UNITED STATES



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q/A

(Amendment No. 1)



|x                                 | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF                   
|--------------------------------- | ----------------------------------------------------------------------
|                                  | THE SECURITIES EXCHANGE ACT OF 1934                                   
|                                  | for the quarterly period ended June 30, 2012                          
|OR                               
|                                  |                                                                       
| ̈                                 | TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
|                                  | ACT OF 1934 for the Transition Period from to                         
|                                  |                                                                       
|Commission file number: 001-16781



|CAREPAYMENT TECHNOLOGIES, INC.                        
|------------------------------------------------------
|(Exact Name of Registrant as Specified in its Charter)



|Oregon                          |  | 91-1758621                          
|------------------------------- |  | ------------------------------------
|(State or Other Jurisdiction of |  | (I.R.S. Employer Identification No.)
|Incorporation or Organization)  |  |                                     



|5300 Meadows Rd, Suite 400, Lake Oswego, Oregon |  | 97035     
|----------------------------------------------- |  | ----------
|(Address of Principal Executive                 |  | (Zip Code)
|Offices)                                        |  |           



(Registrant’s Telephone Number, Including Area Code):
503-419-3505



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

Yes x No  ̈



Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).

Yes  ̈ No x



Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.



|Large accelerated filer  ̈ |  | Accelerated filer  ̈         | 
|------------------------- |  | --------------------------- | 
|Non-accelerated filer  ̈   |  | Smaller reporting company x | 



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

Yes  ̈ No x



As of July 31, 2012 the following shares of the issuer’s
Capital Stock were outstanding:



|Class A Common Stock                 | 4,664,038
|------------------------------------ | ---------
|Class B Common Stock                 | 8,010,092
|Series D Convertible Preferred Stock | 1,200,000
|Series E Convertible Preferred Stock | 93,419   









Explanatory Note



CarePayment Technologies, Inc.
is filing this Amendment No. 1 on Form 10-Q/A (this "Amendment No. 1") for the sole purpose of including currently dated
signatures on the Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, as filed with the Securities
and Exchange Commission on August 13, 2012 (the "Original Report"), and the certifications included as exhibits to the
Original Report (the "Certifications"), which dates were omitted from the Original Report and the Certifications in
error.  For convenience, this Amendment No. 1 sets forth the Original Report in its entirety. Other than the changes referenced
above, no other changes have been made to the Original Report.















CAREPAYMENT TECHNOLOGIES, INC

Quarterly Report on Form 10-Q

Quarter Ended June 30, 2012



TABLE OF CONTENTS



|                                                                                                          | Page
|--------------------------------------------------------------------------------------------------------- | ----
|                                                                                                          |     
|PART I.   Financial Information                                                                           | 1   
|                                                                                                          |     
|ITEM 1.   Condensed Consolidated Financial Statements (Unaudited)                                         |     
|Condensed Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011                           | 2   
|Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2012 and 2011 | 3   
|Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011           | 4   
|Notes to Condensed Consolidated Financial Statements                                                      | 5   
|                                                                                                          |     
|ITEM 2.   Management’s Discussion And Analysis Of Financial Condition And Results Of Operations           | 16  
|                                                                                                          |     
|ITEM 3.   Quantitative and Qualitative Disclosures about Market Risk                                      | 21  
|                                                                                                          |     
|ITEM 4.   Controls And Procedures                                                                         | 21  
|                                                                                                          |     
|PART II.   Other Information                                                                              | 22  
|                                                                                                          |     
|ITEM 1.   Legal Proceedings                                                                               | 22  
|                                                                                                          |     
|ITEM 6.   Exhibits                                                                                        | 22  
|                                                                                                          |     
|SIGNATURES                                                                                                | 22  



1







PART I — FINANCIAL INFORMATION



ITEM
1. FINANCIAL STATEMENTS — UNAUDITED



CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

June 30, 2012 and December 31, 2011

(UNAUDITED)



|                                                                                                                                                                                                                                                                                                                       |  | 2012 |             |   | 2011 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | -
|Assets                                                                                                                                                                                                                                                                                                                 |  |      |             |   |      |  
|Current Assets:                                                                                                                                                                                                                                                                                                        |  |      |             |   |      |  
|Cash and cash equivalents                                                                                                                                                                                                                                                                                              |  | $    | 135,575     |   |      | $
|Related party receivables                                                                                                                                                                                                                                                                                              |  |      | 190,086     |   |      |  
|Accounts receivable and prepaid expenses                                                                                                                                                                                                                                                                               |  |      | 191,732     |   |      |  
|Total current assets                                                                                                                                                                                                                                                                                                   |  |      | 517,393     |   |      |  
|                                                                                                                                                                                                                                                                                                                       |  |      |             |   |      |  
|Property and equipment, net                                                                                                                                                                                                                                                                                            |  |      | 937,643     |   |      |  
|Intangible assets, net                                                                                                                                                                                                                                                                                                 |  |      | 8,607,694   |   |      |  
|Deposits                                                                                                                                                                                                                                                                                                               |  |      | 36,100      |   |      |  
|Goodwill                                                                                                                                                                                                                                                                                                               |  |      | 13,335      |   |      |  
|                                                                                                                                                                                                                                                                                                                       |  |      |             |   |      |  
|Total assets                                                                                                                                                                                                                                                                                                           |  | $    | 10,112,165  |   |      | $
|Liabilities and Shareholders' Equity                                                                                                                                                                                                                                                                                   |  |      |             |   |      |  
|Current Liabilities:                                                                                                                                                                                                                                                                                                   |  |      |             |   |      |  
|Accounts payable                                                                                                                                                                                                                                                                                                       |  | $    | 1,217,133   |   |      | $
|Related party liabilities                                                                                                                                                                                                                                                                                              |  |      | 25,424      |   |      |  
|Accrued liabilities                                                                                                                                                                                                                                                                                                    |  |      | 255,351     |   |      |  
|Deferred revenue                                                                                                                                                                                                                                                                                                       |  |      | 35,000      |   |      |  
|Deferred rent                                                                                                                                                                                                                                                                                                          |  |      | 13,780      |   |      |  
|Note payable                                                                                                                                                                                                                                                                                                           |  |      | -           |   |      |  
|Total current liabilities                                                                                                                                                                                                                                                                                              |  |      | 1,546,688   |   |      |  
|Deferred rent, net of current portion                                                                                                                                                                                                                                                                                  |  |      | 55,231      |   |      |  
|Note payable                                                                                                                                                                                                                                                                                                           |  |      | 3,731,000   |   |      |  
|Mandatorily redeemable preferred stock, Series D, no par value: 1,200,000 shares authorized, issued and outstanding at June 30, 2012 and December 31, 2011, net of discount of $9,975,436 and $10,560,144 at June 30, 2012 and December 31, 2011, respectively, liquidation preference of $12,000,000 at June 30, 2012 |  |      | 2,024,564   |   |      |  
|Total liabilities                                                                                                                                                                                                                                                                                                      |  |      | 7,357,483   |   |      |  
|                                                                                                                                                                                                                                                                                                                       |  |      |             |   |      |  
|Shareholders' Equity:                                                                                                                                                                                                                                                                                                  |  |      |             |   |      |  
|CarePayment Technologies, Inc. shareholders’ equity:                                                                                                                                                                                                                                                                   |  |      |             |   |      |  
|Preferred stock, Series E, no par value:  250,000 shares authorized, 93,419 and 97,500 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively                                                                                                                                              |  |      | 130,786     |   |      |  
|Common stock, no par value: Class A, 65,000,000 shares authorized, 4,664,038 and 2,628,518 issued and outstanding at June 30, 2012 and December 31, 2011, respectively; Class B, 10,000,000 shares authorized, 8,010,092 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively            |  |      | 21,608,930  |   |      |  
|Additional paid-in-capital                                                                                                                                                                                                                                                                                             |  |      | 21,839,333  |   |      |  
|Accumulated deficit                                                                                                                                                                                                                                                                                                    |  |      | (40,775,629 | ) |      |  
|Total CarePayment Technologies, Inc. shareholders' equity                                                                                                                                                                                                                                                              |  |      | 2,803,420   |   |      |  
|Noncontrolling interest                                                                                                                                                                                                                                                                                                |  |      | (48,738     | ) |      |  
|Total shareholders’ equity                                                                                                                                                                                                                                                                                             |  |      | 2,754,682   |   |      |  
|                                                                                                                                                                                                                                                                                                                       |  |      |             |   |      |  
|Total liabilities and shareholders’ equity                                                                                                                                                                                                                                                                             |  | $    | 10,112,165  |   |      | $



The accompanying notes are an integral
part of these Condensed Consolidated Financial Statements.



2







CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(UNAUDITED)



|                                                        |  | Three Months Ended
June 30 |            |   | Six Months Ended
June 30 |  
|------------------------------------------------------- |  | -------------------------- | ---------- | - | ------------------------ | -
|                                                        |  | 2012                       |            |   | 2011                     |  
|                                                        |  |                            |            |   |                          |  
|Service fees revenue                                    |  | $                          | 1,336,513  |   |                          | $
|Royalty and implementation fees                         |  |                            | 40,000     |   |                          |  
|Total revenue                                           |  |                            | 1,376,513  |   |                          |  
|Cost of revenue                                         |  |                            | 1,270,339  |   |                          |  
|Gross margin                                            |  |                            | 106,174    |   |                          |  
|                                                        |  |                            |            |   |                          |  
|Operating expenses:                                     |  |                            |            |   |                          |  
|Sales, general and administrative                       |  |                            | 1,265,952  |   |                          |  
|                                                        |  |                            |            |   |                          |  
|Loss from operations                                    |  |                            | (1,159,778 | ) |                          |  
|                                                        |  |                            |            |   |                          |  
|Other income (expense):                                 |  |                            |            |   |                          |  
|Other income                                            |  |                            | 2,136      |   |                          |  
|Interest expense:                                       |  |                            |            |   |                          |  
|Interest expense                                        |  |                            | (124,131   | ) |                          |  
|Accretion of preferred stock discount                   |  |                            | (401,433   | ) |                          |  
|Total interest expense                                  |  |                            | (525,564   | ) |                          |  
|Other expense, net                                      |  |                            | (523,428   | ) |                          |  
|                                                        |  |                            |            |   |                          |  
|Net loss before income tax                              |  |                            | (1,683,206 | ) |                          |  
|Income tax expense                                      |  |                            | 6,589      |   |                          |  
|Net loss                                                |  |                            | (1,689,795 | ) |                          |  
|Less: Net loss attributable to noncontrolling interest  |  |                            | 10,452     |   |                          |  
|Net loss attributable to CarePayment Technologies, Inc. |  | $                          | (1,679,343 | ) |                          | $
|                                                        |  |                            |            |   |                          |  
|Net loss per share:                                     |  |                            |            |   |                          |  
|Basic and diluted                                       |  | $                          | (0.14      | ) |                          | $
|Weighted average number of shares outstanding:          |  |                            |            |   |                          |  
|Basic and diluted                                       |  |                            | 12,011,799 |   |                          |  



The accompanying notes are an integral
part of these Condensed Consolidated Financial Statements.



3







CAREPAYMENT TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS

(UNAUDITED)



|                                                                                       |  | Six Months Ended June 30 |           
|-------------------------------------------------------------------------------------- |  | ------------------------ | ----------
|                                                                                       |  | 2012                     |           
|Cash Flows From Operating Activities:                                                  |  |                          |           
|Net loss                                                                               |  | $                        | (2,833,056
|Adjustments to reconcile net loss to net cash used in operating activities:            |  |                          |           
|Depreciation and amortization                                                          |  |                          | 505,558   
|Accretion of preferred stock discount                                                  |  |                          | 584,708   
|Stock-based compensation                                                               |  |                          | 2,101     
|Change in assets and liabilities:                                                      |  |                          |           
|Decrease (increase) in assets:                                                         |  |                          |           
|Accounts receivable and prepaid expenses                                               |  |                          | (91,867   
|Related party receivables                                                              |  |                          | 90,177    
|Deposits                                                                               |  |                          | –         
|Increase (decrease) in liabilities:                                                    |  |                          |           
|Accounts payable                                                                       |  |                          | 150,918   
|Accrued interest                                                                       |  |                          | –         
|Deferred revenue                                                                       |  |                          | (40,000   
|Deferred rent                                                                          |  |                          | (6,890    
|Accrued liabilities                                                                    |  |                          | (218,040  
|Related party liabilities                                                              |  |                          | (22,157   
|Net cash used in operating activities                                                  |  |                          | (1,878,548
|Cash Flows From Investing Activities:                                                  |  |                          |           
|Purchases of property and equipment                                                    |  |                          | (288,725  
|Investment in loans receivable                                                         |  |                          | (27,344   
|Proceeds from sale of loans receivable                                                 |  |                          | 27,344    
|Net cash used in investing activities                                                  |  |                          | (288,725  
|Cash Flows From Financing Activities:                                                  |  |                          |           
|Net proceeds from note payable                                                         |  |                          | 2,100,000 
|Proceeds from sale of Common Stock                                                     |  |                          | –         
|Net cash provided by financing activities                                              |  |                          | 2,100,000 
|Change in cash and cash equivalents                                                    |  |                          | (67,273   
|Cash and cash equivalents, beginning of period                                         |  |                          | 202,848   
|Cash and cash equivalents, end of period                                               |  | $                        | 135,575   
|                                                                                       |  |                          |           
|Supplemental Disclosure of Cash Flow Information:                                      |  |                          |           
|Cash paid for interest                                                                 |  | $                        | 245,927   
|Cash paid for income taxes                                                             |  | $                        | 9,670     
|Supplemental Disclosure of Non-Cash Financing Activities:                              |  |                          |           
|Conversion of Series E Convertible Preferred Stock into shares of Class A Common Stock |  | $                        | 40,810    
|Conversion of note payable in shares of Class A Common Stock                           |  | $                        | 2,000,000 





The
accompanying notes are an integral part of these Condensed Consolidated Financial Statements.



4









CAREPAYMENT TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)



1.  Business Activity



Overview

CarePayment Technologies, Inc. ("we," "us,"
"our," "CarePayment" or the "Company”) was incorporated as an Oregon corporation in 1991. Unless
otherwise indicated, all references to the Company in this Quarterly Report on Form 10-Q (this "Report") include our
99% owned subsidiary, CP Technologies LLC ("CP Technologies"), which was organized as an Oregon limited liability company
in 2009. The remaining 1% of CP Technologies is owned by Aequitas Capital Management, Inc. ("Aequitas") and CarePayment,
LLC, each of which are affiliates of ours.



Effective at the end of December 2009, we acquired certain assets
and rights that enabled us to begin building a business that originates and services healthcare accounts receivable for other parties,
including the development of innovative patient plans for more effective recovery of healthcare receivables. The assets and rights
we acquired had been previously developed by Aequitas and its affiliate, CarePayment, LLC, under the CarePayment® brand for
servicing accounts receivable generated by healthcare providers in connection with providing healthcare services to their patients.
The assets and rights we acquired included the exclusive right to originate, administer, service and collect patient accounts receivable
and to market our services under the CarePayment® brand generated by healthcare providers and purchased by CarePayment, LLC
or its affiliates, and a proprietary software product that is used to manage the servicing. Typically, CarePayment, LLC or one
of its affiliates purchases patient accounts receivables from hospitals and then we originate, administer, service and collect
them on behalf of CarePayment, LLC, or one of its affiliates, for a fee. Although we intend to grow our business to include servicing
accounts receivable on behalf of other parties, CarePayment, LLC is currently our only customer.



To facilitate building the business, on December 30, 2009 we,
Aequitas and CarePayment, LLC formed CP Technologies. We contributed shares of our newly authorized Series D Convertible Preferred
Stock ("Series D Preferred Stock") and warrants to purchase shares of our Class B Common Stock to CP Technologies. Aequitas
and CarePayment, LLC contributed to CP Technologies the CarePayment® assets and rights described in the foregoing paragraph.
CP Technologies then distributed the shares of Series D Preferred Stock to Aequitas and CarePayment, LLC, and the warrants to purchase
shares of our Class B Common Stock to CarePayment, LLC, to redeem all but half of one membership unit held by each of them. Following
these transactions, we own 99% of CP Technologies, and Aequitas and CarePayment, LLC each own 0.5% of CP Technologies.



The Healthcare Receivables Servicing Industry and Our
Business



On January 1, 2010, and as a result of the transactions described
above, CP Technologies began building a business to service healthcare patient receivables for an affiliate of the Company, CarePayment,
LLC.



Generally, the majority of an account receivable that a healthcare
provider (for example, a hospital) generates in connection with providing healthcare services is paid by private medical insurance,
Medicare or Medicaid. The balance of an account receivable that is not paid by those sources is due directly from the patient.
Often, healthcare providers do not prioritize collecting that balance as a result of the effort and expense required to collect
directly from a patient.



Our affiliate, CarePayment, LLC, offers healthcare providers
a receivables servicing alternative. CarePayment, LLC, either alone or through an affiliate, purchases from healthcare providers
the balance of their accounts receivable that are due directly from patients. A patient whose healthcare receivable is acquired
by CarePayment, LLC is offered the opportunity to participate in the CarePayment® program, which includes a line of credit
for payment of future healthcare expenses. If the patient accepts the terms of the program, the patient becomes a CarePayment®
customer. The patient's CarePayment® account has an initial outstanding balance equal to the receivable amount purchased by
CarePayment, LLC or one of its affiliates from the healthcare provider. Balances due on the CarePayment® account are generally
payable over 25 months or more with no interest (0% APR).



5







On December 31, 2009, CP Technologies entered into a Servicing
Agreement (the "Servicing Agreement") with CarePayment, LLC under which CP Technologies has the exclusive right to originate,
collect, administer and service all accounts receivable purchased or controlled by CarePayment, LLC or its affiliates. CarePayment,
LLC also appointed CP Technologies as a non-exclusive originator of receivables purchased or controlled by CarePayment, LLC, including
the right to deal with healthcare providers on behalf of CarePayment, LLC with respect to originating, collecting, administering
and servicing receivables purchased or controlled by CarePayment, LLC or its affiliates. While CP Technologies services the receivables,
CarePayment, LLC or its affiliates retain ownership of the receivables. In addition to servicing receivables on behalf of CarePayment,
LLC, CP Technologies recommends a course of action when it determines that collection efforts for existing receivables are no longer
effective and it may also analyze potential receivables acquisitions for CarePayment, LLC.



In exchange for its services, CarePayment, LLC pays CP Technologies
certain fees, including (i) an origination fee at the time CarePayment, LLC purchases and delivers receivables to CP Technologies
for servicing based upon the balance of the receivables to be serviced, (ii) a monthly servicing fee based upon the principal amount
of purchased receivables that CP Technologies is servicing, and (iii) a quarterly servicing fee based upon a percentage of CarePayment,
LLC's quarterly net income from operating activities, as adjusted for certain items.



On July 30, 2010, the Company entered into an Agreement and
Plan of Merger with Vitality Financial, Inc. (“Vitality”) pursuant to which Vitality became a wholly owned subsidiary
of the Company. Under the terms of the Merger Agreement, the stockholders of Vitality received, collectively, 97,500 shares of
Series E Convertible Preferred Stock of the Company in consideration for all the outstanding stock of Vitality. Vitality provides
payment and receivables management to a limited number of medical providers and patients.



Liquidity



Substantially all of the Company’s revenue and cash receipts
are generated from the Servicing Agreement with CarePayment, LLC. Origination and servicing revenues are generated based upon the
volume of receivables that CarePayment, LLC or its affiliates purchase and service.



During 2010 and 2011, the Company added headcount, trained staff
and hired a software development firm to develop additional systems to manage the servicing operation in preparation for projected
receivables volume increases.



On March 31, 2011, Aequitas Holdings, LLC (“Holdings”)
purchased an additional 1.5 million shares of the Company’s Class B Common Stock for $1.00 per share. Holdings, an affiliate
of Aequitas, now owns 7,910,092 shares of Class B Common Stock, which equates to approximately 92% of the voting shares of the
Company as of the date of this Report.



On September 29, 2011, the Company entered into a $3 million
Business Loan Agreement and Promissory Note (“Business Loan”) with Aequitas Commercial Finance, LLC (“ACF”),
an affiliate of Aequitas. On December 29, 2011, the Business Loan was amended to increase the aggregate principal amount that the
Company may borrow under the Business Loan from $3,000,000 to $4,500,000. On March 5, 2012, the Business Loan was further amended
to increase the aggregate principal amount the Company may borrow from $4,500,000 to $8,000,000, and to increase the interest rate
on the outstanding principal balance owing under the Business Loan from 11% to 12.5% per annum. On April 12, 2012, the Company
and ACF further amended the Business Loan to convert, effective April 30, 2012, $2,000,000 of the aggregate principal amount owing
under the Business Loan into shares of the Company's Class A Common Stock at a price of $1.00 per share, to decrease the aggregate
principal amount the Company may borrow under the Business Loan from $8,000,000 to $6,000,000 and to extend the maturity date of
the Business Loan from December 31, 2012 to December 31, 2013.



Should the Business Loan be insufficient to meet the Company’s
liquidity needs over the next year or until such time as the Company has positive cash flow, Holdings has advised the Company that
it is prepared to provide additional liquidity, either in the form of an additional equity infusion or an additional line of credit.
At June 30, 2012, the Company had taken net advances on the Business Loan of $3,731,000.







6







2.  Summary of Significant Accounting Policies



Basis of Presentation:

The Condensed Consolidated Financial Statements included herein
have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. The Company’s
management believes that the disclosures are adequate to make the information presented not misleading. These condensed financial
statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2011.



The interim period information included in this Quarterly Report
on Form 10-Q reflects all adjustments, consisting of normal recurring adjustments, that are, in the opinion of the Company’s
management, necessary for a fair statement of the results of the respective interim periods. Results of operations for interim
periods are not necessarily indicative of results to be expected for an entire year.



Principles of consolidation:

The Condensed Consolidated Financial Statements (Unaudited)
include the accounts of the Company, its wholly owned subsidiaries, Moore and Vitality, and its 99% owned subsidiary, CP Technologies.
All intercompany transactions have been eliminated.



Estimates and assumptions:

The preparation of the Condensed Consolidated Financial Statements
(Unaudited) in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the Condensed Consolidated Financial Statements (Unaudited) and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.



Concentration of credit risk:

Revenue from one source—
The Company currently generates substantially all its revenue through one servicing agreement with a related party.



Cash and investments—
The Company maintains its cash in bank accounts; at times, the balances in these accounts may exceed
federally insured limits. The Company has not experienced any losses in such accounts and has taken measures to limit exposure
to any significant risk.



Cash and cash equivalents:

Cash and cash equivalents are stated at cost, which approximates
fair value, and include investments with maturities of three months or less at the date of acquisition. Cash and cash equivalents
consist of bank deposits.



Related party receivables:

Related party receivables arise due to revenue earned in conjunction
with the Servicing Agreement with CarePayment, LLC. The Company makes ongoing estimates of the collectability of these receivables.
At June 30, 2012 and December 31, 2011, there was no allowance for doubtful accounts.



Property and equipment:

Property and equipment is comprised of servicing
software and computer equipment, which are stated at original estimated fair value, and office equipment and leasehold
improvements, which are stated at cost, net of accumulated amortization and depreciation. Additionally, the Company has
construction in progress for capitalizable software. Internal and external costs incurred to develop internal use computer
software during the application development stage are capitalized in accordance with ASC 350. Depreciation and amortization
expense is computed using the straight-line method over the estimated useful lives of the assets beginning at the time the
asset is placed in service. The estimated useful life of the software and the software licenses is three years, the estimated
useful life of the office furniture is five years and the estimated useful life of used computer equipment is two years.
Leasehold improvements are amortized over the life of the lease, which is five years. The Company evaluates long-lived assets
for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not
be recoverable.





7









Intangible assets:



Servicing rights:

Servicing rights represent the fair value of the identifiable
intangible asset associated with the acquisition of certain business assets on December 31, 2009. The cost associated with this
asset is being amortized on a straight line basis over an estimated useful life of 25 years based on the term of the Servicing
Agreement which expires in 2034.



Other intangible assets:

Intangible assets acquired as part of the Vitality acquisition
include a proprietary credit scoring algorithm and customer lists that are being amortized over the estimated useful lives of 1.5
to 5 years. Additionally, Vitality’s lender’s licenses are considered to have an indefinite life and are not subject
to amortization. See Note 4.



Goodwill:

Goodwill is recorded at historical cost and is tested for impairment
annually or more frequently if events or changes in circumstances indicate that goodwill might be impaired. We did not recognize
impairment losses on goodwill for the quarter ended June 30, 2012.



Revenue recognition:



Receivables servicing:

The Company recognizes revenue in conjunction with the Servicing
Agreement between CP Technologies and CarePayment, LLC. CP Technologies receives a monthly servicing fee equal to 0.4167% of the
receivables balances that have been purchased by CarePayment, LLC, and an origination fee equal to 6% of the original balance of
newly generated receivables that are purchased by CarePayment, LLC. The Servicing Agreement also provides that the Company is to
be paid 25% of the quarterly net income of CarePayment, LLC from operating activities, as adjusted for certain items (the “back-end
servicing fee”). The Company recognizes revenue related to the Servicing Agreement at the time the services are rendered.
The servicing fee is recognized as revenue monthly at 0.4167 percent of funded receivables CP Technologies is servicing for the
month; the origination fee is recognized as revenue at the time CarePayment, LLC funds its purchased receivables and CP Technologies
assumes responsibility for servicing these receivables; and the back-end servicing fee is recognized as revenue in the quarter
that CarePayment, LLC records its net income. The collectability of the revenue recognized from these related party transactions
is considered reasonably assured.



Installation services:

In addition, the Company earns revenue from implementation
fees paid by healthcare providers. These fees are charged to cover consulting services and materials provided to healthcare
providers during the implementation period.
The Company recognizes the revenue on completion of the implementation.



Royalty fees:

Royalty revenue is recognized as earned in accordance with the
Royalty Agreement. See Note 12.



Cost of revenue:

Cost of revenue is comprised primarily of costs for servicing
contractors, costs associated with outsourcing billing, collections and payment processing services and the amortization of servicing
rights and servicing software.



Advertising expense:

Advertising costs are expensed in the period incurred and are
included in selling, general and administrative expenses. Total advertising expense was $2,010 and $13,813 for the six months ended
June 30, 2012 and 2011, respectively.



8







Income taxes:

The Company accounts for income taxes under an asset and liability
approach that requires the recognition of deferred tax assets and liabilities that are determined based on the differences between
the financial statement basis and tax basis of assets and liabilities using enacted tax rates. A valuation allowance is recorded
to reduce a deferred tax asset to that portion of the deferred tax asset that is expected to more likely than not be realized.



The Company reports a liability, if any, for unrecognized tax
benefits resulting from uncertain income tax positions taken or expected to be taken in an income tax return. Estimated interest
and penalties, if any, are recorded as a component of interest expense and other expense, respectively.



Stock-based compensation:

Stock-based compensation cost is estimated at the grant date
based on the award’s fair value and is recognized as expense over the requisite service period using the straight-line attribution
method. Stock-based compensation for stock options granted is estimated using the Black-Scholes option pricing model.



Warrants to purchase the Company’s stock:

The fair value of warrants to purchase the Company’s stock
issued for services or in exchange for assets is estimated at the issue date using the Black-Scholes model.



Earnings (loss) per common share:

Basic earnings (loss) per common share (“EPS”) is
calculated by dividing net income (loss) attributable to the Company by the weighted average number of shares of common stock outstanding
during the period. Fully diluted EPS assumes the conversion of all potentially dilutive securities and is calculated by dividing
net income by the sum of the weighted average number of shares of common stock outstanding plus potentially dilutive securities
determined using the treasury stock method. Dilutive loss per share does not consider the impact of potentially dilutive securities
in periods in which there is a loss because the inclusion of the potentially dilutive securities would have an anti-dilutive effect.



Comprehensive income (loss):

The Company has no components of Other Comprehensive Income
(Loss) and, accordingly, no statement of Comprehensive Income (Loss) is included in the accompanying Condensed Consolidated Financial
Statements.



Operating segments and reporting units:

The Company operates as a single business segment and reporting
unit.



Recently adopted accounting standards:

The Company reviews recently adopted and proposed accounting
standards on a continual basis. For the quarter ended June 30, 2012, no new pronouncements had a significant impact on the Company’s
financial statements.



3. Property and Equipment



A summary of the Company's property and equipment as of June
30, 2012 and December 31, 2011 is as follows:



|                                          |  |   | 2012      |   |  |   | 2011      |  
|----------------------------------------- |  | - | --------- | - |  | - | --------- | -
|Servicing software                        |  | $ | 1,329,463 |   |  | $ | 507,200   |  
|Office furniture and equipment            |  |   | 46,967    |   |  |   | 46,967    |  
|Leasehold improvements                    |  |   | 195,548   |   |  |   | 195,548   |  
|Assets not yet in service – software      |  |   | 49,830    |   |  |   | 583,368   |  
|Total fixed assets                        |  |   | 1,621,808 |   |  |   | 1,333,083 |  
|Accumulated depreciation and amortization |  |   | (684,165  | ) |  |   | (383,173  | )
|Property and equipment, net               |  | $ | 937,643   |   |  | $ | 949,910   |  



9







Depreciation and amortization expense for property and equipment
was $246,621 and $57,939 for the three months ended June 30, 2012 and 2011, respectively, and $300,992 and $104,579 for the six
months ended June 30, 2012 and 2011, respectively.



4. Intangible Assets



A summary of the Company's intangible assets as of June 30,
2012 and December 31, 2011 is as follows:



|                                                                |  | 2012 |            |   | 2011 |  
|--------------------------------------------------------------- |  | ---- | ---------- | - | ---- | -
|Intangible assets subject to amortization:                      |  |      |            |   |      |  
|Servicing rights (amortized over 25 years)                      |  | $    | 9,550,000  |   |      | $
|Customer lists (amortized over 1.5 years)                       |  |      | 34,700     |   |      |  
|IP Scoring Algorithm (amortized over 5 years)                   |  |      | 20,000     |   |      |  
|Gross carrying value                                            |  |      | 9,604,700  |   |      |  
|Accumulated amortization                                        |  |      | (1,007,006 | ) |      |  
|Net carrying value of intangible assets subject to amortization |  |      | 8,597,694  |   |      |  
|Intangible assets not subject to amortization:                  |  |      |            |   |      |  
|Lender’s licenses                                               |  |      | 10,000     |   |      |  
|Net carrying value of intangible assets                         |  | $    | 8,607,694  |   |      | $



Amortization expense was $102,283 and $102,888 for the three
months ended June 30, 2012 and 2011, respectively, and $204,566 and $205,775 for the six months ended June 30, 2012 and 2011, respectively.



5. Note Payable



On September 29, 2011, the Company entered into the Business
Loan with ACF, the outstanding loan balance of which originally accrued interest at the rate of 11% per annum, payable monthly,
and had a scheduled maturity date of December 31, 2012. The Business Loan is collateralized by substantially all of the Company’s
assets. On December 29, 2011, the Company and ACF entered into Amendment No. 1 to the Business Loan pursuant to which the aggregate
principal amount that the Company could borrow under the Business Loan was increased from $3,000,000 to $4,500,000. On March 5,
2012, the Company and ACF entered into Amendment No. 2 to the Business Loan pursuant to which the aggregate principal amount that
the Company could borrow under the Business Loan was increased from $4,500,000 to $8,000,000, and the interest rate on the outstanding
principal balance owing under the Business Loan was increased from 11% per annum to 12.5% per annum beginning on the effective
date of Amendment No. 2. On April 12, 2012, the Company and ACF entered into Amendment No. 3 to the Business Loan pursuant to which
$2,000,000 of the aggregate principal balance owing under the Business Loan converted, effective April 30, 2012, into shares of
the Company's Class A Common Stock at a price of $1.00 per share, the aggregate principal amount the Company may borrow under the
Business Loan was decreased from $8,000,000 to $6,000,000, and the maturity date of the Business Loan was extended from December
31, 2012 to December 31, 2013.



As of June 30, 2012, the Company had received net advances on
the line of credit of $3,731,000. Interest expense of $245,927 and $22,920 was paid during the six months ended June 30, 2012 and
2011, respectively.



6. Mandatorily Redeemable ConvertiblePreferred Stock



Holders of Series D Preferred Stock are entitled to receive
a preferred dividend of $0.50 per share per annum, when, as and if declared by our Board of Directors. Series D Preferred Stock
holders are also entitled to a liquidation preference of $10 per share, plus cumulative unpaid dividends. The Company may redeem
all outstanding Series D Preferred Stock at any time upon 30 days prior written notice, and the Company is required to redeem all
outstanding Series D Preferred Stock in January 2013 at a purchase price equal to the liquidation preference in effect on January
1, 2013. If the Company is unable to redeem the Series D Preferred Stock with cash or other immediately available funds for any
reason, the holders of Series D Preferred Stock will have the right to exchange all shares of Series D Preferred Stock for an aggregate
99% ownership interest in CP Technologies.



10







The difference between the fair value of Series D Preferred
Stock at issuance and the redemption value of $12,000,000 will be accreted to interest expense over the period to redemption in
January 2013 using the level yield method. The carrying value at June 30, 2012 is $2,024,564.



7. Shareholders’ Equity



Preferred Stock:



Each share of Series D Preferred Stock is convertible into such
number of fully paid and nonassessable shares of Class A Common Stock of the Company as is determined by dividing the amount of
$10.00 per share (as adjusted for stock splits, stock dividends, reclassification and the like) by the Conversion Price (defined
in the following sentence) applicable to such share in effect on the date the certificate is surrendered for conversion. The Conversion
Price per share of Series D Preferred Stock is 80% of the volume weighted average price per share of Class A Common Stock, but
in no event less than $1.00 per share. Through June 30, 2012, no shares of Series D Preferred Stock have been converted into shares
of Class A Common Stock.



Each share of Series E Convertible Preferred Stock (“Series
E Preferred Stock”) is convertible into such number of fully paid and nonassessable shares of Class A Common Stock of the
Company as is determined by dividing the amount of $10.00 per share (as adjusted for stock splits, stock dividends, reclassification
and the like) by the Conversion Price (defined in the following sentence) applicable to such share in effect on the date the certificate
is surrendered for conversion. The Conversion Price per share of Series E Preferred Stock is 80% of the volume weighted average
price per share of Class A Common Stock, but in no event less than $1.00 per share. Shares of Series E Preferred Stock became convertible,
at the option of the holder thereof, into shares of Class A Common stock in January 2012 and are mandatorily convertible into shares
of Class A Common Stock 36 months after issuance. Through June 30, 2012, 4,081 shares of Series E Preferred Stock have been converted
into 35,520 shares of Class A Common Stock.



Stock Warrants:

As of June 30, 2012, the Company had warrants outstanding
for 3,676 shares of Class A Common Stock, which are exercisable as follows:



|Warrants |  | Exercise Price Per Share |       |  | Expiration Date | 
|-------- |  | ------------------------ | ----- |  | --------------- | 
|3,189    |  | $                        | 37.50 |  |                 | 
|487      |  | $                        | 72.00 |  |                 | 



Common Stock:

The Company’s Second Amended and Restated Articles of
Incorporation, as amended (the "Articles"), provide for two classes of common stock, Class A Common Stock and Class B
Common Stock. The Articles authorize 75 million shares of common stock, of which 65 million shares are designated as Class A Common
Stock and 10 million shares are designated as Class B Common Stock. Holders of Class A Common Stock are entitled to one vote per
share, and holders of Class B Common Stock are entitled to ten votes per share, on any matter submitted to the shareholders.



On March 31, 2011, the Company entered into a Subscription Agreement
with Holdings pursuant to which Holdings purchased 1,500,000 shares of the Company's Class B Common Stock at $1.00 per share for
aggregate consideration of $1,500,000.



On April 30, 2012, $2,000,000 of the aggregate principal amount
owing under the Business Loan was converted into shares of the Company's Class A Common Stock at a price of $1.00 per share resulting
in the issuance of 2,000,000 shares of Class A Common Stock.



11







8. Earnings (Loss) per Common Share



The shares used in the computation of the Company’s basic
and diluted loss per common share are reconciled as follows:



|                                                       |  | Three Months Ended |            |  | Six Months Ended | 
|------------------------------------------------------ |  | ------------------ | ---------- |  | ---------------- | 
|                                                       |  | June 30            |            |  | June 30          | 
|                                                       |  | 2012               |            |  | 2011             | 
|Weighted average basic common shares outstanding       |  |                    | 12,011,799 |  |                  | 
|Dilutive effect of convertiblepreferred stock(a)       |  |                    | —          |  |                  | 
|Dilutive effect of warrants (a)                        |  |                    | —          |  |                  | 
|Dilutive effect of employee stock options (a)          |  |                    | —          |  |                  | 
|Weighted average diluted common shares outstanding (a) |  |                    | 12,011,799 |  |                  | 










| | (a) | Common stock equivalents outstanding for the six months ended June 30, 2012 and 2011 excluded in the computation of diluted
EPS because their effect would be anti-dilutive as a result of applying the treasury stock method are: warrants to purchase 3,676
and 4,417 shares of Class A Common Stock, respectively; 1,200,000 shares of Series D Preferred Stock convertible into shares of
Class A Common Stock; and 93,419 and 97,500 shares of Series E Preferred Stock convertible into shares of Class A Common Stock,
respectively, based on the conversion calculation described in Note 7, and stock options to purchase 754,139 shares of Class A
Common Stock.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9. Employee Benefit Plans



Stock Incentive Plan

In February 2010, the Company adopted the 2010 Stock Option
Plan (the “Plan”) pursuant to which the Company may grant restricted stock and stock options for the benefit of selected
employees and directors. The Plan was amended in September 2010 to increase the number of shares of Class A Common Stock that may
be issued under the Plan to 1,000,000 shares. Grants are issued at prices equal to the estimated fair market value of the stock
as defined in the plan on the date of the grant, vest over various terms (generally three years), and expire ten years from the
date of the grant. The Plan allows vesting based upon performance criteria; all current grants outstanding are time-based vesting
instruments. Certain option and share awards provide for accelerated vesting if there is a change in control of the Company (as
defined in the Plan). The fair value of stock-based options granted is calculated using the Black-Scholes option pricing model.
A total of 186,961 shares of Class A Common Stock remains reserved for issuance under the Plan as of June 30, 2012.



The Company’s policy is to issue new shares of stock on
exercise of stock options.



A summary of option activity under the Plan during the six months
ended June 30, 2012 is presented below:

|                                         |  | Number of Shares |         |  | Weighted Average Exercise Price |   |      | Weighted Average Remaining Contractual
Life (years) | 
|---------------------------------------- |  | ---------------- | ------- |  | ------------------------------- | - | ---- | --------------------------------------------------- | 
|Options outstanding at December 31, 2011 |  |                  | 754,139 |  |                                 | $ | 0.20 |                                                     | 
|Forfeited                                |  |                  | 35,973  |  |                                 |   |      |                                                     | 
|Exercised                                |  |                  | –       |  |                                 |   |      |                                                     | 
|Options outstanding at June 30, 2012     |  |                  | 717,166 |  |                                 | $ | 0.20 |                                                     | 
|Options exercisable at June 30, 2012     |  |                  | 717,166 |  |                                 | $ | 0.20 |                                                     | 



12







The Company recorded compensation expense of $263 and $4,527,
respectively, for the three months ended June 30, 2012 and 2011, and $2,101 and $9,055 for the six months ended June 30, 2012 and
2011, respectively, for the estimated fair value of options vested. As of June 30, 2012, there was $1,142 of total unrecognized
compensation cost related to unvested share-based compensation arrangements granted under the Plan. The unamortized cost is expected
to be recognized over a weighted-average period of 1.1 years as of June 30, 2012.



401(k) Savings Plan

During fiscal year 2011, employees of the Company were eligible to participate in a 401(k) Savings Plan
and the Company matched 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation that employees
contributed to the plan; the Company’s matching contributions vested immediately.  Effective January 1, 2012, the Company
leases its employees from Aequitas pursuant to the Restated ASA (see Note 12 below).  Under the Restated ASA, employees providing
services to CP Technologies under the Restated ASA are eligible to participate in a 401(k) Savings Plan offered by Aequitas,
and Aequitas matches 100% of the first 3% of eligible compensation and 50% of the next 2% of eligible compensation that such employees
contribute to the plan; matching contributions made by Aequitas vest immediately.  CP Technologies is obligated under the
Restated ASA to reimburse Aequitas for the matching contributions it makes with respect to employees providing services to CP Technologies
under the Restated ASA.  The Company recorded expense of $33,700 for the three months ended June 30, 2011, and $43,545 for
the six months ended June 30, 2011 with respect to its matching contributions during that period.  For the three and six months
ended June 30, 2012, the Company recorded expense of $16,501 and $35,499, respectively, for reimbursement of the matching contributions
Aequitas made during those periods with respect to employees providing services to CP Technologies under the Restated ASA.



10. Commitments and Contingencies



Operating Leases:

The Company and
its subsidiaries lease office space and personal property used in their operations from Aequitas,
an affiliate. The Company holds a lease for space in San Francisco, California; which has been sub-leased effective July 13, 2012. At June 30, 2012, the Company's aggregate future minimum payments for operating leases
having initial or non-cancelable lease terms greater than one year are payable as follows:



|Year |      |  | Required Minimum Payment |  
|---- | ---- |  | ------------------------ | -
|     | 2012 |  |                          | $
|     | 2013 |  |                          | $
|     | 2014 |  |                          | $
|     | 2015 |  |                          | $
|     | 2016 |  |                          | $



For the three and six months ended June 30, 2012, the Company
incurred rent expense of $85,843 and $171,681, respectively, and incurred rent expense for the three and six months ended June
30, 2011, of $77,891 and $154,539, respectively.



Off-Balance Sheet Arrangements:



The Company does not have any off-balance sheet arrangements.



Litigation:

From time to time, the Company may become involved in ordinary,
routine or regulatory legal proceedings incidental to the Company’s business. As of the date of this Report, we are not engaged
in any such legal proceedings nor are we aware of any other pending or threatened legal proceeding that, singly or in the aggregate,
could have a material adverse effect on the Company.



13







11. Fair Value Measures



Fair Value:



Fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. It establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on
market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market
participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The
fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three
levels of the fair value hierarchy are described below:



Level 1 – Unadjusted
quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.

Level 2 – Observable
inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of
the assets or liabilities.

Level 3 – Valuations
derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.



Fair Value of Financial Instruments:



The carrying value of the Company's cash and cash equivalents,
related party receivables, accounts receivable, accounts payable and other accrued liabilities approximate their fair values due
to the relatively short maturities of those instruments.



The fair value of the Series D Preferred Stock at June 30, 2012
is $13,116,964 based on a discounted cash flow model.



The fair value of the note payable is calculated using our estimated
borrowing rate for similar types of borrowing arrangements. The carrying amount reflected in the consolidated balance sheet for
the note payable approximates fair value.



12. Related-Party Transactions



Effective January 1, 2010, Aequitas began
providing CP Technologies certain management support services, such as accounting, financial, human resources and information technology
services, under the terms of an Administrative Services Agreement (the “ASA”) dated December 31, 2009. For 2011, the
fee under the ASA payable to Aequitas was $46,200 per month. Effective January 1, 2012, the ASA was amended and restated (the “Restated
ASA”) to revise the ASA fee payable to Aequitas to be approximately $56,200 per month for 2012 and to provide for an annual
3% increase to the fee effective January 1 of each year thereafter unless otherwise agreed by the parties. Either party may change
the services provided under the ASA by Aequitas (including terminating a particular service) upon 180 days’ prior written
notice to the other party, and the ASA is terminable by either party on 180 days’ notice to the other party.



Effective December 31, 2011, CP Technologies terminated all of its employees (the "Former CPT Employees")
and each Former CPT Employee was hired by Aequitas. Pursuant to an amendment and restatement of the ASA: (i) Aequitas
loans Former CPT Employee to CP Technologies for the purpose of providing services to CP Technologies, and (ii) CP Technologies
has the right to designate additional persons to be hired by Aequitas, and to terminate the employment of any persons employed
by Aequitas for the purpose of providing services to CP Technologies under the Restated ASA. The Restated ASA requires CP Technologies
to reimburse Aequitas for the actual costs that Aequitas incurs to provide employees to CP Technologies. CP Technologies paid fees
under the ASA and Restated ASA to Aequitas of $150,609 and $138,576 for the three months ended June 30, 2012 and 2011, respectively,
and $307,675 and $277,152 for the six months ended June 30, 2012 and 2011, respectively, which fees are included in sales, general
and administrative expense. Additionally, CP Technologies reimbursed Aequitas $22,475 and $50,000 during the three months ended
June 30, 2012 and 2011, respectively and $46,550 and $50,000 during the six months ended June 30, 2012 and 2011, respectively
for legal compliance work performed by Aequitas in-house legal personnel.



14











CP Technologies leases certain office space and personal property
from Aequitas pursuant to a Sublease dated December 31, 2009 (the “Sublease”). Real property rent was fixed at $13,115
per month for 2011 and 2012 and personal property rent set at $6,116 per month. The Company paid rent and fees under the Sublease
to Aequitas of $115,386 for the six months ended June 30, 2012 and 2011, which rent and fees are included in sales, general and
administrative expense.





Effective December 31, 2009, the Company and Aequitas entered
into an Amended and Restated Advisory Services Agreement (the “Advisory Agreement”). Under the terms of the Advisory
Agreement, Aequitas provides services to the Company relating to strategy development, strategic planning, marketing, corporate
development and such other advisory services as the Company reasonably requests from time to time. The Company pays Aequitas a
monthly fee of $15,000 for such services. In addition, Aequitas will receive a success fee in the event of certain transactions
entered into by the Company. The Company paid fees under the Advisory Agreement to Aequitas of $45,000 and $45,000 for the three
months ended June 30, 2012 and 2011, respectively, and $90,000 and $90,000 for the six months ended June 30, 2012 and 2011, respectively,
which fees are included in sales, general and administrative expense.



CP Technologies and Aequitas entered into a Royalty Agreement,
as amended effective July 31, 2010 (the “Royalty Agreement”). Under the terms of the Royalty Agreement, CP Technologies
pays Aequitas a royalty based on new products ("Products") developed by CP Technologies or its affiliates or co-developed
by CP Technologies or its affiliates and Aequitas or its affiliates and that are based on or use the CarePayment® software
system and platform that Aequitas transferred to CP Technologies (the “Software”). The royalty is equal to (i) 1.0%
of the net revenue received by CP Technologies or its affiliates and generated by Products that utilize funding provided by Aequitas
or its affiliates, and (ii) 7.0% of the face amount, or such other percentage as the parties may agree, of receivables that do
not utilize such funding but that are serviced by CP Technologies or its affiliates using the Software. Effective January 1, 2011,
the Royalty Agreement was further amended, whereby Aequitas agreed to pay CP Technologies a $500,000 fee for improvements to the
existing CarePayment® program platform to accommodate additional portfolio management capability and efficiency as mutually
agreed in writing. Fees paid or received under the Royalty Agreement with Aequitas were $0 and $500,000 for the six months ended
June 30, 2012 and 2011, respectively.



The Company recognizes revenue in conjunction with the Servicing
Agreement between CarePayment, LLC and CP Technologies. CarePayment, LLC pays CP Technologies an origination fee at the time CarePayment,
LLC purchases and delivers receivables to CP Technologies for servicing based upon the balance of the receivables to be serviced,
a monthly servicing fee based upon the principal amount of purchased receivables that CP Technologies is servicing, and a quarterly
servicing fee based upon a percentage of CarePayment, LLC’s quarterly net income from operating activities, as adjusted for
certain items. CP Technologies received fee revenue under the Servicing Agreement of $1,335,106 and $1,620,066 for the three months
ended June 30, 2012 and 2011, respectively, and $2,658,585 and $3,128,353 for the six months ended June 30, 2012 and 2011. Additionally
the Company recorded implementation revenue of $40,000 for the three months ended June 30, 2012 and 2011, and $40,000 and $80,000
for the six months ended June 30, 2012 and 2011, respectively, for implementation services provided to CarePayment, LLC.



Effective September 29, 2011 the Company established the Business
Loan with ACF, which accrued interest at the rate of 11% per annum until March 4, 2012. Beginning on March 5, 2012, the interest
rate on the outstanding principal balance owing on the Business Loan was increased to 12.5% pursuant to Amendment No. 2 to the
Business Loan. The unpaid principal balance on the Business Loan at June 30, 2012 was $3,731,000. Interest paid on the Business
Loan for the three months ended June 30, 2012 was $124,131 and for the six months ended June 30, 2012 was $245,927 , with no interest
accrued and unpaid at June 30, 2012.



The Company had a receivable of $189,884 and $277,120 due from
CarePayment, LLC for servicing fees as of June 30, 2012 and December 31, 2011, respectively. The Company had a receivable of $202
and $3,143 due from Aequitas Income Opportunity Fund, LLC, an affiliate of ACF, for servicing fees as of June 30, 2012 and December
31, 2011, respectively. Additionally, the Company has received an advance payment from CarePayment, LLC in the amount of $0 and
$42,664, and a deposit of $25,424 and $4,917, on the purchase of loans receivable from an Aequitas affiliate, both of which are
recorded as a related party liability in the Condensed Consolidated Financial Statements, as of June 30, 2012 and December 31,
2011, respectively.



15









Vitality provides loans to hospital patients to satisfy healthcare receivables owed to hospitals. Vitality
sells the loans to an affiliate of Aequitas at the net book value of the loans and CP Technologies continues to service the loans.
As of June 30, 2012 and December 31, 2011, there were no loans owned by Vitality, although CP Technologies was servicing, as of
those dates, $40,542 and $68,000 of loans receivable, respectively, which have been sold to an affiliate of Aequitas.





13. Subsequent Events



Management evaluated subsequent events
through the date of this Report. There were no material subsequent events that required disclosure in the Condensed Consolidated
Financial Statements as of June 30, 2012.















ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS



The following discussion provides information that management
believes is relevant to an assessment and understanding of the Company's operations and financial condition. This discussion should
be read in conjunction with the Condensed Consolidated Financial Statements (unaudited) and accompanying notes contained in this
Report.



Forward-Looking Statements



This Quarterly Report on Form 10-Q contains forward-looking
statements.  Such statements reflect management's current view and estimates of future economic and market circumstances,
industry conditions, company performance and financial results.  Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates" and variations of such words
and similar expressions are intended to identify such forward-looking statements.  These statements are subject to risks
and uncertainties that could cause our future results to differ materially from the results discussed herein.  Factors
that might cause such a difference include, but are not limited to, those discussed elsewhere in this Quarterly Report on Form
10-Q and risk factors included in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.  We
do not intend, and undertake no obligation, to update any such forward-looking statements to reflect events or circumstances that
occur after the date of this filing.



Overview



CarePayment Technologies, Inc. ("we", "us",
"our" or the "Company") was incorporated as an Oregon corporation in 1991. Unless otherwise indicated, all
references in this Report to the Company include our 99% owned subsidiary, CP Technologies LLC ("CP Technologies"). See
Notes 1 and 12 to our Condensed Consolidated Financial Statements for defiitions of certain capitalized terms used in this Item
2.



Beginning in January 2010, we commenced operating a receivables
servicing business through CP Technologies. Although we intend to grow our business to include servicing accounts receivable on
behalf of other parties and in other industries, we currently service only healthcare accounts receivable and are dependent on
a single customer, CarePayment, LLC.



The Company originates agreements which provide for CarePayment,
LLC, or one of its affiliates, to purchase from healthcare providers the portion of their accounts receivable that are due directly
from patients. We then administer, service, and collect those accounts receivable on behalf of CarePayment, LLC for a fee. During
the three and six months ended June 30, 2012, we generated revenues of $1,336,513 and $2,659,992, respectively, in fees from our
servicing activities on behalf of CarePayment, LLC.



Effective December 31, 2011, CP Technologies terminated all
of its employees (the "Former CPT Employees") and each Former CPT Employee was hired by Aequitas for the purpose of providing
services to CP Technologies under the Restated ASA. The Restated ASA requires CP Technologies to reimburse Aequitas for the actual
costs that Aequitas incurs to provide employees to CP Technologies.



Potential Inability to Redeem Series D Preferred Stock .



In connection with the December 2009 transactions described
in Notes 1 and 12 of our Consolidated Condensed

Financial Statements, we issued a total of 1,000,000 shares
of our Series D Preferred Stock (the "2009 Series D Shares") to Aequitas and CarePayment, LLC. Aequitas and CarePayment,
LLC subsequently transferred the 2009 Series D Shares to Aequitas CarePayment Founders Fund, LLC ("Founders Fund"). On
April 15, 2010, the Company sold an additional 200,000 of Series D Shares to Founders Fund.



16







Under Section 5.1(b) of our Second Amended and Restated Certificate
of Designation for the Series D Preferred Stock, we are required to redeem all outstanding shares of Series D Preferred by not
later than January 31, 2013. Pursuant to an Investor Rights Agreement to which we are a party, if we do not redeem the 2009 Series
D Shares by January 31, 2013, then Founders Fund, as the assignee of Aequitas and CarePayment, LLC under such Investor Rights Agreement,
will have the right to exchange the 2009 Series D Shares for a total of 98 membership units of CP Technologies, which would result
in Founders Fund owning 99% of CP Technologies and Aequitas and its affiliates owning 1% of CP Technologies. The redemption price
for each share of Series D Preferred Stock is an amount equal to $10.00 (as adjusted for stock splits, stock dividends, reclassifications
and the like with respect to the Series D Preferred) plus cumulative unpaid dividends. If all shares are redeemed, the estimated
total redemption price of our Series D Preferred Stock in January 2013 is $13,800,000.



There can be no assurances that we will have sufficient
liquidity, and our current financial position suggests that we may not have sufficient liquidity, to redeem the the Series D
Preferred Stock by January 31, 2013. Because we do not at this time have any significant assets or financial resources other
than CP Technologies, the exchange by Founders Fund of the 2009 Series D Shares for a 99% interest in CP Technologies would
have a material adverse effect on us.





Critical Accounting Policies and Estimates



The discussion and analysis of the Company’s financial
condition and results of operations is based upon the Company's Condensed Consolidated Financial Statements, which have been prepared
in accordance with accounting principles generally accepted in the United States.  The preparation of these financial
statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. The Company believes the following critical accounting
policies and related judgments and estimates affect the preparation of the Company's Condensed Consolidated Financial Statements.  See
also Note 2 to the Condensed Consolidated Financial Statements.



Revenue Recognition:

The Company’s revenue is primarily related to the Servicing
Agreement with CarePayment, LLC. Origination fee revenue is recognized at the time CarePayment, LLC funds its purchased receivables
and the Company assumes responsibility for servicing these receivables; a servicing fee is recognized monthly based on the total
funded receivables being serviced by the Company; and a percentage of CarePayment, LLC’s quarterly net income from operating
activities, as adjusted for certain items, is accrued for the current quarter in accordance with the Servicing Agreement.



In addition, the Company earns revenue from implementation fees
paid by healthcare providers. These fees are charged to cover consulting services and materials provided to the healthcare providers
during the implementation period. The Company recognizes the revenue on completion of the implementation.



Warrants to Purchase the Company’s Stock:

The fair value of warrants to purchase the Company’s stock
issued for services or in exchange for assets is estimated at the issue date using the Black-Scholes model.



Results of Operations



Six Months Ended June 30, 2012 and 2011



Revenues:



Under the Servicing Agreement, CarePayment, LLC pays the
Company (i) a monthly servicing fee based on an the receivables balances that have been purchased by CarePayment, LLC, (ii)
an origination fee equal to 6% of the original balance of newly generated receivables that are purchased by CarePayment, LLC, and (iii) a “back-end servicing fee” based on CarePayment, LLC’s quarterly net
income from operating activities, adjusted for certain items. The Company received fee revenue in conjunction with the
Servicing Agreement of $1,336,513 and $1,621,741 for the three months ended June 30, 2012 and 2011, respectively, which were
primarily comprised of $438,080 and $468,802 of servicing fees and $886,106 and $1,151,264 of origination fees and no
“back-end servicing fees”, respectively. The Company received fee revenue in conjunction with the Servicing
Agreement of $2,659,992 and $3,130,028 for the six months ended June 30, 2012 and 2011, respectively, which were primarily
comprised of $898,778 and $925,709 of servicing fees, $1,733,811 and $2,202,644 of origination fees and no
“back-end servicing fees”, respectively.



17







During the six months ended June 30, 2012, CarePayment, LLC
added five new clients, representing 20 facilities, that will be offering the CarePayment® program. The Company began servicing
receivables for two of the five new clients during the first six months of the year, and anticipates beginning to service the remaining
three during the third quarter. The addition of these new CarePayment, LLC clients diversifies the serviced portfolio into two
new states,which brings the total number of states in which the Company operates to 14.



For the three months ended June 30, 2012 and 2011, the Company
recorded implementation revenue of $40,000, and for the six months ended June 30, 2012 and 2011, the Company recorded implementation
revenue of $40,000 and $80,000, respectively, for implementation services provided to CarePayment, LLC. Additionally, for the six
months ended June 30, 2011, the Company recorded $500,000 of royalty revenue from Aequitas under an amendment to the Royalty Agreement
for improvements to the existing CarePayment platform to accommodate additional portfolio management capability and efficiency.



For the three and six months ended June 30, 2012, total servicing
fee revenue decreased 17.6% and 15.0%, respectively, which was attributable to a 6.6% and 2.8% decrease, respectively, in servicing
revenues and a 23.0% and 21.3% decrease, respectively, in origination fees over the same period in 2011 as a result of less funded
receivables as compared to the same period in 2011.



Cost of Revenue:



Cost of revenue is comprised primarily of compensation and benefit
costs for servicing employees, costs associated with outsourcing account processing, collection and payment processing servicers,
and the amortization of the servicing rights and servicing software. For the three months ended June 30, 2012, the total cost of
revenue increased by $40,548 to $1,270,339, as compared to $1,229,791 for the three months ended June 30, 2011. Cost of revenue
for the three months ended June 30, 2012 was comprised of compensation expense of $421,288, outsourced processing and collections
services of $661,270, depreciation and amortization expense of $139,342, and $48,439 of other expense. For the three months ended
June 30, 2011, cost of revenue was comprised of compensation expense of $357,832, outsourced processing and collections services
of $695,508, amortization expense of $139,946, and $36,505 of other expense. The $40,548 increase in the cost of revenue for the
three months ended June 30, 2012 is primarily attributable to a $63,456 (or 17.7%) increase in compensation due to changes in staff,
offset by a $34,238 (or 4.9%) decrease in the cost of outsourced services due to renegotiation of vendor contracts in 2011 and
process improvements, and $11,934 (or 32,7%) decrease in other expenses.



For the six months ended June 30, 2012, the total cost of revenue
increased by $34,452 to $2,443,995, as compared to $2,409,543 for the six months ended June 30, 2011. Cost of revenue for the six
months ended June 30, 2012 was comprised of compensation expense of $735,261, outsourced processing and collections services of
$1,352,569, depreciation and amortization expense of $278,683, and $77,482 of other expense. For the six months ended June 30,
2011, cost of revenue was comprised of compensation expense of $657,867, outsourced processing and collections services of $1,401,530,
amortization expense of $279,892, and $70,254 of other expense. Outsourced services from four primary vendors include hosting and
maintenance of patient accounts, including all customer transaction processing, collection and mailing services, card processing
and customer service administration. The $34,452 increase in the cost of revenue for the six months ended June 30, 2012 is primarily
attributable to a $77,394 (or 11.8%) increase in compensation due to changes in staffing, off-set by a $48,961 (or 3.5%) decrease
in the cost of outsourced services, renegotiation of vendor contracts in 2011 and process improvements.



Operating Expenses:

Operating expenses for the three months ended June 30, 2012
were $1,265,952, as compared to $1,600,377 for the same period in 2011. Operating expenses for the six months ended June 30, 2012
were $2,251,211, as compared to $2,869,709 for the same period in 2011.



Operating expenses for the three months ended June 30, 2012
were mainly comprised of the following: sales and marketing expense of $340,937; legal, consulting and other professional fees
of approximately $91,820; compensation of $69,848; related party agreements with Aequitas for office and equipment lease expense
of $76,914, administrative services of $176,009 and advisory services of $45,000; travel and entertainment of $49,874, information
technology and non-capitalized software development costs of $147,571; and general office expense, including insurance and other
administrative expenses, of approximately $267,979.



18







Operating expenses for the three months ended June 30, 2011
were mainly comprised of the following: sales and marketing expense of $323,529; legal, consulting and other professional fees
of approximately $118,716; compensation of $343,498; related party agreements with Aequitas for office and equipment lease expense
of $57,693, administrative services of $188,576 and advisory services of $45,000; travel and entertainment of $113,228, information
technology and non-capitalized software development costs of $327,347; and general office expense, including insurance and other
administrative expenses, of approximately $82,790.



The decrease in operating expenses for the three months ended June 30, 2012 over 2011 was comprised of:
decreases in non-capitalizable software and network costs of $179,776 due to a reduction in software development costs; decreases
in compensation of $273,650 due to changes in staff; decreases in travel and entertainment of $63,354 due to a reduction in travel;
decreases in administrative services of $12,567; and in consulting and professional fees of $26,896 due to a reduction in legal
and accounting costs. These decreases were offset, in part, by: increases in general office expense of $185,189 mainly related
to depreciation taken during the quarter on capitalized software put into production, office and equipment lease expenses
of $19,221, and sales and marketing expenses of $17,408.



Operating expenses for the six months ended June 30, 2012 were
comprised of the following: sales and marketing expense of approximately $528,502; legal, consulting and other professional fees
of approximately $169,152; compensation of approximately $288,481; related party agreements with Aequitas for office and equipment
lease expense of $147,421, administrative services of $352,250 and advisory services of $90,000; travel and entertainment of $85,586;
information technology and non-capitalized software development costs of $249,025; and general office expense, including insurance
and other administrative expenses, of approximately $340,794.



Operating expenses for the six months ended June 30, 2011 were
comprised of the following: sales and marketing expense of approximately $611,099; legal, consulting and other professional fees
of approximately $249,973; compensation of approximately $668,171; related party agreements with Aequitas for office and equipment
lease expense of $115,386, administrative services of $327,152 and advisory services of $90,000; travel and entertainment of $205,206;
information technology and non-capitalized software development costs of $449,916; and general office expense, including insurance
and other administrative expenses, of approximately $152,805.



The decrease in operating expenses in 2012 over 2011 was comprised
primarily of: decreases in non-capitalizable software and network costs of $200,892 due to a reduction in software development
costs; decreases in sales and marketing expense of $82,596 due to changes in head count; decreases in compensation of $379,690
due to changes in staff;decreases in travel and entertainment of $119,620 due to a reduction in travel; and decreases in consulting
and professional fees of $80,821 due to a reduction in legal and accounting costs. These decreases were offset, in part, by increases
in general office expense of $187,989 mainly related to depreciation taken during the year on capitalized software put into production,
related party agreements with Aequitas for office and equipment lease expense of $32,035 and administrative services of $25,098.



Other Income (Expense):



Interest Expense:



Interest expense of $525,564 and $104,700 for the three months
ended June 30, 2012 and 2011, respectively, includes $401,433 and $93,177 of the accreted discount on the Series D Preferred Stock,
in addition to $124,131 and $11,523, respectively, of interest on the Business Loan with ACF. Interest expense of $830,635 and
$201,539 for the six months ended June 30, 2012 and 2011, respectively, includes $584,708 and $178,619 of the accreted discount
on the Series D Preferred Stock, in addition to $245,927 and $22,920, respectively, of interest expense on the Business Loan with
ACF. The increase in interest expense is primarily due to the addition of interest expense related to the new Business Loan with
ACF, which was entered into on September 29, 2011, and additional months of accretion on the discount for the Series D Preferred
Stock.



19







Net Loss:



Net loss for the three months June 30, 2012 and 2011 were $1,689,795
and $1,030,692, respectively, of which $1,159,778 and $918,427, respectively, were from operations. The net loss for the six months
ended June 30, 2012 and 2011 were $2,833,056 and $1,781,738, of which $1,995,214 and $1,569,224, respectively, were from operations.



LIQUIDITY AND CAPITAL RESOURCES



As of June 30, 2012, the Company had $135,575 of cash and cash
equivalents as compared to $202,848 at December 31, 2011. Cash of $1,878,548 was used for operating activities for the period ended
June 30, 2012, compared to $1,265,957 for the same period in 2011. Cash used in operating activities during the six months ended
June 30, 2012 included a net loss of $2,833,056 and the net use of cash for operating assets and liabilities of $137,859, offset
by non-cash activity of $1,092,367. The non-cash activity was mainly comprised of depreciation, amortization, and accretion of
preferred stock discount for the six months ended June 30, 2012. The net change in operating assets and liabilities is primarily
attributable to a decrease in accrued liabilities and an increase in accounts payable.



For the six months ended June 30, 2012, the Company used cash
of $288,725 in investing activities compared to a use of cash from investing activities of $453,847 during the same period in 2011.
For the six months ended June 30, 2012, cash was used for capitalized software additions. Cash used for the same period in 2011
was related to the purchase of property and equipment for the San Francisco office, which opened in February 2011, and capitalized
software additions.



For the six month ended June 30, 2012, cash provided by financing
activities was $2,100,000, as compared to $1,500,000 for the same period in 2011. During 2012, the Company received $2,100,000
of proceeds from the Business Loan with ACF. During the first quarter of 2011, the Company sold 1,500,000 shares of Class B Common
Stock to Aequitas Holdings, LLC for $1,500,000. Holdings owns 7,910,092 shares of Class B Common Stock, which equates to approximately
92% of the voting shares of the Company as of the date of this Report.



Substantially all of the Company’s revenue and cash receipts
are generated from the Servicing Agreement with CarePayment, LLC. Origination and servicing revenues are generated based upon the
volume of receivables that CarePayment, LLC or its affiliates purchase. We anticipate growth in receivables serviced as CarePayment,
LLC introduces new products to meet market demand, such as extended payment terms of up to 72 months versus the 25 month payment
product currently offered.



On September 29, 2011, the Company entered into the Business
Loan with ACF. On December 29, 2011, the Business Loan was amended to increase the aggregate principal amount that the Company
could borrow under the Business Loan from $3,000,000 to $4,500,000. On March 5, 2012, the Business Loan was further amended to
increase the aggregate principal amount the Company could borrow under the Business Loan from $4,500,000 to $8,000,000, and to
increase the interest rate from 11% to 12.5% per annum. On April 12, 2012, the Company and ACF further amended the Business Loan
to convert, effective April 30, 2012, $2,000,000 of the aggregate principal balance owing under the Business Loan into shares of
the Company's Class A Common Stock at a price of $1.00 per share, to decrease the aggregate principal amount the Company could
borrow under the Business Loan from $8,000,000 to $6,000,000 and to extend the maturity date of the Business Loan from December
31, 2012 to December 31, 2013.



In the event the Business Loan is insufficient to meet the Company’s liquidity needs over the
next year or until such time as the Company has positive cash flow, Holdings has advised the Company that it is prepared to provide
additional liquidity, either in the form of an additional equity infusion or an additional line of credit. At June 30, 2012, the
Company had received Business Loan net advances of $3,731,000.



Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.



Recent Accounting Developments

The Company reviews recently adopted and proposed accounting
standards on a continual basis. For the six months ended June 30, 2012, no new pronouncements had a significant impact on the Company’s
financial statements.



20







ITEM
3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not applicable



ITEM 4. CONTROLS AND PROCEDURES



Attached as exhibits to this Quarterly Report on Form 10-Q are
certifications (the "Certifications") of the Company's principal executive officer and principal financial officer, which
are required pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This
Item 4 includes information concerning the controls and controls evaluation referenced in the Certifications. This Item 4 should
be read in conjunction with the Certifications for a more complete understanding of the matters presented.



Evaluation of disclosure controls and procedures



The Company's President and Chief Financial Officer evaluated
the effectiveness of its disclosure controls and procedures pursuant to Rule 13a-15 under the Exchange Act as of June 30, 2012.  Based
on that evaluation, the Company’s President and Chief Financial Officer concluded that the Company’s disclosure controls
and procedures are not designed at a reasonable assurance level nor are they effective to give reasonable assurance that the information
the Company must disclose in reports filed with the SEC are properly recorded, processed, summarized, and reported as required,
and that such information is not accumulated and communicated to its management, including its President and Chief Financial Officer,
to allow timely decisions regarding required disclosure.



The Company’s President and
Chief Financial Officer, after evaluating the effectiveness of its “disclosure controls and procedures” (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded that, subject to the inherent limitations noted below, as ofJune 30, 2012, the Company’s disclosure controls and procedures were not effective due
to the existence of a material weakness in its internal control over financial reporting, as discussed below.



Limitations on Effectiveness of Controls

The Company’s management, including our President and
Chief Financial Officer, does not expect that the Company's disclosure controls or its internal control over financial reporting
will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect
the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional
controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions;
over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures
may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.



Material Weakness Identified

In connection with the preparation of the Company’s financial
statements for the year ended December 31, 2011, management identified a material weakness resulting from insufficient corporate
governance policies. Although the Company does have a code of ethics that provides broad guidelines for corporate governance,
its corporate governance activities and processes are not always formally documented.



21







Plan for Remediation of Material Weaknesses

During 2012, the Company plans to formally document corporate
governance policies and processes, including the appointment of an Audit Committee. At the June 2012 annual meeting of the Board
of Directors of the Company, the Company established and appointed an Audit Committee and Compensation Committee. The Audit Committee
held its initial meeting in June 2012. The Company expects that additional governance policies and processes will be established
during the second half of 2012.



Changes in Internal Controls over Financial Reporting

There were no changes in our internal controls over financial
reporting during the six months ended June 30, 2012 that have materially affected or are reasonably likely to materially affect
our internal controls over financial reporting.



PART II. OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



From time to time, the Company may become involved in ordinary,
routine or regulatory legal proceedings incidental to the Company’s business. As of the date of this Report, we are not engaged
in any such legal proceedings nor are we aware of any other pending or threatened legal proceedings that, singly or in the aggregate,
could have a material adverse effect on the Company.



ITEM 6. EXHIBITS



(a) Exhibits:

|        |  |                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|31.1(1) |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|31.2(1) |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|32.1(1) |  | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|32.2(1) |  | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



| | (1) | Filed herewith.
| | --- | ---------------



SIGNATURE



Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto duly authorized.



|                       |  | CAREPAYMENT TECHNOLOGIES, INC. | 
|---------------------- |  | ------------------------------ | 
|Dated: August 13, 2012 |  | (Registrant)                   | 
|                       |  |                                | 
|                       |  | /s/ Craig J. Froude            | 
|                       |  | Craig J. Froude                | 
|                       |  | President                      | 



22