 31, 2006, the Company has converted a total of
$1,564,490 in notes payable and $264,806 in related accrued interest to Series C
Stock. In this conversion, the Company issued a total of 805,099 shares of
Series C Stock representing 161,019,567 common share equivalents. As a result,
the liability is deemed extinguished. The difference between the net carrying
amount of the extinguished debt and the reacquisition price of the extinguished
debt, totaling $19,065,248 was recognized currently as a loss in the period of
extinguishment. Per the terms of the note conversion agreements with GOF and the
remaining note holders that signed conversion agreements, the notes and accrued
interest through September 15, 2006 only were exchanged for Series C Stock. The
Company filed its Certificate of Designation for the Series C Stock with the
State of Nevada on November 13, 2006. The Company issued the Series C Stock on
November 13, 2006. The Company continued to accrue interest expense on the notes
payable until the Company had the Series C Stock to issue and to effect the
conversions. However, the additional accrued interest, after September 15, 2006
was not a factor in determining the number of Series C Stock shares the note
holders received upon conversion. The note holders effectively extinguished the
additional accrued interest from September 16, 2006 to November 13, 2006 (the
Company accrued interest until December 11, 2006 for one lone note holder that
returned the consent letter on December 11, 2006) by not accepting additional
consideration (in the form of Series C Stock) from the Company. Therefore the
additional accrued interest on the converted notes reduces the loss on early
extinguishment of debt the company originally recorded in the amount of $34,600.

Interest expense for the twelve months ended December 31, 2006 was $232,500
compared to $216,798 in 2005. Higher interest expense in 2006, was primarily
attributable to a higher debt load, resulting from notes payable the Company
issued in the second, third and fourth quarters of 2005. The majority of the
notes payable and the related accrued interest through September 15, 2006 were
converted to Series C Stock effective November 13, 2006. The Company continued
to accrue interest expense on the converted notes payable until the Company had
the Series C Stock to issue and to effect the conversions. However, the
additional accrued interest, after September 15, 2006 was not a factor in
determining the number of Series C Stock shares the note holders received upon
conversion. The note holders effectively extinguished the additional accrued
interest from September 16, 2006 to November 13, 2006 (the Company accrued
interest until December 11, 2006 for one lone note holder that returned the
consent letter on December 11, 2006) by not accepting additional consideration
(in the form of Series C Stock) from the Company. Therefore the additional
accrued interest on the converted notes reduces the loss on early extinguishment
of debt the company originally recorded in the amount of $34,600.

Liquidity and Capital Resources

Net cash used in operating activities for the year ended December 31, 2006 and
2005 totaled $598,208 and $2,099,141, respectively. Decreased net uses of cash
in 2005 resulted primarily from the Company's implementation of a personnel and
cost reduction plan in December 2005.

Cash flows used in investing activities totaled $39,060 for the year ended
December 31, 2006 and consisted of capital expenditures of $25,310 and
capitalized software development costs of $13,750.

Net cash provided by financing activities was $764,018 for the year ended
December 31, 2006 and consisted of the issuance of the Company's Series C
Mandatorially Convertible Preferred Stock $576,518 and borrowing on notes
payable ($187,500). Net cash provided by financing activities was $2,051,694 for
the year ended December 31, 2005 and consisted of the issuance of the Company's
Series B Convertible Preferred Stock, a capital contribution from a majority
shareholder and borrowings on notes payable, partially offset by payments on
notes payable.

                                       20
<PAGE>

In its efforts to position the Company to raise the additional capital required
to execute its business plan, during 2006, the Company effected a significant
restructuring of it balance sheet. On June 16, 2006, the Company's Board of
Directors ratified a letter agreement (the "Letter Agreement"), dated June 7,
2006, with a related party, Gryphon Opportunities Fund I, LLC ("GOF"), relating
to future financing and a recapitalization of the Company. Pursuant to the
Letter Agreement, GOF agreed to convert its notes payable and accrued interest
(as of September 15, 2006) to common stock of the Company and to release its
lien on the Company's assets. Both of these actions were conditioned upon the
Company receiving an aggregate of $570,000 in equity financing. The raising of
the equity financing was effectively completed on September 15, 2006 (the
"Commitment Date") in the amount of $570,518. As of October 2, 2006, the Company
had raised a total of $576,518 in the equity financing.

As of the Commitment Date, the Company had only approximately 30 million shares
of common stock authorized remaining to be issued. To complete the equity
financing of $576,518 (offered at a price of $0.01 per common shave equivalent)
and the conversion of the GOF notes payable and accrued interest of $544,490 and
$56,477, respectively, also offered at a conversion price of $0.01 per common
share equivalent, (the GOF conversion offer was triggered upon achievement of
the minimum required equity financing on September 15, 2006), the Company needed
approximately 104 million authorized common shares. As a result, the Company
authorized issuance of a new series of Mandatorially Convertible Series C
Preferred Stock (the "Series C Stock") to the new equity investors (251,093
shares of Series C Stock) and to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date, the Series C
Stock shares were authorized, designated and issuable to the new equity
investors and to effect the conversion of the GOF notes payable and accrued
interest. At September 30, 2006, because the Series C Stock had not been
authorized or designated, the equity financing of $570,518 was classified as
preferred stock pending issuance on the balance sheet.

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively. It was determined that on the commitment
date a beneficial conversion, totaling $576,518 existed to the investors in this
equity financing. The Company will recognize this deemed dividend ratably over
the period from the date the Series C Stock shares were issued (November 13,
2006) and the date of the earliest permitted conversion, which, as of the date
of this report, the Company is estimating to be April 15, 2007. Therefore, in
the fourth quarter of 2006 the Company recognized $183,438 as a deemed dividend
upon issuance of the convertible preferred stock.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock.

In summary, as of December 31, 2006, the Company has issued a total of 1,058,835
shares of Series C Stock representing 211,766,248 common share equivalents as
follows:

<TABLE>
<CAPTION>
Description                          Series C Stock Shares      Common Share Equivalents
-----------                          ---------------------      ------------------------
<S>                                             <C>                        <C>
$576,518 Equity Financing                         253,736                   50,746,681
GOF Note/Interest Conversion                      264,494                   52,898,765
All other Note/Interest Conversions               540,605                  108,120,802
                                         -----------------            -----------------
        Total at 12/31/06                       1,058,835                  211,766,248
                                         =================            =================
</TABLE>

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split does not change the number of
shares of common stock that the Company is authorized to issue. The Company has
agreed to accept votes on its proposal until March 30, 2007, unless the Company
agrees to extend such date. With shareholder approval of the reverse stock
split, the 1,058,835 shares of Series C Stock will automatically convert to
1,058,835 shares of common stock.

For the full terms of the Letter Agreement, reference is made to the Company's
Form 8-K, filed with the Securities and Exchange Commission on June 22, 2006,
which is incorporated by reference.

In September 2006, the Company wrote-off its Receivable for the Purchase of
Equity totaling $2,000 when it determined that the receivable was not
collectible.

                                       21
<PAGE>

In December 2006, in conjunction with $187,500 in 6% convertible bridge notes
payable issued, the Company issued 15,000,000 warrants to purchase one share of
common stock at $0.0250 per share. These warrants were valued at a range of
$0.099 to $0.149 per warrant resulting in a total fair value of $1,733,861. The
Company allocated the proceeds received between the notes payable and the
detachable warrants based on the relative fair values at the date of issuance.
Based on the relative fair value calculations, the Company allocated $168,656 of
the $187,500 in proceeds to the detachable warrants and the remaining $18,844 to
the notes payable. The notes also contained a conversion feature allowing the
note holders to convert the notes into common shares at a conversion price of
$.0125 per share. The Company accounted for the beneficial conversion feature
based on the guidance provided in EITF 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios". The Company calculated the value of the beneficial
conversion feature to be $1,721,156; however, EITF 98-5 implies that the value
of the beneficial conversion feature may not exceed the proceeds allocated to
the notes payable under the relative fair value calculations. As a result, the
value of the beneficial conversion feature is limited to $18,844, which is the
amount of the proceeds allocated to notes payable. The debt discount amount of
$187,500 ($168,656 related to the fair value of the warrants and $18,844 related
to the beneficial conversion feature) is being amortized as a component of
interest expense over the life of the notes (twenty-four months).

The Company has limited cash resources and intends to raise additional capital
through the issuance of debt or equity. The Company believes the additional
capital will allow it to continue expand the sales of its core products and
develop new product offerings. The availability of cash through such resources
is not assured and if the Company is not able to raise enough cash, the Company
might be forced to limit its operations and selling activities, or ultimately
cease operations. The financial statements for the year ended December 31, 2006
have been prepared on the assumption that the Company will continue as a going
concern. The Company sustained net losses of $20,352,778 (including a
non-recurring loss on early extinguishment of debt totaling $19,030,648) and
$2,985,285 for the years ended December 31, 2006 and 2005, respectively, and has
accumulated losses through December 31, 2006 of $35,417,744. Cash used in
operating activities for the same periods aggregated $598,208 and $2,099,141,
respectively. Total liabilities at December 31, 2006 of $1,122,632 exceed total
assets of $199,437. As of the date of this report, the Company is unable to meet
all of its short-term obligations because of shortages of cash. The Company's
continued existence depends upon the success of management's efforts to raise
additional capital necessary to meet the Company's obligations as they come due,
and to obtain sufficient capital to execute its business plan. The Company
intends to obtain capital primarily through issuances of debt or equity. There
can be no degree of assurance that the Company will be successful in completing
additional financing transactions. Failure to generate additional revenues,
raise additional capital or manage discretionary spending could have a material
adverse effect on the Company's ability to continue as a going concern and to
achieve its intended business objectives. The financial statements do not
include any adjustments to reflect the possible effects on the recoverability
and classification of assets or classification of liabilities, which may result
from the inability of the Company to continue as a going concern.

Inflation

The Company believes that inflation generally has not had a material impact on
its operations or liquidity to date.

ITEM 7. FINANCIAL STATEMENTS

The consolidated financial statements of the Company are included herein
beginning on page F-1.

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

None.

ITEM 8A. CONTROLS AND PROCEDURES.

CONTROLS AND PROCEDURES

Members of our management, including Neil Burley, our Chief Financial Officer
and Principal Accounting and Financial Officer, have evaluated the effectiveness
of our disclosure controls and procedures, as defined by paragraph (e) of
Exchange Act Rules 13a-15 or 15d-15, as of December 31, 2006, the end of the
period covered by this report. Based upon that evaluation, Mr. Burley concluded
that our disclosure controls and procedures are effective.

INTERNAL CONTROL OVER FINANCIAL REPORTING.

There were no changes in our internal control over financial reporting or in
other factors identified in connection with the evaluation required by paragraph
(d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the fourth
quarter ended December 31, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

None.

                                       22
<PAGE>

PART III

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

The following table sets forth the age and position of each of the Company's
executive officers, directors and key employees at December 31, 2006:

     Name                  Age     Position
     -----                 ---     --------

     Richard Corlin, MD     66     Chairman of the Board of Directors and Chief
                                   Medical Officer

     Dennis Nasto           48     Chief Executive Officer and Director

     Allen Stamy            65     Director

     Neil Burley            46     Vice-President and Chief Financial Officer

     Eugene Fry             45     Senior Vice-President, Product and Technology
                                   Development and Chief Compliance Officer


Richard Corlin, MD has been a director since September 23, 2000 and became
Chairman of the Board of Directors and Chief Medical Officer in August, 2002. He
is a gastroenterologist in private practice in Santa Monica, California and was
President of the American Medical Association ("AMA") from July 2001 to July
2002. Prior to becoming President, Dr. Corlin served as Speaker of the AMA's
House of Delegates for five years. He has been active in the affairs of the AMA
for the past twenty years, having served for nine years as a member and then
Chair of the AMA Council on Long Range Planning and Development. From 1994 to
1998, Dr. Corlin served as a member of the Advisory Committee to the Director of
the National Institute of Health. Dr. Corlin served as President of the
California Medical Association ("CMA") from 1992 to 1993, was Vice Speaker and
Speaker of the CMA House of Delegates for nine years, and a member of its Board
of Trustees for twelve years. He chaired numerous committees of the CMA
including the Finance Committee, the Liaison Committee to State Hospital Medical
Staffs, and was an active member of the CMA Speakers Bureau on Tort Reform. Dr.
Corlin is a graduate of Rutgers University, and received his M.D. degree from
Hahnemann Medical College. Following residency training at Hahnemann, Dr. Corlin
served as a Lt. Commander in the United States Public Health Service, Heart
Disease and Stroke Control Program from 1968 to 1970. He then took a
gastroenterology fellowship at UCLA. He is a fellow of the American College of
Physicians, is a member of both the American Gastroenterology Association and
the American Society of Internal Medicine, and is a Past President of the
Southern California Society of Gastrointestinal Endoscopy. He is also the
Chairman of the Audio Digest Foundation, a provider of continuing medical
education to healthcare professionals, a member of the Board of Governors of
Marathon Multimedia, a subsidiary of Audio Digest Foundation that provides
information management solutions to medical societies, Chairman of Landes Slezak
Group, a subsidiary of Audio Digest Foundation that records sound and video of
professional association meetings, and an assistant clinical professor at the
University of California-Los Angeles School of Medicine. Dr. Corlin was Vice
Chairman of American Sound and Video in 2000 when it filed a petition for
reorganization pursuant to Chapter 11 under the U.S. Bankruptcy Code. The
proceeding was converted to Chapter 7 under the U.S. Bankruptcy Code and the
company was liquidated.

Dennis Nasto has been a director and Chief Executive Officer of the company
since November 2006 when he was rehired by the Board of Directors. Previously he
was Vice-President of Sales, Marketing and Customer Support from August, 2003
through September 2004. He became Senior Vice-President Sales and Marketing in
October 2004. Mr. Nasto's original employment term with the Company ended
December 9, 2005 as a result of the Company's implementation of a significant
cost reduction program. He has over twenty (20) years of executive experience in
sales and marketing in the healthcare industry. Prior to joining the Company,
Mr. Nasto, from 2001 to 2002, was Director of Sales at ResMed Corporation, a
leading home health respiratory equipment manufacturer. Mr. Nasto has been
successful, during the past eighteen years in building high-energy sales teams
at both small and large companies including Kimberly-Clarke Professional
Healthcare, a major medical/surgical supply manufacturer, where he was employed
as District Sales Manager from 1983 to 1991, and from STERIS Corporation, a
leading medical device company, where he held positions as Vice President of
Sales-Americas, Vice President National Accounts and Vice President of
Sterilization Services from 1991 to 1998. From 2000 to 2001, Mr. Nasto also
served as President of X10NET, a start up venture that focused on bringing
Web-based workflow solutions to the physician marketplace.

Allen Stamy has been a director since August, 2002. From February 1996 to the
present, Mr. Stamy has served as the President and Chief Operating Officer and
more recently Chief Executive Officer of Audio-Digest Foundation. He also
provides management oversight to its subsidiary, Marathon Multimedia, and to CME
Unlimited, a medical conference capture and e-commerce business. Prior to
joining Audio-Digest Foundation, Mr. Stamy worked in education and technology
industries where he has had experience in sales, product management, marketing
and general management. He previously worked for National Computer Systems from
1990 to 1995, Science Research Associates from 1988 to 1990, and IBM Corporation
from 1967 to 1988. At IBM, he managed a full product line including new product

                                       23
<PAGE>

development and distributed products through a national direct sales force,
direct response marketing and complementary third-party distribution channels.
He specialized in opening the Pacific Rim markets for IBM's small computers and
peripherals and managed the small system product portfolio. Mr. Stamy earned a
Bachelor of Business Administration from the University of Iowa and a Master's
of Business Administration from the University of Chicago. He is a director of
MedePass Inc., which provides secure transmission of medical information, a
member of the Board of Governors of Marathon Multimedia, and a Director of
Landes Slezak Group. Mr. Stamy also was a Director of American Sound and Video
from 1998 to 2000, when it filed a petition for reorganization under the U.S.
Bankruptcy Code and later was liquidated, as described above.

Neil Burley has served the Company as Vice-President and Chief Financial Officer
since July 2002. He originally joined the Company in October of 2001. Mr. Burley
is primarily responsible for the development of the Company's financial model,
optimization of cash flow and all aspects of finance and accounting. He is a
well-seasoned financial executive with over 20 years of experience. From June,
1982 to April, 1996 Mr. Burley worked at Pennzoil Company where he held a
variety of accounting and finance positions, including responsibility for all
internal and external (SEC) financial reporting for the Manufacturing and
Marketing Divisions. He joined Compaq Computer Corporation in April 1996, and
served as Director of Corporate Financial Planning and Analysis in his last year
there. In this role he functioned as a senior financial advisor to the Chief
Financial Officer and Corporate Controller of this Fortune 500 Company. He led a
professional team in the development and preparation of consolidated financial
reports, board presentations, speech materials, quarterly budgets, earnings
targets and financial forecasts for all company regions and business units. In
May 2000, he left Compaq to accept equity participation and a senior management
role as VP Finance and Controller in the start-up of a managed data storage
services company, StorageProvider, Inc. In this role he assumed financial
leadership responsibility for the strategic planning, staffing, budgeting, and
management of the entire finance and accounting infrastructure. Mr. Burley
graduated from Louisiana State University and is a Texas Certified Public
Accountant.

Eugene Fry joined the Company in October of 2001. He is primarily responsible
for ensuring the competitive viability of the Company's products. He has over
fifteen (15) years of information technology experience spanning across system
analysis/engineering, sales, field service and operations. From 1996 to 1999 Mr.
Fry was employed by Turner Collie and Braden, a major engineering firm, where he
was responsible for designing and upgrading new technology and ensuring that
implementation was coordinated and successful throughout the organization's
multiple offices. Prior to that, from 1994 to 1996 he was employed by Pacific
Atlantic Group SA in Buenos Aires, Argentina, where he created an infrastructure
for a U.S. affiliate to distribute, market, and manufacture a vending machine
product in Argentina and other Latin American companies. Mr. Fry holds various
technical certifications and expertise in various protocols, operating systems,
and software. He holds a B. S. in Computer Science from Almeda University and
College.

The Company is not aware of involvement in any legal proceedings by its
directors or executive officers during the past five years that are material to
an evaluation of the ability or integrity of such director or executive officer.

Compliance with Section 16(a) of The Exchange Act.

No reporting person failed to file on a timely basis reports required by section
16(a) of the Exchange Act since such reporting persons became subject to such
reporting requirements during 2006.

Code of Ethics

Due to limited resources, the Company has not adopted a code of professional
ethics for its principal executive officer, principal financial officer or
persons performing similar functions. The Company intends to create and adopt
its code of ethics during the calendar year 2007.

                                       24
<PAGE>

Item 10.  Executive Compensation

<TABLE>
<CAPTION>
                                                              Annual Compensation                     Long-Term Compensation
                                                -------------------------------------------- ---------------------------------------
                                                                                              Restricted     Common Shares
                                                                                  Other         Stock         Underlying
                                                                                  Annual        Awards      Options Granted    All
                                                 Year     Salary      Bonus    Compensation   (# Shares)      (# Shares)      Other
                                                ------  ----------  --------  -------------- ------------  ----------------  -------
<S>                                              <C>      <C>            <C>            <C>    <C>             <C>               <C>
Richard F. Corlin, MD (1)                        2006           0        0              0              0             0           0
Chairman and Chief Medical Officer               2005           0        0              0              0             0           0
                                                 2004           0        0              0        515,000             0           0

Allen Stamy, Director (2)                        2006           0        0              0              0             0           0
                                                 2005           0        0              0        100,000             0           0
                                                 2004           0        0              0              0             0           0

Dennis Nasto (3)                                 2006      30,000        0              0              0             0           0
Chief Executive Officer and Director             2005     105,695        0              0              0             0           0
                                                 2004      92,394        0              0        150,000       150,000           0

Neil Burley (4)                                  2006      58,667        0              0              0             0           0
Vice President and Chief Financial Officer       2005      85,000        0              0              0             0           0
                                                 2004      91,083        0              0        215,000       150,000           0

Eugene Fry (5)                                   2006      46,000        0              0              0             0           0
Vice-President, Product and Technology           2005      75,000        0              0              0             0           0
   Development and Chief Compliance Officer      2004      90,084        0              0        200,000       100,000           0

Robert J. Woodrow (6)                            2006       3,000        0              0              0             0           0
Former President, Chief Executive Officer        2005      70,000        0              0              0             0           0
   and Director                                  2004      69,000        0              0      1,000,000       500,000           0

Robert McMillan, Former Director (7)             2006           0        0              0              0             0           0
                                                 2005           0        0              0              0       100,000           0
                                                 2004           0        0              0              0             0           0

Laszlo Meszaros, Former Director (8)             2006           0        0              0              0             0           0
                                                 2005           0        0              0              0       100,000           0
                                                 2004           0        0              0              0             0           0

William O'Loughlin, Former Executive             2006           0        0              0              0             0           0
   Vice-President and Chief Operating            2005     100,000        0              0              0             0           0
   Officer (9)                                   2004      35,000        0              0              0       300,000           0

N.K. "Skip" Best (10)                            2006
Former Vice-President, Business Development      2005           0        0              0              0             0           0
                                                 2004      45,700        0              0         50,000             0           0
</TABLE>

(1)  Dr. Corlin has been a director since September 23, 2000. He became Chairman
     of the Board and Chief Medical Officer in August, 2002. 500,000 shares of
     common stock were awarded to Dr. Corlin by the Board of Directors on
     January 20, 2004, of which 250,000 shares would have been forfeited if he
     resigned from the Board of Directors prior to January 20, 2005. 15,000
     shares of common stock were awarded to Dr. Corlin by the Board of Directors
     on June 18, 2004.

(2)  Mr. Stamy has been a director since August 8, 2002. 100,000 shares of
     common stock were awarded to Mr. Stamy by the Board of Directors on January
     20, 2004, of which 50,000 shares would have been forfeited if he resigned
     from the Board of Directors prior to January 20, 2005.

(3)  Mr. Nasto has been a director and Chief Executive Officer since November 6,
     2006. In 2006, Mr. Nasto was paid $30,000 in cash compensation from the
     date of his employment, November 6, 2006 through December 31, 2006. In
     addition, from July to October 2006, Mr. Nasto was paid $54,738 as an
     outside marketing consultant to the Company, excluding $4,285 in reimbured
     out of pocket expenses. The total paid to Mr. Nasto, of $54,738, included
     payment for the additional salary he accrued in 2005 of $20,527. Previously
     Mr. Nasto was Vice-President of Sales, Marketing and Customer Support from
     August, 2003 through September 2004. Mr. Nasto became Senior Vice-President
     Sales and Marketing in October 2004. Mr. Nasto's employment with the
     Company ended December 9, 2005, as a result of the Company's implementation
     of a significant cost reduction program. 150,000 shares of common stock
     were awarded to Mr. Nasto by the Board of Directors on January 20, 2004.
     These shares vested on October 1, 2004 and were issued contingent upon Mr.
     Nasto being employed by the Company on October 1, 2004. On December 3, 2004
     Mr. Nasto was granted options to purchase 150,000 shares of common stock
     issued pursuant to the SecureCARE Technologies, Inc. Year 2004 Stock Option
     Plan. Mr. Nasto's original employment with the Company ended on Company
     ended on December 9, 2005. Therefore 76,233 of these options had vested at
     the date of termination; the remaining 73,767 were cancelled. As of March,
     2006 the 76,233 vested options were cancelled. Mr. Nasto received cash
     compensation in 2005 of $105,695 and he accrued additional salary of
     $20,572 through December 31, 2005.

                                       25
<PAGE>

(4)  Mr. Burley has been Chief Financial Officer since July 2002. Mr. Burley
     received cash compensation in 2006 of $58,667 and he accrued additional
     salary of $43,000 through December 31, 2006. Mr. Burley received cash
     compensation in 2005 of $85,000 and he accrued additional salary of $10,366
     through December 31, 2005. 215,000 shares of common stock were awarded by
     the Board of Directors on January 20, 2004. These shares vested on October
     1, 2004 and were issued contingent upon Mr. Burley being employed by the
     Company on October 1, 2004. On December 3, 2004 Mr. Burley was granted
     options to purchase 150,000 shares of common stock issued pursuant to the
     SecureCARE Technologies, Inc. Year 2004 Stock Option Plan.

(5)  Mr. Fry has been a full time employee of the Company since October 2001.
     Mr. Fry received cash compensation in 2006 of $46,000 and he accrued
     additional salary of $45,000 through December 31, 2005. Mr. Fry received
     cash compensation in 2005 of $75,000 and he accrued additional salary of
     $15,416 through December 31, 2005. 200,000 shares of common stock were
     awarded by the Board of Directors on January 20, 2004. These shares vested
     on October 1, 2004 and were issued contingent upon Mr. Fry being employed
     by the Company on October 1, 2004. On December 3, 2004 Mr. Fry was granted
     options to purchase 100,000 shares of Common Stock issued pursuant to the
     SecureCARE Technologies, Inc. Year 2004 Stock Option Plan.

(6)  Effective June 16, 2006, the Board of Directors accepted Mr. Woodrow's
     resignation as a member of the Board of Directors and as President and
     Chief Executive Officer. Mr. Woodrow had been a director since May 13,
     2002. Mr. Woodrow had served as Chief Operating Officer since September 1,
     2002. He became President on December 29, 2003 and was appointed President
     and Chief Execuitve Officer in October 2004. Mr. Woodrow was hired as an
     outside consultant. He was paid, on average in 2004, $5,750 per month in
     cash compensation plus all reasonable and customary travel and other
     expenses related to the execution of his duties. Mr. Woodrow's net
     compensation in 2005 of $55,700 included $70,000 in monthly payments that
     averaged $7,500 per month for the months in which he was paid net of
     $14,300 in unreimbursed out of pocket expenses. Mr. Woodrow also accrued
     additional salary of $20,000 through December 31, 2005. Mr. Woodrow
     received cash compensation in 2006 of $3,000 and he accrued additional
     salary of $37,500 through June 16, 2006. 1,000,000 shares of common stock
     were awarded to Mr. Woodrow by the Board of Directors on January 20, 2004,
     of which 500,000 shares would have been forfeited if he resigned from the
     Board of Directors prior to January 20, 2005. On December 3, 2004 Mr.
     Woodrow was granted options to purchase 500,000 shares of common stock
     issued pursuant to the SecureCARE Technologies, Inc. Year 2004 Stock Option
     Plan. Mr. Woodrow's employment with the Company ended on June 16, 2006.
     Therefore 373,345 of these options had vested at the date of termination;
     the remaining 126,655 were cancelled. As of September 2006 the 373,345
     vested options were cancelled.

(7)  Robert McMillan joined the Board of Directors on April 25, 2005. The Board
     granted Mr. McMillan options to purchase 100,000 shares of common stock
     upon appointment as director. 50,000 options vested immediately; the
     remaining vested ratably over the following 12 months. Mr. McMillan
     resigned from the Board of Directors on March 1, 2006. Therefore, 96,747 of
     these options had vested on the date of his resignation; the remaining
     3,253 were cancelled. As of June 2006 the 96,747 vested options were
     cancelled.

(8)  Laszlo Mezaros joined the Board of Directors on April 25, 2005. On January
     11, 2006, Mr. Meszaros notified the Company that he resigned from the Board
     of Directors effective December 14, 2005. The Board granted Mr. Mezaros
     options to purchase 100,000 shares of common stock upon appointment as
     director. 50,000 options vested immediately; the remaining were to vest
     ratably over the following 12 months. Mr. Mezaros resigned as a director of
     the Company on December 14, 2005. 81,918 options had vested at the date of
     resignation; the remaining 18,082 were cancelled. As of March 2006 the
     81,918 vested options were cancelled.

(9)  Mr. O'Loughlin was Executive Vice-President and Chief Operating officer
     from October 1, 2004 through December 9, 2005. Mr. O'Loughlin's employment
     with the Company ended December 9, 2005, as a result of the Company's
     implementation of a significant cost reduction program. Prior to October 1,
     2004, Mr. O'Loughlin was retained on a consulting basis and was compensated
     $10,000 for those consulting services. On December 3, 2004 Mr. O'Loughlin
     was granted options to purchase 300,000 shares of common stock issued
     pursuant to the SecureCARE Technologies, Inc. Year 2004 Stock Option Plan.
     Mr. O'Loughlin's employment with the Company ended on December 9, 2005.
     Therefore 178,356 of the options had vested at the date of termination; the
     remaining 121,644 were cancelled. As of March 2006, the 178,356 vested
     options were cancelled. Mr. O'Loughlin received cash compensation in 2005
     of $100,000 and he accrued additional salary of $20,000 through December
     31, 2005.

(10) Mr. Best was hired as Vice President of Business Development on March 1,
     2004. Prior to December 1, 2003, Mr. Best was working on behalf of the
     Company exclusively on a commission basis plus reimbursement for all
     reasonable travel and other expenses incurred on behalf of the Company.
     Effective December 1, 2003, Mr. Best was paid a recoverable draw against
     future commissions of $5,000 per month. 50,000 shares of Common Stock were
     awarded by the Board of Directors on January 20, 2004. These shares vested
     on October 1, 2004 and their issuance was contingent upon Mr. Best being
     employed with the Company on October 1, 2004. Mr. Best's employment with
     the Company ended on September 7, 2004; therefore the shares were not
     issued. On April 7, 2005 a lawsuit was filed by Mr. Best against the
     Company. The lawsuit was identified as cause number GN501073 and was filed
     in the 353rd Judicial District Court of Travis County, Texas as "Norman K.
     Best versus SecureCARE Technologies, Inc." The lawsuit alleged that the
     Company breached the terms of its agreements with Mr. Best by failing to
     tender the 50,000 shares of common stock of the Company which were granted
     to him in January, 2004. The grant date fair value of the shares was not
     material. The Company responded to the lawsuit by filing a general denial,
     denying all the allegations raised by the Plaintiff. On July 8, 2005, the
     Company filed a series of responses to the Plaintiff's request for
     admission. The Company was intially required to produce all documents
     related to the Plaintiff's request for production by August 14, 2006. On
     August 25, 2006, the Company settled this lawuit with Mr. Best. The Company
     agreed to tender the 50,000 shares of the Company's common stock that were
     previously granted to him. The Company also agreed to a monetary payment of
     $10,000 to be paid in five monthly installments of $2,000 each. At December
     31, 2006, the Company has recorded a liability of $2,000 for the balance of
     payments due on the monetary portion of this settlement.

                                       26
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock as of December 31, 2006 by (I) each of
our Directors, (ii) each of our Executive Officers, (iii) each person who is
known by us to own beneficially more than 5% of the common stock and (iv) all
Directors and Officers as a group.


Name                                         Number of Shares         Percentage
--------------------------------------      -------------------       ----------

Richard F. Corlin, MD                                  515,000               3%

Allen Stamy                                            100,000               0%

Dennis Nasto                                           150,000               1%

Neil Burley                                            215,000               1%

Gene Fry                                               200,000               1%

Gryphon Opportunities Fund I, LLC (1)               12,619,757              62%

All Directors and Officers as a Group                1,180,000               6%

(1) Excludes 85,150 shares of common stock owned by Dall, Inc., an affiliate of
Gryphon Opportunities Fund I, LLC; Excludes 235,150 shares of common stock owned
by York Avenue Holding Corporation, an affiliate of Gryphon Opportunities Fund
I, LLC

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

As of the Commitment Date, the Company had only approximately 30 million shares
of common stock authorized remaining to be issued. To complete the equity
financing of $576,518 (offered at a price of $0.01 per common shave equivalent)
and the conversion of the GOF notes payable and accrued interest of $544,490 and
$56,477, respectively, also offered at a conversion price of $0.01 per common
share equivalent, (the GOF conversion offer was triggered upon achievement of
the minimum required equity financing on September 15, 2006), the Company needed
approximately 104 million authorized common shares. As a result, the Company
authorized issuance of a new series of Mandatorially Convertible Series C
Preferred Stock (the "Series C Stock") to the new equity investors (251,093
shares of Series C Stock) and to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date, the Series C
Stock shares were authorized, designated and issuable to the new equity
investors and to effect the conversion of the GOF notes payable and accrued
interest. At September 30, 2006, because the Series C Stock had not been
authorized or designated, the equity financing of $570,518 was classified as
preferred stock pending issuance on the balance sheet.

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively.

As of December 31, 2006 and 2005, the Company had principal amounts of $0and
$544,490, respectively, in notes payable to a related party, Gryphon
Opportunities Fund I, LLC. During the twelve-month periods ended December 31,
2006 and 2005, there were no principal repayments or interest payments on these
notes payable.

                                       27
<PAGE>

ITEM 13. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Board of Directors has reviewed the following audit fees the Company has
paid to the independent public accountants for purposes of considering whether
such fees are compatible with maintaining the auditor's independence. The policy
of the Board of Directors is to pre-approve all audit services performed by its
independent public accountants before the services are performed.

Audit Fees. Estimated fees billed for service rendered by KBA Group LLP for the
reviews of Forms 10-QSB and for the audits of the financial statements of the
Company were $66,205 for 2006 and $57,820 for 2005. Fees billed for tax related
services were $500 in 2006 and $1,294 in 2005. Additionally, fees billed for
other services in 2006 totaled $1,000.

PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The following Exhibits are incorporated by reference to the filing or are
included following the Index to Exhibits.

Number   Description
------   -----------

3.1      Articles of Incorporation of the Company (1)

3.2      Articles of Amendment to Articles of Incorporation (1)

3.3      Bylaws of Company (1)

3.4      Definitive Proxy Statement Dated February 28, 2007 (2)

4.1      Form of 6% Convertible Promissory Note

31.1     Certification by Chief Executive Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002

31.2     Certification by Chief Financial Officer pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002

32       Certification of Chief Executive Officer and Chief Financial Officer
         pursuant to 18 U.S.C Section 1350


(1) Incorporated by reference to the Company's original registration statement
on Form 10-SB, filed with the Securities Exchange Commission on January 11,
1999, File No. 0-29804.

(2) Incorporated by reference to the Company's Definitive Proxy Statement filed
with the Securities and Exchange Commission on February 28, 2007, File No.
0-29804.

B. Reports on Form 8-K

   On October 11, 2006 the Company filed a Form 8-K, dated October 6, 2006
   reporting under Item 1.02 that it had terminated the Loan Agreement with Euro
   Financial Fidelity, Inc. previously reported in a Form 8-K, dated April 4,
   2006, as no funding was received under the Loan Agreement.

   On November 13, 2006 the Company filed a Form 8-K, dated November 6, 2006
   reporting under Item 5.02 that the Company had entered into a letter
   agreement with Dennis Nasto setting forth certain terms and conditions for
   Mr. Nasto to serve as Chief Executive Officer of the Company and to serve as
   a member of the Board of Directors.

                                       28
<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                        SecureCare Technologies, Inc.



Date:  March 30, 2007                   By: /s/ DENNIS NASTO
                                            ------------------------------------
                                            Dennis Nasto
                                            Chief Executive Officer and Director



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


NAME                         TITLE

/s/ DENNIS NASTO             Chief Executive                Date: March 30, 2007
-------------------------    Officer and Director
    Dennis Nasto






/s/ NEIL BURLEY              Chief Financial Officer        Date: March 30, 2007
-------------------------    (Principal Financial and
    Neil Burley              Accounting Officer)

                                       29
<PAGE>
                          SecureCARE Technologies, Inc.

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM..................... F-1

FINANCIAL STATEMENTS

Balance Sheets at December 31, 2006 and 2005................................ F-2

Statements of Operations for the years ended December 31, 2006 and 2005..... F-4

Statement of Changes in Shareholders' Deficit for the years
ended December 31, 2006 and 2005............................................ F-5

Statements of Cash Flows for the years ended December 31, 2006 and 2005..... F-7

Notes to Financial Statements............................................... F-9



<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
SecureCARE Technologies, Inc.

We have audited the accompanying balance sheets of SecureCARE Technologies, Inc.
as of December 31, 2006 and 2005 and the related statements of operations,
changes in shareholders' deficit, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SecureCARE Technologies, Inc.
as of December 31, 2006 and 2005, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

As described in Note B, the accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
experienced recurring losses, has generated recurring negative cash flows from
operations and has liabilities significantly in excess of assets at December 31,
2006. These conditions raise substantial doubt about the Company's ability to
continue as a going concern. Management's plan with regard to these matters is
also described in Note B. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Note A to the financial statements, effective January 1, 2006
the Company adopted Statement of Financial Accounting Standard 123(R), Share-
Based Payments.

KBA Group LLP
Dallas, Texas
March 30, 2007

                                      F - 1
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.
                                 BALANCE SHEETS
                           December 31, 2006 and 2005

                                     ASSETS


                                                                                   2006            2005
                                                                               ------------    ------------
<S>                                                                            <C>             <C>
Current assets
   Cash and cash equivalents                                                   $    130,151    $      3,400
   Accounts receivable - trade, net of allowance for doubtful accounts
     of $2,000 and $5,000, respectively                                              16,076          42,936
   Prepaid expenses and deposits                                                      7,935          14,905
                                                                               ------------    ------------
       Total current assets                                                         154,161          61,241

Property and equipment, net of accumulated depreciation
   of $449,096 and $361,490, respectively                                            45,276          93,822
Deferred financing fees, net of accumulated amortization of
   $84,546 and $79,032, respectively                                                     --           5,514
Deposits                                                                                 --          97,830
                                                                               ------------    ------------

       Total assets                                                            $    199,437    $    258,407
                                                                               ============    ============
</TABLE>

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

                                      F - 2
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.
                           BALANCE SHEETS - CONTINUED
                           December 31, 2006 and 2005

                      LIABILITIES AND SHAREHOLDERS' DEFICIT

                                                                                   2006            2005
                                                                               ------------    ------------
<S>                                                                                 <C>             <C>
Current liabilities
  Current portion of notes payable, including $0 and $136,123 to a
    related party, respectively, net of debt discount of $0 and
    $14,164, respectively                                                      $    263,500    $  1,355,459
  Accounts payable - trade                                                          220,789         222,888
  Accrued payroll                                                                   209,372         222,436
  Accrued payroll taxes                                                             145,701         170,918
  Deferred revenue                                                                       --          16,183
  Accrued interest                                                                   64,715         161,337
  Other accrued liabilities                                                         180,178         111,629
                                                                               ------------    ------------
    Total current liabilities                                                     1,084,255       2,260,850

Notes payable, less current portion including $0 and $408,367
   to related parties, respectively, net of debt discount of
   $183,458 and $0, respectively                                                      4,042         408,367


Other non-current liabilities                                                        34,335              --


Shareholders' deficit
  Preferred stock - $0.001 par value; 15,000,000 shares authorized,
    Series A preferred stock - 1,955,000 shares issued and outstanding
     (liquidation preference of $1.00 per share)                                      1,955           1,955
    Series B preferred stock - 1,427,273 issued and outstanding
     (liquidation preference of $1.10 per share)                                      1,427           1,427
    Series C preferred stock - 1,058,835 shares issued and outstanding
     (no liquidation preference)                                                      1,059              --
  Common stock - $0.001 par value; 50,000,000 shares authorized,
    20,304,000 and 20,004,000 shares issued and outstanding, respectively            20,304          20,004
  Additional paid-in capital                                                     34,469,804      12,630,770
  Accumulated deficit                                                           (35,417,744)    (15,064,966)
                                                                               ------------    ------------
    Total shareholders' deficit                                                    (923,195)     (2,410,810)
                                                                               ------------    ------------

    Total liabilities and shareholders' deficit                                $    199,437    $    258,407
                                                                               ============    ============
</TABLE>

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

                                      F - 3
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.
                            STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 2006 and 2005


                                                                    2006            2005
                                                                ------------    ------------
<S>                                                                  <C>             <C>
Revenues                                                        $    244,815    $    387,159

Operating expenses
   Cost of revenues                                                  181,668         860,961
   Selling, general and administrative                               987,077       2,271,575
   Bad debt expense                                                   44,702          29,490
   Loss on debt settlement, net                                      120,998              --
   Gain on debt settlement                                                --          (6,380)
   Loss on early extinguishment of debt                          (19,030,648)             --
                                                                ------------    ------------

   Operating loss                                                (20,120,278)     (2,768,487)

Other expenses
   Interest expense (including $23,185 and $26,578 to a
     related party, respectively)                                   (232,500)       (216,798)
                                                                ------------    ------------

 Net loss                                                       $(20,352,778)   $ (2,985,285)
                                                                ============    ============
 Deemed dividend upon issuance of convertible preferred stock       (183,438)       (204,765)
                                                                ------------    ------------
Net loss attributable to common shareholders                    $(20,536,216)   $ (3,190,050)
                                                                ============    ============

Net loss per common share - basic and diluted                   $      (1.01)   $      (0.16)
                                                                ============    ============
Weighted-average number of common shares outstanding -
   basic and diluted                                              20,285,096      20,004,000
                                                                ============    ============
</TABLE>

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

                                      F - 4
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.
                 STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
                 For the Years Ended December 31, 2006 and 2005

                                           Series A                 Series B              Series C

                                        Preferred Stock          Preferred Stock       Preferred Stock           Common Stock
                                     ---------------------   ---------------------   ---------------------   ---------------------
                                       Shares      Amount      Shares      Amount      Shares      Amount     Shares       Amount
                                     ----------   --------   ----------   --------   ----------   --------   ----------   --------
<S>                                   <C>            <C>        <C>            <C>       <C>        <C>      <C>           <C>
Balance at December 31, 2004          1,955,000      1,955      181,818        182           --         --   20,004,000     20,004

  Issuance of Series B
    preferred stock                          --         --    1,245,455      1,245           --         --           --         --
  Issuance of stock options
    for services                             --         --           --         --           --         --           --         --
  Issuance of warrants in
    connection with notes payable            --         --           --         --           --         --           --         --
  Contribution of common stock by
     majority shareholder in
     conjunction with conversion
     of note payable and
     accrued interest                        --         --           --         --           --         --           --         --
  Capital contribution from
     majority shareholder                    --         --           --         --           --         --           --         --

  Net loss for the year                      --         --           --         --           --         --           --         --
                                     ----------   --------   ----------   --------   ----------   --------   ----------   --------
  Balance at December 31, 2005        1,955,000   $  1,955    1,427,273   $  1,427           --   $     --   20,004,000   $ 20,004

  Issuance of Series C preferred
     stock                                   --         --           --         --      253,736        254           --         --
  Issuance of Series C preferred
     stock in connection with the            --         --           --         --      805,099        805           --         --
     extinguishment of notes
     payable and accrued interest
  Issuance of common stock for
     services                                --         --           --         --           --         --      300,000        300
  Issuance of warrants in connection
     with notes payable                      --         --           --         --           --         --           --         --
  Beneficial conversion feature of
     convertible notes payable               --         --           --         --           --         --           --         --
  Stock compensation expense                 --         --           --         --           --         --           --         --
  Reclassification of note payable           --         --           --         --           --         --           --         --

  Net loss for the year                      --         --           --         --           --         --           --         --
                                     ----------   --------   ----------   --------   ----------   --------   ----------   --------
  Balance at December 31, 2006        1,955,000   $  1,955    1,427,273   $  1,427    1,058,835   $  1,059   20,304,000   $ 20,304
                                     ==========   ========   ==========   ========   ==========   ========   ==========   ========
</TABLE>

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

                                      F - 5
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.
           STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT - CONTINUED
                 For the Years Ended December 31, 2006 and 2005

                                                                    Additional
                                                                     Paid-in      Accumulated        Notes
                                                                     Capital        Deficit        Receivable        Total
                                                                  ------------    ------------    ------------    ------------
<S>                                                              <C>            <C>                  <C>           <C>
Balance at December 31, 2004                                        10,945,695     (11,872,916)         (2,000)       (907,080)

  Issuance of Series B preferred stock                               1,441,714        (204,765)             --       1,238,194
  Issuance of stock options for services                                 4,300              --              --           4,300
  Issuance of warrants in connection with notes payable                 12,061              --              --          12,061
  Contribution of common stock by majority shareholder in
     conjunction with conversion of note payable and
     accrued interest                                                   77,000              --              --          77,000
  Capital contribution from majority shareholder                       150,000              --              --         150,000

  Net loss for the year                                                     --      (2,985,285)             --      (2,985,285)

                                                                  ------------    ------------    ------------    ------------
  Balance at December 31, 2005                                    $ 12,630,770    $(15,062,966)   $     (2,000)   $ (2,410,810)

  Issuance of Series C preferred stock                                 576,264              --              --         576,518
  Issuance of Series C preferred stock in connection with the       20,893,738              --              --      20,894,543
      extinguishment of notes payable and accrued interest
  Issuance of common stock for services                                 74,700              --              --          75,000
  Issuance of warrants in connection with notes payable                171,784              --              --         171,784
  Beneficial conversion feature of convertible notes payable            18,844              --              --          18,844
  Stock compensation expense                                           153,704              --              --         153,704
  Reclassification of note payable                                     (50,000)             --              --         (50,000)
  Notes receivable write off                                                --          (2,000)          2,000              --

 Net loss for the year                                                      --     (20,352,778)             --     (20,352,778)
                                                                  ------------    ------------    ------------    ------------
  Balance at December 31, 2006                                    $ 34,469,804    $(35,417,744)   $         --    $   (923,195)
                                                                  ============    ============    ============    ============
</TABLE>

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

                                      F - 6
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.

                            STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 2006 and 2005

                                                             2006            2005
                                                         ------------    ------------
<S>                                                      <C>             <C>
Cash flows from operating activities
  Net loss                                               $(20,352,778)   $ (2,985,285)
  Adjustments to reconcile net loss to net
   cash used in operating activities:
     Depreciation and amortization                             87,606          78,414
     Bad debt expense                                          44,702          29,490
     Common stock issued for services                          75,000              --
     Stock compensation expense                               153,704           4,300
     Loss on debt settlement, net                             120,998              --
     Loss on early extinguishment of debt                  19,030,648              --
     Amortization of deferred financing fees                    5,514          38,083
     Amortization of debt discount                             21,334          33,230
     Other non-cash interest expense                               --          23,187
  Increases and decreases in working capital accounts:
     Accounts receivable - trade                              (17,842)        (46,889)
     Prepaid expenses                                          12,822          11,608
     Other current assets                                      32,739          32,738
     Deferred revenue                                         (16,183)         16,183
     Accounts payable - trade                                  14,195         126,156
     Accrued liabilities                                      189,333         539,644
                                                         ------------    ------------
    Cash flows used in operating activities                  (598,208)     (2,099,141)

Cash flows from investing activities
     Capital expenditures                                     (25,310)             --
     Capitalized software development costs                   (13,750)             --
                                                         ------------    ------------
    Cash flows used in investing activities                   (39,060)             --

Cash flows from financing activities
     Proceeds from notes payable                              187,500         700,000
     Payments on notes payable                                     --         (36,500)
     Capital contribution from majority shareholder                --         150,000
     Proceeds from the issuance of preferred stock            576,518       1,238,194
                                                         ------------    ------------
     Cash flows provided by financing activities              764,018       2,051,694
</TABLE>

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

                                      F - 7
<PAGE>
<TABLE>
<CAPTION>

                          SecureCARE Technologies, Inc.

                      STATEMENTS OF CASH FLOWS - CONTINUED
                 For the Years Ended December 31, 2006 and 2005

                                                                          2006           2005
                                                                      ------------   ------------
<S>                                                                        <C>            <C>
Net increase (decrease) in cash and cash equivalents                       126,750        (47,447)

Cash and cash equivalents, beginning of year                                 3,400         50,847
                                                                      ------------   ------------
Cash and cash equivalents, end of year                                $    130,150   $      3,400
                                                                      ============   ============

Supplemental disclosures for cash flow information:

  Contribution of common stock by majority shareholder in
   conjunction with conversion of note payable and accrued interest   $         --   $     77,000
                                                                      ============   ============
  Conversion of note payable and accrued interest in to
   common stock                                                       $  1,829,296   $     50,000
                                                                      ============   ============
  Deemed dividend upon issuance of convertible preferred stock        $    183,438   $    204,765
                                                                      ============   ============
  Fair value of warrants in connection with issuance of
   notes payable                                                      $  1,733,861   $     12,061
                                                                      ============   ============
  Issuance of Series C preferred stock in connection with
   extinguishment of notes payable and accrued interest               $ 20,894,543   $         --
                                                                      ============   ============

</TABLE>

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

                                      F - 8
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS
----------------------

SecureCARE Technologies, Inc. (the "Company" or "SecureCARE"), a Nevada
corporation incorporated on May 12, 1999, provides electronic Internet-based
document exchange and e-signature solutions for the healthcare industry. The
Company markets its services to customers throughout the United States. The
Company currently operates from its Austin, Texas-based corporate headquarters.

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

On December 9, 2005, the Company implemented a staff reduction of approximately
sixteen employees in what was expected to be a temporary cost reduction in
response to the failure of the Company to obtain necessary financing to fund
operations. The Company intended to secure a banking or investment partner and
it downsized its cost structure to preserve its value and operate from its
current sales revenues during this interim period. A cost contained operating
plan, including four full-time employees and additional part-time resources, was
implemented to support the Company's physician and home healthcare provider
customer base and to maintain its technology platform. As additional investment
capital is attracted, the Company will resume its aggressive marketing, sales
and product development initiatives. When implemented, this personnel and cost
reduction program reduced the Company's monthly cash requirements by
approximately $200,000.

                                      F - 9
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company's continued existence depends upon the success of management's
efforts to raise additional capital necessary to meet the Company's obligations
as they come due and to obtain sufficient capital to execute its business plan.
The Company intends to obtain capital primarily through issuances of debt or
equity. There can be no degree of assurance that the Company will be successful
in completing additional financing transactions.

CASH AND CASH EQUIVALENTS
-------------------------

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
-------------------------------------------------------

Trade accounts receivable are stated at the amount the Company expects to
collect. The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
Management considers the following factors when determining the collectibility
of specific customer accounts: customer credit-worthiness, past transaction
history with the customer, current economic industry trends, and changes in
customer payment terms. The Company's accounts receivable are not secured. If
the financial condition of the Company's customers were to deteriorate,
adversely affecting their ability to make payments, additional allowances would
be required. Based on management's assessment, the Company provides for
estimated uncollectible amounts through a charge to earnings and an increase to
a valuation allowance. Balances that remain outstanding after the Company has
used reasonable collection efforts are written off through a charge to the
valuation allowance.

PROPERTY AND EQUIPMENT
----------------------

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

Depreciation and amortization expense for the years ended December 31, 2006 and
2005 was $87,606 and $78,414, respectively.

                                     F - 10
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS
---------------------------------------

The Company capitalizes costs related to computer software developed or obtained
for internal use in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" and is depreciated
using the straight-line method over the estimated useful life of the software,
generally two years. SOP 98-1 provides guidance on determining whether computer
software is internal-use software and guidance on accounting for proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. It also provides guidance on capitalization of
the costs incurred for computer software developed or obtained for internal use.
For the year ended December 31, 2006, the Company recorded capitalized software
development costs totaling $13,750. No amortization expense related to the
software development has been recorded as of December 31, 2006 since the
software development has not been completed as of December 31, 2006. No software
development costs were capitalized during the year ended December 31, 2005.

DEFERRED FINANCING FEES
-----------------------

Deferred financing fees related to the notes payable are amortized on a
straight-line basis over the term of the notes payable which range from six
months to two years. Any deferred financing fees related to notes that are paid
early or converted to equity are expensed. Deferred financing fees, net of
accumulated amortization were $0 and $5,514, as of December 31, 2006 and 2005,
respectively.

INCOME TAXES
------------

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

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

REVENUE RECOGNITION
-------------------

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

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

LOSS PER COMMON SHARE
---------------------

Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the year. Diluted net loss per
share is computed by dividing net loss by the weighted average number of common
shares and dilutive common stock equivalents outstanding for the year. Common
stock equivalents for the years ended December 31, 2006 and 2005 have been
excluded from the computation since such inclusion would have an anti-dilutive
effect.

                                     F - 11
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

LONG-LIVED ASSETS
-----------------

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

ADVERTISING COSTS
-----------------

All costs associated with advertising are expensed in the period incurred.
Advertising expense totaled $0 and $2,485 for the years ended December 31, 2006
and 2005, respectively.

STOCK-BASED COMPENSATION
------------------------

On January 1, 2006, the Company adopted the modified prospective method of SFAS
No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123R"), which is a
revision of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). SFAS No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95,
"Statement of Cash Flows". SFAS No. 123R requires that all share-based payments
to employees, including the grant of employee stock options, be recognized in
the income statement based on their fair values. Under the modified prospective
application, SFAS No. 123R is applied to new awards and awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The Compensation cost for the portion
of awards is based on the grant date fair value of those awards as calculated
for pro-forma disclosure under SFAS No. 123. The Company's financial statements
as of January 1, 2006 reflect the impact of adopting SFAS No. 123R. In
accordance with the modified prospective method, the Company's financial
statements for the prior periods have not been restated to reflect, and do not
include, the impact of SFAS No. 123R.

Stock-based compensation expense recognized during the period is based on the
value of the portion of the stock-based payment awards that is ultimately
expected to vest. As stock-based compensation expense recognized in the
statement of operations for the twelve months ended December 31, 2006 is based
on awards ultimately expected to vest, it has been reduced for estimated
forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of
grant and revised, if necessary, in subsequent periods if actual forfeitures
differ from those estimates.

The adoption of SFAS No. 123R will require the Company to record material
non-cash stock compensation expenses. While the adoption of SFAS No. 123R is not
expected to have a substantial effect on the Company's financial condition or
cash flows, it is expected to have a significant effect on the Company's result
of operations. The future impact of the adoption of SFAS No. 123R cannot be
currently predicted as it will depend on the Company's future decisions to issue
share-based payments.

Prior to January 1, 2006, the Company accounted for stock-based employee
compensation arrangements in accordance with provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees", and
complied with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation" as amended by SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure -- an Amendment of FASB
Statement No. 123". Under APB Opinion No. 25, compensation expense for employees
is based on the excess, if any, on the date of grant, of the fair value of the
Company's stock over the exercise price and is recognized on a straight-line
basis over the vesting term of the option.

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

                                     F - 12
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Board of Directors of the Company approved the SecureCARE Technologies, Inc.
2004 Stock Option Plan on December 3, 2004. The Company has reserved 2,000,000
shares of common stock for issuance under this Plan. The exercise price of each
option granted may not be less than the fair market value of common stock at the
date of grant, without prior approval of the Board of Directors. Options are
exercisable according to the terms set out in the option agreement, not to
exceed ten years. At December 31, 2006 the Company had 250,000 options
outstanding, of which 250,000 were exercisable. All options granted by the
Company are restricted stock awards under rules promulgated by the Securities
and Exchange Commission.

The Company adopted SFAS No. 123R using the modified prospective transition
method beginning January 1, 2006. Accordingly, during the twelve month period
ended December 31, 2006, the Company recorded stock-based compensation expense
for options granted prior to, but not yet vested, as of January 1, 2006, as if
the fair value method required for pro forma disclosure under SFAS No. 123 were
in effect for expense recognition purposes, adjusted for estimated forfeitures.
There were no new options issued during the twelve months ended December 31,
2006. As SFAS No. 123R requires that stock-based compensation expense be based
on awards that are ultimately expected to vest, stock based compensation expense
for the twelve-month period ended December 31, 2006 totaled $153,704. The impact
on the Company's results of operations of recording stock-based compensation for
the twelve-month period ended December 31, 2006 was as follows:

                                                          Twelve Months Ended
                                                          December 31, 2006
                                                          -----------------

Selling, general and administrative                       $         153,704
                                                          -----------------

Impact on net loss to common shareholders                 $         153,704
                                                          =================
Impact on net loss per share to common shareholders
 (basic and diluted)                                      $             .01
                                                          -----------------

The Company calculates the fair value of each option award on the date of grant
using the Black-Scholes option-pricing model. There were no new options issued
during the twelve months ended December 31, 2006.

The following table summarizes the activity under the Plan for the twelve months
ended December 31, 2006:
<TABLE>
<CAPTION>

                                                                       2004 Stock Incentive Plan
                                                      ----------------------------------------------------------
                                                                Twelve Months Ended December 31, 2006
                                                      ----------------------------------------------------------
                                                                                       Weighted
                                                                        Weighted        Average        Aggregate
                                                                        Average         Remaining      Intrinsic
                                                          Shares     Exercise Price  Contractual Term    Value
                                                      ----------------------------------------------------------
<S>                                                 <C>                 <C>            <C>         <C>
Outstanding at January 1, 2006                           1,349,608     $     1.01      .81 years
Granted                                                         --
Exercised                                                       --
Cancelled                                               (1,099,608)    $     1.01
                                                      ------------
Outstanding at December 31, 2006                           250,000     $     1.00       -- years        $    --
                                                      ============
Vested and expected to vest at December 31, 2006           250,000     $     1.00       -- years        $    --
Options exercisable at December 31, 2006                   250,000     $     1.00       -- years        $    --
</TABLE>


The aggregate intrinsic value is calculated as the difference between the
exercise price of the underlying awards and the quoted price of the Company's
common stock, $0.07, at December 31, 2006. No options were "in-the-money" at
December 31, 2006. No options were exercised during the twelve months ended
December 31, 2006 and 2005.

As of December 31, 2006 there was $0 of total unrecognized compensation cost
related to unvested options.

                                     F - 13
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Prior to the adoption of SFAS No. 123R, the Company provided the disclosures
required under SFAS No. 123, as amended by SFAS No.148. Employee stock-based
compensation expense recognized under SFAS No. 123R was not reflected in the
Company's result of operations for the twelve months ended December 31, 2006 for
employee stock option awards as all options were granted with an exercise price
equal to the market value of the underlying common stock on the date of grant.
Previously reported amounts have not been restated.

If the Company had recognized compensation expense on a straight-line basis over
the vesting term of the options based upon the fair value at the grant date for
options granted to employees, officers and directors during the twelve month
periods ended December 31, 2005 the pro forma effect on net loss attributable to
common shareholders and net loss per share attributable to common shareholders
would have been as follows:

<TABLE>
<CAPTION>

                                                                              Twelve Months Ended
                                                                               December 31, 2005
                                                                               -----------------
<S>                                                                            <C>
         Net loss to common shareholders as reported                           $      (3,190,050)
         Add:  Stock-based employee compensation expense included
               in reported net loss                                                        4,300
         Deduct: Stock-based employee compensation expense determined
               under fair value based method                                            (641,807)
                                                                               -----------------

         Pro forma net loss                                                    $      (3,827,557)
                                                                               =================
         Net loss per share to common shareholders:
           As reported - basic and diluted                                     $            (.16)
                                                                               =================

           Pro forma - basic and diluted                                       $            (.16)
                                                                               =================
</TABLE>

Compensation cost is reflected over the options' vesting period of 0 to 2 years.

USE OF ESTIMATES AND ASSUMPTIONS
--------------------------------

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

NOTE B - GOING CONCERN

The financial statements have been prepared on the assumption that the Company
will continue as a going concern. The Company sustained net losses of
$20,352,778 (including a non-recurring loss on early extinguishment of debt
totaling $19,030,648) and $2,985,285 for the years ended December 31, 2006 and
2005, respectively, and has accumulated losses through December 31, 2006 of
$35,417,744. Cash used in operating activities for the same periods aggregated
$598,208 and $2,099,141, respectively. Total liabilities at December 31, 2006 of
$1,122,632 exceed total assets of $199,437. As of the date of this report, the
Company is unable to meet all of its short-term obligations because of shortages
of cash. The Company's continued existence depends upon the success of
management's efforts to raise additional capital necessary to meet the Company's
obligations as they come due, and to obtain sufficient capital to execute its
business plan. The Company intends to obtain capital primarily through issuances
of debt or equity. There can be no degree of assurance that the Company will be
successful in completing additional financing transactions. Failure to generate
additional revenues, raise additional capital or manage discretionary spending
could have a material adverse effect on the Company's ability to continue as a
going concern and to achieve its intended business objectives. The financial
statements do not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or classification of liabilities,
which may result from the inability of the Company to continue as a going
concern.

                                     F - 14
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE C - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2006 and 2005 consists of the following:
<TABLE>
<CAPTION>

                                                                         2006            2005
                                                                     ------------    ------------
<S>                                                                  <C>             <C>
         Computer equipment and software                             $    481,834    $    442,774
         Furniture and office equipment                                    12,538          12,538
                                                                     ------------    ------------
                                                                          494,372         455,312

         Less: accumulated depreciation and amortization                 (449,096)       (361,490)
                                                                     ------------    ------------
         Net property and equipment                                  $     45,276    $     93,822
                                                                     ============    ============
</TABLE>


Computer equipment and software includes $183,750 and $170,000, respectively, at
December 31, 2006 and 2005, in costs capitalized in the development of software
held for internal use.

                                     F - 15
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE D - NOTES PAYABLE

Notes payable at December 31, 2006 and December 31, 2005 consist of the
following:

<TABLE>
<CAPTION>

                                                                                  2006                          2005
                                                                        -------------------------    ---------------------------
                                                                         Short Term    Long Term       Short Term    Long Term
<S>                                                                     <C>           <C>            <C>            <C>
  Note payable to related party bearing interest at 5%,
       principal and interest due September 30, 2010,
       secured by a security interest in the assets and
       intellectual property of the Company
       Note and accrued interest coverted to Series C Preferred Stock   $        --   $        --    $   136,123    $   408,367

  Note payable to investors bearing flat interest at 60%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         50,000             --

  Note payable to investors bearing interest at 18%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         75,000             --

  Note payable to investors bearing interest at 18%
       Note and accrued interest coverted to Series C Preferred Stock            --            --        150,000             --

  Note payable to investors bearing interest at 18%
       Note and accrued interest coverted to Series C Preferred Stock            --            --        125,000             --

  Note payable to investors bearing interest at 18%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         50,000             --

  Note payable to investors bearing interest at 18%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         50,000             --

  Note payable to investors bearing interest at 7.5%
       Note is in default as of February 13, 2006, unsecured                200,000            --        220,000             --

  Note payable to investors bearing interest at 7.5%
       Note and accrued interest coverted to Series C Preferred Stock            --            --        150,000             --

  Note payable to investors bearing interest at 7.5%
       Note and accrued interest coverted to Series C Preferred Stock            --            --        150,000             --

  Note payable to Phoebe Holdings, Inc. at 7.5%,
       Note is in default as of May 1, 2005, unsecured                       63,500            --         63,500             --

Convertible bridge note payable bearing interest at 12%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         50,000             --

Convertible bridge note payable bearing interest at 12%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         25,000             --

Convertible bridge note payable bearing interest at 12%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         25,000             --

Convertible bridge note payable bearing interest at 12%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         40,000             --

Convertible bridge note payable bearing interest at 12%
       Note and accrued interest coverted to Series C Preferred Stock            --            --         10,000             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 4, 2008, unsecured                    --        45,000             --             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 4, 2008, unsecured                    --        15,000             --             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 6, 2008, unsecured                    --        15,000             --             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 18, 2008, unsecured                   --        50,000             --             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 18, 2008, unsecured                   --        12,500             --             --

Convertible bridge note payable bearing interest at 6%
       Principal and interest due December 27, 2008, unsecured                   --        50,000             --             --
                                                                        -----------   -----------    ------------    -----------
                                                                            263,500       187,500      1,369,623        408,367

       Less: unamortized debt discount                                           --      (183,458)       (14,164)            --
                                                                        -----------   -----------    -----------    -----------
       Total notes payable                                              $   263,500   $     4,042    $ 1,355,459    $   408,367
                                                                        ===========   ===========    ===========    ===========
</TABLE>






                                     F - 16
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE D - NOTES PAYABLE (Continued)

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

As of the Commitment Date, September 15, 2006, the Company had only
approximately 30 million shares of common stock authorized remaining to be
issued. To complete the conversion of the GOF notes payable and accrued interest
of $544,490 and $56,477, respectively, offered at a conversion price of $0.01
per common share equivalent, the Company needed approximately 53 million
authorized common shares (the GOF conversion offer was triggered upon
achievement of the minimum required equity financing on September 15, 2006). As
a result, the Company authorized issuance of a new Mandatorially Convertible
Series C Preferred Stock series to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date , the Series C
Stock shares were authorized, designated and issuable to effect the conversion
of the GOF notes payable and accrued interest. Effective November 13, 2006 the
Company issued 264,494 shares to GOF to affect the conversion of GOF's notes
payable and accrued interest of $544,490 and $56,477, respectively.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock representing 108,120,803 common share equivalents.

In December 2006, in conjunction with $187,500 in 6% convertible bridge notes
payable issued, the Company issued 15,000,000 warrants to purchase one share of
common stock at $0.0250 per share. These warrants were valued at a range of
$0.099 to $0.149 per warrant resulting in a total fair value of $1,733,861. The
Company allocated the proceeds received between the notes payable and the
detachable warrants based on the relative fair values at the date of issuance.
Based on the relative fair value calculations, the Company allocated $168,656 of
the $187,500 in proceeds to the detachable warrants and the remaining $18,844 to
the notes payable. The notes also contained a conversion feature allowing the
note holders to convert the notes into common shares at a conversion price of
$.0125 per share. The Company accounted for the beneficial conversion feature
based on the guidance provided in EITF 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios". The Company calculated the value of the beneficial
conversion feature to be $1,721,156; however, EITF 98-5 implies that the value
of the beneficial conversion feature may not exceed the proceeds allocated to
the notes payable under the relative fair value calculations. As a result, the
value of the beneficial conversion feature is limited to $18,844, which is the
amount of the proceeds allocated to notes payable. The debt discount amount of
$187,500 ($168,656 related to the fair value of the warrants and $18,884 related
to the beneficial conversion feature) is being amortized as a component of
interest expense over the life of the notes (twenty-four months).

                                     F - 17
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE D - NOTES PAYABLE (Continued)

As of March 2, 2006, the Company was in default on the principle amount of
$520,000 in a series of 7.5% Senior Subordinated Notes Payable, issued to a
group of seven investors in February and March of 2004. As of December 31, 2006,
five of these note holders had consented to the Company's offer, on October 19,
2006, to convert the notes and related accrued interest (as of September 15,
2006) to Series C Stock. These five note holders converted a total of $320,000
in notes payable and $68,393 in accrued interest to Series C Stock. At December
31, 2006, the remaining two note holders represented $200,000 in outstanding
notes payable. In addition, accrued interest on these two notes as of December
31, 2006 is approximately $51,000. The notes may be extended at the option of
the Company for an additional six months. If the notes are extended, the Company
must issue one share of Common Stock for each $4.00 in principal and accrued
interest on the Notes that are extended, or a total of approximately 63,000
shares of common stock. As of the date of this filing, the Company has not
elected the option of extending the notes for an additional six months.

In October 2005, in conjunction with $150,000 in 12% convertible bridge notes
payable issued pursuant to agreement with Argilus Capital Partners, the Company
issued 30,000 warrants to purchase one share of common stock at a price equal to
the lesser of 75% of the per share purchase price on the closing date or $0.75
per share. These warrants were valued at a range of $0.313 to $0.424 per warrant
resulting in a total fair value of $10,323. This amount was recorded as a debt
discount and was amortized as a component of interest expense over the life of
the notes (thirteen months).

In September 2005, in conjunction with $50,000 in 12% convertible bridge notes
payable issued pursuant to agreement with Argilus Capital Partners, the Company
issued 10,000 warrants to purchase one share of common stock at a price equal to
the lesser of 75% of the per share purchase price on the closing date or $0.75
per share. These warrants were valued at $0.487 per warrant resulting in a total
fair value of $4,866. This amount was recorded as a debt discount and was
amortized as a component of interest expense over the life of the notes
(thirteen months).

In November 2004, in conjunction with the 7.5% senior subordinated note payable
to Phoebe Holdings, Inc., the Company issued 50,000 shares of common stock.
These shares were valued at $0.15 per share resulting in a total fair value of
$7,500. This amount was recorded as debt discount and was amortized as a
component of interest expense over the life of the note (six months).

During February and March 2004, in conjunction with the 7.5% senior subordinated
notes payable to investors, the Company issued 520,000 shares of common stock.
These shares were valued at $0.10 per share resulting in a total fair value of
$52,000. This amount was recorded as debt discount and was amortized as a
component of interest expense over the life of the notes (two-years).

Future maturities of notes payable at December 31, 2006 are as follows:


                   2007                    $  263,500
                   2008                       187,500
                                           ----------

                   Total                   $  451,000
                                           ==========



                                     F - 18
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE E - LEASE COMMITMENTS

The Company was notified on February 21, 2006, that it was in default under the
lease for its principal executive office located in Austin, Texas, due to its
failure to timely pay the base monthly rental. The lessor agreed to extinguish
the lease and will require the Company to pay its outstanding base monthly
rental amounts owed through February 28, 2006, totaling $47,433, including
applicable late fees. The Company was directed to vacate the premises no later
than February 28, 2006. The Company vacated the premises on February 28, 2006
and relocated its principal executive office to an alternative location in
Austin, Texas. The new premises are leased under a month-to month agreement.
This agreement requires a 10 day written notice of cancellation. As a result of
the new monthly office lease agreement, the Company has no future minimum lease
payments.

Rent expense totaled $37,703 and $124,430 for the years ended December 31, 2006
and 2005, respectively.

The Company was notified on January 20, 2006, that it was in default under its
master electronic equipment lease primarily due to its failure to pay the base
monthly rental payments after October 2005. On February 20, 2006, the Company
returned approximately $300,000 of the hardware and software to the lessor,
retaining approximately $14,000 of the original leased property. The notice of
default on the lease did not relieve, suspend or waive the Company's continued
responsibility for the monthly rental payments for the balance of the initial
lease term. As of February 20, 2006, the Company had approximately $59,000 of
its original lease deposit amount of $124,717 in tact. The Company restructured
the remaining amount owed under the lease for an additional twenty-four months.
The net amount owed included an offset credit given for the lease deposit of
$59,239. The restructured balance totaled $107,102 as of February 20, 2006. The
Company made its first payment on the restructured lease in July 2006. In August
2006, the Company was notified by the lessor that a partial credit of $14,849
was being issued to the Company, against the restructured balance, for the
equipment returned to the lessor in February 2006. At December 31, 2006, the
restructured balance due totaled $77,071 (net of the credit for returned
equipment of $14,849 and payments made through the fourth quarter totaling
$15,182).

Lease expense totaled $32,739 for the year ended December 31, 2006. Lease
expense, under the now defaulted master electronic equipment lease, totaled
$180,064 for the year ended December 31, 2005.


Future principal payments under the restructured master electronic equipment
lease at December 31, 2006 are as follows:


                   2007                          $     46,729
                   2008                                30,342
                                                 ------------
                   Total                         $     77,071
                                                 ============

NOTE F - INCOME TAXES

At December 31, 2006 and 2005 deferred tax assets and liabilities are comprised
of the following:

                                                     2006           2005
                                                 ------------   ------------
  Current deferred tax asset                     $        680   $      1,700
  Non-current deferred tax asset                    2,634,900      2,226,836
  Less: valuation allowance                        (2,644,580)    (2,228,536)
                                                 ------------   ------------
  Net deferred tax asset                         $         --   $         --
                                                 ============   ============

Non-current deferred tax assets principally result from net operating losses.
The December 31, 2006 current deferred tax asset results from the allowance for
doubtful receivables which is not currently deducted for federal income tax
reporting purposes. The December 31, 2006 and 2005 deferred tax assets have a
100% valuation allowance due to the uncertainty of generating future taxable
income.


                                     F - 19
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE F - INCOME TAXES (Continued)

Differences between the statutory federal income tax rate and the effective rate
for the years ended December 31, 2006 and 2005 are as follows:

                                                         2006         2005
                                                      ----------   ----------
    Income tax provision at statutory rate                  34.0%        34.0%
    Permanent differences (primarily non-cash
       expense for conversion of debt in 2006)             (32.0)        (1.2)
    Change in valuation allowance                           (2.0)       (32.8)
                                                      ----------   ----------
                                                             0.0%         0.0%
                                                      ==========   ==========

The Company has a net operating loss carryover of approximately $7,780,000 at
December 31, 2006. All net operating losses of the Company generated prior to
2003 were eliminated through the bankruptcy process. Accordingly, the net
operating loss at December 31, 2006 consists of losses that were generated
subsequent to the bankruptcy filing. The net operating loss carryover will begin
to expire in 2024.

NOTE G - SHAREHOLDERS' DEFICIT

From January 1, 2005 through December 31, 2005, and pursuant to a Consulting
Agreement with a related party, Gryphon Financial Securities Corporation, Inc.
(the "Placement Agent"), the Company received funds through a private placement
(the "Placement"). The Company issued an aggregate of 1,245,455 shares of Series
B preferred stock, with a $1.10 per share stated value, initially convertible
into one share of the Company's common stock, par value $.001 per share, for net
proceeds of approximately $1,238,000. The Placement Agent and the investors in
the financing received warrants to purchase an aggregate of 281,818 shares of
common stock at an exercise price of $1.25 per share for each $5.00 of Series B
preferred stock purchased, with 32,727 warrants issued to the Placement Agent
and 249,091 warrants issued to the investors. These warrants expire in January
through July of 2010. After allocating a portion of the net proceeds to the fair
value of the warrants received, it was determined that a beneficial conversion
existed to the purchasers of the Series B Preferred Stock at the time of
issuance. Accordingly, a beneficial conversion amount totaling $204,765 was
recorded as a deemed dividend since the Series B Preferred Stock was immediately
convertible into shares of the Company's Common Stock.

The Company issued a series of short-term notes payable totaling $550,000 during
2005. Of this debt offering, $450,000 was sold through a series of promissory
notes with a 90-day term and interest of 1% per month. On the maturity date,
each of the note holders have the option to convert the total principle amount
and accrued interest due on the promissory note to equity at a conversion price
equal to the price established and approved by the Board of Directors on the
next round of debt or equity financing. If the principle and interest remain
unpaid after 90 days, the interest rate will increase to 1.5% as long as any
portion of the note remains outstanding.

The additional $100,000 of this debt offering was structured under separate
terms. $50,000 was sold as a 60-day note, with an interest rate of 5% per month,
or 60% annualized. If the principle and interest remain unpaid for 10 days or
more following the end of the term, an additional late penalty equivalent to 5%
of such payment will be assessed. As of December 31, 2005, the holder of the
note agreed to extend the term of the note with the same interest rate of 5% per
month, or 60% annualized. The remaining $50,000 was sold as a 30-day note, with
a flat interest rate of 2.5% to be paid at the end of the term. As of September
26, 2005, the principle and interest remained unpaid on this note 10 days
following the end of the 30-day term. Accordingly, a late penalty of $2,563, 5%
of the $51,250 outstanding balance, was assessed. On September 26, 2005, the
holder of a 30-day, $50,000 promissory note agreed to convert the principle,
accrued interest and late fees, totaling $53,183 into 110,000 shares of the
Company's common stock. Gryphon Opportunities Fund I, LLC, the majority
shareholder of the Company, contributed 110,000 shares of common stock to the
Company, having a fair value of $0.70 per share, effecting a $77,000 capital
contribution. The exchange of the note, totaling $53,193 in principle, accrued
interest and penalties, into 110,000 shares of common stock of the Company,
resulted in the Company's recognition of a deemed interest expense of $23,188.

On September 16, 2005, in order to provide immediate working capital of $150,000
to the Company, the Company structured a special terms agreement with Gryphon
Opportunities Fund, I LLC ("Gryphon"), the majority shareholder of the Company,
and four outside investors in which these investors would immediately contribute
$150,000 to the Company. In return Gryphon agreed to contribute 454,546
outstanding common shares to the Company to be purchased by these five investors
at a purchase price equal to 50% of the closing price of the Company's common
stock on that day, which was quoted on the NASD Over the Counter Bulletin Board,
at $0.66. In addition to the share issuances, each investor received warrants to
purchase common stock, also issued by Gryphon, equal to the number of shares
purchased. These warrants have an exercise price of $1.50 per share and a
five-year life. This offering was initially limited to $150,000, with a total
issuance by Gryphon of 454,546 common stock shares and 454,546 warrants to
purchase common stock. The Company recognized a total capital contribution from
Gryphon of $150,000.

                                     F - 20
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE G - SHAREHOLDERS' DEFICIT (Continued)

On September 27, 2005 the officers and directors of the Company structured a 12%
convertible bridge note placement agreement with Argilus Capital Partners (the
"Placement Agent"). Under the terms of the agreement (the "Placement"), the
Company may draw up to $500,000 in four installments of $125,000 each, dependent
on its ability to raise matching funds, dollar-for-dollar, and show satisfactory
performance versus budget in the fourth quarter of 2005. All notes sold under
this agreement, either to Argilus Capital Partners or through the raising of
matching funds, are 13-month, 12% convertible promissory notes attached to 3
year warrants to purchase common shares equal to 20% of the investment, with a
an exercise price of the lesser of 75% of the per share purchase price on the
closing date or $0.75 per share. Pursuant to the agreement with Argilus, the
Company sold $150,000, 12% convertible bridge notes representing a portion of
the matching funds necessary to draw on the first $125,000 installment from
Argilus in September and October of 2005. 30,000 warrants to purchase common
stock at exercise prices ranging from$0.34 to $0.53 were attached to the
convertible bridge note.

On January 1, 2006, the Company reclassified to notes payable $50,000 in total
principal amount for an investment made in October of 2005, originally recorded
as a capital contribution from a major shareholder in accordance with the
Company's special terms agreement with Gryphon Opportunities Fund I, LLC. The
Company recognized that the special terms agreement with Gryphon was limited to
a total of $100,000, versus $150,000 as previously reported. Accordingly, the
investment of $50,000 in October of 2005 was reclassified as a 13-month, 12%
convertible promissory note attached to 3 year warrants to purchase common
shares equal to 20% of the investment (a total of 10,000 warrants), with a an
exercise price of the lesser of 75% of the per share purchase price on the
closing date or $0.75 per share. The 10,000 warrants had a purchase price of
$0.34 per share. In order to account for this reclassification, the Company
reduced additional paid-in capital and increased notes payable $50,000.

On January 24, 2006 the Company entered into a consulting agreement with an
individual, Howard Alweil, (the "Consultant") for services related to locating
qualified executive personnel and reviewing the implementation strategy of the
Company's public relations and marketing efforts. As compensation for those
services, the Company agreed to issue the Consultant 300,000 registered shares
of the Company's common stock, to be registered under a Registration Statement
on Form S-8 or any other available form as soon as was practicable after the
execution and delivery of the consulting agreement. Accordingly, the Company
filed a Form S-8 Registration Statement Under the Securities Act of 1933 on
February 10, 2006. The Company recorded $75,000 in financial consulting expenses
related to the issuance of the 300,000 shares of common stock which were valued
at $0.25 per share on January 24, 2006.

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

As of the Commitment Date, the Company had only approximately 30 million shares
of common stock authorized remaining to be issued. To complete the equity
financing of $576,518 (offered at a price of $0.01 per common shave equivalent)
and the conversion of the GOF notes payable and accrued interest of $544,490 and
$56,477, respectively, also offered at a conversion price of $0.01 per common
share equivalent, (the GOF conversion offer was triggered upon achievement of
the minimum required equity financing on September 15, 2006), the Company needed
approximately 104 million authorized common shares. As a result, the Company
authorized issuance of a new series of Mandatorially Convertible Series C
Preferred Stock (the "Series C Stock") to the new equity investors (251,093
shares of Series C Stock) and to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date, the Series C
Stock shares were authorized, designated and issuable to the new equity
investors and to effect the conversion of the GOF notes payable and accrued
interest. At September 30, 2006, because the Series C Stock had not been
authorized or designated, the equity financing of $570,518 was classified as
preferred stock pending issuance on the balance sheet.

                                     F - 21
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005


NOTE G - SHAREHOLDERS' DEFICIT (Continued)

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively. It was determined that on the commitment
date a beneficial conversion, totaling $576,518 existed to the investors in this
equity financing. The Company will recognize this deemed dividend ratably over
the period from the date the Series C Stock shares were issued (November 13,
2006) and the date of the earliest permitted conversion, which, as of the date
of this report, the Company is estimating to be April 15, 2007. Therefore, in
the fourth quarter of 2006 the Company recognized $183,438 as a deemed dividend
upon issuance of the convertible preferred stock.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock.

In summary, as of December 31, 2006, the Company has issued a total of 1,058,835
shares of Series C Stock representing 211,766,248 common share equivalents as
follows:
<TABLE>
<CAPTION>

                                                             Series C        Common Share
Description                                              Stock Shares         Equivalents
-----------                                         -----------------   -----------------
<S>                                                           <C>              <C>
$576,518 Equity Financing                                     253,736          50,746,681
GOF Note/Interest Conversion                                  264,494          52,898,765
All other Note/Interest Conversions                           540,605         108,120,802
                                                    -----------------   -----------------
         Total at 12/31/06                                  1,058,835         211,766,248
                                                    =================   =================
</TABLE>

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split does not change the number of
shares of common stock that the Company is authorized to issue. With shareholder
approval of the reverse stock split, the 1,058,835 shares of Series C Stock will
automatically convert to 1,058,835 shares of common stock. The Company has
agreed to accept votes on its proposal until March 30, 2007, unless the Company
agrees to extend the date.

In December 2006, in conjunction with $187,500 in 6% convertible bridge notes
payable issued, the Company issued 15,000,000 warrants to purchase one share of
common stock at $0.0250 per share. These warrants were valued at a range of
$0.099 to $0.149 per warrant resulting in a total fair value of $1,733,861. The
Company allocated the proceeds received between the notes payable and the
detachable warrants based on the relative fair values at the date of issuance.
Based on the relative fair value calculations, the Company allocated $168,656 of
the $187,500 in proceeds to the detachable warrants and the remaining $18,844 to
the notes payable. The notes also contained a conversion feature allowing the
note holders to convert the notes into common shares at a conversion price of
$.0125 per share. The Company accounted for the beneficial conversion feature
based on the guidance provided in EITF 98-5 "Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios". The Company calculated the value of the beneficial
conversion feature to be $1,721,156; however, EITF 98-5 implies that the value
of the beneficial conversion feature may not exceed the proceeds allocated to
the notes payable under the relative fair value calculations. As a result, the
value of the beneficial conversion feature is limited to $18,844, which is the
amount of the proceeds allocated to notes payable. The debt discount amount of
$187,500 ($168,656 related to the fair value of the warrants and $18,844 related
to the beneficial conversion feature) is being amortized as a component of
interest expense over the life of the notes (twenty-four months).

                                     F - 22
<PAGE>

                          SecureCARE Technologies, Inc.
                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE H - STOCK OPTIONS AND WARRANTS

The Board of Directors of the Company approved the SecureCARE Technologies, Inc.
2004 Stock Option Plan on December 3, 2004. The Company has reserved 2,000,000
shares of common stock for issuance under this Plan. The exercise price of each
option granted may not be less than the fair market value of common stock at the
date of grant, without prior approval of the Board of Directors. Options are
exercisable according to the terms set out in the option agreement, not to
exceed ten years. As of December 31, 2006, the Company had 250,000 options
outstanding. All options granted by the Company are restricted stock awards
under rules promulgated by the Securities and Exchange Commission.

A summary of changes in the Company's options and purchase warrants follows:

                                                         Total
                                            --------------------------------
                                                                  Range of
                                                               Weighted Average
                                            Options and           Exercise
                                              Warrants             Prices
                                            ------------        ------------
    Outstanding at 12/31/04                    4,081,863        $1.00 -$1.13
        Granted                                  626,818         1.03 - 1.17
        Exercised                                     --
        Cancelled                               (429,427)        0.99 - 0.99
                                            ------------        ------------
    Outstanding at 12/31/05                    4,279,254         1.01 - 1.13
        Granted                               15,010,000         .025 - .025
        Exercised                                     --
        Cancelled                             (1,092,072)        1.01 - 1.01
                                            ------------        ------------
    Outstanding at 12/31/06                   18,197,182          .21 - 1.00
                                            ============        ============

The following table summarizes information about compensatory stock options
outstanding at December 31, 2006:
<TABLE>
<CAPTION>

        Stock Options Outstanding                                                        Stock Options Exercisable
        =========================================================================     ===============================
                                               Weighted Avg.
        Range of           Number              Remaining           Weighted Avg       Number           Weighted Avg
        Exercise Prices    Outstanding         Contractual Life    Exercise Price     Exercisable      Exercise Price
<S>     <C>     <C>            <C>                                       <C>              <C>               <C>
        $1.00 - 1.00           250,000               -- years            $1.00            250,000           $1.00
</TABLE>

The following table summarizes information about other non-compensatory stock
options outstanding at December 31, 2006:
<TABLE>
<CAPTION>

                      Warrants Outstanding                                                  Warrants Exercisable
        =========================================================================     ===============================
                                               Weighted Avg.
        Range of           Number              Remaining           Weighted Avg       Number           Weighted Avg
        Exercise Prices    Outstanding         Contractual Life    Exercise Price     Exercisable      Exercise Price
<S>                        <C>                    <C>                   <C>           <C>                  <C>
        $0.025 - $1.00      17,429,000             4.61 years            $0.16         17,429,000           $0.16
        $1.01  - $2.00         318,182             3.17 years            $1.25            318,181           $1.25
        $2.01  - $3.00         150,000             1.24 years            $2.34            150,000           $2.34
        $3.01  - $3.50          50,000             2.24 years            $3.50             50,000           $3.50
</TABLE>

During the year ended December 31, 2005, the Company applied APB Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25), in accounting for its
compensatory options. The options granted in 2005 had exercise prices which
approximated or exceeded the fair value of the underlying common stock at grant
date and, accordingly, no compensation cost has been recognized for its
compensatory stock options in 2005.

                                     F - 23
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE H - STOCK OPTIONS AND WARRANTS (Continued)

The weighted average grant date fair value of options granted during 2005 was
$0.62. The following weighted-average assumptions for stock options granted
during fiscal year 2005 were used:


                                                           2005
                                                         --------
         Expected dividend yield                                0%
         Stock price volatility                               100%
         Risk-free interest rate                              5.0%
         Expected option term                             4 years


NOTE I - RELATED PARTY TRANSACTIONS

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

In conjunction with the acceptance date, effective November 13, 2006 the Company
issued 253,733 shares of Series C Stock to the new equity investors representing
$576,518 in equity financing completed as of October 2, 2006 and 264,494 shares
to GOF to affect the conversion of GOF's notes payable and accrued interest of
$544,490 and $56,477, respectively.

As of December 31, 2006 and 2005, the Company had principal amounts of $0 and
$544,490, respectively, in notes payable to a related party, Gryphon
Opportunities Fund I, LLC. During the twelve-month periods ended December 31,
2006 and 2005, there were no principal repayments or interest payments on these
notes payable.

NOTE J - CONCENTRATIONS OF CREDIT RISK

The Company extends unsecured credit in the normal course of business to
virtually all of its customers. The Company's accounts receivable are subject to
potential credit risk. The Company has provided an allowance for doubtful
accounts which reflects its estimates of uncollectible amounts. The maximum
exposure assuming non-performance by the customers is the amount shown on the
balance sheet at the date of non-performance.

At December 31, 2006 one customer accounted for 31% of accounts receivable. This
customer also accounted for 23% of the Company's revenue for the twelve months
ended December 31, 2006. At December 31, 2005, two customers accounted for 27%
of accounts receivable.

Cash is maintained in financial institutions which, at times, may exceed Federal
Deposit Insurance Corporation insured amounts. However, the Company mitigates
its risk by assuring that cash is maintained in high quality credit
institutions.

                                     F - 24
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE K - CONTINGENCIES

On April 7, 2005 a lawsuit was filed by Norman K. Best, a former officer of the
Company, against SecureCARE Technologies, Inc. The lawsuit is identified as
cause number GN501073 and was filed in the 353rd Judicial District Court of
Travis County, Texas as "Norman K. Best versus SecureCARE Technologies, Inc."
The lawsuit alleges that the Company breached the terms of its agreements with
Mr. Best by failing to tender 50,000 shares of common stock of SecureCARE
Technologies, Inc. which were granted to him in January 2004. The grant date
fair value of the 50,000 shares was not material. The Company responded to this
lawsuit on May 13, 2005, by filing a general denial, denying all the allegations
raised by the Plaintiff. On July 8, 2005, the Company filed a series of
responses to the plaintiff's request for admission. The Company was initially
required to produce all documents related to the plaintiff's request for
production by August 14, 2006. On August 25, 2006, the Company settled this
lawsuit with Mr. Best. The Company agreed to tender the 50,000 shares of
SecureCARE Technologies, Inc. common stock that were previously granted to him.
The Company also agreed to a monetary payment of $10,000 to be paid in five
monthly installments of $2,000 each. Accordingly, at December 31, 2006, the
Company has recorded a liability of $2,000 for the balance of payments due on
the monetary portion of this settlement.

NOTE L - ACCRUED PAYROLL TAXES

As of December 31, 2006, the Company owes $145,701 in accrued payroll taxes as
follows:

Delinquent payroll taxes owed as of 12/31/05 -                      $123,228
Payroll taxes accrued on payroll accrued but not yet paid -         $ 14,871
Current payroll taxes accrued as of 12/31/06 -                      $  7,602
                                                                    --------
                           Total                                    $145,701
                                                                    ========

Estimated additional penalties and interest assessed on the delinquent payroll
taxes total $77,698 (included in other current liabilities) at December 31,
2006. The Company has established a five year monthly payment plan with the IRS
for the total balance of $200,926, including the delinquent payroll taxes owed
as of December 31, 2005 and the related penalties and interest charges. The
Company commenced monthly payments on this five year payment plan on March 1,
2007. The Company will be paying $5,000 per month on the plan.

The Company received a Notice of Federal Tax Lien by the Internal Revenue
Service (IRS) dated May 24, 2006. The Tax Lien was filed with the Secretary of
State in Texas. The Lien is in favor of the United States on all property and
rights to property belonging to the Company for the amount of these taxes, and
additional penalties, interest, and costs that may accrue. The Lien will remain
in place until such time that the Company pays its obligation in full to the
IRS. The Company commenced a monthly payment plan with the IRS on March 1, 2007
in which it will pay the balance of the obligation off over a period of five
years.

NOTE M - LOSS ON DEBT SETTLEMENT, NET

The Company was notified on January 20, 2006, that it was in default under its
master electronic equipment lease primarily due to its failure to pay the base
monthly rental payments after October 2005. On February 20, 2006, the Company
returned approximately $300,000 of the hardware and software to the lessor,
retaining approximately $14,000 of the original leased property. The notice of
default on the lease did not relieve, suspend or waive the Company's continued
responsibility for the monthly rental payments for the balance of the initial
lease term. As of February 20, 2006, the Company had approximately $59,000 of
its original lease deposit amount of $124,717 in tact. The Company restructured
the remaining amount owed under the lease for an additional twenty-four months.
The net amount owed included an offset credit given for the lease deposit of
$59,239. The restructured balance totaled $107,102. Accordingly, in conjunction
with the restructured lease, the Company recorded a loss on debt settlement in
the first quarter of 2006 totaling $166,341 to reflect complete consumption of
the lease deposit of $59,239 and the remaining lease liability of $107,102.

The Company made its first payment on the restructured lease in July 2006. In
August 2006, the Company was notified by the lessor that a partial credit of
$14,849 was being issued to the Company, against the restructured balance, for
the equipment returned to the lessor in February 2006. Therefore, the Company
recorded a gain on debt settlement of $14,849 in the third quarter of 2006. At
December 31, 2006, the restructured balance due totaled $77,071 (net of the
credit for returned equipment of $14,849 and payments made through the fourth
quarter totaling $15,182).

                                     F - 25
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE M - LOSS ON DEBT SETTLEMENT, NET (Continued)`

The Company was notified on February 21, 2006, that it was in default under the
lease for its principal executive office located in Austin, Texas, due to its
failure to timely pay the base monthly rental. The Company was directed to
vacate the premises no later than February 28, 2006. The Company vacated the
premises on February 28, 2006 and relocated its principal executive office to an
alternative location in Austin, Texas in approximately 300 square feet of leased
office space. The lessor has agreed to extinguish the lease and will require the
Company to pay its outstanding base monthly rental amounts owed through February
28, 2006, totaling $47,433, including applicable late fees. Because the original
lease was a three-year, sliding scale square-footage rate lease, and the
square-footage rates increased in years two and three, as of February 28, 2006
the Company had recorded $14,200 in additional rent expense to average out the
three-year total rent expense. Because the lessor agreed to extinguish the lease
as of February 28, 2006 the Company reversed its additional rent expense accrual
of $14,200, resulting in a reduction in the loss on debt settlement recognized
in the first quarter of 2006.

In addition, in the third quarter of 2006, the Company settled outstanding
payables with two of its trade vendors for less than the original amounts owed
and recorded $16,294 as gain on debt settlement.

NOTE N - LOSS ON EARLY EXTINGUISHMENT OF DEBT

On June 16, 2006, the Company's Board of Directors ratified a letter agreement
(the "Letter Agreement"), dated June 7, 2006, with a related party, Gryphon
Opportunities Fund I, LLC ("GOF"), relating to future financing and a
recapitalization of the Company. Pursuant to the Letter Agreement, GOF agreed to
convert its notes payable and accrued interest (as of September 15, 2006) to
common stock of the Company and to release its lien on the Company's assets.
Both of these actions were conditioned upon the Company receiving an aggregate
of $570,000 in equity financing. The raising of the equity financing was
effectively completed on September 15, 2006 (the "Commitment Date") in the
amount of $570,518. As of October 2, 2006, the Company had raised a total of
$576,518 in the equity financing.

As of the Commitment Date, September 15, 2006, the Company had only
approximately 30 million shares of common stock authorized remaining to be
issued. To complete the conversion of the GOF notes payable and accrued interest
of $544,490 and $56,477, respectively, offered at a conversion price of $0.01
per common share equivalent, the Company needed approximately 53 million
authorized common shares (the GOF conversion offer was triggered upon
achievement of the minimum required equity financing on September 15, 2006). As
a result, the Company authorized issuance of a new Mandatorially Convertible
Series C Preferred Stock series to GOF (264,494 shares of Series C Stock). The
Series C Stock has no conversion rights unless and until the Company has
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. In addition, the Series C Stock has no liquidation
preference, dividend rights or any other rights that are not included in the
rights of the current common stock holders. The Company filed its Certificate of
Designation for the Series C Stock with the State of Nevada on November 13, 2006
(the "acceptance date"); therefore, as of the acceptance date , the Series C
Stock shares were authorized, designated and issuable to effect the conversion
of the GOF notes payable and accrued interest. Effective November 13, 2006 the
Company issued 264,494 shares to GOF to affect the conversion of GOF's notes
payable and accrued interest of $544,490 and $56,477, respectively.

On October 19, 2006 the Company made a conversion offer to the remaining note
holders to convert the balance of $1,283,500 in notes payable and the related
accrued interest of $262,197 (as of September 15, 2006) to Series C Stock. As of
December 31, 2006, the Company received signed consents from note holders
accepting the conversion offer representing $1,020,000 in notes payable and
$208,328 in accrued interest (as of September 15, 2006). To affect these
additional conversions the Company has issued an additional 540,604 shares of
Series C Stock representing 108,120,803 common share equivalents.

                                     F - 26
<PAGE>

                          SecureCARE Technologies, Inc.

                          NOTES TO FINANCIAL STATEMENTS
                 For the Years Ended December 31, 2006 and 2005

NOTE N - LOSS ON EARLY EXTINGUISHMENT OF DEBT (Continued)

In summary, as of December 31, 2006, the Company has converted a total of
$1,564,490 in notes payable and $264,806 in related accrued interest to Series C
Stock. In this conversion, the Company issued a total of 805,099 shares of
Series C Stock representing 161,019,567 common share equivalents. As a result,
the liability is deemed extinguished. The difference between the net carrying
amount of the extinguished debt and the reacquisition price of the extinguished
debt, totaling $19,065,248 was recognized currently as a loss in the period of
extinguishment. Per the terms of the note conversion agreements with GOF and the
remaining note holders that signed conversion agreements, the notes and accrued
interest through September 15, 2006 only were exchanged for Series C Stock. The
Company filed its Certificate of Designation for the Series C Stock with the
State of Nevada on November 13, 2006. The Company issued the Series C Stock on
November 13, 2006. The Company continued to accrue interest expense on the notes
payable until the Company had the Series C Stock to issue and to effect the
conversions. However, the additional accrued interest, after September 15, 2006
was not a factor in determining the number of Series C Stock shares the note
holders received upon conversion. The note holders effectively extinguished the
additional accrued interest from September 16, 2006 to November 13, 2006 (the
Company accrued interest until December 11, 2006 for one lone note holder that
returned the consent letter on December 11, 2006) by not accepting additional
consideration (in the form of Series C Stock) from the Company. Therefore the
additional accrued interest on the converted notes reduces the loss on early
extinguishment of debt the company originally recorded in the amount of $34,600.

NOTE O - SUBSEQUENT EVENTS

On February 28, 2007, the Board of Directors of the Company commenced written
solicitation of the holders of its Common Stock and its Series C Stock, as of
February 23, 2007 (the "Record Date") to grant the Company's Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split does not change the number of
shares of common stock that the Company is authorized to issue. The Company has
agreed to accept votes on its proposal until March 30, 2007, unless the Company
agrees to extend the date.


                                     F - 27