10-Q 1 secure_3q08.htm FORM 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



	FORM 10-Q


(Mark One)

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

For the quarterly period ended September 30, 2008

OR

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

For the transition period from _______ to _______

Commission File Number: 0-29804

SecureCARE Technologies, Inc.
(Exact name of registrant as specified in its charter)


Nevada		82-0255758
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1617 W. 6^th Street, Suite C Austin, TX (Address of principal executive offices)		78703 (Zip Code)

(512) 447-3700
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 o

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

Large accelerated filer o	Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)	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 o No x

As of September 30, 2008, 2,066,448 shares of common stock, par value $.001 per share, were outstanding, of which 883,958 shares were held by non-affiliates.

SECURECARE TECHNOLOGIES, INC.
FORM 10-Q
CONTENTS



PART I		FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Balance Sheets at September 30, 2008 (unaudited) and December 31, 2007	3

		Statements of Operations (unaudited) for the three months ended September 30, 2008 and 2007	4

		Statements of Operations (unaudited) for the nine months ended September 30, 2008 and 2007	5

		Statements of Cash Flows (unaudited) for the nine months ended September 30, 2008 and 2007	6

		Notes to Interim Financial Statements (unaudited)	7


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

	Item 4.	Controls and Procedures	22


PART II		OTHER INFORMATION

	Item 1.	Legal Proceedings	23

	Item 2.	Changes in Securities and Use of Proceeds	23

	Item 3.	Defaults Upon Senior Securities	23

	Item 4.	Submission of Matters to a Vote of Security Holders	23

	Item 5.	Other Information	23

	Item 6.	Exhibits and Reports on Form 8-K	23

SIGNATURES			24

CERTIFICATIONS

SECURECARE TECHNOLOGIES, INC.
BALANCE SHEETS
September 30, 2008 (Unaudited) and December 31, 2007


	2008			2007

		(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	33,768		$	161,680
Accounts receivable - trade, net of allowance for doubtful accounts of $1,582 and $2,000, respectively		19,617			19,569
Prepaid expenses		8,633			12,253

Total current assets		62,018			193,502

Property and equipment, net of accumulated depreciation of $346,123 and $484,263, respectively		71,522			88,049
Deposits		26,404			5,852


Total assets	$	159,944		$	287,403


LIABILITIES AND SHAREHOLDERS’ DEFICIT

Current Liabilities
Current portion of notes payable (including $1,166,294 and $696,500 to related parties, respectively), net of debt discount of $177,217 and $400,633, respectively	$	1,926,283		$	856,867
Accounts payable - trade		156,327			213,175
Accrued payroll		144,914			101,417
Accrued payroll taxes and penalties and interest - current		143,323			125,517
Deferred revenue		18,526			—
Accrued interest, including $76,938 and $24,835 to related parties, respectively		154,214			60,012
Other accrued liabilities		6,323			30,590

Total current liabilities		2,549,910			1,387,578

Notes payable (including $410,500 and $323,000 to related parties), less current portion and net of debt discount of $164,521 and $264,382, respectively		473,479			186,118
Non-current accrued payroll taxes and penalties and interest		116,906			147,437

Total liabilities		3,140,295			1,721,133

Shareholders’ deficit
Preferred stock - $0.001 par value; 15,000,000 shares authorized:
Series A preferred stock - 1,575,000 and 1,875,000 shares issued and outstanding, respectively (liquidation preference of $1.00 per share)		1,575			1,875
Series B preferred stock – 768,183 and 1,336,364 shares issued and outstanding, respectively (liquidation preference of $1.10 per share)		768			1,336
Common stock - $0.001 par value; 50,000,000 shares authorized, 2,066,448 and 1,658,706 shares issued and outstanding, respectively		2,066			1,659
Additional paid-in capital		36,895,403			36,365,516
Accumulated deficit		(39,880,163	)		(37,804,116	)

Total shareholders’ deficit		(2,980,351	)		(1,433,730	)


Total liabilities and shareholders’ deficit	$	159,944		$	287,403

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

SECURECARE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended September 30, 2008 and 2007


	2008			2007

Revenues	$	48,505		$	32,034

Operating expenses
Cost of revenues		31,710			25,477
Selling, general and administrative		560,544			593,887


Operating loss		(543,749	)		(587,330	)

Other income (expense)
Other income		428			—
Interest expense (including $24,834 and $10,340 to related parties, respectively)		(250,146	)		(137,305	)


Net loss	$	(793,467	)	$	(724,635	)


Net loss attributable to common shareholders	$	(793,467	)	$	(724,635	)


Net loss per common share - basic and diluted	$	(0.38	)	$	(0.50	)


Weighted average number of common shares outstanding - basic and diluted		2,063,435			1,454,905

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

SECURECARE TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
For the Nine Months Ended September 30, 2008 and 2007


	2008			2007


Revenues	$	124,323		$	100,916

Operating expenses
Cost of revenues		86,919			77,107
Selling, general and administrative		1,404,975			1,144,169
Loss on early extinguishment of debt		—			381,358


Operating loss		(1,367,571	)		(1,501,718	)

Other income (expense)
Other income		833			1,621
Interest expense (including $63,082 and $20,448 to related parties, respectively)		(709,309	)		(300,866	)


Net loss	$	(2,076,047	)	$	(1,800,963	)

Amortization of deemed dividend upon issuance of convertible preferred stock		—			(393,080	)


Net loss attributable to common shareholders	$	(2,076,047	)	$	(2,194,043	)


Net loss per common share - basic and diluted	$	(1.09	)	$	(2.64	)


Weighted average number of common shares outstanding - basic and diluted		1,901,956			831,154

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

SECURECARE TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Nine Months Ended September 30, 2008 and 2007


	2008			2007

Cash flows from operating activities
Net loss	$	(2,076,047	)	$	(1,800,963	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		47,563			20,418
Bad debt expense		442			2,524
Common stock issued for services		—			45,000
Stock compensation expense		253,250			318,878
Loss on early extinguishment of debt		—			381,358
Amortization of debt discount		599,455			247,352
Increases and decreases in working capital accounts:
Accounts receivable - trade		(490	)		(4,033	)
Prepaid expenses		3,620			(10,867	)
Deposits		(20,552	)		—
Deferred revenue		18,526			—
Accounts payable - trade		(56,848	)		(31,239	)
Accrued liabilities		100,706			(118,670	)

Cash flows used in operating activities		(1,130,375	)		(950,242	)

Cash flows from investing activities
Capital expenditures		(31,037	)		(25,940	)
Capitalized software development costs		—			(52,000	)

Cash flows used in investing activities		(31,037	)		(77,940	)

Cash flows from financing activities
Payment of notes payable		(50,000	)		—
Proceeds from notes payable		1,083,500			997,000

Cash flows provided by financing activities		1,033,500			997,000


Net decrease in cash and cash equivalents		(127,912	)		(31,182	)

Cash and cash equivalents, beginning of period		161,680			130,150


Cash and cash equivalents, end of period	$	33,768		$	98,968


Supplemental disclosures for cash flow information:

Interest paid	$	13,304		$	—


Amortization of deemed dividend upon issuance of convertible preferred stock	$	—		$	393,080


Relative fair value of common stock issued in connection with issuance of notes payable	$	276,177		$	261,790


Conversion of notes payable and accrued interest into common stock	$	—		$	244,018

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

SECURECARE TECHNOLOGIES, INC.
NOTES TO INTERIM FINANCIAL STATEMENTS (Unaudited)

NOTE 1. NATURE OF OPERATIONS

SecureCare’s management believes that the Company is a leading provider of Internet-based document exchange and e-signature solutions for the healthcare industry.

The Company’s proprietary technology offers workflow solutions that enable documents to be sent, retrieved, signed and remotely viewed anywhere in the world, between providers of healthcare, while protecting patient privacy as required by law.

The Company’s Internet-based Sfax™ with Digital Signature and annotation features is the only secure EFR (electronic fax record) that is 100 percent dedicated to the healthcare industry. The product is a HIPAA-ready (Health Insurance Portability and Accountability Act) work flow solution that saves end-users up to 95 percent of the time and up to 80 percent of the cost of manual faxing. It provides a complete log and audit trail for all fax documents and completely eliminates the manual paper processing of fax documents. Sfax™ is distributed to end-users through the Company’s network of health care software vendors and value-added resellers and is sold as an easily integrated, add-on module to existing health care applications or as a stand-alone solution.

The Company’s Internet-based SecureCare.net portal is an electronic document exchange and e-signature workflow solution that was built with Microsoft’s dotNet state-of-the art development tools. The SecureCare.net portal is tailored to the needs of physicians, clinics and home healthcare, hospice and durable medical equipment providers. This end-to-end solution offers a money-saving approach to accessing information and managing time-consuming forms and authorizations. It eliminates paper while enhancing the physicians ability to capture fees for otherwise unbilled time and services.

The Company markets its services to customers throughout the United States; currently operating from its Austin, Texas-based corporate headquarters.

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

BASIS OF PRESENTATION

The unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the financial information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of the results that may be expected for the year ending December 31, 2008.

Certain prior period amounts have been reclassified to conform to current period presentation.

These financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2007.

GOING CONCERN

The financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company sustained a net loss of $2,076,047 for the nine months ended September 30, 2008. The Company has accumulated losses through September 30, 2008 of $39,880,163 (including a non-recurring loss on early extinguishment of debt totaling $19,030,648 incurred in the fourth quarter of 2006). Cash used in operating activities for the period ended September 30, 2008 aggregated $1,130,375. Total liabilities at September 30, 2008 of $3,140,295 significantly exceed total assets of $159,944. As of the date of this report, the Company is unable to meet all of its short-term obligations because of shortages of cash. The Company’s continued existence depends upon the success of management’s efforts to raise additional capital necessary to meet the Company’s obligations as they come due, and to obtain sufficient capital to execute its business plan. The Company intends to obtain capital primarily through issuances of debt or equity. There can be no degree of assurance that the Company will be successful in completing additional financing transactions. Failure to generate additional revenues, raise additional capital or manage discretionary spending could have a material adverse effect on the Company’s ability to continue as a going concern and to achieve its intended business objectives. The accompanying unaudited financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or classification of liabilities which may result from the inability of the Company to continue as a going concern.

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the Financial Accounting Standards Board issued SFAS No. 157, “Fair Value Measurements”. This Statement defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This Statement establishes a fair value hierarchy about the assumptions used to measure fair value and clarifies assumptions about risk and the effect of a restriction on the sale or use of an asset. On February 12, 2008, the FASB issued FSP No. FAS 157-2, “Effective Date of FASB Statement No. 157”, which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis; the statement is effective for fiscal years beginning after December 31, 2008. Upon adoption, the provisions of SFAS No. 157 are to be applied prospectively with limited exceptions. Management is currently evaluating the impact that the full adoption of SFAS No. 157 will have on the financial position of the Company.

NOTE 2. SUMMARY OF SIGNFICANT ACCOUNTING PRINCIPLES

REVENUE RECOGNITION

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

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

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company capitalizes costs related to computer software developed or obtained for internal use in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” and is depreciated using the straight-line method over the estimated useful life of the software, generally two years. At September 30, 2008, capitalized software development costs totaled $235,750, less accumulated amortization of $205,615. No software development costs were incurred or capitalized during the three and nine month periods ended September 30, 2008.

LONG-LIVED ASSETS

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

PROPERTY AND EQUIPMENT

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

Depreciation expense for the nine months ended September 30, 2008 and 2007 was $47,563 and $20,418, respectively. In March 2008, the Company retired $185,703 of fully depreciated property and equipment, resulting in no gain or loss in the period.

STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted the modified prospective method of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires that all share-based payments to employees, including the grant of employee stock options, be recognized in the income statement based on their fair values. Under the modified prospective application, SFAS No. 123R is applied to new awards and awards modified, repurchased or cancelled after the effective date. Compensation cost for the portion of awards for which requisite service has not been rendered that are outstanding as of the effective date is recognized as the requisite service is rendered on or after the effective date. The compensation cost for the portion of awards is based on the grant date fair value of those awards, less estimated forfeitures.

Stock-based compensation expense recognized during the period is based on the value of the portion of the stock-based payment awards that is ultimately expected to vest less estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

STOCK-BASED COMPENSATION (Continued)

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

2008 Plan

The Board of Directors of the Company approved the SecureCare Technologies, Inc. 2008 Stock Option Plan (the “2008 Plan”) on July 2, 2008. The Company has reserved 500,000 shares of common stock for issuance under the 2008 Plan. In accordance with the terms of the 2008 Plan, the exercise price of each option granted may not be less than the fair market value of common stock at the date of grant, without prior approval of the Board of Directors. Options are exercisable according to the terms set out in the option agreement, not to exceed ten years. All options granted by the Company under its 2008 Plan are restricted stock awards under rules promulgated by the Securities and Exchange Commission.

The Company granted 480,000 options under the 2008 Plan on July 29, 2008 at an exercise price of $0.75 per share. Of the options granted under the 2008 Plan, 310,000 options vested immediately and 170,000 options will vest ratably over a two year period (24 months). On August 12, 2008, the Company granted an additional 10,000 options under the 2008 Plan at an exercise price of $1.01. These options vest ratably over a two year period (24 months).

The Company calculates the fair value of each option award on the date of the grant using the Black-Scholes option-pricing model. Using the Black-Scholes option pricing model, we used the following weighted-average assumptions to value the options issued in the third quarter of 2008: Risk free interest rate, 4.04%; expected life, 4 years; expected dividend yield, 0%; and daily annualized volatility of 247%. At September 30, 2008, under the 2008 Plan, the Company had 490,000 options outstanding, of which 325,000 were exercisable.

2007 Plan

The Board of Directors of the Company approved the SecureCare Technologies, Inc. 2007 Stock Option Plan (the “2007 Plan”) on August 15, 2007. The Company has reserved 425,000 shares of common stock for issuance under the 2007 Plan. In accordance with the terms of the 2007 Plan, the exercise price of each option granted may not be less than the fair market value of common stock at the date of grant, without prior approval of the Board of Directors. Options are exercisable according to the terms set out in the option agreement, not to exceed ten years. All options granted by the Company under its 2007 Plan are restricted stock awards under rules promulgated by the Securities and Exchange Commission.

The Company granted 420,834 options under the 2007 Plan on August 15, 2007 at an exercise price of $0.80 per share. Of the options granted under the 2007 Plan, 410,834 options vested immediately and 833 options vested between August 15, 2007 and November 15, 2007. On November 15, 2007, 9,167 options were forfeited and on February 15, 2008, 833 options were canceled. On February 22, 2008, the Company granted an additional 10,000 options under the 2007 Plan at an exercise price of $1.25. These options vested immediately.

The Company calculates the fair value of each option award on the date of the grant using the Black-Scholes option-pricing model. Using the Black-Scholes option pricing model, we used the following weighted-average assumptions to value the options issued in the first quarter of 2008: Risk free interest rate, 3.79%; expected life, 4 years; expected dividend yield, 0%; and daily annualized volatility of 250%.

At September 30, 2008, under the 2007 Plan, the Company had 420,834 options outstanding, of which 420,834 were exercisable. There were no new options granted, exercised or cancelled under the 2007 Plan during the third quarter of 2008.

2004 Plan

The Board of Directors of the Company approved the SecureCare Technologies, Inc. 2004 Stock Option Plan (the “2004 Plan”) on December 31, 2004. The Company has reserved 10,000 shares of common stock for issuance under the 2004 Plan. The exercise price of each option granted may not be less than the fair market value of common stock at the date of grant, without prior approval of the Board of Directors. Options are exercisable according to the terms set out in the option agreement, not to exceed ten years. At September 30, 2008, under the 2004 Plan, the Company had 1,250 options outstanding, of which 1,250 were exercisable. All options granted by the Company under its 2004 Plan are restricted stock awards under rules promulgated by the Securities and Exchange Commission. There were no new options granted, exercised or cancelled under the 2004 Plan during the nine months ended September 30, 2008.

STOCK-BASED COMPENSATION (Continued)

For the nine months ended September 30, 2008 and 2007, the compensation expense associated with stock options was $253,250 and $318,878, respectively. The impact on the Company’s results of operations of recording stock-based compensation for the three and nine months ended September 30, 2008 was as follows:


	Nine Months Ended Sept 30, 2008		Nine Months Ended Sept 30, 2007		Three Months Ended Sept 30, 2008		Three Months Ended Sept 30, 2007

Selling, general and administrative	$	253,250	$	318,878	$	240,894	$	318,878


Impact on net loss to common shareholders	$	253,250	$	318,878	$	240,894	$	318,878

Impact on net loss per share to common shareholders (basic and diluted)	$	.13	$	.38	$	.12	$	.22

The following tables summarize the activity under all stock option plans for the nine months ended September 30, 2008:


	2008 Stock Option Plan

	Nine Months Ended September 30, 2008

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2008		—	$	—	—	years

Granted		490,000	$	0.76	9.83	years
Exercised		—	$	—	—	years

Cancelled		—	$	—	—	years
Forfeitures		—	$	—	—	years

Outstanding at September 30, 2008		490,000	$	0.76	9.83	years	$	—


Vested and expected to vest at September 30, 2008		490,000	$	0.76	9.83	years	$	—
Options exercisable at September 30, 2008		325,000	$	0.76	9.83	years	$	—


	2007 Stock Option Plan

	Nine Months Ended September 30, 2008

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2008		411,667		$	0.80	8.83	years

Granted		10,000		$	1.25	9.33	years
Exercised		—		$	—	—	years

Cancelled		(833	)	$	—	—	years
Forfeitures		—		$	—	—	years

Outstanding at September 30, 2008		420,834		$	0.81	8.85	years	$	—


Vested and expected to vest at September 30, 2008		420,834		$	0.81	8.85	years	$	—
Options exercisable at September 30, 2008		420,834		$	0.81	8.85	years	$	—


	2004 Stock Option Plan

	Nine Months Ended September 30, 2008

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value

Outstanding at January 1, 2008		1,250	$	200.00	6.17	years
Granted		—
Exercised		—
Cancelled		—

Outstanding at September 30, 2008		1,250	$	200.00	6.17	years	$	—

Vested and expected to vest at September 30, 2008		1,250	$	200.00	6.17	years	$	—
Options exercisable at September 30, 2008		1,250	$	200.00	6.17	years	$	—

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock, $0.75 at September 30, 2008.

COMMITMENTS AND CONTINGENCIES

On March 7, 2008, the Company received a letter from an attorney for an investor demanding payment on a promissory note issued in 2004 with a principal balance of $63,500. Another party has advised the Company that it is the legal owner of the promissory note. No legal action has been commenced and the Company is attempting to resolve the matter between the parties. As of the date of this filing the matter has not been resolved between the two parties. The promissory note has been carried on the Company’s books as a liability and management does not believe that the outcome of this matter will have a material effect on the Company’s financial position, operating results or cash flows. However, there can be no assurance that any legal proceeding that develops as a result of this matter will not have a material impact.

USE OF ESTIMATES

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

INCOME TAXES

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

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

In January 2007, the Company adopted the Financial Accounting Standards Board Interpretation No. 48, “Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109” (FIN 48). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in a company’s financial statements. FIN 48 requires companies to determine whether it is “more likely than not” that a tax position will be sustained upon examination by the appropriate taxing authorities before any part of the benefit can be recorded in the financial statements. It also provides guidance on the recognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. The Company did not recognize any adjustments to its financial statements as a result of the implementation of FIN 48.

LOSS PER COMMON SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the year. Common stock equivalents for the nine month periods ended September 30, 2008 and 2007 totaling 1,516,356 and 964,131, respectively, have been excluded from the computation since such inclusion would have an anti-dilutive effect.

NOTE 3. NOTES PAYABLE

Notes payable at September 30, 2008 and December 31, 2007 consist of the following:


	2008						2007

	Short Term			Long Term			Short Term			Long Term

Note payable to Phoebe Holdings, Inc. at 7.5%, unsecured. Note is in default as of May 1, 2005. Interest rate increased to 9.5% after default.	$	63,500		$	—		$	63,500		$	—

Related party note payable bearing interest at 6% Principal and interest due December 03, 2008, unsecured		75,000			—			—			—

Related party note payable bearing interest at 6% Principal and interest due May 30, 2008, unsecured		—			—			50,000			—

Bridge Financing Summary

Convertible bridge notes payable bearing interest at 6%, including $87,500 to related parties, unsecured. Principal and interest originally due during the month of December 2008; however, note extensions of 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5% during the extension period.		—			187,500			187,500			—

Convertible bridge notes payable bearing interest at 6%, including $12,500 to related parties, unsecured. Principal and interest originally due during the month of January 2009; however, note extensions of 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5% during the extension period.		—			62,500			—			62,500

Related party convertible bridge notes payable bearing interest at 6%, unsecured. Principal and interest originally due during the month of February 2009; however, note extensions of 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5% during the extension period.		—			250,500			—			250,500

Convertible bridge notes payable bearing interest at 6%, including $25,000 to related parties, unsecured. Principal and interest originally due during the month of April 2009; however, note extensions of 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5% during the extension period.		—			82,500			—			82,500

Convertible bridge notes payable bearing interest at 6%, including $35,000 to related parties, unsecured. Principal and interest originally due during the month of May 2009; however, note extensions of 1 year were approved during Q3 2008, with an adjusted interest rate of 7.5% during the extension period.		—			55,000			—			55,000

Bridge notes payable bearing interest at 6% Principal and interest due December 31, 2008, including $1,091,294 and $559,000 to related parties, unsecured		1,965,000			—			956,500			—

	$	2,103,500		$	638,000		$	1,257,500		$	450,500
Less: unamortized debt discount		(177,217	)		(164,521	)		(400,633	)		(264,382	)

Total notes payable	$	1,926,283		$	473,479		$	856,867		$	186,118

NOTE 3. NOTES PAYABLE (Continued)

Bridge Financing Summary – June 2007 through September 2008

On June 13, 2007, the Board of Directors approved, effective June 1, 2007, the issuance of a series of Notes Payable (the “Financing”) totaling $1,500,000 maturing on December 31, 2008, with a stated interest rate of 6% per annum, with principal and interest payable at maturity. The Company has the option to extend the maturity date of the notes an additional twelve months. The stated interest rate on these notes during the optional extension period is 9% per annum.

On April 2, 2008, the Board of Directors approved a $500,000 increase (the “Extension”) to the $1,500,000 Financing, initially approved June 13, 2007, to a total of $2,000,000. The Financing and Extension Notes Payable have attached shares of the Company’s stock in the form of one share of common stock for each $2.50 invested into the offering for a total of up to 800,000 shares of common stock to be issued, of which 786,000 shares have been issued as of September 30, 2008.

From January 1, 2008 through September 30, 2008 the Company received a total of $1,008,500 in gross proceeds from the Financing and Extension. In addition, the Company issued 403,400 shares of common stock to the participating investors. These shares were valued at a range of $0.51 to $1.65 per share resulting in a total fair value of $1,397,936. The Company allocated the proceeds received between the notes payable and the shares of common stock issued based on the relative fair values at the date of issuance. Based on the relative fair value calculations, the Company allocated $276,177 of the $1,008,500 in proceeds to the shares of common stock issued and the remaining $732,323 to the notes payable. The debt discount amount of $276,177 is being amortized as a component of interest expense over the life of the notes, ranging from five to twelve months.

As of September 30, 2008, the Company has received a total of $1,965,000 in gross proceeds from issuance of notes payable in the Financing and the Extension. In addition, the Company has issued 786,000 shares of common stock to the participating investors. These shares were valued at a range of $0.51 to $6.00 per share resulting in a total fair value of $3,359,636. The Company allocated the proceeds received between the notes payable and the shares of common stock issued based on the relative fair values at the date of issuance. Based on the relative fair value calculations, the Company allocated $693,260 of the $1,965,000 in proceeds to the shares of common stock issued and the remaining $1,271,740 to the notes payable. The debt discount amount of $693,260 is being amortized as a component of interest expense over the life of the notes, ranging from five to eighteen months.

Bridge Financing Summary – January 2007 through May 2007

At September 30, 2008, the Company has $638,000 in outstanding two year 6% convertible bridge notes payable, for which the Company has issued 255,200 warrants to purchase common stock at $5.00 per share. These warrants were valued at a range of $5.91 to $29.91 per warrant resulting in a total fair value of $3,249,819. The Company allocated the proceeds received between the notes payable and the detachable warrants based on the relative fair values at the date of issuance. Based on the relative fair value calculations, the Company allocated $512,817 of the $638,000 in proceeds to the detachable warrants and the remaining $125,183 to the notes payable. The notes also contained a conversion feature allowing the note holders to convert the notes into common shares at a conversion price of $2.50 per share. The Company calculated a beneficial conversion feature in the amount of $3,146,817; however, the value of the beneficial conversion feature may not exceed the proceeds allocated to the notes payable under the relative fair value calculations. As a result, the value of the beneficial conversion feature is limited to $125,183, which is the amount of the proceeds allocated to notes payable. The debt discount amount of $638,000 ($512,817 related to the fair value of the warrants and $125,183 related to the beneficial conversion feature) was being amortized as a component of interest expense over the original life of the notes (twenty-four months).

On August 6, 2008, the Board of Directors approved a Note Extension Terms and Conditions Offer (the “Offer”), to the note holders who have invested in this financing, totaling $638,000 in principal amounts between December 2006 and May 2007 (the “Notes”). The Notes and the related accrued interest originally mature between December 2008 and May 2009; however, the Offer included a one-year extension of the maturity date of the Notes. In exchange for agreeing to the one-year extension the Note holders were offered an increased interest rate from 6% to 7.5% during the extension period, a re-pricing of the stock purchase warrants sold in connection with the Notes from $5.00 per share to $2.50 per share, and the Offer granted the Note holders the right, exercisable at their sole discretion, to receive common stock at a price of $1.50 per share in lieu of accrued interest at the extended maturity date (representing a total of up to 67,420 shares of common stock to be issued). An analysis of the fair value of the warrants after the Offer consideration resulted in immaterial changes to the original fair value calculation; therefore, no accounting adjustment has been made, with the exception of the debt discount amortization, which the remaining amount is now being amortized over the 12 month extension period.

As of September 30, 2008 the Company has received written consents to the Offer from Note holders representing the entire $638,000 principal amount of notes outstanding.

NOTE 3. NOTES PAYABLE (Continued)

Other

On June 3, 2008, the Company received a $75,000 six month 6% unsecured note payable from a related party.

On June 20, 2008, the Company paid in full an unsecured note payable due to a related party in the amount of $50,000, plus accrued interest of $1,664.

In 2008, the Company paid interest of $11,640 on the portion of the $638,000 in principal of notes outstanding that required semi-annual interest payments. As of September 30, 2008, upon acceptance of the Offer by all the Note holders representing the entire $638,000 principal amount of notes outstanding, all of the notes now require payment of interest at the extended maturity date.

As of September 30, 2008, the Company is in default on the principal amount of $63,500 in an unsecured note payable.

NOTE 4. SHAREHOLDERS’ DEFICIT

In February 2008, the holder of 100,000 shares of Series A Convertible preferred stock and 113,636 shares of Series B Convertible preferred stock voluntarily converted these preferred stock shares to 500 and 569 shares of common stock, respectively.

In April 2008, the holder of 45,455 shares of Series B Convertible preferred stock voluntarily converted these preferred stock shares to 227 shares of common stock.

In May 2008, the holder of 200,000 shares of Series A Convertible preferred stock and 409,090 shares of Series B Convertible preferred stock voluntarily converted these preferred stock shares to 1,000 and 2,046 shares of common stock, respectively.

During the nine months ended September 30, 2008, in conjunction with $1,008,500 in gross proceeds from issuance of notes payable, the Company issued 403,400 shares of common stock to the participating investors (see Note 3 for additional information).

The holders of the Series A preferred stock are entitled to vote upon all matters upon which holders of the common stock have the right to vote, and shall be entitled to the number of votes equal to the largest number of full shares of common stock into which the shares of preferred stock, pursuant to certain conversion and anti-dilution rights, could be converted on the appropriate record date. The holders of the Series A preferred stock are entitled to receive out the assets of the corporation legally available therefore, dividends at the rate of 5 percent of the stated value ($1.00 per share), payable on an annual basis, either in cash or in shares of the Company’s common stock, par value $0.001 per share, based on the fair market value of the common stock on the date the dividend is declared, at the option of the Company. The holders of the Series A preferred stock will have preference in payment of dividends over the holders of common stock. Dividends on the Series A preferred stock are payable when declared by the board of directors. As of September 30, 2008, no dividends on the Series A preferred stock have been declared. The period for which dividends will be paid will be determined by the board of directors at the time of dividend declaration. The Certificate of Designation for the Series A preferred stock does not provide a specific provision for the accumulation of dividends; therefore no dividends or dividends payable have been recorded as of September 30, 2008. In the event of a liquidation, dissolution or winding-up of the Company, either voluntary or involuntary, the holders of the shares of Series A preferred stock then issued and outstanding are entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment is made to the holders of shares of common stock or upon any other series of preferred stock of the Company that is junior to the Series A preferred stock, an amount per share equal to the stated value.

The holders of the Series B preferred stock are entitled to vote upon all matters upon which holders of the common stock have the right to vote, and shall be entitled to the number of votes equal to the largest number of full shares of common stock into which the shares of preferred stock, pursuant to certain conversion and anti-dilution rights, could be converted on the appropriate record date. The holders of the Company’s Series B preferred stock are not entitled to receive any dividends. In the event of a liquidation, dissolution or winding-up of the Company, either voluntary or involuntary, the holders of the shares of the Company’s Series A preferred stock and the Series B preferred stock then issued and outstanding are entitled to be paid out of the assets of the Company available for distribution to its shareholders on a pari passu basis, before any payment is made to the holders of shares of common stock or upon any other series of Preferred Stock of the Company that is junior to the Series A Preferred Stock and the Series B preferred stock, an amount per share equal to the stated value.

NOTE 5. ACCRUED PAYROLL TAXES

At September 30, 2008, the Company owes $146,972 in accrued payroll taxes and $113,257 in related penalties and interest, the majority of which is related to taxes owed from calendar year 2005. These amounts are classified as follows on the accompanying balance sheet:


	Current		Non-Current		Total


Accrued Payroll Taxes	$	76,255	$	70,717	$	146,972
Penalties and Interest		67,068		46,189		113,257

Total	$	143,323	$	116,906	$	260,229

The Company received a Notice of Federal Tax Lien by the Internal Revenue Service (IRS) dated May 24, 2006. The Tax Lien was filed with the Secretary of State in Texas. The Lien is in favor of the United States on all property and rights to property belonging to the Company for the amount of these taxes, and additional penalties, interest, and costs that may accrue. The Lien will remain in place until such time that the Company pays its obligations in full to the IRS. On March 1, 2007 the Company commenced an IRS-approved five year monthly payment plan (the “Installment Agreement”) to pay a majority of the delinquent payroll taxes and related interest and penalties totaling $154,010 at September 30, 2008. The Company will make monthly payments of $5,000 over the course of the five year plan.

On June 23, 2008 the Company received a series of notices of Intent to Levy from the IRS regarding assessments of additional penalties and interest related to prior period payroll taxes, including but not limited to penalties assessed for non-use of the IRS Electronic Federal Tax Payment System (EFTPS). The notices also indicated that due to the non-payment of these additional penalties and interest amounts assessed, of approximately $31,000, the IRS intends to terminate the Company’s previously approved installment agreement on July 23, 2008. At September 30, 2008 the Company has accrued approximately $31,000 in additional penalties and interest related to these assessments.

As of the date of this filing, and after meeting with an IRS Revenue Agent on October 14, 2008, the Company has received a verbal acknowledgement from the IRS that after processing an abatement of a portion of the additional penalties and interest previously assessed to the Company, the total amounts owed will be recalculated and reflected in the Installment Agreement. The Company was informed in its meeting with the IRS on October 14, 2008 that the Installment Agreement had been cancelled in late June of 2008. The Company had received no prior notice of this action. The Company has, since June, continued to make monthly payments of $5,000 on the installment agreement, and remains current on all payments required under the agreement. The Company anticipates the Installment Agreement will be reinstated by the IRS during the fourth quarter of fiscal 2008.

NOTE 6. LEASE COMMITMENTS

The Company relocated its principal executive office to a new location in Austin, Texas in February of 2008. The new location was leased until February 28, 2010. This lease required the Company to prepay six months of rent totaling $17,617, as well as pay a refundable lease deposit of $2,936. The lease agreement also contains provisions for future rent increases. The total amount of rental payments due over the lease term is being charged to rent expense on the straight-line method over the term of the lease. The difference between rent expense recorded and the amount paid is recorded as “Deferred Rent Obligation”, which is included in “Other Accrued Liabilities” in the accompanying balance sheet.

NOTE 7. SUBSEQUENT EVENTS

On September 22, 2008 the Board of Directors approved the issuance of a new series of notes payable (the “New Notes”) totaling $500,000 maturing on December 31, 2009, with a stated interest rate of 8% per annum with principal and interest payable at maturity. The New Notes have attached shares of the Company’s common stock in the form of one share of common stock for each $1.00 invested into the offering for a total of up to 500,000 shares to be issued.

Subsequent to September 30, 2008 and through October 31, 2008, the Company has received $60,000 in gross proceeds from the issuance of New Notes. The Company also issued 60,000 shares of common stock to these participating investors.

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

Forward Looking Statements

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

OVERVIEW

SecureCare’s management believes that the Company is a leading provider of Internet-based document exchange and e-signature solutions for the healthcare industry.

The Company markets its services to customers throughout the United States; currently operating from its Austin, Texas-based corporate headquarters.

CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The discussion and analysis of our financial condition and results of operations are based on our unaudited financial statements, which have been prepared according to U.S. generally accepted accounting principles. In preparing these financial statements, we are required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. We evaluate these estimates on an on-going basis. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We consider the following accounting policies to be the most important to the portrayal of our financial condition and that require the most subjective judgment.

REVENUE RECOGNITION

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

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

LONG-LIVED ASSETS

STOCK-BASED COMPENSATION

On January 1, 2006, the Company adopted the modified prospective method of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). SFAS No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95, “Statement of Cash Flows”. SFAS No. 123R requires that all share-based payments to employees, including the grant of employee stock options, be recognized in the income statement based on their fair values. Under the modified prospective application, SFAS No. 123R is applied to new awards and awards modified, repurchased or cancelled after the effective date. Compensation cost for the portion of awards for which requisite service has not been rendered that are outstanding as of the effective date is recognized as the requisite service is rendered on or after the effective date. The Compensation cost for the portion of awards is based on the grant date fair value of those awards, less estimated forfeitures.

RESULTS OF OPERATIONS

Three months ended September 30, 2008 compared to three months ended September 30, 2007:

Revenues for the three months ended September 30, 2008 were $48,505 compared to $32,034 for the three months ended September 30, 2007. This 51% increase in revenues is primarily attributed to revenue from the Company’s new flagship product, Sfax™. The Company launched Sfax, with its initial functionality in October of 2007. The Company completed significant functionality upgrades in February of 2008 with the addition of the Digital Signature and annotation features. The Sfax digital signature feature provides every registered user with a true digital certificate, enabling users to sign each fax digitally from a secure, HIPAA-ready platform. This feature saves health care providers significant amounts of time and money that otherwise would be spent scanning and printing faxes in order to physically sign them. Special annotation features allow users to edit faxed documents with tools such as check marks, boxes and rubber stamps.

In March of 2008 the Company completed development of its web service integration tools to provide its channel partners, health care information technology (HIT) companies and software vendors, with a simple, rapid and cost-effective method of integrating Sfax into any application architecture.

Enabled by its Sfax product launch and a series of additional development activities, management believes it has positioned the Company for significant revenue growth in 2008 and into 2009. With an estimated 14.9 billion fax pages sent and received annually in its targeted medical industry segments, the Company believes that the potential work-flow efficiencies to be realized and the corresponding reductions in overhead costs to be achieved by end-users of Sfax are on an industry-transforming order of magnitude.

Costs of revenues were $31,710 for the three months ended September 30, 2008 compared to $25,477 for the three months ended September 30, 2007. This 24% increase is primarily attributable to higher depreciation expense related to the capitalization of the Sfax™-related assets put into service during 2007, offset by lower external IT development work.

Selling, general and administrative expenses were $560,544 for the three months ended September 30, 2008 compared to $593,887 for the three months ended September 30, 2007. This 6% decrease in expenses was primarily attributable to reduced stock compensation expense of $77,984. Marketing expenses also decreased by $16,749, reflecting the elimination of the outsourced marketing firm the Company retained in 2007. Offsetting these reduced expenses were increased salaries and benefits and other employee-related expenses, including travel and entertainment, of $31,154. Outside consulting expenses other than marketing increased $11,366, primarily attributable to tax and audit services performed by our external audit firm in 2008. In addition, occupancy charges have increased $3,917 in relation to expenses associated with the new office space. Other corporate selling, general and administrative expenses increased approximately $15,000 in 2008.

Interest expense for the three months ended September 30, 2008 was $250,146 compared to $137,305 for the same period in 2007. Higher debt discount amortization in 2008 of $89,254 resulted from the issuance of notes payable from December 2006 through September 2008. This issuance of notes payable resulted in a higher debt load, contributing to an increase of $24,052 in interest expense.

Nine months ended September 30, 2008 compared to nine months ended September 30, 2007:

Revenues for the nine months ended September 30, 2008 were $124,323 compared to $100,916 for the nine months ended September 30, 2007. This 23% increase in revenues is primarily attributed to revenue from the Company’s new flagship product, Sfax™. The Company launched Sfax, with its initial functionality in October of 2007. The Company completed significant functionality upgrades in February of 2008 with the addition of the Digital Signature and annotation features. The Sfax digital signature feature provides every registered user with a true digital certificate, enabling users to sign each fax digitally from a secure, HIPAA-ready platform. This feature saves health care providers significant amounts of time and money that otherwise would be spent scanning and printing faxes in order to physically sign them. Special annotation features allow users to edit faxed documents with tools such as check marks, boxes and rubber stamps.

RESULTS OF OPERATIONS (Continued)

Costs of revenues were $86,919 for the nine months ended September 30, 2008 compared to $77,107 for the nine months ended September 30, 2007. This 13% increase is primarily attributable to higher depreciation expense related to the capitalization of the Sfax™-related assets put into service during 2007, offset by lower external IT development work.

Selling, general and administrative expenses were $1,404,975 for the nine months ended September 30, 2008 compared to $1,144,170 for the nine months ended September 30, 2007. This 23% increase in expenses was primarily attributable to increased salaries and benefits and other employee-related expenses, including travel and entertainment, of $246,914. Investor and public relations expenses increased $36,701 in 2008, reflecting the Company’s investments into these programs in mid-2007. Occupancy charges increased $29,035 in relation to expenses resulting from the new office space and property taxes. Marketing and outside professional fees, primarily tax and audit services, increased $27,740 in 2008, and Director and Officer insurance expense increased $20,961 in 2008. In addition, other corporate selling, general, and administrative costs were $10,000 higher in 2008. Offsetting these higher expenses is a decrease of $45,000 in financial consulting expense in 2008 that resulted from the issuance of 7,500 shares of common stock to Mercom Capital Group, LLC for investor relation services in 2007 coupled with lower stock compensation expense of $65,628 in 2008.

Interest expense for the nine months ended September 30, 2008 was $709,309 compared to $300,866 for the same period in 2007. Higher debt discount amortization in 2008 of $352,102 resulted from the issuance of notes payable from December 2006 through September 2008. This issuance of notes payable resulted in a higher debt load, contributing to an increase of $60,104 in interest expense.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities for the nine month period ended September 30, 2008 totaled $1,130,375. Net cash flows used in operating activities for the nine month period ended September 30, 2007 was $950,242. The increase in net cash used by operating activities in 2008 is primarily due to the Company’s investments in additional resources and programs, as required by its business plan, to complete certain technology development projects and initiate growth in its revised business model, primarily people and people-related expenses of $246,914. Investor and public relations expenses increased $36,701 in 2008 reflecting the Company’s investments into these programs in mid-2007. Other marketing and professional fees, including tax compliance and audit services, increased $27,740.

Cash flows used in investing activities totaled $31,037 for the nine months ended September 30, 2008 and consisted entirely of capitalized expenditures. Cash flows used in investing activities totaled $77,940 for the nine months ended September 30, 2007 and consisted partially of capitalized expenditures and partially of capitalized software development costs.

Net cash flow provided by financing activities was $1,033,500 for the nine months ended September 30, 2008 and consisted entirely of the issuance of notes payable totaling $1,083,500 partially offset by repayment of a note payable totaling $50,000. Cash flow provided by financing activities was $997,000 for the nine months ended September 30, 2007 and consisted entirely of the issuance of notes payable.

The Company has limited cash resources and intends to raise additional capital through the issuance of debt or equity. The Company believes the additional capital will allow it to continue its marketing efforts in its core products and develop and add new functional enhancements to the browser-based versions of its products. The availability of cash through such resources is not assured and if the Company is not able to raise enough cash, the Company might be forced to limit its operations and marketing activities, or ultimately cease operations.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

From January 1, 2008 through September 30, 2008 the Company issued $532,294 in 6% notes payable initially due December 31, 2008 and 212,918 shares of common stock, in accordance with the terms and conditions of the Financing and the Extension to related parties.

From January 1, 2008 through September 30, 2008, the Company paid interest of $9,315 to related parties on the portion of its notes payable that required semi-annual interest payments.

On June 20, 2008, the Company paid in full an unsecured note payable due to a related party in the amount of $50,000 dollars, plus accrued interest of $1,664.

At September 30, 2008, the Company has outstanding $1,576,794 in related party notes payable.

A total of $410,500 of these related party notes payable were issued as two year, 6% convertible bridge notes (convertible at $2.50 per share), for which the Company issued 164,200 warrants to purchase common stock at $5.00 per share. These related party notes begin maturing in December of 2008 through May of 2009. On August 6, 2008, the Board of Directors approved a Note Extension Terms and Conditions Offer (the “Offer”), to the note holders who have invested in this financing, totaling $638,000 in principal amounts between December 2006 and May 2007 (the “Notes”). The Notes and the related accrued interest originally mature between December 2008 and May 2009; however, the Offer included a one-year extension of the maturity date of the Notes. In exchange for agreeing to the one-year extension the Note holders were offered an increased interest rate from 6% to 7.5% during the extension period, a re-pricing of the stock purchase warrants sold in connection with the Notes from $5.00 per share to $2.50 per share, and the Offer granted the Note holders the right, exercisable at their sole discretion, to receive common stock at a price of $1.50 per share in lieu of accrued interest at the extended maturity date (representing a total of up to 40,945 related party shares of common stock to be issued). An analysis of the fair value of the warrants after the Offer consideration resulted in immaterial changes to the original fair value calculation; therefore, no accounting adjustment has been made, with the exception of the debt discount amortization, which the remaining amount is now being amortized over the 12 month extension period also.

A total of $1,091,294 in related party notes payable are 6% notes payable initially due December 31, 2008 with principal and interest payable at maturity. The Company has the option to extend the maturity date of the notes an additional twelve months. The stated interest rate on these notes during the optional extension period is 9% per annum. The notes have attached shares of the Company’s common stock in the form of one share of common stock for each $2.50 investing into the offering. In addition, in conjunction with the issuance of the notes payable, the Company has issued 436,518 shares of common stock to these related parties.

At September 30, 2008, the Company has outstanding a $75,000 six month 6% unsecured note payable to a related party.

At September 30, 2008, the Company has $76,938 in accrued interest due on the notes payable to related parties.

ITEM 4. CONTROLS AND PRODCECURES

(a) Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of September 30, 2008, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our periodic SEC filings within the required time period.

(b) Changes in Internal Controls

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

Item 1. Legal Proceedings

Item 2. Changes in Securities

None.

Item 3. Defaults Upon Senior Securities

None.

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

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

a) EXHIBITS

31.1 Certification of the Principal Executive Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2 Certification of the Principal Financial Officer pursuant to
Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32 Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

b) REPORTS ON FORM 8-K

None.

SIGNATURES

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


	SECURECARE TECHNOLOGIES, INC.

	By:	/s/ DENNIS NASTO

		DENNIS NASTO
		Chief Executive Officer and Director
		(Principal Executive Officer)

	By:	/s/ NEIL BURLEY

		NEIL BURLEY
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

Date: November 5, 2008