10-K 1 secure_10k08.htm FORM 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K


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

For the fiscal year ended December 31, 2008


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, Texas 78703, (512)447-3700
(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


	Yes o		No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.


	Yes o		No x

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

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 the definitions of “large accelerated filer”, “accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


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

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

Yes o No x

As of the last business day of the registrant’s most recently completed second fiscal quarter, the approximate aggregate market value of the common stock held by non-affiliates, based upon the closing price of the common stock as quoted by the Over The Counter Bulletin Board (OTCBB) was $638,232. Shares of common stock held by executive officers, directors and holders of more than 5% of the outstanding common stock have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of March 25, 2009, the registrant had 5,980,892 shares of common stock outstanding.

Documents Incorporated by Reference. None.

SecureCare Technologies, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2008
INDEX

		Page

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Submission of Matters to a Vote of Security Holders	16
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities	16
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 8.	Financial Statements and Supplementary Data	21
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A.	Controls and Procedures	22
Item 9B.	Other Information	22
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	22
Item 11.	Executive Compensation	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	28
Item 13.	Certain Relationships and Related Transactions, and Director Independence	29
Item 14.	Principal Accounting Fees and Services	30
Part IV
Item 15.	Exhibits and Financial Statement Schedules	30

PART 1

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

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


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

Forward-looking statements are those that are not historical in nature, particularly those that use terminology such as may, could, will, should, likely, expects, anticipates, contemplates, estimates, believes, plans, projected, predicts, potential or continue or the negative of these or similar terms. The statements contained in this Report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements regarding the Company’s expectations, beliefs, intentions or strategies regarding the future. Forward-looking statements are subject to certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. These risks and uncertainties include, but are not limited to, the following important factors with respect to SecureCare:


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

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

WHERE YOU CAN GET MORE INFORMATION

The Company will file annual, quarterly and current reports and certain other information with the Securities Exchange Commission (“SEC”). Persons may read and copy any materials the Company files with the SEC at the SEC’s public reference room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. Eastern Time. Information may be obtained from the public reference room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

ITEM 1. BUSINESS

OVERVIEW

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

The Company’s proprietary technology 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 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.

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.

General

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

The September 20, 1999 Reorganization

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

Chapter 11 Reorganization - May 13, 2003

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

On December 2, 2003, after notice and a hearing, the bankruptcy court entered its findings of fact, conclusions of law and order confirming the Debtor’s joint plan of reorganization (the “Plan”) dated as of August 5, 2003 (the Confirmation Order). The Plan became final and non-appealable on December 13, 2003. The effective date of the Plan was December 15, 2003. A copy of the Plan (as amended by the bankruptcy court’s confirmation order) is incorporated by reference. The bankruptcy court’s confirmation order is also incorporated herein by reference.

On April 22, 2004 the Company submitted a motion to modify the Plan after confirmation (the Motion) to the bankruptcy court. On May 18, 2004, the order granting the Motion to modify the Plan after confirmation was approved by the bankruptcy court. On October 19, 2004, the bankruptcy court judge signed the Company’s Order of Final Decree which effectively closed the case. The bankruptcy court’s order granting the motion is incorporated herein by reference.

Events Subsequent to the May 13, 2003 Reorganization

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

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

The Company filed an Amendment to its Corporate Charter with the State of Nevada on February 24, 2004 affecting the Stock Split and the name change of the Company to SecureCare Technologies, Inc.

In its efforts to position the Company to raise the additional capital required to execute its business plan, during 2006, the Company affected a significant financial restructuring.

The board of directors ratified a letter agreement (the “Letter Agreement”) on June 16, 2006 with a related party, Gryphon Opportunities Fund I, LLC (“GOF”) (its majority shareholder on that date) in which GOF agreed to convert all of its outstanding notes payable and accrued interest to common stock of the Company and GOF agreed to release its lien on the Company’s assets. Both of these actions were conditioned upon the Company raising an aggregate of $570,000 in equity financing.

On June 16, 2006, the Company had approximately 30 million shares of common stock authorized remaining to be issued. To complete the equity financing and the conversion of the GOF outstanding notes payable and accrued interest to common stock, both at a price of approximately $.01 per common share, the Company would have needed approximately 140 million authorized common shares.

As a result, the Company authorized the creation of a new Mandatorially Convertible Series C Preferred Stock (the “Series C Stock”) and commenced its equity financing at an offering price of $2.72 per share of Series C Stock (approximately $.01 per common share equivalent). Each share of Series C Stock represented 200 common share equivalents. The Series C Stock had no conversion rights unless and until the Company had sufficient authorized shares of common stock available to permit the conversion of all of the shares of the Series C Stock at a rate of 200 common shares for each share of Series C Stock. The Series C Stock had no liquidation preference, dividend rights or any other rights that were not included in the rights of the current common stock holders.

The Company achieved $570,000 in its equity financing on September 15, 2006 (the “Commitment Date”), triggering the conversion of all of GOF’s outstanding notes payable and accrued interest, through the commitment date, of $600,967 and the release of the GOF lien on the Company’s assets.

Accordingly, on November 13, 2006, upon filing its Certificate of Designation for the Series C Stock with the State of Nevada, the Company immediately issued a total of 515,587 shares of Series C Stock including 251,903 shares issued in the equity financing ($576,518 in total was raised by October 2, 2006) and 264,494 shares issued to affect the conversion of GOF’s notes and accrued interest.

To further its financial restructuring efforts, on October 19, 2006 the Company made a conversion offer to the remaining note holders to convert the balance of $1,283,500 in notes payable and the related accrued interest of $262,917 to Series C Stock. By December 31, 2006, the Company had received signed consents from note holders accepting the conversion offer representing $1,020,000 in notes payable and $208,328 in accrued interest. To affect these additional conversions the Company issued an additional 540,605 shares of Series C Stock.

After securing shareholder approval of a one for two hundred reverse common stock split, on April 24, 2007, the Company amended its Articles of Incorporation with the State of Nevada to reflect the reverse common stock split. Immediately thereafter, the Company’s 20,304,000 shares of common stock were changed into approximately 101,520 shares of common stock and each of the Company’s 1,058,835 issued and outstanding shares of Series C Stock were automatically converted to 200 shares of the Company’s common stock for an aggregate of 211,767,000 shares of common stock which were automatically converted into approximately 1,058,835 shares of common stock. The total number of common shares issued and outstanding immediately following the reverse stock split was approximately 1,160,355. All share and per share amounts have been restated for all periods presented to reflect the reverse stock split.

In June 2007, in accordance with the terms and conditions of the Company’s original conversion offer, dated October 19, 2006, the Company received signed consents from additional note holders representing $244,018 in notes payable and accrued interest. To affect these additional conversions, the Company issued 107,396 shares of common stock.

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

Our Solutions

To solve inefficient and costly manual paper handling processes in the healthcare industry, SecureCare Technologies has developed proprietary Internet based applications that provide workflow solutions enabling documents to be sent, signed and remotely viewed anywhere in the world, between providers of health care, while protecting patient privacy as required by law.

The Company’s Internet-based Sfax™ with Digital Signature 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) workflow 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.

The Company’s Internet-based SecureCare.net portal is an electronic document exchange and e-signature workflow solution. 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. SecureCare.net enables any health record, form or prescription to move electronically, securely and effortlessly from the point of generation – whether pharmacy or home health agency, to its destination, such as a physician’s private office.

The Company markets its services to customers throughout the United States, currently operating from its Austin, Texas-based corporate headquarters. The Company’s combined solutions allow providers of health care to send and receive health care information in two different ways:


	·	Sfax - electronic fax management system with digital signature and annotation features, including document tracking and status
	·	SecureCare.net - electronic form format with e-Signature

The Sfax and SecureCare.net applications are written in Microsoft.Net programming language and are easily integrated into almost any enterprise software application. These solutions allow providers of healthcare to provide their information electronically to the physician, at a significant cost and time savings, while complying with the stringent security and privacy regulations under HIPAA. Physician practices will benefit as well. The physician’s office can manage all faxes and electronic documents in a single portal environment and route them to the appropriate person within the practice for review and electronic signature, and eventually route it for return to the sender. With integration into the patient management system or the electronic medical record application (EMR) the documents can be mapped to the appropriate patient file. We believe these solutions are a major step forward in reducing the paper handling within a healthcare providers’ office and a physician practice.

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


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

Within these industry segments SecureCare’s addressable market is the document exchange, e-signature and management of paperwork between the providers in each segment listed above and their referring physicians.

Sfax – a bi-directional, Internet-based electronic fax management system with digital signature and annotation features, enables healthcare providers to send, receive, sign and manage faxes from any application on any computer with an Internet connection. This process includes functionality for tracking of documents and it integrates into healthcare enterprise software vendors’ applications. Sfax has the following features and functionality:


	·	It can be sold as a stand-alone product or it can be designed to be integrated into software vendor applications, or combined with SecureCare.net
	·	The digital signature feature provides every user with a true digital certificate, allowing a provider to sign each fax electronically with a few clicks of a mouse, from a secure, HIPAA-ready platform, saving healthcare providers significant amounts of time that would be spent scanning and printing faxes in order to physically sign them
	·	It is an easily integrated electronic fax management system for almost all software applications - allowing users to type in or select a fax number from a directory and send the forms to a physician outside of the users electronic application
	·	The system operates on a HIPAA-ready platform, providing a complete log and audit trail for all documents, ensuring the secure transfer of sensitive patient health information, a feature virtually non-existent with manual faxing
	·	It allows end-users to immediately increase their productivity, reduce costs, and efficiently communicate all healthcare information to their physician base or other healthcare facilities
	·	It can map electronically faxed documents to patient records

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


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

The Technology

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


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

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

Electronic fax servers, Sfax, have been added and integrated into the SecureCare.net application that has allowed the company to create a virtual fax server. A healthcare provider’s patient management system is easily able to interface with Sfax by sending our application data in an XML file.

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

HIPAA and Federal IT Initiatives

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

Sales and Marketing

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

Competition

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

The History of Our Current Products Offerings

In October of 2007 the company officially launched Sfax, a secure, Internet-based fax management system designed specifically for health care providers. Sfax is a bi-directional electronic faxing system enabling health care providers to send, receive and manage faxes from any application on any computer with an Internet connection. In February 2008, the Company released its digital signature and annotation features for Sfax. In March 2008, the Company launched its Sfax Web Services, providing SecureCare’s channel partners with a simple, rapid and cost-effective method of integrating Sfax into any application architecture.

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

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

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

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

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

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

Currently, the Company’s SecureCare.net product is licensed to approximately 1,400 physicians, of which approximately 567 were active in 2008 and 28 home health care provider locations located in Texas, Louisiana, North Carolina, Florida, Minnesota, Wisconsin, Virginia, Oklahoma, Missouri and Alabama. Home healthcare agencies are charged a monthly fee per provider location utilizing the software. In addition there are one-time training and set-up fees and integration and customization charges as contracted. Currently, physicians are not charged for utilizing the software.

Product Evolution

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

DocLink was a Microsoft Windows-based application that operated on the currently available versions of Windows, and it provided an electronic link between doctors and home health care agencies to expedite the processing of paperwork. The electronic link consisted of original documents that must be electronically sent to the physician, electronically signed by the physician, and returned to the provider. A health care agency simply clicked on a graphical button on a Windows screen to scan a document into the software, and clicked on another graphical button to send the orders/documents to the physician for review. The physician logged into the system using his/her encrypted password and began reading and signing the orders with electronic signature verification on the screen. Once completed, DocLink automatically sent this information back to the health care agency. The Company’s services reduced administrative paperwork, resulting in savings for our clients and significantly expedited the reimbursement process, which directly resulted in a lower average number of outstanding accounts receivable days for our clients. Research had shown that most physicians and home health care agencies neglected the signature attainment portion of the paper work process due to the overwhelming difficulties and liabilities associated with the typical paper based process. Utilizing SecureCare’s software simplified and expedited a previously difficult and tedious process into a significant income-producing component of a physician’s business practice through implementation of the Care Plan Oversight (CPO) billings.

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

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

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

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

Intellectual Property

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

Government Regulation

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

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


•	Confidential patient medical record information;

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

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

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

•	The relationships between or among healthcare providers.

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

Employees

As of December 31, 2008, the Company had six full-time employees, including two employees in sales, marketing and support, two employees in technology development and two employees in finance and accounting. The Company also had one part-time employee. The Company’s ability to achieve its operational and financial objectives in the future is dependent on its ability to continue to attract, integrate, retain and motivate highly qualified technical and customer support personnel. A competitive environment exists for attracting such personnel. When the Company expands its operations, additional employees will be necessary.

Available Information

Our website is www.sfaxme.com. We make available on this website free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with or furnish such information to the Securities and Exchange Commission.

ITEM 1A. RISK FACTORS

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

RISKS RELATED TO BUSINESS

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

WE ARE ENGAGED IN A BUSINESS THAT PROVIDES HEALTHCARE ELECTRONIC COMMERCE SERVICES AND WE HAVE INCURRED NET LOSSES SINCE INCEPTION. We began our current operations in the fall of 1999 upon the closing of our reorganization with Link.com, Inc., a privately-held Nevada corporation. We were originally incorporated under the name Center Star Gold Mines, Inc. for the prior purpose of exploring commercial gold deposits, and we owned various unpatented mining claims near Grangeville, Idaho. We abandoned our last mining claim in 1995. Upon our reorganization with Link.com, Inc. (the Reorganization) we changed our business to the healthcare e-commerce industry, specifically connecting physicians, home health agencies and nursing homes via electronic document exchange and e-signature solutions. In August 2000 we changed our name to eClickMD, Inc. (or eClickMD). In February of 2004 we changed our name to SecureCare Technologies, Inc. (the Company, or SecureCare). We have developed or purchased and continue to develop Internet-based document exchange and e-signature solutions for the healthcare industry. We did not generate our first electronic document exchange and e-signature revenues until the quarter ended September 30, 1999. As of December 31, 2008, we had an accumulated deficit of $40,358,111. We expect to continue to incur significant development, deployment and sales and marketing expenses in connection with our business and to continue to incur operating losses for at least the next fiscal year. We may never achieve or sustain profitability. The provision of services using Internet technology in the healthcare e-commerce industry is a developing business that is inherently riskier than businesses in industries where companies have established operating histories.

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

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

OUR BUSINESS PROSPECTS WILL SUFFER IF WE ARE NOT ABLE TO QUICKLY AND SUCCESSFULLY DEPLOY OUR SYSTEMS AND PRODUCTS. We believe that our business prospects will suffer if we do not deploy our services quickly. We began allowing access to our Web-based electronic document exchange and e-signature solutions system in November of 2000 and intend to expand deployment of access to our Web-based products and services during the year 2009 and future years, although there can be no assurance that we will be able to continue to do so during this time, or at all. In order to deploy our services, in some cases, we must integrate our architecture with our channel partners, physicians’, payers’ and home healthcare providers’ systems. We will need to expend substantial resources to integrate our systems with the existing computer systems of large healthcare organizations, home health care organizations and physicians. We have limited experience in doing so, and may experience delays in the integration process. These delays would, in turn, delay our ability to generate revenue from our services and may have a material adverse effect on our business, financial condition and operating results. As we continue to deploy our electronic document exchange and e-signature products and services, we may need to expand and adapt it to accommodate additional users, increased transaction volumes and changing customer requirements. This expansion and adaptation could be costly. We may be unable to expand or adapt our network infrastructure to meet additional demand or our customers’ changing needs on a timely basis and at a commercially reasonable cost, or at all. Any failure to deploy, expand or adapt our system quickly could have a material adverse effect on the Company’s business, financial condition and operating results.

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

WE ARE SUBJECT TO SIGNIFICANT COMPETITION. Our business operates in a highly competitive environment. Many healthcare industry participants are consolidating to create integrated healthcare delivery systems with greater market power. As the healthcare industry consolidates, competition to provide products and services to industry participants will become more intense and the importance of establishing a relationship with each industry participant will become greater. These industry participants may try to use their market power to negotiate price reductions for our products and services. If forced to reduce our prices, our operating results could suffer if we cannot achieve corresponding reductions in our expenses.

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

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

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

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

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

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

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

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

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

THE SUCCESSFUL OPERATION OF OUR BUSINESS DEPENDS UPON THE SUPPLY OF CRITICAL ELEMENTS AND MARKETING RELATIONSHIPS FROM OTHER COMPANIES. We depend upon third parties for several critical elements of our business, including various technology, infrastructure, customer service and marketing components. We rely on private third-party providers for our Internet and telephony connections and for co-location of a significant portion of our communications servers. Any disruption in the services provided by any of these suppliers, or any failure by them to handle current or higher volumes of activity could have a material adverse effect on our business, prospects, financial condition, operating results and cash flows. To obtain new customers, we have channel partner reseller and sales agent agreements with health care information technology (HIT) companies and other software vendors. These arrangements typically are not exclusive and do not extend over a significant period of time. Failure to continue these relationships on terms that are acceptable to us or to continue to create additional relationships could have a material adverse effect on our business, prospects, financial condition, operating results and cash flow.

WE ARE EXPOSED TO RISK IF WE CANNOT MAINTAIN OR ADHERE TO OUR INTERNAL CONTROLS AND PROCEDURES. We have established and continue to maintain, assess and update our internal controls and procedures regarding our business operations and financial reporting. Our internal controls and procedures are designed to provide reasonable assurances regarding our business operations and financial reporting. However, because of the inherent limitations in this process, internal controls and procedures may not prevent or detect all errors or misstatements. To the extent our internal controls are inadequate or not adhered to by our employees, our business, financial condition and operating results could be materially adversely affected.

If we are not able to maintain internal controls and procedures in a timely manner, or without adequate compliance, we may be unable to accurately report our financial results or prevent fraud and may be subject to sanctions or investigations by regulatory authorities such as the Securities and Exchange Commission. Any such action, or restatement of prior-period financial results, could harm our business or investors’ confidence in our company, and could cause our stock price to fall.

GOING CONCERN. The financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company sustained net losses of $2,553,995 and $2,386,373 for the years ended December 31, 2008 and 2007, respectively. The Company has accumulated losses through December 31, 2008 of $40,358,111 (including a non-recurring loss on early extinguishment of debt totaling $19,030,648 incurred in the fourth quarter of 2006 and $381,358 incurred in the second quarter of 2007). Cash used in operating activities for the same periods aggregated $1,374,549 and $1,347,530, respectively. Total liabilities at December 31, 2008 of $3,560,782 significantly exceed total assets of $148,412. 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.

RISKS RELATED TO INDUSTRY

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

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

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

RISKS RELATED TO STOCK

OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR REVENUES AND EXPENSES. Our limited operating history makes it difficult to forecast our future revenues and expenses. Although our revenues increased from December 2007 to December 2008, quarterly revenue growth may not be indicative of future performance. Revenues for the twelve months ended December 31, 2008 were $179,587 compared to $134,065 for the twelve months ended December 31, 2007. This 34% increase in sales resulted from an increase in sales of the Company’s flagship product, Sfax, in 2008.

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

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

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

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


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

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

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

RISKS RELATED TO GROWTH

PRICE ADJUSTMENTS COULD DECREASE NEW CUSTOMER SIGN UP RATES, INCREASE CANCELLATION RATES, OR DECREASE REVENUE WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS. While management is currently comfortable with our pricing strategy, responding to unforeseen opportunities or changes in technology may result in adjustments to our pricing strategy. Price increases may decrease new customer sign up rates or increase cancellation rates, which could adversely affect our financial results. Price decreases, due to competition or market penetration, could also adversely affect our financial results.

INCREASED COST OF EMAIL TRANSMISSIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We rely on email for the delivery of our fax notification. If regulations or other changes in the industry lead to a charge associated with the sending or receiving of email messages, the cost of providing our services would increase and, if significant, could adversely affect our business, prospects, financial condition, operating results and cash flow.

IF WE EXPERIENCE EXCESSIVE CREDIT CARD CHARGES OR CANNOT MEET EVOLVING CREDIT CARD COMPANY MERCHANT STANDARDS IMPOSED BY CREDIT CARD COMPANIES, WE COULD LOSE THE RIGHT TO ACCEPT CREDIT CARDS FOR PAYMENT AND OUR SUBSCRIBER BASE COULD DECREASE SIGNIFICANTLY. In 2008 we began offering credit cards as a means for our customer base to pay for our services, and we anticipate that in the future a large number of customers will take advantage of this feature. We could incur losses from claims that the customer did not authorize the credit card transaction to purchase our service. If the number of unauthorized credit card transactions becomes excessive, we could be assessed substantial fines for excessive charge-backs and we could lose the right to accept credit cards for payment. In addition, as they have recently done, credit card companies may again change the merchant standards required to utilize their services. If we are unable to meet these new standards we could be unable to accept credit cards and our paid customer base could significantly decrease, which could have a material adverse effect on our business, prospects, financial condition, operating results and cash flow.

OUR BUSINESS COULD SUFFER IF WE CANNOT OBTAIN TELEPHONE NUMBERS, ARE PROHIBITED FROM OBTAINING TELEPHONE NUMBERS OR ARE LIMITED TO DISTRIBUTING NUMBERS TO ONLY CERTAIN CUSTOMERS.

Our future success depends on our ability to (i) procure large quantities of telephone numbers in the United States and foreign countries in desirable locations at a reasonable cost and (ii) offer our services to our prospective customers without restrictions. Our ability to procure and distribute telephone numbers depends on factors such as applicable regulations, the practices of telecommunications carriers that provide telephone numbers, the cost of these telephone numbers and the level of demand for new telephone numbers. Failure to obtain telephone numbers in a timely and cost-effective manner or regulatory restrictions on our ability to market our services without restriction may hinder or prevent us from entering some foreign markets or hamper our growth in domestic markets, and may have a material adverse effect on our business, prospects, financial condition, operating results and cash flows.

In addition, future growth in our customer base, together with growth in the customer bases of providers of other fax and/or voicemail to email and unified messaging services, may increase the demand for large quantities of telephone numbers, which could lead to insufficient capacity and an inability on our part to acquire the necessary telephone numbers to accommodate our future growth.

OUR BUSINESS WILL BE HIGHLY DEPENDENT ON OUR BILLING SYSTEM. A significant part of our revenues depends on prompt and accurate billings processes. Customer billing is a highly complex process, and our billings system must efficiently interface with third party systems, such as those of credit card processing companies. Our ability to accurately and efficiently bill our subscribers is dependent on the successful operation of our billing system and the third party systems upon which we rely, such as our credit card processor, and our ability to provide these third parties the information required to process transactions. In addition, our ability to offer new paid services or alternative-billing plans is dependent on our ability to customize our billing system. As the number of our paid customers continues to grow, we will need to continue to automate our billing systems and procedures. We are in the process of upgrading our current billing system to meet the needs of our growing subscriber base. Any failure to properly implement the upgraded system or to manage the new system and procedural transitions could impair our ability to properly bill our current customers or attract and service new customers. In addition, any failures or errors in our current billing systems or procedures or resulting from any upgrades to our billing systems or procedures could materially and adversely affect our business and financial results.

OUR FAILURE TO PROPERLY MANAGE GROWTH COULD HARM OUR BUSINESS. We are preparing for rapid growth and anticipating expansion into new markets and countries. We expect this expansion to place a significant strain on our management, operational and financial resources. As a result, we must be ready to expand and adapt our operational infrastructure and increase the number of our personnel in certain areas. Our business relies on our data systems, billing systems for our fee based and other services, and other operational and financial reporting and control systems. All of these systems will become increasingly complex due to the growing diversification and complexity of our business and to acquisitions of new businesses with different systems. To manage further growth, we will need to continue to automate, improve or replace our data, billing and other existing operational, customer service and financial systems, procedures and controls. In particular, as our services for which we bill users grow, any failure of our billing systems to accommodate the increasing number of transactions and accurately bill users could adversely affect our business and ability to collect revenue. These upgrades and improvements will require a dedication of resources and in some cases are likely to be complex. Any failure to properly implement and manage these systems and procedural transitions could impair our ability to attract and service customers, and could cause us to incur higher operating costs and delays in the execution of our business plan. If we cannot manage growth effectively, our business and operating results could suffer.

WE MAY BE SUBJECT TO RISKS FROM INTERNATIONAL OPERATIONS. If management feels it makes sense to expand our business operations to countries outside of the United States, our future results could be materially adversely affected by a variety of uncontrollable and changing factors including, among others, foreign currency exchange rates; political or social unrest or economic instability in a specific country or region; trade protection measures and other regulatory requirements which may affect our ability to provide our services; difficulties in staffing and managing international operations; and adverse tax consequences, including imposition of withholding or other taxes on payments by subsidiaries and affiliates. Any or all of these factors could have a material adverse impact on our future business, prospects, financial condition, operating results and cash flows. In addition, if we expand to new international markets, we will have very limited experience in marketing and operating our services in such markets. In addition, certain international markets may be slower than domestic markets in adopting the Internet and so our operations in international markets may not develop at a rate that supports our level of investments.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

On February 9, 2008, the Company relocated its principal executive office to approximately 1,520 square feet of leased office space at a new location in Austin, Texas. The Company has leased this new location for two years. The company believes that its facilities are adequate for the Company’s current operations and that additional leased space can be obtained when required.

All of our network equipment is housed at our co-location facility in Austin, Texas.

ITEM 3. LEGAL PROCEEDINGS

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 adverse impact on the Company’s liquidity.

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

No matters were submitted to a vote of security holders during the fourth quarter of 2008.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

Market Information

On May 21, 2007 the Company’s stock began trading on the Over-The-Counter Bulletin Board under the new symbol SCUC. The stock symbol change was made to reflect a 1 for 200 reverse stock split of the Company’s common stock that was affected on the National Association of Securities Dealers OTCBB. Prior to May 21, 2007 the Company’s stock symbol was SCUI (from the period December 28, 2004 through May 18, 2007). The following table sets forth the range of high and low prices as reported on the National Association of Securities Dealers OTCBB for the periods indicated. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not necessarily represent actual prices. All prices below have been restated for all periods presented to reflect a 1 for 200 reverse stock split of the Company’s common stock that was affected on the National Association of Securities Dealers OTCBB on May 21, 2007.


Fiscal Year 2008	High		Low

Quarter Ended March 31	$	1.65	$	0.51
Quarter Ended June 30	$	0.95	$	0.51
Quarter Ended September 30	$	1.01	$	0.27
Quarter Ended December 31	$	0.30	$	0.10


Fiscal Year 2007	High		Low

Quarter Ended March 31	$	14.00	$	6.00
Quarter Ended June 30	$	7.00	$	6.00
Quarter Ended September 30	$	6.00	$	0.80
Quarter Ended December 31	$	1.57	$	1.50

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

Penny stocks are stocks:


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

·	that are not traded on a “recognized” national exchange;

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

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

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

Holders

As of December 31, 2008, the Company had 1,334 holders of record of its common stock.

Dividends

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

Recent Sales of Unregistered Securities

For the three and twelve month periods ended December 31, 2008, the Company issued 250,000 and 653,400 unregistered shares of its common stock, respectively, in conjunction with the issuance of notes payable. Please refer to Note 3 in the accompanying financial statements for additional details regarding the Company’s issuance of notes payable with attached shares of common stock.

Equity Compensation Information

The following table summarizes securities authorized for issuance under our equity compensation plans as of December 31, 2008:


	Number of securities to be issued upon exercise of outstanding options	Weighted-average exercise price of outstanding options		Number of securities remaining available for future issuance under equity compensation plans

Equity compensation plans approved by security holders	—	$	—
Equity compensation plans not approved by security holders	900,209	$	1.05	34,971

Total	900,209	$	1.05	34,971

The number of securities remaining available for future issuance includes 8,750 under the 2004 Stock Option Plan, 4,166 under the 2007 Stock Option Plan and 21,875 under the 2008 Stock Option Plan.

ITEM 6. SELECTED FINANCIAL DATA

Not Required.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

Forward Looking Statements

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

Overview

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

REVENUE RECOGNITION

The Company derives its revenues from the following home healthcare provider sources – recurring monthly service and maintenance fees, one-time training and set-up fees and integration and customization services as contracted. The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 generally requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the fee is fixed and determinable; and (4) 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 when any one of the four criteria is not met, the Company will either defer recognition of the monthly service fees until the criteria are met or will recognize the recurring monthly service fees on a ratable basis. Recognition of revenue resulting from one-time training and set up fees, which are billed upfront, is deferred and amortized over the life of the corresponding arrangements and is included in deferred revenue in the accompanying financial statements.

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

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

LONG-LIVED ASSETS

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

STOCK-BASED COMPENSATION

The Company uses 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.

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.

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.

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 non-financial assets and non-financial 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.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, which allows companies the option to measure financial assets or liabilities at fair value and include unrealized gains and losses in net income rather than equity. This becomes available when the Company fully adopts SFAS 157, which will be fiscal year 2009. The Company is analyzing the expected impact from adopting this statement on its financial statements, but currently does not believe its adoption will have a significant impact on the financial position or results of operations of the Company.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141R”). SFAS 141R will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties in a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008. The provisions of SFAS 141R will impact the Company if it is a party to a business combination after the pronouncement is adopted.

Results of Operations

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

Revenues for the twelve months ended December 31, 2008 were $179,587 compared to $134,065 for the twelve months ended December 31, 2007. This 34% 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.

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.

Costs of revenues were $117,391 for the twelve months ended December 31, 2008 compared to $116,094 for the twelve months ended December 31, 2007. This 1% increase is primarily attributable to higher depreciation expense of $27,000 related to the capitalization of the Sfax-related assets put into service during 2007 and higher annual support fees on its Sfax-related assets of $2,000 offset by lower outside IT development work of $18,000 and lower Telco-related costs of $10,000, resulting from a change in its primary Telco provider that the Company made in 2008.

Selling, general and administrative expenses were $1,652,176 for the twelve months ended December 31, 2008 compared to $1,561,274 for the twelve months ended December 31, 2007. This 6% increase in expenses was primarily attributable to increased salaries and benefits and other people and people-related expenses, including travel and entertainment, of $191,618. Public relations expenses increased $20,000 in 2008, reflecting the Company’s investments into these programs in early 2008. Occupancy charges increased $32,052 in relation to expenses resulting from new office space and property taxes. Director and Officer insurance expense increased $20,908 in 2008. Telephone-related expenses increased $11,268 in 2008 primarily due to the costs associated with installing a T1 line and higher cellular phone and conference calling expenses. Audit and tax-related services fees increased $8,782 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 $49,814 in 2008 and lower outside financial consulting costs of $19,154. In addition, SOX compliance consulting expenses decreased $27,566 in 2008. At December 31, 2008 the Company adjusted its accrual for payroll taxes owed and the related penalties and interest on these taxes, based on a revision of the estimated interest rate associated with its installment agreement with the Internal Revenue Service, resulting in lower penalties and interest expense on payroll taxes of $46,350. All other corporate G&A expenses decreased $7,257 in 2008.

Bad debt expense was $442 for the twelve months ended December 31, 2008 compared to $2,524 for the twelve months ended December 31, 2007.

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

Interest expense for the twelve months ended December 31, 2008 was $964,852 compared to $463,333 for the same period in 2007. Higher debt discount amortization in 2008 of $424,629 resulted from the issuance of notes payable from December 2006 through December 2008. This issuance of notes payable resulted in a higher debt load, contributing to an increase of $81,817 in interest expense. Other miscellaneous interest charges were $4,926 lower in 2008.

For the twelve months ended December 31, 2008 there was no loss on early extinguishment of debt. Loss on early extinguishment of debt totaled $381,358 for the twelve months ended December 31, 2007. In late June 2007, in accordance with the terms and conditions of the Company’s original conversion offer, dated October 19, 2006, to convert the principal amounts of notes payable and accrued interest to common stock, the Company received signed consents from additional note holders accepting the conversion offer representing $200,000 in notes payable and $44,018 in accrued interest. To affect these additional conversions, the Company issued 107,396 shares of common stock. The difference between the net carrying amount of the extinguished debt and the reacquisition price of the extinguished debt, totaling $381,358 was recognized as a loss in the period of extinguishment.

LIQUIDITY AND CAPITAL RESOURCES

Net cash flows used in operating activities for the twelve month period ended December 31, 2008 totaled $1,374,549. Net cash flows used in operating activities for the twelve month period ended December 31, 2007 was $1,347,530. 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 cash-based expenses of approximately $111,000, public relations expenses of $20,000, occupancy charges of $32,000, Director and Officer insurance expense of $21,000, telephone related expenses of $11,000 and higher audit and tax related expenses of $8,800. These uses of cash in 2008 were offset by lower SOX compliance charges of $27,500 and an increase in cash resulting from the change in working capital accounts, primarily increases in accrued liabilities resulting from interest expense accruals of $138,000 and additions to accrued payroll of $80,000.

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

Net cash flow provided by financing activities was $1,283,500 for the twelve months ended December 31, 2008 and consisted entirely of the issuance of notes payable totaling $1,333,500 ($1,027,208 in proceeds allocated to notes payable and $306,292 in proceeds allocated to the attached shares of common stock) partially offset by repayment of a note payable totaling $50,000. Cash flow provided by financing activities was $1,457,000 ($695,813 in proceeds allocated to notes payable and $417,083 in proceeds allocated to the attached shares of common stock and $344,104 in proceeds allocated to the common stock purchase warrants) for the twelve months ended December 31, 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.

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 $2,553,995 for the twelve months ended December 31, 2008. The Company has accumulated losses through December 31, 2008 of $40,358,111 (including a non-recurring loss on early extinguishment of debt totaling $19,030,648 incurred in the fourth quarter of 2006 and $381,358 incurred in the second quarter of 2007). Cash used in operating activities for the period ended December 31, 2008 aggregated $1,374,549. Total liabilities at December 31, 2008 of $3,560,782 significantly exceed total assets of $148,412. 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.

Inflation

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Required.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

All financial statements meeting the requirements of Regulation S-X and the supplementary financial information required by Item 302 of Regulation S-K are set forth at the pages indicated at Item 15(a) and are incorporated here by reference.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, SecureCare’s management, with the participation of Dennis Nasto, our principal executive officer, and Neil Burley, our principal financial officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). In designing and evaluating its disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures 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. Based upon that evaluation, Messrs. Nasto and Burley concluded that these disclosure controls and procedures were effective as of the end of the period covered in this report.

(b) Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control - Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its assessment, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2008. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

(c) Changes in Internal Control over Financial Reporting
There was no change in internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the fourth quarter of our year ended December 31, 2008 that has materially affected or is reasonably likely to materially affect SecureCare’s internal control over financial reporting.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION.

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the age and position of each of the Company’s executive officers, directors and key employees at December 31, 2008:


Name	Age	Position

Richard Corlin, MD	68	Chairman of the Board of Directors and Principal Medical Officer

Dennis Nasto	50	Chief Executive Officer, Principal Executive Officer and Director

Joseph Larter	69	Director

Neil Burley	48	Chief Financial Officer, Vice-President and Principal Financial Officer

Eugene Fry	47	Senior Vice-President, Operations and Principal Compliance Officer

David Vineyard	44	Chief Technology Officer

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

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

Joseph Larter joined the board of directors on April 2, 2008. Mr. Larter is based in the United Kingdom, with offices in Bungay, Suffolk and a U.S.-based residence in Vero Beach, Florida. He has extensive business interests around the world and has developed varied businesses from the ground up for over 50 years. In 1958, he founded Larter’s Estates, a business in the construction of houses and holiday homes in East Anglia and Wales, which he later sold. In 1971, Mr. Larter started a company known as Pleasureworld, a development company specializing in the construction of holiday homes and tourist attractions, including one of the first theme parks in the United Kingdom. Mr. Larter currently sits on the board of, or is a major shareholder in, a number of varied successful businesses including Collaborate MD, a medical billing and services company based in Orlando, Florida, ReefLive Aquarium Park Inc., a tourism development company in Barbados, and Northbank Wine Estates in New Zealand.

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

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

David Vineyard joined the Company in October, 2007. Prior to his promotion to Chief Technology Officer on December 19, 2008, Mr. Vineyard served as the Company’s Development Director and Lead Systems Engineer. Prior to joining the Company, from February 2006 to October 2007, Mr. Vineyard was a senior web and software developer/engineer, providing contract development work for clients in the Austin, Texas area including The Texas Department of Health and Human Services, Charles Schwab and Express Digital Graphics. From March 2005 to January 20065 he was the development director/lead architecht for Trick Dog Studios, LLC. From October of 2004 through March of 2005 he was the lead software developer for Express Digital Graphics. From May of 2003 to October 2004 he was the CEO and lead software engineer for Instream Systems, LLC and provided technology services to such companies as Dell Computer Corporation, Sperry Marine, Vought Aircraft and others. From December 2002 to May 2003 he was the development director for Brady Systems Integration. Prior to December 2002, Mr. Vineyard held a variety of analyst/consultant/lead architect positions with companies such as IBM (World Trade Customer Support) and The Delphi Groupe, Inc. Mr. Vineyard attended the University of Texas at Austin.

Board Composition

Our Bylaws provide that the Board of Directors shall consist of three members. The number of directors may from time to time be increased or decreased to not less than one nor more than fifteen by action of the Board of Directors. The directors shall be elected at the annual meeting of stockholders and each director shall hold office until his successor is elected and qualified.

No Committees of the Board of Directors; No Financial Expert

We do not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of our Board of Directors. Nor do we have an audit committee “financial expert”. As such, our entire Board of Directors acts as our audit committee.

Potential Conflicts of Interest

Since we do not have an audit or compensation committee comprised of independent directors, the functions that would have been performed by such committees are performed by our Directors. Thus, there is a potential conflict of interest in that our Directors and officers have the authority to determine issues concerning management compensation and audit issues that may affect management decisions. We are not aware of any other conflicts of interest with any of our executives or Directors.

Director Independence

We are not subject to listing requirements of any national securities exchange or national securities association and, as a result, we are not at this time required to have our Board comprised of a majority of “independent directors”. We have not determined whether or not any of our Directors currently meet the definition of “independent” as promulgated by the rules and regulations of the American Stock Exchange.

Involvement in Legal Proceedings

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

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

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that our directors, executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of changes of ownership of our common stock and other equity securities. To our knowledge, based solely upon a review of copies of such reports and amendments thereto furnished to us and written representations that no other reports were required during and with respect to the year ended December 31, 2008, all Section 16(a) filing requirements applicable to our current officers, directors and beneficial owners of more than 10% of our common stock were complied with except as follows: (i) One of our beneficial owners, David McCall, was late filing a Form 3, (ii) David Vineyard, Chief Technology Officer, was late filing a Form 4. As of the date of this filing, all required reports have been filed and there were no transactions reported that would entitle the Company to recapture any short swing profits as defined in Section 16(a).

Code of Ethics

The Board of Directors of the Company adopted the SecureCare Technologies, Inc. Ethics and Business Compliance Procedures (the “Code”) at its meeting on December 17, 2007. Such Code applies to our officers, directors and employees. A copy of the Code is available on our website at www.sfaxme.com.

ITEM 11. EXECUTIVE COMPENSATION

The particulars of compensation paid to the following persons during the twelve month period ended December 31, 2008 are set out in the summary compensation table below:


	·	Our Chief Executive Officer (Principal Executive Officer and Director)
	·	Our Chief Financial Officer (Principal Financial Officer)
	·	Our Board of Director Members
	·	Each of our two most highly compensated executive offers, other than the Principal Executive Officer and the Principal Financial Officer, who were serving as executive officers at December 31, 2008
	·	Our Former President, Chief Executive Officer and Director, and our Former Executive Vice-President and Chief Operating Officer; these individuals were not serving as executive officers at December 31, 2008 but are included in the summary compensation table for historical presentation purposes


	Annual Compensation				Long-Term Compensation

	Year	Salary	Bonus	Other Annual Compensation	Restricted Stock Awards (# Shares)	Common Shares Underlying Options Granted (# Shares)	All Other


Richard F. Corlin, MD (1)	2008	0	0	0	0	50,000	0
Chairman and Chief Medical Officer	2007	0	0	0	0	0	0
	2006	0	0	0	0	0	0

Joseph Larter, Director (2)	2008	0	0	0	0	200,000	0
	2007	0	0	0	0	0	0
	2006	0	0	0	0	0	0

Dennis Nasto, Chief Executive Officer (3)	2008	150,000	0	0	0	100,000	0
Principal Executive Officer and Director	2007	180,000	0	0	0	141,667	0
	2006	30,000	0	0	0	0	0

Tom Linhard, Former Director (4)	2008	0	0	0	0	10,000	0
	2007	0	0	0	0	0	0
	2006	0	0	0	0	0	0

Allen Stamy, Former Director (5)	2008	0	0	0	0	0	0
	2007	0	0	0	0	0	0
	2006	0	0	0	0	0	0

Neil Burley, Chief Financial Officer (6)	2008	99,996	0	0	0	50,000	0
Vice President and Principal Financial Officer	2007	175,500	0	0	0	141,667	0
	2006	58,667	0	0	0	0	0

David Vineyard (7)	2008	90,000	0	0	0	20,000	0
Chief Technology Officer	2007	18,750	0	0	0	10,000	0
	2006	0	0	0	0	0	0

Eugene Fry (8)	2008	84,996	0	0	0	25,000	0
Vice-President, Operations and Chief Compliance Officer	2007	165,750	0	0	0	70,833	0
	2006	46,000	0	0	0	0	0

Robert J. Woodrow (9)	2008	0	0	0	0	0	0
Former President, Chief Executive Officer and Director	2007	0	0	0	0	0	0
	2006	3,000	0	0	0	0	0

William O’Loughlin, Former Executive	2008	0	0	0	0	0	0
Vice-President and Chief Operating Officer (10)	2007	19,844	0	0	0	0	0
	2006	0	0	0	0	0	0


(1)	Dr. Corlin has been a director since September 23, 2000. He became Chairman of the Board and Chief Medical Officer in August, 2002.

	On July 29, 2008, Dr. Corlin was granted options to purchase 50,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vested immediately.

(2)	Mr. Larter joined the Board of Directors on April 2, 2008. On July 20, 2008, Mr. Larter was granted options to purchase 200,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vested immediately.


(3)	Mr. Nasto has been a director and Chief Executive Officer since November 6, 2006. He is the Company’s Principal Executive Officer.
	Mr. Nasto’s annual salary at December 31, 2008 is $180,000. Mr. Nasto received cash compensation of $150,000 in 2008 and he accrued additional salary of $30,000 through December 31, 2008.

	On July 29, 2008, Mr. Nasto was granted options to purchase 100,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc.
	Year 2008 Stock Option Plan. 50,000 of these options vested immediately and 50,000 of these options vest ratably over a twenty-four month period.

	On August 17, 2007, Mr. Nasto was granted options to purchase 141,667 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock Option Plan. These options vested immediately.

	In 2006, Mr. Nasto was paid $30,000 in cash compensation from the date of his employment, November 6, 2006 through December 31, 2006.
	In addition, from July to October 2006, Mr. Nasto was paid $54,738 as an outside marketing consultant to the Company, excluding $4,285 in reimbursed out of pocket expenses.

(4)	Mr. Linhard joined the Board of Directors on April 2, 2008. On July 20, 2008, Mr. Linhard was grated options to purchase 10,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vested immediately. Mr. Linhard resigned from the Board of Directors on November 16, 2008.

(5)	Mr. Stamy joined the Board of Directors on August 8, 2002. He resigned from the Board of Directors on April 2, 2008.

(6)	Mr. Burley has been Chief Financial Officer since July 2002. He is a Vice-President and is the Company’s Principal Financial Officer.
	Mr. Burley’s annual salary at December 31, 2008 is $120,000. Mr. Burley received cash compensation of $99,996 in 2008 and he accrued additional salary of $20,004 through December 31, 2008.

	On July 29, 2008 Mr. Burley was granted options to purchase 50,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vest ratably over a twenty-four month period.

	Mr. Burley’s annual salary at 12/31/07 was $120,000. Mr. Burley’s total cash compensation of $175,500 in 2007 included payment of $55,500 in wages accrued for but not paid in 2005 and 2006.

	On August 17, 2007, Mr. Burley was granted options to purchase 141,667 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock Option Plan. These options vested immediately.

	Mr. Burley received cash compensation in 2006 of $58,667 and he accrued additional salary of $43,000 through December 31, 2006.

(7)	Mr. Vineyard joined the Company on October 16, 2007. He was promoted to Chief Technology Officer on December 18, 2008.
	Mr. Vineyard’s annual salary at December 31, 2008 is $90,000. Upon his promotion to Chief Technology Officer, the Company committed to grant Mr. Vineyard options to purchase 100,000 shares of common stock, when the options become available, upon Board of Director approval of the 2009 SecureCare Technologies, Inc. Stock Option Plan. As of the date of the filing of this 10-K report, the options have not been granted.

	On July 29, 2008 Mr. Vineyard was granted options to purchase 20,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vest ratably over a twenty-four month period.

	On February 22, 2008, Mr. Vineyard was granted options to purchase 10,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock Option Plan. These options vested immediately.

(8)	Mr. Fry has been a full time employee of the Company since October 2001.
	Mr. Fry’s annual salary at December 31, 2008 is $102,000. Mr. Fry received cash compensation of $84,996 ins 2008 and he accrued additional salary of $17,004 through December 31, 2008.

	On July 29, 2008 Mr. Fry was granted options to purchase 25,000 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2008 Stock Option Plan. These options vest ratably over a twenty-four month period.

	Mr. Fry’s annual salary at 12/31/07 was $102,000. Mr. Fry’s total cash compensation of $165,750 in 2007 included payment of $63,750 in wages accrued for but not paid in 2005 and 2006.

	On August 17, 2007, Mr. Fry was granted options to purchase 70,833 shares of common stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock Option Plan. These options vested immediately.

	Mr. Fry received cash compensation in 2006 of $46,000 and he accrued additional salary of $45,000 through December 31, 2005.


(9)	Effective June 16, 2006, the Board of Directors accepted Mr. Woodrow’s resignation as a member of the Board of Directors and as President and Chief Executive Officer.

	Mr. Woodrow received cash compensation in 2006 of $3,000 and he accrued additional salary of $37,500 through June 16, 2006.

(10)	Mr. O’Loughlin was Executive Vice-President and Chief Operating officer from October 1, 2004 through December 9, 2005.
	Mr. O’Loughlin’s employment with the Company ended December 9, 2005, as a result of the Company’s implementation of a significant cost reduction program. Pursuant to a wage claim filed by Mr. O’Loughlin with the Texas Workforce Commission in January, 2006 claiming his accrued salary of $20,000 through December 31, 2005, the Company paid the wages owed, totaling $19,844, in January, 2007.

Outstanding Equity Awards

On July 29, 2008, in accordance with the Company’s Year 2008 Stock Option Plan, the Company granted 360,000 stock options, at $0.75 per share, to the members of the Board of Directors including 200,000 options granted to Joseph Larter, 50,000 options granted to Richard Corlin, 100,000 options granted to Dennis Nasto and 10,000 options granted to Tom Linhard. A total of 310,000 of the options granted vested immediately and 50,000 of the options granted to Dennis Nasto will vest ratably on a monthly basis over a period of twenty-four months. At December 31, 2008 all 360,000 stock options granted to the various board members are outstanding, of which 320,417 are fully vested and 39,583 had not vested. All of the non-vested stock options, totaling 39,853 options at December 31, 2008 are held by Dennis Nasto.

In addition, on July 29, 2008, in accordance with the Company’s Year 2008 Stock Option Plan, the Company granted 95,000 stock options, at $0.75 per share, to its three most highly compensated executive officers (excluding the Chief Executive Officer) including 50,000 options granted to Neil Burley, 25,000 options granted to Eugene Fry and 20,000 options granted to David Vineyard. These options vest ratably on a monthly basis over a period of twenty four months. In addition, on February 22, 2008, in accordance with the Company’s Year 2007 Stock Option Plan, the Company granted 10,000 stock options, at $1.25 per share, to David Vineyard. These options vested immediately. At December 31, 2008 all 105,000 stock options granted to the Company’s three most highly compensated executive offers (excluding the Chief Executive Officer) are outstanding, of which 29,792 are fully vested and 75,208 had not vested.

On August 15, 2007, in accordance with the Company’s Year 2007 Stock Option Plan, the Company granted a total of 354,167 stock options, at $0.80 per share, to the Company’s three most highly compensated executive officers including 141,667 options to Dennis Nasto, 141,667 options to Neil Burley and 70,833 options to Eugene Fry. These options vested immediately. At December 31, 2008 all 354,167 options granted to the Company’s three most highly compensated executive offers are outstanding and fully vested.

Compensation of Directors

Our Directors do not receive cash compensation for their services. To the extent our directors incur out-of-pocket expenses in performance of their duties as a director of the Company, we reimburse the director for these out-of-pocket expenses.

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

There are no employment or other contracts or arrangements with our officers or Directors. There are no compensation plans or arrangements, including payments to be made by us, with respect to our officers and Directors that would result from the resignation, retirement or any other termination of such Directors or officers from us. There are no arrangements for Directors, officers or employees that would result from a change-in-control. However, the stock options granted to the Company’s officers and Directors will become fully vested upon a change in control of the Company, in accordance with the terms of the Stock Option Plans.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth certain information regarding the beneficial ownership of the Company’s common stock as of December 31, 2008 by (I) each of our Directors, (ii) each of our Executive Officers, (iii) each person who is known by us to own beneficially more than 5% of the common stock and (iv) all Directors and Officers as a group.

SecureCare Technologies, Inc.
Common Stock Affiliated Ownership Structure
12/31/2008


Name	Number of Shares		Percentage


Richard F. Corlin, MD		5,216		0	%

Dennis Nasto		20,750		1	%

Neil Burley		1,075		0	%

Gene Fry		1,000		0	%

Joe Larter		417,657		18	%

David McCall		354,961		15	%

Michael Benton		153,250		7	%

Ian McIntyre		126,754		5	%

All Directors and Officers as a Group		445,698		19	%

Changes in Control

We are unaware of any contract or other arrangement where the operation of which may, at a subsequent date, result in a change of control of our Company.

Equity Compensation Information

The following table summarizes securities authorized for issuance under our equity compensation plans as of December 31, 2008:


	Number of securities to be issued upon exercise of outstanding options			Weighted-average exercise price of outstanding options	Number of securities remaining available for future issuance under equity compensation plans


Equity compensation plans approved by security holders		—	$	—
Equity compensation plans not approved by security holders		900,209	$	1.05	34,971

Total		900,209	$	1.05	34,971

The number of securities remaining available for future issuance includes 8,750 under the 2004 Stock Option Plan, 4,166 under the 2007 Stock Option Plan and 21,875 under the 2008 Stock Option Plan.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

From January 1, 2008 through December 31, 2008 the Company issued a total of $592,320 in notes payable and 320,128 shares of common stock to related parties. Of this total, $325,320 were 6% notes payable initially due December 31, 2008 and these notes had attached shares of the Company’s common stock totaling 130,128 shares in accordance with the terms and conditions of the Financing and the Extension to parties classified as related parties at December 31, 2008. An additional $190,000 in notes issued were 8% notes payable initially due December 31, 2009 and these notes had attached shares of the company’s common stock totaling 190,000 shares in accordance with the terms and conditions of the New Notes to parties classified as related parties at December 31, 2008. And, the company issued a 6% six month note for $75,000 in principal amount to a related party on July 3, 2008.

From January 1, 2008 through December 31, 2008, the Company paid interest of $5,760 to related parties at December 31, 2008, 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, plus accrued interest of $1,664.

At December 31, 2008, the Company has outstanding $1,211,320 in related party notes payable, including $120,000 payable to Joseph Larter, Director, $293,510 payable to entities in which Joseph Larter, Director, exercises a direct control and $50,000 payable to Dennis Nasto, Chief Executive Officer and Director.

A total of $262,000 of these related party notes payable were issued as two year, 6% convertible bridge notes (convertible to common stock at a rate of $2.50 per share for a total of up to 104,800 shares to be issued), for which the Company issued 104,800 warrants to purchase common stock at $5.00 per share. These related party notes began 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 amount ($262,000 to related parties) 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 26,380 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. As of September 30, 2008 the Company had received written consents to the Offer from Note holders representing the entire $638,000 in principal amount ($262,000 to related parties) of notes outstanding.

A total of $684,320 of these 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 273,728 shares of common stock to these related parties. In November of 2008, the Company notified the holders of the $684,320 in principal amount of the 6% notes payable, initially due December 31, 2008, that it was exercising its option to extend the maturity date one year to December 31, 2009. Effective January 1, 2009, the interest rate on these notes increased to 9% per annum.

A total of $190,000 of these related party notes payable are 8% notes payable initially due December 31, 2009 with principal and interest payable at maturity. The notes have attached shares of the Company’s common stock in the form of one share of common stock for each $1.00 investing into the offering. In addition, in conjunction with the issuance of the notes payable, the Company has issued 190,000 shares of common stock to these related parties.

At December 31, 2008, the Company has outstanding a $75,000 six month 6% unsecured note payable to a related party. Principal and accrued interest on this note, totaling $77,582 at December 31, 2008, was initially due December 3, 2008. At December 31, 2008 the Company was in default on the note. The holder of the note waived the Company’s non-compliance with the terms of the note as of December 31, 2008.

At December 31, 2008, the Company has $68,919 in accrued interest due on the notes payable to related parties.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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

Audit Fees. Estimated fees billed for service rendered by KBA Group LLP for the reviews of Forms 10-QSB and for the audits of the financial statements of the Company were $75,197 for 2008 and $71,205 for 2007. Fees billed for tax related services were $24,312 in 2008 and $14,500 in 2007. Additionally, fees billed for other services totaled $0 for 2008 and $5,000 for 2007.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) – (2) Financial Statements of SecureCare Technologies, Inc.:


		Page Number (s)
Report of Independent Registered Public Accounting Firm		31
Balance Sheets		32
Statements of Operations		34
Statements of Changes in Shareholders’ Deficit		35
Statements of Cash Flows		37
Notes to Financial Statements		39

All other schedules have been omitted since the required information is contained in Financial Statements or because such schedules are not required.

(a) (3) Exhibits: See Index to Exhibits on page 58. The Exhibits listed in the accompanying Index of Exhibits are filed or incorporated by reference as part of this report.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

We have audited the accompanying balance sheets of SecureCare Technologies, Inc. (the “Company”) as of December 31, 2008 and 2007 and the related statements of operations, changes in shareholders’ deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SecureCare Technologies, Inc. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

As described in Note A, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has experienced recurring losses, has generated recurring negative cash flows from operations and has liabilities significantly in excess of assets at December 31, 2008. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan with regard to these matters is also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ KBA Group LLP
Dallas, Texas
March 30, 2009

SecureCare Technologies, Inc.
BALANCE SHEETS
December 31, 2008 and 2007

ASSETS


	2008		2007

Current assets
Cash and cash equivalents	$	39,594	$	161,680
Accounts receivable - trade, net of allowance for doubtful accounts of $1,502 and $2,000, respectively		18,986		19,569
Prepaid expenses		21,196		12,253

Total current assets		79,776		193,502

Property and equipment, net of accumulated depreciation of $362,202 and $484,263, respectively		55,444		88,049
Deposits		13,192		5,852


Total assets	$	148,412	$	287,403

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

SecureCare Technologies, Inc.
BALANCE SHEETS - CONTINUED
December 31, 2008 and 2007

LIABILITIES AND SHAREHOLDERS’ DEFICIT


	2008			2007

Current liabilities
Current portion of notes payable, including $1,006,820 and $416,500 to related parties, respectively, net of debt discount of $54,284 and $400,633, respectively	$	2,486,716		$	856,867
Accounts payable - trade		129,196			213,175
Accrued payroll		181,752			101,417
Accrued payroll taxes, penalties and interest - current		131,987			125,517
Deferred revenue		13,148			—
Accrued interest, including $68,919 and $17,930 to related parties, respectively		198,504			60,012
Other accrued liabilities		4,432			30,590

Total current liabilities		3,145,735			1,387,578

Notes payable (including $204,500 to related parties), less current portion and net of debt discount of $106,369 and $264,382, respectively		344,131			186,118

Non-current accrued payroll taxes, penalties and interest		70,916			147,437


Total Liabilities		3,560,782			1,721,133

Shareholders’ deficit
Preferred stock - $0.001 par value; 15,000,000 shares authorized,
Series A convertible 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 convertible 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, 2,316,448 and 1,658,706 shares issued and outstanding, respectively		2,316			1,659
Additional paid-in capital		36,941,082			36,365,516
Accumulated deficit		(40,358,111	)		(37,804,116	)

Total shareholders’ deficit		(3,412,370	)		(1,433,730	)


Total liabilities and shareholders’ deficit	$	148,412		$	287,403

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

SecureCare Technologies, Inc.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2008 and 2007


	2008			2007

Revenues	$	179,587		$	134,065
Operating expenses
Cost of revenues		117,391			116,094
Selling, general and administrative		1,652,176			1,561,274
Loss on early extinguishment of debt		—			381,358


Operating loss		(1,589,980	)		(1,924,661	)

Other income (expense)
Other income		837			1,621
Interest expense (including $56,970 and $23,468 to related parties, respectively)		(964,852	)		(463,333	)


Net loss	$	(2,553,995	)	$	(2,386,373	)

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

Net loss attributable to common shareholders	$	(2,553,995	)	$	(2,779,453	)


Net loss per common share - basic and diluted	$	(1.29	)	$	(2.72	)

Weighted-average number of common shares outstanding - basic and diluted		1,975,344			1,020,836

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

SecureCare Technologies, Inc.
STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
For the Years Ended December 31, 2008 and 2007


	Series A						Series B						Series C
	Preferred Stock						Preferred Stock						Preferred Stock						Common Stock

	Shares			Amount			Shares			Amount			Shares			Amount			Shares		Amount


Balance at December 31, 2006		1,955,000		$	1,955			1,427,273		$	1,427			1,058,835		$	1,059			101,520	$	102

Conversion of Series A preferred stock to common stock		(80,000	)		(80	)		—			—			—			—			400		(0	)
Conversion of Series B preferred stock to common stock		—			—			(90,909	)		(91	)		—			—			455		(0	)
Mandatory conversion of Series C preferred stock to common stock		—			—			—			—			(1,058,835	)		(1,059	)		1,058,835		1,059
Issuance of common stock in connection with the extinguishment of notes payable and accrued interest		—			—			—			—			—			—			107,396		107
Issuance of common stock for services		—			—			—			—			—			—			7,500		8
Issuance of common stock in connection with the issuance of notes payable		—			—			—			—			—			—			382,600		383
Stock compensation expense		—			—			—			—			—			—			—		—
Beneficial conversion feature of convertible notes payable		—			—			—			—			—			—			—		—
Issuance of warrants in connection with notes payable		—			—			—			—			—			—			—		—
Net loss for the year		—			—			—			—			—			—			—		—


Balance at December 31, 2007		1,875,000		$	1,875			1,336,364		$	1,336			—		$	—			1,658,706	$	1,659

Conversion of Series A preferred stock to common stock		(300,000	)		(300	)		—			—			—			—			1,500		1
Conversion of Series B preferred stock to common stock		—			—			(568,181	)		(568	)		—			—			2,842		3
Issuance of common stock in connection with the issuance of notes payable		—			—			—			—			—			—			653,400		653
Stock compensation expense		—			—			—			—			—			—			—		—
Net loss for the year		—			—			—			—			—			—			—		—


Balance at December 31, 2008		1,575,000		$	1,575			768,183		$	768			—		$	—			2,316,448	$	2,316

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

SecureCare Technologies, Inc.
STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT - CONTINUED
For the Years Ended December 31, 2008 and 2007


	Additional Paid-in Capital		Accumulated Deficit			Total

Balance at December 31, 2006	$	34,490,006	$	(35,417,744	)	$	(923,194	)

Conversion of Series A preferred stock to common stock		80		—			—
Conversion of Series B preferred stock to common stock		90		—			—
Mandatory conversion of Series C preferred stock to common stock		—		—			—
Issuance of common stock in connection with the extinguishment of notes payable and accrued interest		644,269		—			644,376
Issuance of common stock for services		44,993		—			45,000
Issuance of common stock in connection with the issuance of notes payable		416,700		—			417,083
Stock compensation expense		318,878		—			318,878
Beneficial conversion feature of convertible notes payable		106,396		—			106,396
Issuance of warrants in connection with notes payable		344,104		—			344,104
Net loss for the year		—		(2,386,373	)		(2,386,373	)


Balance at December 31, 2007	$	36,365,516	$	(37,804,116	)	$	(1,433,730	)

Conversion of Series A preferred stock to common stock		299		—			—
Conversion of Series B preferred stock to common stock		565		—			—
Issuance of common stock in connection with the issuance of notes payable		305,639		—			306,292
Stock compensation expense		269,063		—			269,063
Net loss for the year		—		(2,553,995	)		(2,553,995	)


Balance at December 31, 2008	$	36,941,082	$	(40,358,111	)	$	(3,412,370	)

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

SecureCare Technologies, Inc.

STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2008 and 2007


	2008			2007


Cash flows from operating activities
Net loss	$	(2,553,995	)	$	(2,386,373	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		63,642			35,167
Bad debt expense		442			2,524
Common stock issued for services		—			45,000
Gain on extinguishment of liabilities		(10,649	)		—
Stock compensation expense		269,063			318,878
Loss on early extinguishment of debt		—			381,358
Amortization of debt discount		810,654			386,026
Increases and decreases in working capital accounts:
Accounts receivable - trade		141			(6,017	)
Prepaid expenses		(8,943	)		(10,170	)
Deposits		(7,340	)		—
Deferred revenue		13,148			—
Accounts payable - trade		(73,330	)		(7,615	)
Accrued liabilities		122,618			(106,308	)

Cash flows used in operating activities		(1,374,549	)		(1,347,530	)

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 allocated to notes payable		1,027,208			695,813
Proceeds allocated to common stock		306,292			417,083
Proceeds allocated to common stock purchase warrants		—			344,104

Cash flows provided by financing activities		1,283,500			1,457,000

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

SecureCare Technologies, Inc.

STATEMENTS OF CASH FLOWS - CONTINUED
For the Years Ended December 31, 2008 and 2007


	2008			2007

Net increase (decrease) in cash and cash equivalents		(122,086	)		31,530

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

Cash and cash equivalents, end of year	$	39,594		$	161,680


Supplemental disclosures for cash flow information:

Interest paid	$	13,304		$	11,640


Conversion of note payable and accrued interest in to common stock	$	—		$	244,018


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


Issuance of common stock in connection with extinguishment of notes payable and accrued interest	$	—		$	644,376

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

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE A - BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS
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 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 markets its services to customers throughout the United States; currently operating from its Austin, Texas-based corporate headquarters.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

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

GOING CONCERN

The financial statements have been prepared on the assumption that the Company will continue as a going concern. The Company sustained net losses of $2,553,995 and $2,386,373 for the years ended December 31, 2008 and 2007, respectively. The Company has accumulated losses through December 31, 2008 of $40,358,111 (including a non-recurring loss on early extinguishment of debt totaling $19,030,648 incurred in the fourth quarter of 2006 and $381,358 incurred in the second quarter of 2007). Cash used in operating activities for the same periods aggregated $1,374,549 and $1,347,530, respectively. Total liabilities at December 31, 2008 of $3,560,7852 significantly exceed total assets of $148,412. 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 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.

CASH AND CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

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

PROPERTY AND EQUIPMENT

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

Depreciation expense for the years ended December 31, 2008 and 2007 was $63,642 and $35,167, respectively. In March, 2008, the Company retired $185,703 of fully depreciated property and equipment, resulting in no gain or loss.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

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

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company capitalizes costs related to computer software developed or obtained for internal use in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” and is depreciated using the straight-line method over the estimated useful life of the software, generally two years. At December 31, 2008, capitalized software development costs totaled $235,750, less accumulated amortization of $213,833. During the twelve month period ended December 31, 2008 no software development costs were capitalized. During the twelve month periods ended December 31, 2008 and December 31, 2007, amortization of capitalized software development costs totaled $32,874 and $18,042, respectively.

INCOME TAXES

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

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

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.

REVENUE RECOGNITION

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

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

LOSS PER COMMON SHARE

Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted net loss per share is computed by dividing net loss by the weighted average number of common shares and dilutive common stock equivalents outstanding for the year. Common stock equivalents for the years ended December 31, 2008 and 2007 totaling 1,504,481 and 954,110, respectively, have been excluded from the computation since such inclusion would have an anti-dilutive effect.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

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

LONG-LIVED ASSETS

STOCK-BASED COMPENSATION

The Company uses 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.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

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

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.

RECENT ACCOUNTING PRONOUNCEMENTS

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE B - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2008 and 2007 consists of the following:


	2008			2007

Computer equipment and software	$	408,162		$	559,774
Furniture and office equipment		9,484			12,538

		417,646			572,312

Less: accumulated depreciation and amortization		(362,202	)		(484,263	)

Net property and equipment	$	55,444		$	88,049

Computer equipment and software includes $235,750 at December 31, 2008 and 2007 in costs capitalized in the development of software held for internal use.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE C - NOTES PAYABLE

Notes payable at December 31, 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.	$	63,500		$	—		$	63,500		$	—
Note is in default as of May 1, 2005. Interest rate increased to 9.5% after default.

Related party note payable bearing interest at 6%, unsecured.		75,000			—			—			—
Note is in default as of December 3, 2008.

Note payable bearing interest at 6%, unsecured.		—			—			50,000			—
Principal and interest due May 30, 2008

Bridge Financing Summary

Convertible bridge notes payable bearing interest at 7.5%, including $57,500 to related parties, unsecured.		187,500			—			187,500			—
Principal and interest due December, 2009

Convertible bridge notes payable bearing interest at 7.5%, including $12,500 to related parties, unsecured.		—			62,500			—			62,500
Principal and interest due January, 2010

Convertible bridge notes payable bearing interest at 7.5%, including $167,000 to related parties, unsecured.		—			250,500			—			250,500
Principal and interest due February, 2010

Convertible bridge notes payable bearing interest at 7.5%, unsecured.		—			82,500			—			82,500
Principal and interest due April, 2010

Convertible bridge notes payable bearing interest at 7.5%, including $25,000 to related parties, unsecured.		—			55,000			—			55,000
Principal and interest due May, 2010

Bridge notes payable bearing interest at 6%, including $684,320 and $359,000 to related parties, unsecured.		1,965,000			—			956,500			—
Principal and interest originally due December 31, 2008; however, automatic note extensions of 1 year were exercised during 2008, with an adjusted interest rate of 9% during the extension period.

Bridge notes payable bearing interest at 8%		250,000			—			—			—
Principal and interest due December 31, 2009, including $190,000 to related parties, unsecured


	$	2,541,000		$	450,500		$	1,257,500		$	450,500
Less: unamortized debt discount		(54,284	)		(106,369	)		(400,633	)		(264,382	)

Total notes payable	$	2,486,716		$	344,131		$	856,867		$	186,118

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE C - NOTES PAYABLE (Continued)

Bridge Financing Summary – Funding Received October 2008 through December 2008

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.

From October 1, 2008 through December 31, 2008 the Company received a total of $250,000 in gross proceeds from the New Notes. In addition, the Company issued 250,000 shares of common stock to the participating investors. These shares were valued at a range of $0.10 to $0.30 per share based on the fair value of the Company’s common stock on the date of issuance resulting in a total fair value of $285,500. 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 $30,116 of the $250,000 in proceeds to the shares of common stock issued and the remaining $219,884 to the notes payable. The debt discount amount of $30,116 is being amortized as a component of interest expense over the life of the notes (twelve to fifteen months).

Bridge Financing Summary – Funding Received June 2007 through July 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 December 31, 2008.

From January 1, 2008 through December 31, 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 based on the fair value of the Company’s common stock on the date of issuance 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 $276,176 of the $1,008,500 in proceeds to the shares of common stock issued and the remaining $732,324 to the notes payable. At December 31, 2008 the debt discount amount of $276,176 had been fully amortized as a component of interest expense over the original life of the notes.

As of December 31, 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 based on the fair value of the Company’s common stock on the date of issuance 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 has been fully amortized as a component of interest expense over the original life of the notes.

In November 2008, the Company notified the holders of the Notes Payable issued in the Financing and the Extension, totaling $1,965,000 in principal amount of the 6% notes payable, initially due December 31, 2008, that it was exercising its option to extend the maturity date one year to December 31, 2009. Effective January 1, 2009, the interest rate on these notes increased to 9% per annum.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE C - NOTES PAYABLE (Continued)

Bridge Financing Summary – Funding Received December 2006 through May 2007

At December 31, 2008, the Company has $638,000 in outstanding two year 6% convertible bridge notes payable (convertible to common stock at a rate of $2.50 per share for a total of up to 255,200 shares to be issued), 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 matured 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 had received written consents to the Offer from Note holders representing the entire $638,000 principal amount of notes outstanding.

Other

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 December 31, 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 December 31, 2008, the Company is in default on the principal amount of $63,500 in an unsecured note payable and $75,000 in an unsecured related party note payable. The related party waived the Company’s non-compliance with the terms of the note as of December 31, 2008.

In June 2007, in accordance with the terms and conditions of the Company’s original conversion offer, dated October 19, 2006, to convert the principal amounts of notes payable and accrued interest through September 15, 2006, to common stock, the Company received signed consents from additional note holders accepting the conversion offer representing $200,000 in notes payable and $44,018 in accrued interest. To affect these additional conversions, the Company issued 107,396 shares of common stock. The difference between the net carrying amount of the extinguished debt and the reacquisition price of the extinguished debt, totaling $381,358 was recognized as a loss in the period of extinguishment.

Future maturities of notes payable at December 31, 2008 are as follows:


2009	$	2,541,000
2010		450,500


Total	$	2,991,500

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE D – LEASE COMMITMENTS
The Company relocated its principal executive office to a new location in Austin, Texas in February 2008. The new premise contains approximately 1,520 square feet and was leased under a two year non-cancelable operating lease agreement, which expires on February 28, 2010. The terms of the operating lease required the Company to pay a refundable lease deposit of $2,936 and $17,617 in pre-paid rent, to be applied to the rents due in months 18 – 24 of the lease term. The current portion of the pre-paid rent, totaling $13,213 is classified as a prepaid expense and the non-current portion of the pre-paid rent, totaling $4,404 is classified as a deposit in the accompanying balance sheet at December 31, 2008. The lease agreement also contained provisions for future rent increases. The difference between rent expense recorded and amount paid is recorded as deferred rent obligation, which is included in “Other Accrued Liabilities” in the accompanying balance sheet.

Rent expense totaled $37,813 and $18,550 for the years ended December 31, 2008 and 2007, respectively.

Future minimum lease payments under the non-cancelable office facilities operating lease at December 31, 2008 are as follows:


2009	$	35,061
2010		4,404

Total	$	39,465

The Company was notified on January 20, 2006, that it was in default under its master electronic equipment lease primarily due to its failure to pay the base monthly rental payments after October 2005. On February 20, 2006, the Company returned approximately $300,000 of the hardware and software to the lessor, retaining approximately $14,000 of the original leased property. The notice of default on the lease did not relieve, suspend or waive the Company’s continued responsibility for the monthly rental payments for the balance of the initial lease term. As of February 20, 2006, the Company had approximately $59,000 of its original lease deposit amount of $124,717 in tact. The Company restructured the remaining amount owed under the lease for an additional twenty-four months. The net amount owed included an offset credit given for the lease deposit of $59,239. The restructured balance totaled $107,102 as of February 20, 2006. The Company made its first payment on the restructured lease in July 2006. In August 2006, the Company was notified by the lessor that a partial credit of $14,849 was being issued to the Company, against the restructured balance, for the equipment returned to the lessor in February 2006. At December 31, 2007, the restructured balance due totaled $30,342 and was included in other accrued liabilities. The entire amount of $30,342 was paid in 2008.

NOTE E - INCOME TAXES

At December 31, 2008 and 2007 deferred tax assets and liabilities are comprised of the following:


	2008			2007

Current deferred tax asset	$	511		$	680
Non-current deferred tax asset:
Stock based compensation		252,159			160,678
Net operating loss		5,515,472			5,019,646
Less valuation allowance		(5,768,142	)		(5,181,004	)

Net deferred tax asset	$	—		$	—

Non-current deferred tax assets principally result from net operating losses. The current deferred tax asset results from the allowance for doubtful receivables which is not currently deducted for income tax reporting purposes. The December 31, 2008 and 2007 deferred tax assets have a 100% valuation allowance due to the uncertainty of generating future taxable income.

Differences between the statutory federal income tax rate and the effective rate for the years ended December 31, 2008 and 2007 are as follows:


	2008		2007


Income tax provision at statutory rate	34.0	%	34.0	%

Permanent differences	(11.0	)	(12.0	)
Change in valuation allowance	(23.0	)	(22.0	)

	0.0	%	0.0	%

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE E - INCOME TAXES (Continued)

The Company has a net operating loss carry forward of approximately $16,200,000 at December 31, 2008. All net operating losses of the Company generated prior to 2003 were eliminated through the bankruptcy process. Accordingly, the net operating loss at December 31, 2008 consists of losses that were generated subsequent to the bankruptcy filing. The net operating loss carryover will begin to expire in 2024. The net operating loss carryover may be limited in the event of an ownership change as defined in Section 382 of the Internal Revenue Code.

NOTE F - 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 twelve months ended December 31, 2008, in conjunction with $1,258,500 in gross proceeds from issuance of notes payable, the Company issued 653,400 shares of common stock to the participating investors (see Note 3 for additional information).

In November 2007 the holder of 80,000 shares of Series A Convertible preferred stock and 90,909 shares of Series B Convertible preferred stock voluntarily converted these preferred stock shares to 400 and 455 shares of common stock, respectively.

On February 28, 2007, the Board of Directors of the Company commenced written solicitation of the holders of its common stock and its Series C Stock, as of February 23, 2007 (the “Record Date”) to grant the Company’s Board of Directors discretionary authority to effect a reverse stock split of two hundred for one in order for the Company to have sufficient shares to meet its existing obligations. This proposed reverse stock split did not change the number of shares of common stock (50,000,000) that the Company is authorized to issue. After completion of the taking of written shareholder consents, of the approximate 232 million shares and share equivalents entitled to vote on the proposal, approximately 167 million or 72% voted in favor of the proposal; approximately 85,000 or .04% voted against the proposal and .01% abstained.

On April 24, 2007 (the “Effective Date”) the Company amended its articles of incorporation with the State of Nevada to affect a 1 for 200 reverse stock split of its common stock. As a result of the reverse stock split, effective April 24, 2007, the Company’s 20,304,000 issued and outstanding shares of common stock were changed into approximately 101,520 shares of common stock (after giving effect to rounding) and each of the Company’s 1,058,835 issued and outstanding shares of Series C Mandatorially Convertible Preferred Stock were automatically converted into 200 shares of the Company’s common stock for an aggregate of 211,767,000 shares of common stock which were automatically changed into approximately 1,058,835 shares of common stock. The total number of common shares issued and outstanding immediately following the reverse stock split was approximately 1,160,355. All share and per share amounts have been restated for all periods presented to reflect this reverse stock split.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE F – SHAREHOLDER’S DEFICIT (Continued)

The holders of the Series A convertible 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 December 31, 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 December 31, 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.

In accordance with the Certificate of Designation of the Series A convertible preferred stock (“the Series A Stock”), each share of the Series A Stock initially had a par value of $.001 and a stated value of $1.00 per share. Each share of the Series A Stock was initially convertible into a number of shares of Common Stock determined by dividing the (i) stated value by (ii) the conversion price in effect on the conversion date. The conversion price at which shares of common stock were initially issuable upon conversion of the shares of the Series A Stock was $1.00 per share. Therefore, initially each share of Series A Stock converted to one share of common stock. On April 24, 2007, after securing shareholder approval for one for two hundred reverse stock split, the number of shares issuable upon conversion of the Series A Stock was adjusted from one share to 1/200^th of a share. At December 31, 2008 the Company had 1,575,000 shares of Series A Stock outstanding. These shares would convert to 7,875 shares of common stock, if all of the outstanding Series A Stock was converted.

The holders of the Series B convertible 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.

In accordance with the Certificate of Designation of the Series B convertible preferred stock (“the Series B Stock”), each share of the Series B Stock initially had a par value of $.001 and a stated value of $1.10 per share. Each share of the Series B Stock was initially convertible into a number of shares of Common Stock determined by dividing the (i) stated value by (ii) the conversion price in effect on the conversion date. The conversion price at which shares of common stock were initially issuable upon conversion of the shares of the Series B Stock was $1.10 per share. Therefore, initially each share of Series B Stock converted to one share of common stock. On April 24, 2007, after securing shareholder approval for one for two hundred reverse stock split, the number of shares issuable upon conversion of the Series B Stock was adjusted from one share to 1/200^th of a share. At December 31, 2008 the Company had 768,183 shares of Series B Stock outstanding. These shares would convert to 3,841 shares of common stock, if all of the outstanding Series B Stock was converted.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE G - STOCK OPTIONS AND WARRANTS

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 which 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 will vest ratably over a two year period (24 months). On October 1, 2008, the Company granted an additional 10,000 options under the 2008 Plan at an exercise price of $0.30. These options will vest ratably over a two year period (24 months). On October 31, 2008 a total of 21,875 options were forfeited.

At December 31, 2008, under the 2008 Plan, the Company had 478,125 options outstanding of which 346,667 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 which 410,834 options vested immediately and 833 options vested between August 15, 2007 and November 15, 2007. Due to an employee who left the Company on November 15, 2007, 9,167 options were forfeited and on February 15, 2008, 833 options were cancelled. On February 22, 2008, the Company granted an additional 10,000 options under the 2007 Plan at an exercise price of $1.25. Those options vested immediately.

At December 31, 2008, under the 2007 Plan, the Company had 420,834 options outstanding, of which 420,834 were exercisable.

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. In accordance with the terms of 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. 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 year ended December 31, 2008.

At December 31, 2008, under the 2004 Plan, the Company had 1,250 options outstanding, of which 1,250 were exercisable.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE G – STOCK OPTIONS AND WARRANTS (Continued)

For the twelve months ended December 31, 2008 and 2007, the compensation expense associated with stock options was $269,063 and $318,878, respectively.

The following tables summarize the activity under all stock option plans for the years ended December 31, 2008 and 2007:


	2008 Stock Option Plan

	Twelve Months Ended December 31, 2008

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

Outstanding at January 1, 2008		—		$	—		— years	$	—

Granted		500,000		$	0.75		9.59 years
Exercised		—		$	—		— years
Cancelled		—		$	—		— years
Forfeitures		(21,875	)	$	0.75		— years

Outstanding at December 31, 2008		478,125		$	0.75		9.59 years	$	—


Vested and expected to vest at December 31, 2008		478,125		$	0.75		9.59 years	$	—
Options exercisable at December 31, 2008		346,667		$	0.75		9.59 years	$	—


	2007 Stock Option Plan

	Twelve Months Ended December 31, 2008 and 2007

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

Outstanding at January 1, 2007		—		$	—		—	$	—

Granted		420,834		$	0.80		9.58 years
Exercised		—		$	—		—
Cancelled		—		$	—		—
Forfeitures		(9,167	)	$	0.80		—

Outstanding at December 31, 2007		411,667		$	0.80		9.58 years	$	—

Granted		10,000		$	1.25		9.08 years
Exercised		—		$	—		— years
Cancelled		(833	)	$	0.80		— years
Forfeitures		—		$	—		— years

Outstanding at December 31, 2008		420,834		$	0.81		8.62 years	$	—


Vested and expected to vest at December 31, 2008		420,834		$	0.81		8.62 years	$	—
Options exercisable at December 31, 2008		420,834		$	0.81		8.62 years	$	—

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE G - STOCK OPTIONS AND WARRANTS (Continued)


	2004 Stock Option Plan

	Twelve Months Ended December 31, 2008 and 2007

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

Outstanding at January 1, 2007		1,250	$	200.00		6.92 years	$	—
Granted		—
Exercised		—
Cancelled		—
Forfeitures		—

Outstanding at December 31, 2007		1,250	$	200.00		6.92 years	$	—

Granted		—
Exercised		—
Cancelled		—
Forfeitures		—

Outstanding at December 31, 2008		1,250	$	200.00		5.92 years	$	—

Vested and expected to vest at December 31, 2008		1,250	$	200.00		5.92 years	$	—
Options exercisable at December 31, 2008		1,250	$	200.00		5.92 years	$	—

The aggregate intrinsic value which is $0 at December 31, 2008 is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s common stock, $0.10 at December 31, 2008.

As of December 31, 2008 there was $111,715 in total unrecognized compensation costs related to unvested options.

Warrants

For the twelve months ended December 31, 2008 the Company did not issue any additional purchase warrants.

For the year ended December 31, 2007 in conjunction with the issuance of $450,500 in 6% convertible bridge notes payable, the Company issued 180,200 warrants to purchase one share of common stock at $5.00 per share (See Note C – Notes Payable).

A summary of changes in the Company’s purchase warrants follows:


	Total

	Warrants			Range of Exercise Prices

Outstanding at 12/31/06 (1)		89,736		$	2.50 - 226.00

Granted (1)		180,200			2.50
Exercised		—			—
Cancelled		—			—

Outstanding at 12/31/07 (1)		269,936		$	2.50 - $226.00


Granted		—			—
Exercised		—			—
Cancelled		(950	)		226.00

Outstanding at 12/31/08		268,986		$	2.50 - $226.00

(1) 75,000 warrants issued in 2006 and 180,200 warrants issued in 2007, all originally priced at $5.00 per share were re-priced to $2.50 per share in the third quarter of 2008 in accordance with the Company’s Note Extension Offer Terms and Conditions. For additional information see Note C.

During the year ended December 31, 2008, a total of 950 warrants were cancelled due to the contractual life of these warrants expiring between March 31, 2008 and October 27, 2008.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE G - STOCK OPTIONS AND WARRANTS (Continued)

Summary

The following table summarizes information about compensatory stock options outstanding at December 31, 2008:


Stock Options Outstanding					Stock Options Exercisable

Range of Exercise Prices	Number Outstanding	Weighted Avg. Remaining Contractual Life	Weighted Avg Exercise Price		Number Exercisable	Weighted Avg Exercise Price
$0.00 - $0.30	10,000	9.75 years	$	0.30	1,250	$	0.30
$0.75 - $0.80	868,959	9.60 years	$	0.77	754,168	$	0.78
$1.00 – $1.25	20,000	9.40 years	$	1.13	12,083	$	1.21
$200.00 - $200.00	1,250	5.92 years	$	200.00	1,250	$	200.00

The following table summarizes information about other non-compensatory warrants outstanding at December 31, 2008:


Warrants Outstanding					Warrants Exercisable

Range of Exercise Prices	Number Outstanding	Weighted Avg. Remaining Contractual Life	Weighted Avg Exercise Price		Number Exercisable	Weighted Avg Exercise Price
$2.50 - $100.00	255,200	3.11 years	$	2.50	255,200	$	2.50
$100.01 - $200.00	11,945	0.50 years	$	200.00	11,945	$	200.00
$200.01 - $400.00	1,591	1.17 years	$	250.00	1,591	$	250.00
$400.01 - $700.00	250	0.24 years	$	700.00	250	$	700.00

The weighted average grant date fair value of options granted during 2007 was $0.77. Using the Black-Scholes option pricing model, we used the following weighted-average assumptions to value the options granted during 2007: risk free interest rate, 4.61%; expected life, 4 years; expected dividend yield, 0%; and daily annualized volatility of 211%.

The weighted average grant date fair value of options granted during 2008 was $0.75. Using the Black-Scholes option pricing model, we used the following weighted-average assumptions to value the options issued in the third and fourth quarters of 2008: Third Quarter - risk free interest rate, 4.04%; expected life, 4 years; expected dividend yield, 0%; and daily annualized volatility of 247%; Fourth Quarter - risk free interest rate, 3.770%; expected life, 4 years; expected dividend yield, 0%; and daily annualized volatility of 276%;

NOTE H - RELATED PARTY TRANSACTIONS

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.

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE H - RELATED PARTY TRANSACTIONS (Continued)

At December 31, 2008, the Company has $68,919 in accrued interest due on the notes payable to related parties.

NOTE I - CONCENTRATIONS OF CREDIT RISK

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

At December 31, 2008 one customer accounted for 54% of accounts receivable. This customer also accounted for 37% of the Company’s revenue for the twelve months ended December 31, 2008. At December 31, 2007 one customer accounted for 52% of accounts receivable. This customer also accounted for 50% of the Company’s revenue for the twelve months ended December 31, 2007.

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

SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2008 and 2007

NOTE J – ACCRUED PAYROLL TAXES

At December 31, 2008, the Company owes $133,359 in accrued payroll taxes and $69,544 in related penalties and interest, the majority of which is related to payroll taxes and related penalties and interest owed from calendar year 2005. These amounts are classified as follows on the accompanying balance sheet:


	Current		Non-Current		Total

Accrued Payroll Taxes	$	90,461	$	42,898	$	133,359
Penalties and Interest		41,526		28,018		69,544

Total	$	131,987	$	70,916	$	202,903

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 $124,890 at December 31, 2008. The Company will make monthly payments of $5,000 over the course of the five year plan.

NOTE K – LOSS ON EARLY EXTINGUISHMENT OF DEBT

In June 2007, in accordance with the terms and conditions of the Company’s original conversion offer, dated October 19, 2006, to convert the principal amounts of notes payable and accrued interest to common stock, the Company received signed consents from additional note holders accepting the conversion offer representing $200,000 in notes payable and $44,018 in accrued interest. To affect these additional conversions, the Company issued 107,396 shares of common stock. The difference between the net carrying amount of the extinguished debt and the reacquisition price of the extinguished debt, totaling $381,358 was recognized as a loss in the period of extinguishment.

NOTE L – CONTINGENCIES

NOTE M – SUBSEQUENT EVENTS

In accordance with the issuance of a new series of notes payable (the “New Notes”) approved by the Board of Directors on September 22, 2008, from January 1, 2009 through January 31, 2009 the Company received a total of $50,000 in gross proceeds from the New Notes. In addition, the Company issued 50,000 shares of common stock to the participating investors.

Effective February 1, 2008 the Company initiated two private offerings of its common stock. The first offering is for accredited investors to purchase up to 4,000,000 shares of common stock at $0.10 per share (the “Stock Offer”). The second offering is for holders of certain of the Company’s indebtedness represented by $300,000 principal amount of promissory notes to exchange their notes for common stock at the rate of one share for each $0.10 in principal amount of notes outstanding for a total of up to 3,000,000 shares (the “Exchange Offer”). Each of the offerings commenced on February 1, 2009. As of March 25, 2009, 614,444 shares had been sold for $61,444 and $300,000 principal amount of notes had been exchanged for 3,000,000 shares. As a result of these issues, the number of shares of common stock, par value $.001 per share, that the Company has issued and outstanding as of March 25, 2009 totals 5,980,892.

Each of the offers, the Stock Offer and the Exchange Offer were conducted pursuant to the exemption provided pursuant to Regulation D under the Securities Act of 1933, as amended, and analogous state laws. The Company did not grant any registration rights to the investors in the offerings. The Company will not receive any proceeds from the Exchange Offer and will use the proceeds of the Stock Offer as working capital. The Company incurred only nominal expenses in connection with the two offerings.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 2009.


	SecureCare Technologies, Inc.

	By:	/s/ Dennis Nasto

		Dennis Nasto, Chief Executive Officer
		(Principal Executive Officer and Director)

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated, in each case on March 30, 2009.


NAME		TITLE
/s/	Dennis Nasto	Chief Executive Officer (Principal Executive Officer and Director)

	Dennis Nasto

/s/	Neil Burley	Chief Financial Officer (Principal Financial and Accounting Officer)

	Neil Burley

Index to Exhibits

The following exhibits are filed with this Annual Report on Form 10-K or are incorporated herein by reference as indicated below (numbered in accordance with Item 601 of Regulation S-K). We shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request. Unless otherwise indicated, all exhibits incorporated by reference are filed under SEC file number 0-29804.


Number		Description


3.1		Articles of Incorporation of the Company (1)

3.2		Articles of Amendment to Articles of Incorporation (1)

3.3		Bylaws of Company (1)

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

3.5		Articles of Amendment to the Articles of Incorporation filed with the State of Nevada on February 25, 2004. (3)

3.6		Articles of Amendment to the Articles of Incorporation filed with the State of Nevada on April 24, 2007. (4)

3.7		Joint Plan of Reorganization Dated August 5, 2003, as amended by the Bankruptcy Court’s Confirmation Order Dated December 2, 2003 (5)

3.8		The Bankruptcy Court’s Confirmation Order Dated December 2, 2003 (5)

3.9		The Bankruptcy Court’s Order Granting Motion to Modify Plan After Confirmation Dated May 18, 2004 (6)

4.1		Form of 8% Promissory note, initially due December 31, 2009

4.2		Bridge Financing Form of Subscription Agreement Effective October 1, 2008

4.3		Form of 6% Promissory Note, initially due December 31, 2008 issued in the Financing Extension (7)

4.4		The Financing Extension Form of Subscription Agreement (7)

4.5		Form of 6% Promissory Note initially due December 31, 2008 (8)

4.6		Form of 6%, 6 Month Promissory Note

10.1		SecureCare Technologies, Inc. Year 2008 Stock Option Plan (7)

10.2		SecureCare Technologies, Inc. Year 2007 Stock Option Plan (8)

14.1		SecureCare Technologies, Inc. Ethics Policy, as adopted December 17, 2007 (8)

31.1		Certifications of Chief Executive Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002


Number		Description


31.2		Certifications of Chief Financial Officer Pursuant to Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certifications of Chief 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		Certifications of Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

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

(3) Incorporated by reference to the Company’s Annual Report 10-KSB for the year-ended December 31, 2003.

(4) Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 25, 2007, file number 0-29804.

(5) Incorporated by reference to the Company’s Form 8-K Filed with the Securities and Exchange Commission on December 15, 3003, file number 0-29804.

(6) Incorporated by reference to the Company’s Annual Report 10-KSB for the year-ended December 31, 2004.

(7) Incorporated by reference to the Company Quarterly Report 10-Q for the quarter-ended June 30, 2008.

(8) Incorporated by reference to the Company’s Annual Report 10-KSB for the year-ended December 31, 2007.