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

                                   FORM 10-KSB

[X]   Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
      1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004.

[_]   Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
      of 1934

                         Commission File Number: 0-31152

                                 CRDENTIA CORP.
--------------------------------------------------------------------------------
                 (Name of Small Business Issuer in Its Charter)

           DELAWARE                                    76-0585701
--------------------------------------------------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

              14114 DALLAS PARKWAY, SUITE 600, DALLAS, TEXAS   75254
--------------------------------------------------------------------------------
         (Address of Principal Executive Offices)            (Zip Code)

                                  (972)850-0780
--------------------------------------------------------------------------------
                           (Issuer's Telephone Number)


Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:
    Title of class:                   Name of each exchange on which registered:
    Common Stock, $.0001 par value    None

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [_]

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

Registrant had revenues for its most recent fiscal year of $23,018,389.

Indicate the number of shares  outstanding  of each  issuer's  classes of Common
Stock, as of the latest  practicable date. At March 16, 2005,  13,126,477 shares
of Common Stock, $.0001 par value, were outstanding.

The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates of Registrant on March 16, 2005, was $13,855,138.

Transitional Small Business Disclosure Format (check one): Yes [_] No [X]

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the definitive Proxy Statement for Registrant's  2005 Annual Meeting
of  Stockholders  to be filed  pursuant to Regulation  14A within 120 days after
Registrant's  fiscal year end,  December 31, 2004 and  incorporated by reference
into Part III of this Report.

<PAGE>


                                 CRDENTIA CORP.
                                   FORM 10-KSB
                                DECEMBER 31, 2004


<TABLE>
<CAPTION>
                                TABLE OF CONTENTS

PART I

<S>     <C>           <C>                                                          <C>
        ITEM 1.       Description of Business                                           1
        ITEM 2.       Description of Property                                          14
        ITEM 3.       Legal Proceedings                                                14
        ITEM 4.       Submission of Matters to a Vote of Security Holders              14

PART II

        ITEM 5.       Market for Equity and Related Stockholder Matters                15
        ITEM 6.       Management's Discussion and Analysis or Plan of Operation        16
        ITEM 7.       Financial Statements                                             22
        ITEM 8.       Changes in and Disagreements with Accountants                    23
        ITEM 8A.      Controls and Procedures                                          23

PART III

        ITEM 9.       Directors and Executive Officers of the Registrant               24
        ITEM 10.      Executive Compensation                                           24
        ITEM 11.      Security Ownership of Certain Beneficial Owners and Management   24
        ITEM 12.      Certain Relationships and Related Transactions                   24
        ITEM 13.      Exhibits, Lists and Reports on Form 8-K                          24
        ITEM 14.      Principal Accountant Fees and Services                           31



PART F/S

        Financial Statements                                                        F-1 to F-42

        Exhibits
</TABLE>

<PAGE>

                                     PART I

ITEM 1. BUSINESS

Company Overview and History

      We are a provider of healthcare  staffing services,  focusing on the areas
of travel nursing, per diem staffing, contractual clinical services, and private
duty  home  care.  Our  travel  nurses  are  recruited  domestically  as well as
internationally  and placed on temporary  assignments  at healthcare  facilities
across  the  United  States.  Our per diem  nurses  are local  nurses  placed at
healthcare  facilities  on  short-term  assignments.  Our  contractual  clinical
services group provides complete clinical management and staffing for healthcare
facilities and our private duty home care group provides nursing case management
and staffing for skilled and non-skilled care in the home.

      At the beginning of the reporting period covered by this report, we were a
development  stage  company with no commercial  operations.  We did not have any
revenue  in 2002 and did not have any  revenue in 2003  until we  completed  our
first  acquisition in August 2003.  During 2003, we pursued our operational plan
of  acquiring   companies  in  the  healthcare   staffing  field  and  completed
acquisitions of four companies.  In 2004, we purchased two additional companies.
As a result, we are now providing temporary  healthcare workers in 20 states and
have  contracts with  approximately  136  healthcare  facilities.  We anticipate
continuing our plan to acquire specialized  companies in the healthcare staffing
field for the foreseeable future.

      In August 2003, we completed our  acquisition of Baker Anderson  Christie,
Inc., a California corporation, which operated a healthcare staffing business in
Northern  California.  The transaction,  for which we paid 160,000 shares of our
common stock, was consummated pursuant to the terms of the Agreement and Plan of
Reorganization dated June 19, 2003, as amended on July 31, 2003.

      In September 2003, we completed our acquisition of New Age Staffing, Inc.,
a  Delaware  corporation,  which  operated  healthcare  staffing  operations  in
Louisiana,  Alabama and Tennessee. The transaction,  for which we paid 2,294,871
shares  of our  common  stock,  was  consummated  pursuant  to the  terms of the
Agreement and Plan of Reorganization  dated September 15, 2003. This acquisition
provided  us entry into the area of travel  nursing  and  resulted  in our first
significant revenue.

      In October 2003, we completed our  acquisition of Nurses  Network,  Inc, a
California  corporation,  which  operated a  healthcare  staffing  operation  in
Northern  California.  The  transaction,  for which we paid 39,361 shares of our
common stock, was consummated pursuant to the terms of the Agreement and Plan of
Reorganization dated July 16, 2003, as amended on September 9, 2003.

      In December 2003, we completed our  acquisition  of PSR Nurse  Recruiting,
Inc., a Texas  corporation,  and PSR Nurses Holdings Corp., a Texas corporation,
which hold the  limited  partner and general  partner  interests  in PSR Nurses,
Ltd., which operated a healthcare  staffing business in Texas. The transactions,
for  which we paid  1,139,595  shares  of our  common  stock,  were  consummated
pursuant to the terms of the Agreement and Plan of Reorganization dated November
4, 2003. This  acquisition  expanded our presence in travel nursing and provided
us with a complete back-office operation.

      In August 2004, we purchased Care Pros Staffing, Inc., a Texas corporation
which operated a per diem nurse staffing business in Texas. The transaction, for
which we paid  $275,000 in cash,  $275,000  in notes  payable and $39,706 of net
acquisition  costs,  was consummated  pursuant to the terms of the Agreement and
Plan of Reorganization dated August 13, 2004.

                                        1
<PAGE>

      In August 2004, we purchased Arizona Home Health  Care/Private Duty, Inc.,
an Arizona  corporation  which  operated per diem and home health care  staffing
businesses in Arizona.  The  transaction,  for which we paid $3,900,000 in cash,
200,000  shares  of  our  stock,  and  $77,154  of  net  acquisition  costs  was
consummated  pursuant to the terms of the Agreement  and Plan of  Reorganization
dated August 31, 2004.

      We were  incorporated  under the laws of the State of Delaware on November
10, 1997 under the name of Digivision  International,  Ltd. Our name was changed
to Lifen,  Inc. on June 22,  2000 and to Crdentia  Corp.  on May 28,  2003.  Our
principal  executive  offices are located at 14114  Dallas  Parkway,  Suite 600,
Dallas, Texas 75254 and our telephone number is 972/850-0780.

      We have put in place a plan to seek Joint  Commission on  Accreditation of
Healthcare  Organizations (JCAHO) certification for all of our staffing offices.
We  anticipate  that  those  surveys  will be held in late 2005 and early  2006.
Although certification is not required by any of our current customers,  we feel
that  attaining  certification  in  each of our  offices  will  demonstrate  our
commitment to quality and demonstrate best practices in client service, employee
credentialing, and over all monitoring of quality outcomes.

Industry Overview

      The  Staffing   Industry   Report,   an  independent   staffing   industry
publication,  estimates  that the healthcare  segment of the temporary  staffing
industry  was $10.6  billion in 2002,  an increase  of 25% from $8.5  billion in
2001.  Nurse  staffing  represents  over  70% of the  revenue  generated  in the
temporary medical staffing industry.

      The  most  common  temporary  nurse  staffing  alternatives  available  to
hospital administrators are travel nurses and per diem nurses.

      o     Travel nurse staffing  involves  placement of registered nurses on a
            contracted,  fixed-term  basis.  Assignments  may range from several
            weeks to one  year,  but are  typically  13 weeks  long and  involve
            temporary  relocation to the geographic area of the assignment.  The
            staffing  company  generally is  responsible  for  providing  travel
            nurses with customary  employment  benefits and for coordinating and
            providing travel and housing arrangements.

      o     Per diem staffing  involves  placement of locally  based  healthcare
            professionals on very short-term assignments,  often for daily shift
            work, with little advance notice of assignments by the client.

Supply and Demand Factors

      Beginning in the mid-1990s,  changes in the healthcare industry prompted a
fundamental shift in staffing models that led to an increased usage of temporary
staffing at hospitals  and other  healthcare  facilities.  We believe that these
changes in the healthcare  industry will continue over the long-term  because of
the following factors:

      Shortage of Nurses.  Notwithstanding  the recent two-year  increase in the
nurse  workforce,  the  nursing  shortage  is  expected  to grow over the coming
decades.  The nursing  workforce  is projected to shrink to 2.2 million by 2020,
yet  the  latest  government   forecast  reflects  that  2.8  million  full-time
equivalent  RNs will be  required  by 2020.  A U.S.  Bureau of Labor  Statistics
report (February 2004) stated that, for the first time,  nurses  represented the
largest projected 10-year job growth  occupation,  putting the demand for RNs at
2.9 million in 2012, up from 2.3 million in 2002. A study by the U.S. Department
of Health and Human Services (July 2002)  estimated there will be a 20% shortage
of nurses by 2015 and 29% by 2020 that  equates to a vacancy  of 810,000  RNs. A
similar  report  in 2002 to Joint  Commission  on  Accreditation  of  Healthcare
Organizations  (JCAHO)  quantified  this  shortage to be at least  400,000 fewer
nurses  available  to provide care than will be needed by 2020.  Meanwhile,  the
current national nurse vacancy rate is estimated to be approximately  7%. A year
earlier,  the vacancy rate was 13.9% according to a survey  conducted by Bernard
Hodes Group.  The 2004 Health  Affairs study,  however,  stated that despite the
recent increase in nurses in the workforce,  there is no empirical evidence that
the nursing  shortage has ended,  citing a national survey of RNs and physicians
conducted  in 2004 which found that a majority  of RNs (82%) and  doctors  (81%)
perceived  shortages of RNs in the hospitals  where they worked or admitted most
of  their  patients.  Further,  the  national  shortage  of RNs  is  not  evenly
distributed across the country.  The 2003 Nursing Shortage Update by Fitch, Inc.
(Fitch) estimates that thirty states are currently  experiencing a shortage, and
by 2020, 44 states and the District of Columbia are projected to have shortages.

                                        2
<PAGE>

Several factors have contributed to the decline in the supply of nurses:

      o     The nurse  pool is getting  older and  approaching  retirement  age.
            Several  factors  contribute  to the aging of the  registered  nurse
            workforce:  (1) the decline in number of nursing  school  graduates,
            (2) the  higher  age of recent  graduates,  and (3) the aging of the
            existing  pool  of  licensed  nurses.  The  largest  source  of  new
            registered nurses, associate-degreed nurses, are on average 33 years
            old when they  graduate , which is  considerably  older than in 1980
            when the average age was 28. The JCAHO  report  outlined the average
            age of a working  registered  nurse at 43.3 and increasing at a rate
            more than twice that of other  workforces  in this  country.  By the
            year  2010,  it  is  projected  that  the  average  age  of  working
            registered nurses will be 50.

      o     Approximately  60% of  nurses  work in  hospitals.  Many  registered
            nurses are leaving the hospital workforce through retirement,  death
            or by  choosing  careers  outside  of  acute  care  hospitals  or in
            professions other than direct patient care. There are currently more
            than 500,000 licensed nurses not employed in nursing. Generally, the
            primary reasons nurses leave patient care, besides retirement, is to
            seek a job that is less stressful and less physically demanding,  to
            seek more regular hours and more compensation.

      o     Enrollment  levels in nursing  schools  declined in the last half of
            the 1990s, resulting in 26% fewer registered nurse graduates in 2000
            than  in  1995.  Similarly,  the  number  of  domestically  educated
            candidates taking the registered nurse licensing examination (NCLEX)
            for the first  time has  declined  at an average of 5.5% for each of
            the past six years,  as  reported by the  National  Council of State
            Boards of Nursing, Inc.

      o     There is an increasing  shortage of nursing faculty.  As a result of
            the faculty  shortage,  nursing  schools turned away 5,000 qualified
            baccalaureate program applicants in 2001.

      We believe  the  shortage  of nurses  increases  demand for our  services.
Hospitals  are  increasingly  turning to  temporary  nurses as a flexible way to
manage  changes  in demand  of their  permanent  staff and make up for  budgeted
shortfalls in staffing.

      Increasing Demand for Healthcare  Services.  There are a number of factors
driving an increase in the demand for healthcare services, including:

      o     A projected 18% increase in population in the United States  between
            the year 2000 and 2020, resulting in an additional 50 million people
            who will  require  health  care--19  million of which will be in the
            65-and-over  age group  (according  to the July 2002  Report by U.S.
            Department of Health and Human Services).

      o     The aging of America.  Baby  boomers are just  entering the 55 to 64
            age group,  where inpatient days per thousand are 58% higher than in
            the 45 to 54 age  group,  and 121%  higher  than in the 35 to 44 age
            group.

                                        3
<PAGE>

      o     Advances in medical technology and healthcare treatment methods that
            attract a greater number of patients with complex medical conditions
            requiring higher intensity of care.

      Legislative  Changes that will Increase Demand. In response to concerns by
consumer  groups over the quality of care provided in healthcare  facilities and
concerns by nursing organizations about the increased workloads and pressures on
nurses, a number of states have either passed or introduced  legislation related
to prohibiting  mandatory overtime and addressing  nurse-to-patient  ratios. The
passage of such  legislation  is  expected  to  increase  the demand for nurses.
California,   in   particular,   has  passed   legislation   requiring   minimum
nurse-to-patient  ratios at all  hospitals.  Maine,  New Jersey and Oregon  have
passed legislation  limiting  mandatory overtime for nurses.  Several states are
considering, or have already introduced similar legislation.

Business Overview

      We are primarily a provider of healthcare  staffing  services to hospitals
and other healthcare  facilities  throughout the United States.  The majority of
our  assignments  are at acute care hospitals in major  metropolitan  areas.  In
2004,  approximately  58% (61% in  2003) of our  revenue  was  derived  from the
placement of travel  nurses on  assignment,  typically 13 weeks in length.  Such
assignments generally involve temporary relocation to the geographic area of the
assignment.  In 2004,  we also  provided  per diem  nurses to  satisfy  the very
short-term needs of healthcare facilities. While per diem services provided less
than 29% of our revenue in 2004 (11% in 2003), we believe this market presents a
significant growth opportunity. The balance of our revenue in 2004 and 2003 came
from providing  clinical  management  and staffing to healthcare  facilities and
private duty home care. We anticipate  there are growth  opportunities  in these
areas as well and intend to pursue such opportunities as they arise.

      With the existing and growing shortage of nurses in the United States,  we
believe there is an opportunity  to build a significant  company in the field of
healthcare  staffing  services.  We intend to pursue  this  opportunity  through
organic growth of our existing businesses and through the continued  acquisition
of complementary  companies in this sector.  We believe that temporary  staffing
companies  must  consolidate  in order to  survive.  The  success  of the  large
industry leaders is indicative of the efficiency,  both in operations as well as
capital  formation,  of this  strategy.  Smaller  companies  in this sector will
increasingly  be  at a  competitive  disadvantage  in  the  marketplace  because
technology,  operating efficiency and breadth of service will soon be the key to
survival.

Growth Strategy

      Our  goal is to  expand  our  position  within  the  temporary  healthcare
staffing  sector  in the  United  States.  The key  components  of our  business
strategy include:

      o     Expanding   Our   Network   of   Qualified   Temporary    Healthcare
            Professionals.  Through our  recruiting  efforts  both in the United
            States and  internationally,  we  continue  to expand our network of
            qualified  temporary  healthcare  professionals.  We have a staff of
            professional   recruiters  who  establish   contact  with  qualified
            healthcare   professionals  by  phone,  by  email  and  through  the
            internet.  Our best source,  however, is by referrals from satisfied
            healthcare professionals already associated with our company.

      o     Strengthening  and Expanding Our  Relationships  with  Hospitals and
            Healthcare  Facilities.  We  continue to  strengthen  and expand our
            relationships with our hospital and healthcare facility clients, and
            to develop new  relationships.  Hospitals and healthcare  facilities
            are  seeking  a strong  business  partner  for  outsourcing  who can
            fulfill the  quantity and quality of their  staffing  needs and help
            them  develop  strategies  for  the  most  cost-effective   staffing
            methods. We believe we are well positioned to offer our hospital and
            healthcare  facility  clients  effective  solutions  to  meet  their
            staffing needs.

                                        4
<PAGE>

      o     Increasing Our Market Presence in the Per Diem Staffing  Market.  We
            intend to expand our per diem  services  to the acute care  hospital
            market by  opening or  acquiring  new per diem  staffing  offices in
            selected  markets.  While we have not historically had a significant
            presence in per diem staffing services,  we believe that this market
            presents a substantial growth opportunity.

      o     Acquiring   Complementary   Businesses.   We  continually   evaluate
            opportunities to acquire complementary  businesses to strengthen and
            broaden our market presence and suite of products.

      o     Expanding Service Offerings Through New Staffing Solutions. In order
            to  further  enhance  the growth in our  business  and  improve  our
            competitive  position in the healthcare staffing sector, we continue
            to explore new service offerings.  In addition, we believe there are
            opportunities   for  growth  in  allied  health   (technicians   and
            therapists) and we have begun to pursue new initiatives in this area
            as well.

Competition

      The healthcare staffing industry is highly competitive,  with low barriers
to entry.  We compete  with both  national  firms as well as local and  regional
firms to  attract  nurses  and other  healthcare  professionals  and to  attract
hospital and healthcare  facility clients.  We compete for temporary  healthcare
professionals on the basis of service and expertise, the quantity, diversity and
quality of assignments  available,  compensation packages, and the benefits that
we  provide  to a  temporary  healthcare  professional  while  they  are  on  an
assignment. We compete for hospital and healthcare facility clients on the basis
of  the  quality  of  our  temporary   healthcare   professionals,   the  timely
availability of our professionals with requisite skills, the quality,  scope and
price of our services, our recruitment expertise and the geographic reach of our
services.  Although  we  believe  we  compete  favorably  with  respect to these
factors, we expect competition to continue to increase.

      We also compete with  national,  regional and local firms who also seek to
acquire  temporary  healthcare  companies.  Many of  these  firms  have  greater
financial  resources and market recognition than we do. However, we believe that
the  combination  of our  management  team  and  the  growth  plan  that we have
established  will be attractive to many of the  acquisition  candidates  that we
encounter and that we will compete favorably in this environment.

Regulatory Issues

      The  healthcare  industry is subject to extensive and complex  federal and
state  laws and  regulations  related  to  professional  licensure,  conduct  of
operations,  payment for  services  and payment for  referrals,  and  additional
federal  legislation has been introduced in 2005. Our business,  however, is not
generally  impacted because we provide services on a contract basis and are paid
directly by our hospital and healthcare facility clients.

      Some states  require  state  licensure for  businesses  that employ and/or
assign healthcare  personnel to provide healthcare services on-site at hospitals
and other healthcare  facilities.  We have applied for or are currently licensed
in all states in which we do business that require such licenses.

      Most of the temporary healthcare professionals that we employ are required
to be individually  licensed or certified under  applicable  state laws. We take
reasonable steps to ensure that our employees possess all necessary licenses and
certifications in all material respects.

                                        5
<PAGE>

      With respect to our  recruitment  of  international  temporary  healthcare
professionals,  we must  comply  with  certain  United  States  immigration  law
requirements,   including   the  Illegal   Immigration   Reform  and   Immigrant
Responsibility Act of 1996.

Employees

At December 31, 2004, we employed 54 full-time  employees,  including  corporate
office and field office  employees.  During the year ended December 31, 2004, we
employed  approximately  544  temporary  healthcare  professionals.  None of our
employees, including our temporary healthcare professionals,  are represented by
a labor union. We believe we have excellent relations with our employees.

Available Information

      We file reports with the Securities and Exchange Commission (SEC). We make
available on our website under "investor  relations," free of charge, our annual
reports on Form 10-KSB,  quarterly  reports on Form 10-QSB,  current  reports on
Form 8-K and amendments to those reports as soon as reasonably practicable after
we  electronically  file such  materials  with or furnish  them to the SEC.  Our
website address is www.crdentia.com. You can also read and copy any materials we
file with the SEC at the SEC's Public  Reference  Room at 450 Fifth Street,  NW,
Washington,  DC 20549. You can obtain additional information about the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  In addition,
the SEC maintains an Internet site  (www.sec.gov)  that contains reports,  proxy
and information  statements,  and other information  regarding issuers that file
electronically with the SEC, including us.

Forward Looking Statements

      This Annual  Report on Form  10-KSB  contains  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.  Such statements
include  statements  regarding our  expectations,  hopes,  beliefs or intentions
regarding  the future,  including  but not limited to  statements  regarding our
market,  strategy,  competition,  development plans (including  acquisitions and
expansion),   availability  of  temporary  professionals,   financing,  revenue,
operations,  and compliance with  applicable  laws.  Forward-looking  statements
involve  certain  risks  and  uncertainties,   and  actual  results  may  differ
materially from those discussed in any such statement.  Factors that could cause
actual results to differ materially from such forward-looking statements include
the  risks  described  in  greater  detail  in  the  following  paragraphs.  All
forward-looking  statements  in this  document  are made as of the date  hereof,
based on  information  available to us as of the date  hereof,  and we assume no
obligation to update any forward- looking statement. Market data used throughout
this report,  including  information  relating to our  relative  position in the
independent staffing industry,  is based on published third party reports or the
good faith estimates of management,  which estimates are based upon their review
of  internal  surveys,  independent  industry  publications  and other  publicly
available information. Although we believe that such sources are reliable, we do
not guarantee the accuracy or completeness of this information,  and we have not
independently verified such information.

Risk Factors

We were formed in November  1997,  and  commenced  operations  on August 7, 2003
following our acquisition of Baker Anderson Christie, Inc. Any investment in our
Common Stock involves a high degree of risk. You should  consider  carefully the
following  information  about these risks,  together with the other  information
contained in this report,  before you decide to buy our Common Stock.  The risks
and  uncertainties  described  below are not the only  ones we face.  Additional
risks and  uncertainties  not  presently  known to us or that we currently  deem
immaterial  may  also  impair  our  operations.  If any of the  following  risks
actually  occur,  our business  would likely suffer and our results could differ
materially from those expressed in any forward-looking  statements  contained in
this report  including  those contained in the section  captioned  "Management's
Discussion and Analysis of  Operations"  under Item 6. In such case, the trading
price of our Common  Stock  could  decline,  and you may lose all or part of the
money you paid to buy our Common Stock.

                                       6
<PAGE>

If we fail to raise  additional  capital in the near future,  our business  will
fail.

We have limited cash resources and will need to raise additional capital through
public or private  financings  or other  arrangements  in order to meet  current
commitments and continue development of our business.  We cannot assure you that
additional  capital  will be  available  to us when  needed,  if at all,  or, if
available,  will be  obtained  on terms  attractive  to us. Our failure to raise
additional capital when needed could cause us to cease our operations.

We have financed our operations  since inception  primarily  through the private
placement  of equity  and debt  securities  and loan  facilities.  Although  our
management  recognizes the need to raise funds in the near future,  there can be
no  assurance  that  we will  be  successful  in  consummating  any  fundraising
transaction,  or if we do  consummate  such a  transaction,  that its  terms and
conditions  will not require us to give  investors  warrants  or other  valuable
rights  to  purchase  additional  interest  in  our  company,  or  be  otherwise
unfavorable to us. Among other things, the agreements under which we issued some
of our existing securities include,  and any securities that we may issue in the
future may also include, terms that could impede our ability to raise additional
funding.   The  issuance  of  additional   securities  could  impose  additional
restrictions  on how we operate and  finance  our  business.  In  addition,  our
current debt financing  arrangements  involve  significant  interest expense and
restrictive covenants that limit our operations.

                                       7
<PAGE>

We may face  difficulties  integrating our acquisitions  into our operations and
our acquisitions may be unsuccessful,  involve  significant cash expenditures or
expose us to unforeseen liabilities.

We continually  evaluate  opportunities to acquire healthcare staffing companies
that  complement  or  enhance  our  business  and  frequently  have  preliminary
acquisition discussions with some of these companies.  In addition,  during 2003
we acquired four  businesses and during 2004 we acquired two  businesses.

These acquisitions involve numerous risks, including:

     o      potential loss of revenues following the acquisition;

      o     potential loss of key employees or clients of acquired companies;

      o     difficulties  integrating  acquired  personnel and distinct cultures
            into our business;

      o     difficulties  integrating  acquired  companies  into our  operating,
            financial planning and financial reporting systems;

      o     diversion of management attention from existing operations; and

      o     assumption of liabilities and exposure to unforeseen  liabilities of
            acquired  companies,  including  liabilities  for their  failure  to
            comply with healthcare regulations.

Our  Series  C  Convertible  Preferred  Stock  has  a  significant   liquidation
preference.

As of March 28,  2005,  we had (i)  52,501  shares of Series C  Preferred  Stock
outstanding  and (ii) warrants (the  "Warrants")  to purchase  254,597 shares of
Series C Preferred Stock outstanding. We anticipate selling additional shares of
Series C Preferred Stock and issuing  additional  warrants to purchase shares of
Series C Preferred Stock.  Each share of Series C Preferred stock is convertible
into  one  hundred  (100)  shares  of our  common  Stock.  In the  event  of any
liquidation or winding up of our company,  the holders of the Series C Preferred
Stock will be  entitled to receive,  in  preference  to the holders of our other
equity securities, an amount equal to five times the original purchase price per
share,  or  $300.00  per  share,  plus any  dividends  declared  on the Series C
Convertible  Preferred  Stock  but  not  paid.  Assuming  the  exercise  of  all
outstanding  Warrants,  upon a  liquidation  or  winding up of our  company  the
holders  of  our  Series  C  Preferred   Stock  would  be  entitled  to  receive
approximately  $92,000,000 prior to the payment of any amounts to the holders of
our other equity  securities.  As a result,  upon a liquidation or winding up of
the Company, there may not be sufficient proceeds,  following the payment of the
Series C liquidation preference described above, to make any distribution to the
holders of our other equity securities.

Our need to raise additional  capital in the future could have a dilutive effect
on your investment.


                                       8
<PAGE>
There is a lack of an active public market for our Common Stock, and the trading
price of our common stock is subject to volatility.

The  quotation of shares of our Common Stock on the OTC Bulletin  Board began on
February  24,  2003.  There can be no  assurances,  however,  that a market will
develop or continue for our Common Stock. Our Common Stock may be thinly traded,
if traded at all,  even if we achieve full  operation  and generate  significant
revenue and is likely to experience significant price fluctuations. In addition,
our stock may be defined as a "penny  stock"  under Rule  3a51-1  adopted by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended.  In general, a "penny stock" includes securities of companies which are
not listed on the  principal  stock  exchanges  or the National  Association  of
Securities  Dealers  Automated  Quotation  System  ("NASDAQ") or National Market
System ("NASDAQ NMS") and have a bid price in the market of less than $5.00; and
companies with net tangible  assets of less than  $2,000,000  ($5,000,000 if the
issuer has been in continuous  operation  for less than three  years),  or which
have recorded  revenues of less than $6,000,000 in the last three years.  "Penny
stocks" are subject to rule  15g-9,  which  imposes  additional  sales  practice
requirements on  broker-dealers  that sell such securities to persons other than
established customers and "accredited  investors"  (generally,  individuals with
net worth in excess of  $1,000,000  or annual  incomes  exceeding  $200,000,  or
$300,000  together  with their  spouses,  or  individuals  who are  officers  or
directors of the issuer of the  securities).  For  transactions  covered by Rule
15g-9, a broker-dealer  must make a special  suitability  determination  for the
purchaser and have received the  purchaser's  written consent to the transaction
prior to sale.  Consequently,  this rule may  adversely  affect  the  ability of
broker-dealers to sell our Common Stock, and therefore, may adversely affect the
ability of our stockholders to sell Common Stock in the public market.

The  trading  price  of our  common  stock  is  likely  to be  subject  to  wide
fluctuation.  Factors  affection  the  trading  price of our  common  stock  may
include:

      o     variations in our financial results.

      o     announcements of innovations,  new solutions,  strategic alliance or
            significant agreement by us or by our competitors.

      o     recruitment or departure of key personnel

      o     changes  in  estimates  of our  financial  results or changes in the
            recommendations of any securities  analysts that elect to follow our
            common stock.

      o     market  conditions in our industry,  the industries of our customers
            and the economy as a whole.

      o     sales of substantial  amounts of our common stock, or the perception
            that  substantial  amounts of our common stock will be sold,  by our
            existing stockholders in the public market.

We will need to raise additional capital. One possibility for raising additional
capital  is the  public  or  private  sale of our  Common  Stock  or  securities
convertible into or exercisable for our Common Stock.

If we sell additional shares of our Common Stock, such sales will further dilute
the  percentage of our equity that our existing  stockholders  own. In addition,
our recent private placement financings have involved the issuance of securities
at a price per share that  represented  a discount to the trading  prices listed
for our Common Stock on the OTC Bulletin  Board and it is possible  that we will
close  future  private  placements  involving  the issuance of  securities  at a
discount to prevailing  trading  prices.  Depending  upon the price per share of
securities that we sell in the future,  a stockholder's  interest in us could be
further  diluted by any  adjustments  to the number of shares and the applicable
exercise price required  pursuant to the terms of the agreements  under which we
previously issued securities.  No assurance can be given that previous or future
investors,  finders or placement agents will not claim that they are entitled to
additional  anti-dilution  adjustments  or dispute our  calculation  of any such
adjustments.  Any such claim or dispute could require us to incur material costs
and expenses regardless of the resolution and, if resolved unfavorably to us, to
effect  dilutive  securities  issuances  or  adjustments  to  previously  issued
securities.  In addition,  future financings may include provisions requiring us
to make  additional  payments to the  investors if we fail to obtain or maintain
the  effectiveness  of SEC  registration  statements by specified  dates or take
other specified  action.  Our ability to meet these  requirements  may depend on
actions  by  regulators  and other  third  parties,  over  which we will have no
control.  These  provisions may require us to make payments or issue  additional
dilutive  securities,  or could  lead to  costly  and  disruptive  disputes.  In
addition,  these  provisions  could  require  us to record  additional  non-cash
expenses.

Our credit facility imposes significant expenses and restrictive  covenants upon
us.

In June 2004 we  obtained a $15  million  revolving  credit  facility  which was
reduced in 2005 to $10 million,(the "Revolving Facility") from Bridge Healthcare
Finance, LLC. In August 2004 we obtained a $10 million term loan credit facility
from Bridge Opportunity  Finance, LLC (the "Term Facility" and together with the
Revolving Facility,  the "Credit Facility").  Bridge Opportunity Finance, LLC is
an affiliate of Bridge Healthcare Finance, LLC.

The Credit Facility  involves  significant  interest expenses and other fees. In
addition, except in certain limited circumstances, the Revolving Facility cannot
be pre-paid in full without us incurring a significant pre-payment penalty.

The Credit Facility imposes various  restrictions on our activities with out the
consent of the lenders,  including a prohibition on fundamental changes to us or
our direct or indirect subsidiaries (including certain  consolidations,  mergers
and sales and transfer of assets,  and  limitations on our ability or any of our
direct or indirect  subsidiaries to grant liens upon our property or assets). In
addition, under the Credit Facility we must meet certain net worth, earnings and
debt service  coverage  requirements.  The Credit  Facility  includes  events of
default  (with  grace  periods,  as  applicable)  and  provides  that,  upon the
occurrence of certain  events of default,  payment of all amounts  payable under
the Credit Facility, including the principal amount of, and accrued interest on,
the Credit  Facility may be  accelerated.  In addition,  upon the  occurrence of
certain insolvency or bankruptcy related events of default,  all amounts payable
under the Credit  Facility,  including  the  principal  amount  of, and  accrued
interest on, the Credit Facility shall automatically  become immediately due and
payable.

The expenses  and  restrictions  associated  with the Credit  Facility  have the
effect of limiting  our  operations.  In  addition,  our failure to pay required
interest  expenses  and other  fees or to meet  restrictions  under  the  Credit
Facility would have a material adverse affect on us.

MedCap Partners L.P.  controls a majority of our outstanding  capital stock, and
this may delay or prevent  change of control of our company or adversely  affect
our stock price.

MedCap  Partners L.P.  controls  approximately  56% of our  outstanding  capital
stock, on an as-converted basis. As a result, MedCap is able to exercise control
over matters requiring stockholder  approval,  such as the election of directors
and  the  approval  of  significant  corporate  transactions.   These  types  of
transactions  include  transactions  involving an actual or potential  change of
control  of  our  company  or  other   transactions  that  the   non-controlling
stockholders  may  deem  to be  in  their  best  interests  and  in  which  such
stockholders  could receive a premium for their shares.  C. Fred Toney, a member
or our  Board of  Directors,  is the  managing  member of  MedCap  Management  &
Research LLC, the general partner of MedCap Partners L.P.

                                       9
<PAGE>


The  ability to attract and retain  highly  qualified  personnel  to operate and
manage our  operations  is  extremely  important  and our failure to do so could
adversely affect us.

Presently,  we are dependent upon the personal  efforts of our management  team.
The loss of any of our  officers  or  directors  could have a  material  adverse
effect  upon  our  business  and  future  prospects.  We do not  presently  have
key-person  life  insurance  upon the life of any of our officers or  directors.
Additionally,  as we continue our planned expansion of commercial operations, we
will  require the  services of  additional  skilled  personnel.  There can be no
assurance that we can attract persons with the requisite  skills and training to
meet our future needs or, even if such persons are  available,  that they can be
hired on terms favorable to us.

These  acquisitions  may  also  involve  significant  cash  expenditures,   debt
incurrence  and  integration  expenses that could  seriously  harm our financial
condition  and  results  of  operations.   We  may  fail  to  achieve   expected
efficiencies  and synergies.  Any  acquisition  may  ultimately  have a negative
impact on our business and financial condition.

We have had a short operating history.

We were formed in November 1997 and commenced  operations on August 7, 2003 with
our acquisition of Baker Anderson Christie,  Inc. We are a "start-up"  operation
and subject to all the risks inherent in a new business  venture,  many of which
are  beyond  our  control,   including  the  ability  to  implement   successful
operations,  lack of  capital  to finance  acquisitions  and  failure to achieve
market acceptance.  In addition,  as a start-up venture we will face significant
competition  from  many  companies  virtually  all of which are  larger,  better
financed  and  have  significantly  greater  market  recognition  than  us.

The successful  implementation of our business strategy depends upon the ability
of our management to monitor and control costs.

With respect to our planned operations,  management cannot accurately project or
give any  assurance  with  respect to our  ability to  control  development  and
operating  costs and/or expenses in the future.  Consequently,  as we expand our
commercial operations,  management may not be able to control costs and expenses
adequately, and such operations may generate losses.

We may become subject to  governmental  regulations  and oversight,  which could
adversely affect our ability to continue or expand our business strategy.

Although our operations are currently not subject to any significant  government
regulations,  it is  possible  that,  in the  future,  such  regulations  may be
legislated.   Although  we  cannot   predict  the  extent  of  any  such  future
regulations,  a possibility exists that future or unforeseen changes may have an
adverse  impact  upon our  ability  to  continue  or expand  our  operations  as
presently planned.


If we are unable to attract  qualified nurses and healthcare  professionals  for
our healthcare staffing business, our business could be negatively impacted.

We rely significantly on our ability to attract and retain nurses and healthcare
professionals who possess the skills,  experience and licenses necessary to meet
the requirements of our hospital and healthcare facility clients. We compete for
healthcare staffing personnel with other temporary healthcare staffing companies
and with hospitals and healthcare  facilities.  We must continually evaluate and
expand  our  temporary  healthcare  professional  network  to keep pace with our
hospital and healthcare facility clients' needs. Currently,  there is a shortage
of qualified nurses in most areas of the United States,  competition for nursing
personnel is increasing,  and salaries and benefits have risen. We may be unable
to continue to increase the number of temporary healthcare professionals that we
recruit,  decreasing  the potential  for growth of our business.  Our ability to
attract  and  retain  temporary  healthcare  professionals  depends  on  several
factors,  including our ability to provide  temporary  healthcare  professionals
with  assignments  that  they  view  as  attractive  and to  provide  them  with
competitive  benefits and wages. We cannot assure you that we will be successful
in any of these areas. The cost of attracting temporary healthcare professionals
and  providing  them with  attractive  benefit  packages  may be higher  than we
anticipate  and,  as a result,  if we are unable to pass  these  costs on to our
hospital and  healthcare  facility  clients,  our  profitability  could decline.
Moreover,   if  we  are  unable  to  attract  and  retain  temporary  healthcare
professionals,  the  quality of our  services  to our  hospital  and  healthcare
facility clients may decline and, as a result, we could lose clients.

                                       10
<PAGE>

The temporary staffing industry is highly competitive and the success and future
growth  of our  business  depend  upon our  ability  to  remain  competitive  in
obtaining and retaining temporary staffing clients.

The temporary  staffing  industry is highly  competitive  and  fragmented,  with
limited  barriers to entry.  We compete in national,  regional and local markets
with  full-service  agencies and in regional and local markets with  specialized
temporary  staffing  agencies.  Some of our  competitors  include AMN Healthcare
Services, Inc., Cross Country, Inc., Medical Staffing Network Holdings, Inc. and
On Assignment,  Inc. All of these companies have significantly greater marketing
and financial resources than we do. Our ability to attract and retain clients is
based on the value of the service we deliver,  which in turn depends principally
on the speed with which we fill assignments and the appropriateness of the match
based on clients'  requirements  and the skills and  experience of our temporary
employees.  Our ability to attract skilled,  experienced temporary professionals
is based  on our  ability  to pay  competitive  wages,  to  provide  competitive
benefits, to provide multiple,  continuous  assignments and thereby increase the
retention rate of these  employees.  To the extent that competitors seek to gain
or retain market share by reducing prices or increasing marketing  expenditures,
we could lose revenues and our margins could decline, which could seriously harm
our operating results and cause the trading price of our stock to decline. As we
expand  into new  geographic  markets,  our  success  will depend in part on our
ability to gain market share from competitors. We expect competition for clients
to increase in the future,  and the success and growth of our business depend on
our ability to remain competitive.

Our business  depends upon our  continued  ability to secure and fill new orders
from our  hospital  and  healthcare  facility  clients,  because  we do not have
long-term agreements or exclusive contracts with them.

We generally do not have  long-term  agreements  or exclusive  guaranteed  order
contracts with our hospital and healthcare facility clients.  The success of our
business  depends  upon our  ability  to  continually  secure  new  orders  from
hospitals  and other  healthcare  facilities  and to fill those  orders with our
temporary healthcare professionals. Our hospital and healthcare facility clients
are free to place orders with our  competitors  and may choose to use  temporary
healthcare  professionals  that our competitors offer them.  Therefore,  we must
maintain  positive  relationships  with our  hospital  and  healthcare  facility
clients.  If we fail to maintain  positive  relationships  with our hospital and
healthcare  facility  clients,  we may  be  unable  to  generate  new  temporary
healthcare professional orders and our business may be adversely affected.

Fluctuations  in patient  occupancy at our  clients'  hospitals  and  healthcare
facilities  may  adversely  affect the demand for our services and therefore the
profitability of our business.

Demand for our temporary healthcare staffing services is significantly  affected
by the  general  level of  patient  occupancy  at our  hospital  and  healthcare
clients' facilities.  When occupancy  increases,  hospitals and other healthcare
facilities often add temporary  employees before full-time  employees are hired.
As occupancy  decreases,  hospitals and other  healthcare  facilities  typically
reduce  their use of temporary  employees  before  undertaking  layoffs of their
regular  employees.  In addition,  we may experience  more  competitive  pricing
pressure  during  periods  of  occupancy  downturn.  Occupancy  at our  clients'
hospitals and healthcare  facilities  also  fluctuates due to the seasonality of
some  elective  procedures.  We are  unable  to  predict  the  level of  patient
occupancy at any particular time and its effect on our revenues and earnings.

Healthcare reform could negatively impact our business  opportunities,  revenues
and margins.

The U.S.  government has  undertaken  efforts to control  increasing  healthcare
costs through legislation, regulation and voluntary agreements with medical care
providers  and  drug  companies.  In the  recent  past,  the U.S.  Congress  has
considered several comprehensive healthcare reform proposals. The proposals were
generally  intended to expand  healthcare  coverage for the uninsured and reduce
the growth of total  healthcare  expenditures.  While the U.S.  Congress did not
adopt any comprehensive reform proposals,  members of Congress may raise similar
proposals in the future.  If any of these proposals are approved,  hospitals and
other healthcare  facilities may react by spending less on healthcare  staffing,
including  nurses.  If  this  were  to  occur,  we  would  have  fewer  business
opportunities, which could seriously harm our business.

                                       11
<PAGE>

State  governments have also attempted to control  increasing  healthcare costs.
For example,  the state of Massachusetts  has recently  implemented a regulation
that limits the hourly rate payable to temporary nursing agencies for registered
nurses,  licensed  practical  nurses and certified  nurses' aides.  The state of
Minnesota  has also  implemented  a statute  that limits the amount that nursing
agencies may charge nursing homes.  Other states have also proposed  legislation
that would limit the amounts that temporary  staffing  companies may charge. Any
such current or proposed laws could  seriously  harm our business,  revenues and
margins.

Furthermore,  third  party  payers,  such as health  maintenance  organizations,
increasingly challenge the prices charged for medical care. Failure by hospitals
and other healthcare  facilities to obtain full  reimbursement  from those third
party  payers  could  reduce  the  demand  or the  price  paid for our  staffing
services.

We operate in a regulated  industry and changes in  regulations or violations of
regulations  may result in increased  costs or  sanctions  that could reduce our
revenues and profitability.

The  healthcare  industry is subject to extensive and complex  federal and state
laws and regulations related to professional  licensure,  conduct of operations,
payment for  services and payment for  referrals.  If we fail to comply with the
laws and  regulations  that are directly  applicable to our  business,  we could
suffer civil and/or criminal penalties or be subject to injunctions or cease and
desist orders.

Our business is  generally  not subject to the  extensive  and complex laws that
apply to our hospital and healthcare facility clients, including laws related to
Medicare,  Medicaid and other federal and state  healthcare  programs.  However,
these laws and regulations could indirectly affect the demand or the prices paid
for our services.  For example,  our hospital and  healthcare  facility  clients
could suffer civil or criminal  penalties or be excluded from  participating  in
Medicare, Medicaid and other healthcare programs if they fail to comply with the
laws and regulations  applicable to their businesses.  In addition, our hospital
and healthcare  facility  clients could receive  reduced  reimbursements,  or be
excluded from  coverage,  because of a change in the rates or conditions  set by
federal or state  governments.  In turn,  violations of or changes to these laws
and  regulations  that  adversely  affect our hospital and  healthcare  facility
clients could also adversely affect the prices that these clients are willing or
able to pay for our services.

In addition,  improper  actions by our emploees and other service  providers may
subject us to regulatory and litigation risk.

Competition  for  acquisition  opportunities  may restrict our future  growth by
limiting our ability to make acquisitions at reasonable valuations

Our business strategy  includes  increasing our market share and presence in the
temporary  healthcare  staffing  industry  through  strategic   acquisitions  of
companies that complement or enhance our business.  We have  historically  faced
competition for  acquisitions.  In the future,  such competition could limit our
ability to grow by acquisitions  or could raise the prices of  acquisitions  and
make them less attractive to us.

Significant legal actions could subject us to substantial uninsured liabilities.

In recent  years,  healthcare  providers  have become  subject to an  increasing
number of legal actions alleging malpractice, product liability or related legal
theories.  Many of these actions  involve large claims and  significant  defense
costs.  In  addition,  we may be  subject  to claims  related to torts or crimes
committed  by our  employees  or  temporary  healthcare  professionals.  In some
instances, we are required to indemnify our clients against some or all of these
risks. A failure of any of our employees or healthcare  professionals to observe
our policies and  guidelines  intended to reduce  these risks,  relevant  client
policies and guidelines or applicable  federal,  state or local laws,  rules and
regulations  could  result  in  negative  publicity,  payment  of fines or other
damages. Our professional  malpractice liability insurance and general liability
insurance  coverage  may not cover  all  claims  against  us or  continue  to be
available  to us at a  reasonable  cost.  If we are unable to maintain  adequate
insurance  coverage  or if our  insurers  deny  coverage  we may be  exposed  to
substantial liabilities.

                                       12
<PAGE>

We may be legally liable for damages  resulting from our hospital and healthcare
facility clients' mistreatment of our healthcare personnel.

Because we are in the business of placing our temporary healthcare professionals
in the workplaces of other  companies,  we are subject to possible claims by our
temporary healthcare professionals alleging  discrimination,  sexual harassment,
negligence and other similar activities by our hospital and healthcare  facility
clients.  The  cost of  defending  such  claims,  even if  groundless,  could be
substantial and the associated  negative  publicity  could adversely  affect our
ability to attract and retain qualified healthcare professionals in the future.

Execution of our business  strategy and growth of our business are substantially
dependent upon our ability to attract,  develop and retain qualified and skilled
sales personnel.

Execution of our  business  strategy  and  continued  growth of our business are
substantially  dependent  upon  our  ability  to  attract,  develop  and  retain
qualified  and  skilled  sales  personnel  who  engage in selling  and  business
development  for our services.  The available pool of qualified  sales personnel
candidates  is limited.  We commit  substantial  resources  to the  recruitment,
training,  development and operational support of our sales personnel. There can
be no assurance  that we will be able to recruit,  develop and retain  qualified
sales  personnel in sufficient  numbers or that our sales personnel will achieve
productivity  levels  sufficient to enable  growth of our  business.  Failure to
attract  and  retain  productive  sales  personnel  could  adversely  affect our
business, financial condition and results of operations.

We have a  substantial  amount of goodwill  and other  intangible  assets on our
balance sheet.  Our level of goodwill and other  intangible  assets may have the
effect of decreasing our earnings or increasing our losses.

As of December 31, 2004, we had $14.6 million of goodwill and other  unamortized
intangible assets on our balance sheet, which represents the excess of the total
purchase  price  of our  acquisitions  over the  fair  value  of the net  assets
acquired. At December 31, 2004, goodwill and other intangible assets represented
74 % of our total assets.

In July 2001,  the  Financial  Accounting  Standards  Board issued SFAS No. 141,
Business  Combinations,  and SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 requires  that the purchase  method of  accounting  be used for all
business  combinations  initiated  after June 30, 2001,  as well as all purchase
method  business  combinations  completed  after  June 30,  2001.  SFAS No.  142
requires  that,  subsequent  to January 1, 2002,  goodwill not be amortized  but
rather that it be reviewed  annually for impairment.  In the event impairment is
identified,  a  charge  to  earnings  would be  recorded.  We have  adopted  the
provisions  of SFAS No. 141 and SFAS No.  142.  Although  it does not affect our
cash flow,  an  impairment  charge of  goodwill  to  earnings  has the effect of
decreasing our earnings or increasing our losses,  as the case may be. If we are
required to write down a substantial  amount of goodwill,  our stock price could
be adversely affected.

Demand for medical staffing  services is  significantly  affected by the general
level of economic activity and unemployment in the United States.

When economic  activity  increases,  temporary  employees are often added before
full-time  employees  are hired.  However,  as  economic  activity  slows,  many
companies,  including our hospital and healthcare facility clients, reduce their
use of temporary employees before laying off full-time  employees.  In addition,
we may experience more  competitive  pricing pressure during periods of economic
downturn.  Therefore,  any significant  economic  downturn could have a material
adverse impact on our financial position and results of operations.

                                       13
<PAGE>

ITEM 2. PROPERTY

      We believe that our  properties  are adequate  for our current  needs.  In
addition, we believe that adequate space can be obtained to meet our foreseeable
business needs.  We currently lease office space in 10 locations,  as identified
in the chart below:

 LOCATION                                                            SQUARE FEET
 --------                                                            -----------
 Dallas, Texas (corporate headquarters and staffing administration)    16,522
 San Francisco, California (staffing administration)                    1,500
 Birmingham, Alabama (staffing administration)                          1,875
 New Orleans, Louisiana (unoccupied)                                    2,276
 Nashville, Tennessee (subleased)                                       1,170
 McKinney, Texas (staffing administration)                                550
 Temple, Texas (staffing administration)                                  346
 Phoenix, Arizona (staffing administration)                             1,534
 Tucson, Arizona (staffing administration)                              1,039
 Orlando, Florida                                                         375
                                                                       ------
 TOTAL                                                                 27,187
                                                                       ======


ITEM 3. LEGAL PROCEEDINGS

      From time to time,  we may become  involved in various  lawsuits and legal
proceedings which arise in the ordinary course of business.  However, litigation
is subject to inherent  uncertainties,  and an adverse  result in these or other
matters  may  arise  from time to time  that may harm our  business.  We are not
currently  aware of any such legal  proceedings  or claims that we believe  will
have,  individually  or in the  aggregate,  a  material  adverse  affect  on our
business, financial condition or operating results.


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

      None.

                                       14
<PAGE>

                                     PART II

ITEM 5. MARKET FOR EQUITY AND RELATED STOCKHOLDER MATTERS

      On June 3, 2003,  our common  stock began  quotation  on the OTC  Bulletin
Board under the symbol "CRNC". In connection with a 1-for-3 reverse split of our
common stock (the "Reverse  Split"),  on June 29, 2004 our symbol was changed to
"CRDE". There currently is a very limited public market for our common stock and
no assurance can be given that a large public market will develop in the future.
The trading  market for the common stock is extremely  thin. In view of the lack
of an  organized  or  established  trading  market for the common  stock and the
extreme  thinness of whatever  trading market may exist, the prices reflected on
the chart as reported on the OTC  Bulletin  Board may not be  indicative  of the
price at which any prior or future  transactions  were or may be effected in the
common stock.  Stockholders  are cautioned  against drawing any conclusions from
the data contained  herein,  as past results are not  necessarily  indicative of
future stock performance.

      The  following  table sets forth the high and low bid price for our common
stock for each quarter for the period from  inception of trading on June 3, 2003
through  December  31,  2004,  as  quoted  on  the  OTC  Bulletin  Board.   Such
over-the-counter  market quotations reflect inter-dealer prices,  without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions.  All per share  prices  have been  restated  as though the Reverse
Split had been in effect for all periods presented.

                                                       HIGH         LOW
                                                       ----         ---
    YEAR ENDED DECEMBER 31, 2003
    ----------------------------
    Quarter ended June 30, 2003                       $15.30      $15.00
    Quarter ended September 30, 2003                  $15.15      $14.25
    Quarter ended December 31, 2003                   $15.90       $6.00


                                                       HIGH         LOW
                                                       ----         ---
    YEAR ENDED DECEMBER 31, 2004
    ----------------------------
    Quarter ended March 31, 2004                      $13.35       $3.60
    Quarter ended June 30, 2004                        $5.25       $2.40
    Quarter ended September 30, 2004                   $4.25       $2.97
    Quarter ended December 31, 2004                    $4.50       $2.40

      As of the date of this report, there were approximately 183 record holders
of our common stock. Since inception,  we have not paid and do not expect to pay
any  dividends on our shares of common stock for the  foreseeable  future as all
earnings will be retained for use in the business.

      During the fiscal year ended  December  31,  2004,  we issued and sold the
following unregistered  securities (not otherwise reported in a quarterly report
on Form 10-QSB or a current report on Form 8-K):

      o     On  September  25,  2004,  we issued  (i)  3,090  shares of Series C
            Preferred  Stock  and (ii) a warrant  to  purchase  7,725  shares of
            Series C Preferred Stock to MedCap Partners L.P.;

      o     On October 12,  2004,  we issued  1,250 shares of Series C Preferred
            Stock to MedCap Partners L.P.;

      o     On  October  18,  2004,  we  issued  (i)  5,000  shares  of Series C
            Preferred  Stock and (ii) a warrant  to  purchase  65,685  shares of
            Series C Preferred Stock to MedCap Partners L.P.;

                                       15
<PAGE>

      o     On  October  25,  2004,  we  issued  (i)  1,417  shares  of Series C
            Preferred  Stock and (ii) a warrant  to  purchase  17,712  shares of
            Series C Preferred Stock to MedCap Partners L.P.; and

      o     On  November  3,  2004,  we  issued  (i)  5,910  shares  of Series C
            Preferred  Stock and (ii) a warrant  to  purchase  73,875  shares of
            Series C Preferred Stock to MedCap Partners L.P.

The  issuances  of the shares of Series C  Preferred  Stock and the  warrants to
purchase  shares of Series C Preferred  Stock were made pursuant to an exemption
from  registration  provided by Section 4(2) of the  Securities  Act of 1933, as
amended and/or Regulation D promulgated under the Securities Act of 1933.


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

OVERVIEW

      We are a provider of healthcare  staffing services,  focusing on the areas
of travel nursing, per diem staffing, contractual clinical services, and private
duty  home  care.  Our  travel  nurses  are  recruited  domestically  as well as
internationally,  and placed on temporary  assignments at healthcare  facilities
across  the  United  States.  Our per diem  nurses  are local  nurses  placed at
healthcare  facilities  on  short-term  assignments.  Our  contractual  clinical
services group provides complete clinical management and staffing for healthcare
facilities and our private duty home care group provides nursing case management
and  staffing  for skilled and  non-skilled  care in the home.  We consider  the
different  services  described above to be one segment as each of these services
relate solely to providing  healthcare staffing to customers that are healthcare
providers and utilize similar distribution methods,  common systems,  databases,
procedures,  processes  and similar  methods of  identifying  and serving  these
customers.

      At the beginning of the reporting period covered by this report, we were a
development  stage  company with no commercial  operations.  We did not have any
revenue in 2003 until we completed our first  acquisition in August 2003. During
2003, we pursued our operational  plan of acquiring  companies in the healthcare
staffing  field  and  completed  acquisitions  of four  companies.  In 2004,  we
purchased two  additional  companies.  As a result,  at December 31, 2004 we are
providing  temporary  healthcare  workers in 20 states and have  contracts  with
approximately 136 healthcare  facilities.  We anticipate  continuing our plan to
acquire  specialized   companies  in  the  healthcare  staffing  field  for  the
foreseeable future.

      The companies we acquired in 2003 -- Baker  Anderson  Christie,  Inc., New
Age Nurses, Inc., Nurses Network,  Inc., and PSR Nurse Recruiting,  Inc. and PSR
Nurses  Holdings  Corp.,  which hold the limited  partner  and  general  partner
interests  in PSR  Nurses,  Ltd.  -- provide the  foundation  for our  continued
growth.  During 2003 we began  operating the acquired  companies,  combining the
various  back  offices  and  support  staff  into a central  location  and began
streamlining  the operations.  We continued our acquisition  program in 2004 and
acquired Care Pros  Staffing,  Inc. and Arizona Home Health  Care/Private  Duty,
Inc.

      We have achieved a number of significant  successes  during 2003, 2004 and
the first quarter of 2005:

      o     We have  raised  over $14 million  through  issuance of  convertible
            preferred stock and over $3 million in debt  financing,  net of debt
            issuance costs.

      o     We have acquired four  companies in 2003, two companies in 2004, and
            two companies in the first quarter of 2005.

      o     We have integrated our  acquisitions  into our operating,  financial
            planning and financial reporting systems.

      o     We have  reorganized  our  travel  business  in  2004  to  eliminate
            redundancies  and to  eliminate  over  $1.5  million  in costs on an
            annual basis.

      o     We  have  converted  debt  to   convertible   preferred   stock  and
            convertible preferred stock to common stock with an ultimate benefit
            of   eliminating   certain   debt  service   costs  and   increasing
            stockholders' equity.

                                       16
<PAGE>

      In  addition  to  noteworthy  successes,  the  following  are a number  of
challenges and  management's  anticipated plan as to how these challenges may be
addressed:


<TABLE>
<CAPTION>
               CHALLENGES                           MANAGEMENT'S PLAN
               ----------                           ------------------------

<S>                                         <C>
We have experienced a decline in revenue    We are hiring experienced management and
in our travel business, and travel nurse    business   development    personnel   to
assignments  related to one  significant    complement  existing  management  in our
customer group  representing over 16% of    efforts to grow the travel business.  We
our revenue  have not been  renewed.  We    also seek to acquire  additional  travel
need to find ways to attract  and retain    business  as  part  of  our  acquisition
hospital clients.                           program  and  will  use  the  management
                                            talent   from  these   acquisitions   to
                                            explore  new ways to expand  the  travel
                                            business  and  to  gain  access  to  new
                                            clients.

Access to international  nurses has been    For the near future,  we intend to focus
limited     following     the    Federal    our  attention  on  domestic  nurses and
Government's overhaul of the immigration    enhance our recruitment efforts relative
system.  We expect  annual limits on the    to domestic nurses.
immigration    of   workers   from   the
Philippines,  China,  and  India  to the
Unites States in the next two years.


We have not  maintained  targeted  gross    We  intend  to  install  new   operating
profit levels of 23% to 24%.                software    to   assist   us   in   more
                                            effectively  managing  gross  profits by
                                            nurse  and by  healthcare  facility.  We
                                            also   intend   to   vigorously   manage
                                            professional  liability insurance costs,
                                            workers  compensation  insurance  costs,
                                            and housing and travel costs  related to
                                            the travel nurse business.

We need  to  continue  to  find  ways to    In    addition    to    keeping    nurse
attract and retain quality nurses.          compensation    competitive,    we   are
                                            implementing a stock  ownership  program
                                            for  nurses  as  an  innovative  way  to
                                            attract and retain nurses.

We need to overcome  corporate  overhead    We   intend   to  make  at  least   five
costs that are  disproportionately  high    acquisitions  in  2005 to  enable  us to
relative  to  our  revenue  base.  Costs    spread  corporate  overhead costs over a
related to SEC reporting and  compliance    much larger volume of business.  We also
with  Sarbanes-Oxley  are  high,  and we    have  undertaken an  exhaustive  expense
expect  costs to  increase  as we comply    cutting program to ensure that corporate
with new rules applicable in the future.    costs are minimized.

We need to  continue  to raise  money to    We are forecasting that the acquisitions
fund acquisitions.                          in the first quarter of 2005 will permit
                                            us to achieve  positive  operating  cash
                                            flow in the third and fourth quarters of
                                            2005,   making   it   easier   to  raise
                                            additional money.
</TABLE>

                                       17
<PAGE>

<TABLE>
<CAPTION>
<S>                                         <C>
We  need to  continue  to  identify  and    We   have  a   considerable   depth   of
acquire quality acquisition targets.        management and  considerable  experience
                                            in  locating  and  qualifying  excellent
                                            acquisition  candidates.  We  intend  to
                                            continue our efforts in this area.

We have not complied with loan covenants    We have an agreement  with our lender to
relative to our revolving line of credit    revise  financial  loan covenants in the
and term loan facilities.                   near future to make covenant  compliance
                                            achievable.

Our    credit     facilities     require    We  have   reduced  the  amount  of  our
significant interest payments.              revolving  line of credit  facility from
                                            $15  million to $10 million to enable us
                                            to reduce  unused  line fees.  This will
                                            reduce the  effective  interest  rate by
                                            several percentage points.

We   have  a   significant   number   of    We expect to submit our  application  to
fully-diluted  shares and a low  trading    the  American   Stock  Exchange  in  the
volume in our stock.                        second  quarter  of  2005 to  provide  a
                                            better  forum  for  the  trading  of our
                                            stock.

Our Convertible Series C Preferred Stock    We have two  options  to  address  this
has    a     significant     liquidation    situation.  This liquidation preference
preference in excess of $92 million.        will  cease   to  exist  only if we can
                                            successfully    consummate   a   public
                                            offering  of  at least $25  million  or
                                            obtain  the  consent  of a majority  of
                                            our  Series C Preferred  stock  holders
                                            to  convert to common.

</TABLE>

                                       18
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      During  the  next  twelve  months,  we  intend  to  continue  growing  the
businesses  acquired  in 2003 and  2004 and to  further  expand  our  operations
through acquisitions.  Our goal is to acquire at least five additional companies
in 2005, generally in the areas of travel nursing, per diem staffing and private
duty home care. As we acquire companies,  we expect to realize immediate savings
in their  operations as we integrate them into our operations and as we decrease
their general and administrative  costs by merging their back office and support
operation into ours.

      Although we ended 2004 with a working capital deficit of $5.3 million,  we
were able to secure  additional  funding during 2004  (approximately  $3 million
from borrowings and $6 million from the sale of convertible  preferred stock) to
finance our  operations  as we continued to execute our business plan to acquire
and grow  companies  involved  in  healthcare  staffing.  In 2003 the cash  flow
generated by our  operations  was not  sufficient to fund our operations and was
supplemented  by  $910,000  of  convertible  debt  raised in  September  through
December  2003 and by $1.75  million  of  convertible  preferred  stock  sold in
December 2003.

      In June 2004, we obtained a $15 million  revolving line of credit facility
from Bridge Healthcare  Finance,  LLC (reduced to $10 million in March 2005). In
August  2004,  we obtained a $10 million term loan credit  facility  from Bridge
Opportunity  Finance,  LLC. Bridge Opportunity  Finance,  LLC is an affiliate of
Bridge Healthcare Finance,  LLC. We have $2,521,598  outstanding at December 31,
2004 under our revolving  line of credit  facility and $2,697,802 of face amount
(after adding back the discount) of term loan  outstanding.  Agreements for both
the  revolving  line of  credit  facility  and the term  loan  facility  contain
financial  covenants for the  maintenance of minimum net worth,  minimum EBITDA,
maximum capital  expenditure limits and maximum operating lease obligations.  At
December 31, 2004, we were out of compliance  with  financial  covenants in both
agreements, for which waivers were received from the lenders. Until such time as
we  demonstrate  an  ability to comply  with the  financial  covenants  of these
agreements, the outstanding balance will be classified as a current liability on
our balance sheet. Because of the defaults, our lenders can, among other things,
demand payment of all amounts owed and increase interest rates on our debt.

      In March 2005 our  majority  stockholder  exercised  warrants  to purchase
108,333 shares of Series C Convertible Preferred Stock providing $6.5 million to
us. The infusion of $6.5 million enabled us to acquire additional  companies and
to retire some debt and,  based on our  projections,  we will generate cash flow
from  operations in 2005  sufficient to service our debt and to pursue a plan to
reach cash flow break even in 2005.  If we are  unsuccessful  in executing  this
plan,  we would  be  compelled  to raise  additional  funds or to  pursue  other
strategic options.

      While we believe we will be successful in raising  additional  capital for
acquisitions  in addition to those  closed in March 2005,  there is no assurance
that we will be able to  raise  the  amount  of  capital  required  to meet  our
objectives. If additional capital is not readily available, we will be forced to
scale  back our  acquisition  activities  and our  operations  until our  income
exceeds  our  expenses.  This  would  result  in  an  overall  slowdown  of  our
development.

      Our  capital  commitments  for the next  twelve  months are minimal as our
business does not require the purchase of plants,  factories,  extensive capital
equipment or inventory.

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT JUDGEMENT

      The preparation of the financial  statements in accordance with accounting
principles  generally  accepted in the United  States of America  requires us to
make judgments,  estimates,  and assumptions regarding uncertainties that affect
the reported amounts of assets and liabilities,  disclosure of contingent assets
and liabilities,  and the reported amounts of revenues and expenses.  Areas that
require significant judgments, estimates, and assumptions include the assignment
of fair values upon acquisition of goodwill and other intangible assets, testing
for  impairment  of  long-lived  assets  and  valuation  of the  stock  used  to
consummate our acquisitions. We use historical experience, qualified independent
consultants and all available information to make these judgments and estimates,
and actual results will  inevitably  differ from those estimates and assumptions
that are used to prepare the company's financial statements at any given time.

                                       19
<PAGE>

      Accounts Receivable

      Accounts receivable are reduced by an allowance for doubtful accounts that
provides  a  reserve  with  respect  to those  accounts  for which  revenue  was
recognized but with respect to which  management  subsequently  determines  that
payment is not  expected to be  received.  We analyze  the  balances of accounts
receivable  to ensure that the  recorded  amounts  properly  reflect the amounts
expected to be collected.  This  analysis  involves the  application  of varying
percentages  to  each  accounts  receivable  category  based  on the  age of the
uncollectible accounts receivable. The amount ultimately recorded as the reserve
is determined  after  management  also analyzes the  collectibility  of specific
large or  problematic  accounts on an individual  basis,  as well as the overall
business  climate  and  other  factors.   Our  estimate  of  the  percentage  of
uncollectible  accounts  may change from time to time and any such change  could
have a material impact on our financial condition and results of operations.

      Accounting for Stock Options

      We have used  stock  grants  and  stock  options  to  attract  and  retain
directors  and key  executives  and intend to use stock options in the future to
attract,  retain and reward employees for long-term  service.  In 2003 the grant
prices were  significantly  under the publicly  traded market value per share of
our stock. Therefore, we calculated the intrinsic value of the stock and options
granted and recorded non-cash  compensation  expense for the difference  between
the grant price and the market  value at issuance.  In the future,  we may issue
additional   options,   at  which  time  we  would  incur  additional   non-cash
compensation  expense.

      Purchase Accounting, Goodwill and Intangible Assets

      All  business  acquisitions  have been  accounted  for using the  purchase
method of accounting and, accordingly,  the statements of operations include the
results of each  acquired  business  since the date of  acquisition.  The assets
acquired and  liabilities  assumed are recorded at their estimated fair value as
determined  by  management  and  supported  in  some  cases  by  an  independent
third-party  valuation.  We finalize the allocation of the purchase price to the
fair  value of the  assets  acquired  and  liabilities  assumed  when we  obtain
information  sufficient to complete the allocation,  but in any case, within one
year after acquisition.

      Goodwill  arising from the  acquisitions  of businesses is recorded as the
excess of the purchase  price over the estimated fair value of the net assets of
the businesses  acquired.  Statement of Financial  Accounting  Standards No. 142
("Goodwill and Other Intangible  Assets") provides that goodwill is to be tested
for impairment  annually or more frequently if circumstances  indicate potential
impairment.  Consistent with this standard,  we will review goodwill, as well as
other intangible  assets and long-term assets,  for impairment  annually or more
frequently as warranted,  and if circumstances  indicate that the recorded value
of any such other  asset is  impaired,  such  asset is written  down to its new,
lower fair value.  If any item of goodwill or such other asset is  determined to
be impaired, an impairment loss would be recognized equal to the amount by which
the recorded value exceeds the estimated fair market value.

                                       20
<PAGE>

RESULTS OF OPERATIONS--2004 COMPARED TO 2003

      The following condensed financial information includes Crdentia Corp. plus
the results of operations of all companies  acquired from their respective dates
of acquisition.


                                                         YEAR ENDED DECEMBER 31,
                                                         -----------------------
                                                            2004         2003
                                                            ----         ----
                                                              (IN THOUSANDS)

Revenue from services                                     $ 23,018     $  4,712
Direct operating expenses                                   18,251        3,571
                                                          --------     --------
    Gross profit                                             4,767        1,141

Operating expenses:
    Selling, general and administrative expenses             9,517        3,410
    Loss on impairment of intangibles                        1,800           --
    Non-cash stock based compensation                          394       51,638
                                                          --------     --------
Total operating expenses                                    11,711       55,048

Loss from operations                                        (6,944)     (53,907)

Non-cash expense from conversion of debt                   (24,541)          --
Interest expense, net                                       (2,218)        (409)
                                                          --------     --------

Loss before income taxes                                   (33,703)     (54,316)

Income tax expense                                              --           --
                                                          --------     --------

Net loss                                                   (33,703)     (54,316)

Deemed dividends                                            (4,648)      (1,750)
Non-cash preferred stock dividends                          (3,636)          --
                                                          --------     --------
Net loss attributable to common stockholders              $(41,987)    $(56,066)
                                                          ========     ========


      At the  beginning of 2003,  we were a  development  stage  company with no
commercial  operations.  We  pursued  our  operational  plan and  acquired  four
companies in 2003,  with our first  acquisition in August 2003. We purchased two
more  companies in August 2004.  Below,  we discuss  operating  results for 2004
compared  to  2003.  However,  because  of the  various  purchase  dates  of our
subsidiaries  throughout 2003 and 2004 and the inclusion of different periods of
operating  results  for each of our  subsidiaries,  it is not  possible  to make
meaningful comparisons of revenue and expense categories between 2004 and 2003.

      Revenues in 2004 were  $23,018,000  compared to revenues of  $4,712,000 in
2003. In 2004,  approximately  58% (61% in 2003) of our revenue was derived from
the placement of travel nurses on assignment, typically 13 weeks in length. Such
assignments generally involve temporary relocation to the geographic area of the
assignment.  In 2004,  we also  provided  per diem  nurses to  satisfy  the very
short-term needs of healthcare facilities. Per diem services provided 29% of our
revenue in 2004 (11% in 2003).  The balance of our revenue in 2004 and 2003 came
from providing  clinical  management  and staffing to healthcare  facilities and
private duty  homecare.  During 2004 and 2003,  most of our customers were acute
care hospitals located throughout the continental United States. For 2004, sales
to one customer group,  Rhode Island Hospital and Newport Hospital,  represented
approximately 16.3% of our revenue. In the third quarter of 2004, we experienced
a decline in revenue at these  facilities and travel nurse  assignments have not
been  renewed to date.  Our top ten  customers  accounted for 48% of revenues in
2004.

                                       21
<PAGE>

      Our  overall  gross  profit  margin  in 2004  was  $4,767,000  or 20.7% of
revenues  compared to $1,141,000 or 24.2% of revenues in 2003.  Our gross margin
is the difference  between the revenue we realize when we bill our customers for
the services of our healthcare  professionals  and our direct  operating  costs,
which include the cost of the healthcare  professionals  and the related housing
and travel costs,  certain  employment  related  taxes and workers  compensation
insurance  coverage.   Competitive  pressures  on  pricing  and  higher  medical
insurance costs, higher workers  compensation  insurance costs,  particularly in
our California markets, and higher professional  liability costs are reasons for
the lower margins in 2004. Also internal management reporting systems need to be
improved to provide  more timely  information  on  individual  nurse  margins to
enable more effective management of gross profit.

      Our selling,  general and administrative costs were $9,517,000 or 41.3% of
revenues in 2004 compared to  $3,410,000 or 72.4% of revenues in 2003.  Selling,
general and administrative  expenses are comprised primarily of personnel costs,
legal and audit fees related to being a public  company and various other office
and  administrative  expenses.  Approximately  17.5% or $595,000 of the selling,
general and  administrative  expense in 2003 was  incurred  when the company was
still in its formative stage,  prior to the completion of our first acquisition,
and 2003 included a long-term bonus to our Chief Executive Officer.  We consider
the  long-term  bonus  payable to be a one-time  event  that is  unlikely  to be
repeated.

      Due to the  decline in revenue  related to the loss of certain  customers,
including  a  significant  customer  relationship,  and due to the impact of new
immigration  regulations  limiting access to foreign nurses,  we have determined
that certain intangibles are impaired. As a result of this analysis,  $1,800,000
was recorded as an impairment loss in 2004.

      In  2003,  we  incurred  significant  non-cash   compensation  expense  of
$51,638,000 primarily from a compensation  agreement with our Chairman and Chief
Executive  Officer,  related to our initial  acquisitions.  For a more extensive
explanation  of  this  agreement,  see  Note  13 to the  consolidated  financial
statements.  In the future we intend to use stock options as an incentive to our
employees and, therefore,  could incur additional non-cash compensation expense.
However,  we do not believe  that such  additional  expense will be at the level
incurred in 2003.

      In 2004, we incurred a significant  non-cash  expense of  $24,541,000  for
conversion  of debt.  For a more  extensive  discussion of this expense which is
classified below loss from operations, see Note 12 to the consolidated financial
statements.

      Interest  costs  increased  from  $409,000 in 2003 to  $2,218,000  in 2004
reflecting  higher  levels of  borrowing  to finance  acquisitions  and  working
capital needs.

      Deemed  dividends were  $4,648,000 in 2004 compared to $1,750,000 in 2003.
The deemed dividends relate to beneficial conversion features of our convertible
preferred stock, and we had greater amounts of convertible  stock issued in 2004
compared to 2003.

      The  non-cash  preferred  stock  dividends  in 2004  related to  dividends
declared by the Board of  Directors on all series of our  convertible  preferred
stock.

ITEM 7. FINANCIAL STATEMENTS

      Audited financial statements for the year ended December 31, 2004 and 2003
are submitted herein as PART F/S on Pages F-1 to F-42.

                                       22
<PAGE>

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

      None.

ITEM 8A. CONTROLS AND PROCEDURES

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

      As required by Rule  13a-15(b)  under the  Exchange  Act, we  conducted an
evaluation  under the supervision and with the  participation of our management,
including our Chief Executive  Officer and our Chief Financial  Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures  as of the end of the period  covered by this report.  Based upon the
foregoing  evaluation,   our  principal  executive  officer  and  our  principal
financial  officer  concluded that our disclosure  controls and procedures  were
effective at the reasonable  assurance  level as of the end of the fiscal period
covered by this report.

During the fourth quarter of 2004,  internal  controls over financial  reporting
were improved by:

      o     Recruitment of additional key personnel.

      o     Increased internal review by managemet.

      o     Additional training for key personnel.

      o     Commencement of a process to improve management reporting systems.

                                       23
<PAGE>

                                    PART III


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

      Information  required by this item is  incorporated  by  reference  to the
Proxy  Statement to be distributed in connection with our 2005 annual meeting of
stockholders.

ITEM 10. EXECUTIVE COMPENSATION

      Information  required by this item is  incorporated  by  reference  to the
Proxy  Statement to be distributed in connection with our 2005 annual meeting of
stockholders.

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

      Information  required by this item is  incorporated  by  reference  to the
Proxy  Statement to be distributed in connection with our 2005 annual meeting of
stockholders.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      Information  required by this item is  incorporated  by  reference  to the
Proxy  Statement to be distributed in connection with our 2005 annual meeting of
stockholders.

ITEM 13. EXHIBITS

(a)   Exhibits

EXHIBIT NO. DESCRIPTION
----------- -----------

2.1(1)      Agreement and Plan of  Reorganization,  dated as of August 26, 2004,
            by  and  among  Crdentia  Corp.,   CRDE  Corp.,   AHHC   Acquisition
            Corporation,  Arizona Home Health  Care/Private  Duty,  Inc. and the
            shareholders of Arizona Home Health  Care/Private Duty, Inc. Certain
            schedules  and  exhibits  referenced  in the  Agreement  and Plan of
            Reorganization  have been omitted in accordance  with Item 601(b)(2)
            of Regulation  S-B. A copy of any omitted  schedule  and/or  exhibit
            will be  furnished  supplementally  to the  Securities  and Exchange
            Commission upon request.

2.2(26)     Agreement and Plan of Reorganization, dated as of November 14, 2004,
            by and among Crdentia Corp.,  CRDE Corp. and the shareholders of HCI
            Holding Corporation.

2.3(38)     Agreement and Plan of Reorganization,  dated as of June 19, 2003, by
            and  among  Crdentia  Corp.,  Baker  Anderson  Christie,  Inc.,  BAC
            Acquisition  Corporation and certain  stockholders of Baker Anderson
            Christie,  Inc  ("BAC  Merger  Agreement").  Certain  schedules  and
            exhibits referenced in the Agreement and Plan of Reorganization have
            been omitted in accordance  with Item 601(b)(2) of Regulation S-B. A
            copy of any  omitted  schedule  and/or  exhibit  will  be  furnished
            supplementally  to  the  Securities  and  Exchange  Commission  upon
            request.

2.4(39)     Amendment  No. 1 to the BAC Merger  Agreement  made and entered into
            effective as of July 31, 2003.

                                       24
<PAGE>

2.5(40)     Agreement and Plan of Reorganization,  dated as of July 16, 2003, by
            and among Crdentia  Corp.,  Nurses  Network,  Inc., NNI  Acquisition
            Corporation and certain  shareholders  of Nurses Network,  Inc. (the
            "NNI Merger  Agreement").  Certain schedules and exhibits referenced
            in the NNI Merger  Agreement  have been omitted in  accordance  with
            Item  601(b)(2) of  Regulation  S-B. A copy of any omitted  schedule
            and/or  exhibit will be furnished  supplementally  to the Securities
            and Exchange Commission upon request.

2.6(41)     Agreement  and Plan of  Reorganization,  dated as of  September  15,
            2003,  by and among  Crdentia  Corp.,  New Age Staffing,  Inc.,  NAS
            Acquisition  Corporation  and the  shareholders of New Age Staffing,
            Inc. (the "NAS Merger  Agreement").  Certain  schedules and exhibits
            referenced  in  the  NAS  Merger  Agreement  have  been  omitted  in
            accordance  with Item  601(b)(2)  of  Regulation  S-B. A copy of any
            omitted schedule and/or exhibit will be furnished  supplementally to
            the Securities and Exchange Commission upon request.

2.7(42)     Amendment  No. 1 to the NNI Merger  Agreement  made and entered into
            effective as of September 9, 2003.

2.8(43)     Agreement and Plan of Reorganization,  dated as of November 4, 2003,
            by and  among  Crdentia  Corp.,  PSR  Acquisition  Corporation,  PSR
            Holdings Acquisition Corporation, PSR Nurse Recruiting, Inc. and PSR
            Nurses Holdings Corp.  Certain schedules and exhibits  referenced in
            the  Agreement  and Plan of  Reorganization  have  been  omitted  in
            accordance  with Item  601(b)(2)  of  Regulation  S-B. A copy of any
            omitted schedule and/or exhibit will be furnished  supplementally to
            the Securities and Exchange Commission upon request.

2.9         Agreement  and Plan of  Reorganization,  dated as of August 2004, by
            and among the Company, CRDE Corp., CPS Acquisition Corporation, Care
            Pros Staffing,  Inc. and certain shareholders of Care Pros Staffing,
            Inc. Certain schedules and exhibits  referenced in the Agreement and
            Plan of  Reorganization  have been omitted in  accordance  with Item
            601(b)(2) of Regulation  S-B. A copy of any omitted  schedule and/or
            exhibit  will be  furnished  supplementally  to the  Securities  and
            Exchange Commission upon request.

3.1(2)      Restated Certificate of Incorporation.

3.2(3)      Certificate of Amendment to Restated Certificate of Incorporation.

3.3(4)      Certificate of Amendment to Restated Certificate of Incorporation.

3.4(5)      Certificate  of Correction of  Certificate  of Amendment to Restated
            Certificate of Incorporation.

3.5(6)      Certificate  of Correction of  Certificate  of Amendment to Restated
            Certificate of Incorporation.

3.3(7)      Restated Bylaws.

3.4(8)      Certificate  of  Designations,  Preferences  and  Rights of Series A
            Preferred Stock of Crdentia Corp.

3.5(9)      Certificate of Amendment of Certificate of Designations, Preferences
            and Rights of Series A Preferred Stock of Crdentia Corp.

3.6(10)     Certificate  of  Designations,  Preferences  and  Rights of Series B
            Preferred Stock of Crdentia Corp.

3.7(11)     Certificate   of  Correction   of   Certificate   of   Designations,
            Preferences and Rights of Series B Preferred Stock of Crdentia Corp.

3.8(12)     Certificate of  Designations,  Preferences  and Rights of Series B-1
            Preferred Stock of Crdentia Corp.

3.9(13)     Certificate   of  Correction   of   Certificate   of   Designations,
            Preferences  and Rights of Series B-1  Preferred  Stock of  Crdentia
            Corp.

                                       25
<PAGE>

3.10(14)    Certificate  of  Designations,  Preferences  and  Rights of Series C
            Preferred Stock of Crdentia Corp.

3.11(15)    Certificate   of  Correction   of   Certificate   of   Designations,
            Preferences and Rights of Series C Preferred Stock of Crdentia Corp.

3.11(36)    Certificate of Amendment of Certificate of Designations, Preferences
            and Rights of Series C Preferred Stock.

4.1(16)     Registration  Rights  Agreement  dated  August  9, 2004 by and among
            Crdentia Corp. and the investors listed on Schedule A thereto.

4.2(17)     Amended and Restated  Registration Rights Agreement dated August 31,
            2004 by and  among  Crdentia  Corp.  and  the  investors  listed  on
            Schedule A thereto.

4.3(18)     Form of Warrant to Purchase  Shares of Series C  Preferred  Stock of
            Crdentia Corp. granted to the holders listed on Schedule A thereto.

4.4(19)     Form of Warrant to Purchase  Shares of Series B-1 Preferred Stock of
            Crdentia Corp. granted to MedCap Partners L.P.

4.5(20)     Warrant  Agreement dated August 31, 2004 by and among Crdentia Corp.
            and Bridge Opportunity Finance, LLC.

4.6(21)     Form of  Warrant  to  Purchase  Shares of Common  Stock of  Crdentia
            Corp., granted to Bridge Opportunity Finance, LLC.

4.7(27)     Specimen Stock Certificate

4.8(44)     Registration  Rights Agreement dated September 22, 2003 by and among
            Crdentia  Corp.  and the  investors  listed on  Schedule  A attached
            thereto.

4.9(45)     Registration  Rights  Agreement  dated December 2, 2003 by and among
            Crdentia  Corp.  and the  investors  listed on  Schedule  A attached
            thereto.

4.10        Convertible  Subordinated Promissory Note dated September 2, 2003 in
            the original  principal amount of $50,000 made payable to the DeLuca
            Trust,   dated  1/7/00,  as  amended  by  Amendment  to  Convertible
            Subordinated  Promissory  Note dated September 2, 2004 and Amendment
            No. 2 to  Convertible  Subordinated  Promissory  Note dated March 2,
            2005.

4.11(47)    Subordinated  Promissory  Note  dated  September  22,  2003  in  the
            principal  amount of  $1,650,000  made payable by Crdentia  Corp. to
            Nick Liuzza, Jr.

4.12(48)    Convertible  Subordinated  Promissory Note dated December 2, 2003 in
            the principal amount of $1,200,000 made payable by Crdentia Corp. to
            Robin Riddle.

4.13(49)    Convertible  Subordinated  Promissory Note dated December 2, 2003 in
            the principal amount of $2,525,000 made payable by Crdentia Corp. to
            Professional Staffing Resources,  Inc. and Nursing Services Registry
            of Savannah, Inc.

4.14(50)    Convertible  Subordinated  Promissory Note dated December 2, 2003 in
            the principal  amount of $200,000 made payable by Crdentia  Corp. to
            Professional Staffing Resources,  Inc. and Nursing Services Registry
            of Savannah, Inc.

4.15(51)    Variable  Rate  Installment  Note  dated  August  18,  2003  in  the
            principal  amount of  $250,000  made  payable by Crdentia  Corp.  to
            Comerica Bank-California.

                                       26
<PAGE>

10.1(22)    Loan and  Security  Agreement  dated  August  31,  2004 by and among
            Crdentia Corp., Baker Anderson Christie, Inc., Nurses Network, Inc.,
            New Age Staffing,  Inc.,  PSR Nurses,  Ltd.,  PSR Nurse  Recruiting,
            Inc.,  PSR Nurses  Holdings  Corp.,  CRDE  Corp.,  AHHC  Acquisition
            Corporation,  CPS  Acquisition  Corporation  and Bridge  Opportunity
            Finance, LLC.

10.2(23)#   Executive Employment  Agreement,  dated as of August 31, 2004 by and
            between Crdentia Corp. and William C. Crocker.

10.3(28)#   Notice of Stock Option Award and Stock Option Award  Agreement dated
            August 3, 2004 by and between Crdentia Corp. and James D. Durham.

10.4(29)#   Notice of Stock Option Award and Stock Option Award  Agreement dated
            August 3, 2004 by and between Crdentia Corp. and Pamela Atherton.

10.5(24)#   Separation  Agreement  and General  Release by and between  Crdentia
            Corp. and William S. Leftwich, dated September 15, 2004.

10.6(25)    Makewell  Agreement  dated  August 31, 2004 by and between  Crdentia
            Corp.,  MedCap Partners L.P.,  Bridge  Healthcare  Finance,  LLC and
            Bridge Opportunity Finance, LLC.

10.7(30)#   Executive  Employment  Agreement dated March 22, 2004 by and between
            Crdentia Corp. and William S. Leftwich.

10.8(31)#   Notice of Stock Option Award and Stock Option Award  Agreement dated
            April 8, 2004 by and between Crdentia Corp. and William S. Leftwich.

10.9(37)#   Form of Indemnification Agreement

10.10(32)   Stock  Purchase  Agreement  dated May 18, 2004 by and among Crdentia
            Corp.,  MedCap  Partners L.P. and the parties listed on the Schedule
            of Stockholders attached thereto as Exhibit A.

10.11(33)   Loan  and  Security  Agreement  dated  June  16,  2004 by and  among
            Crdentia Corp., Baker Anderson Christie, Inc., Nurses Network, Inc.,
            New Age Staffing,  Inc.,  PSR Nurses,  Ltd.,  PSR Nurse  Recruiting,
            Inc., PSR Nurses Holdings Corp. and Bridge Healthcare Finance, LLC.

10.12#      Form of  Notice  of  Stock  Option  Award  and  Stock  Option  Award
            Agreement under the Crdentia Corp. 2004 Stock Incentive Plan.

10.13(34)   Secured Promissory Note, dated November 29, 2004, issued by Crdentia
            Corp., Baker Anderson Christie,  Inc., Nurses Network, Inc., New Age
            Staffing,  Inc., PSR Nurses,  Ltd., PSR Nurse Recruiting,  Inc., PSR
            Nurses Holdings Corp., CRDE Corp.,  Arizona Home Health Care/Private
            Duty, Inc. and Care Pros Staffing, Inc. to MedCap Partners L.P.

10.14(35)   Security  Agreement,  dated November 29, 2004, by and among Crdentia
            Corp., Baker Anderson Christie,  Inc., Nurses Network, Inc., New Age
            Staffing,  Inc., PSR Nurses,  Ltd., PSR Nurse Recruiting,  Inc., PSR
            Nurses Holdings Corp., CRDE Corp.,  Arizona Home Health Care/Private
            Duty, Inc., Care Pros Staffing, Inc. and MedCap Partners L.P.

10.15       Amended and Restated Loan and Security  Agreement - Revolving Loans,
            dated as of November 30, 2004,  between Bridge  Healthcare  Finance,
            LLC, as Lender, and Crdentia Corp.,  Baker Anderson Christie,  Inc.,
            Nurses Network, Inc., New Age Staffing,  Inc., PSR Nurses, Ltd., PSR
            Nurse  Recruiting,  Inc.,  PSR Nurses  Holdings  Corp.,  CRDE Corp.,
            Arizona Home Health  Care/Private Duty, Inc. and Care Pros Staffing,
            Inc., as Borrower.

                                       27
<PAGE>

10.16       First Amendment to Loan and Security Agreement - Term Loan, dated as
            of November 30, 2004,  between Bridge Opportunity  Finance,  LLC, as
            Lender, and Crdentia Corp.,  Baker Anderson  Christie,  Inc., Nurses
            Network,  Inc., New Age Staffing,  Inc., PSR Nurses, Ltd., PSR Nurse
            Recruiting,  Inc., PSR Nurses  Holdings Corp.,  CRDE Corp.,  Arizona
            Home Health Care/Private Duty, Inc. and Care Pros Staffing, Inc., as
            Borrower.

10.17(52)   Agreement to Purchase Accounts and Security Agreement dated February
            8, 2002 between New Age Staffing, Inc. and Katz Factoring, Inc.

10.18(53)   Amendment to Agreement to Purchase Accounts and Security  Agreement,
            dated  effective  as of August 8, 2003,  made by and between New Age
            Staffing, Inc. and Katz Factoring, Inc.

10.19(54)#  Executive  Employment  Agreement  dated  December  22,  2003  by and
            between Crdentia Corp. and Pamela Atherton.

10.20(55)#  Notice of Stock Option Award and Stock Option Award  Agreement dated
            December 22, 2003 by and between Crdentia Corp. and Pamela Atherton.

10.21(56)#  Notice of Stock Option Award dated  December 31, 2003 by and between
            Crdentia Corp. and James Durham.

10.22(57)#  Stock Option Plan and Award Agreement dated December 31, 2003 by and
            between Crdentia Corp. and James Durham.

10.23(58)#  Bonus and Other  Agreement  dated  December  31, 2003 by and between
            Crdentia Corp. and James Durham.

10.24(59)   Commercial  Receivables Sale Agreement dated November 8, 2001 by and
            between Alamo Capital Corporation and PSR Nurses, Ltd.

10.25(60)   Office Lease  Agreement  dated February 1, 2002 by and between Merit
            99 Office Portfolio, L.P. and PSR Nurses, Ltd.

10.26(61)#  Notice of Stock Option Award and Stock Option Award  Agreement dated
            December  16,  2003 by and  between  Crdentia  Corp.  and  Thomas H.
            Herman.

10.27(62)#  Notice of Stock Option Award and Stock Option Award  Agreement dated
            December 16, 2003 by and between Crdentia Corp. and C. Fred Toney.

21.1        List of Subsidiaries of Crdentia Corp.

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

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

32.1        Certification of Chief Executive  Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

32.2        Certification of Chief Financial  Officer pursuant to Section 906 of
            the Sarbanes-Oxley Act of 2002.

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

#     Indicates management contract or compensatory plan.

                                       28
<PAGE>

(1)   Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(2)   Previously  filed as Exhibit 3.1 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on August 22, 2002 and  incorporated  herein by
      reference.

(3)   Previously  filed  as  Exhibit  3.2 to the  Form  10-QSB  filed  with  the
      Securities  and Exchange  Commission  on August 12, 2003 and  incorporated
      herein by reference.

(4)   Previously  filed  as  Exhibit  4.1 to  the  Form  8-K/A  filed  with  the
      Securities  and  Exchange  Commission  on June 28,  2004 and  incorporated
      herein by reference.

(5)   Previously  filed  as  Exhibit  4.2 to  the  Form  8-K/A  filed  with  the
      Securities  and  Exchange  Commission  on June 28,  2004 and  incorporated
      herein by reference.

(6)   Previously  filed  as  Exhibit  4.3 to  the  Form  8-K/A  filed  with  the
      Securities  and  Exchange  Commission  on June 28,  2004 and  incorporated
      herein by reference.

(7)   Previously  filed as Exhibit 3.2 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on August 22, 2002 and  incorporated  herein by
      reference.

(8)   Previously  filed as Exhibit 4.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on December 30, 2003 and  incorporated  herein by
      reference.

(9)   Previously  filed as Exhibit 4.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on February 20, 2004 and  incorporated  herein by
      reference.

(10)  Previously  filed as Exhibit 4.1 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on June 22,  2004 and  incorporated  herein  by
      reference.

(11)  Previously  filed  as  Exhibit  4.1 to  the  Form  8-K/A  filed  with  the
      Securities  and Exchange  Commission on October 10, 2004 and  incorporated
      herein by reference.

(12)  Previously  filed as Exhibit 4.1 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on August 24, 2004 and  incorporated  herein by
      reference.

(13)  Previously  filed  as  Exhibit  4.1 to  the  Form  8-K/A  filed  with  the
      Securities  and Exchange  Commission on October 10, 2004 and  incorporated
      herein by reference.

(14)  Previously  filed as Exhibit 4.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(15)  Previously  filed  as  Exhibit  4.1 to  the  Form  8-K/A  filed  with  the
      Securities  and Exchange  Commission on October 10, 2004 and  incorporated
      herein by reference.

(16)  Previously  filed as Exhibit 4.2 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on August 24, 2004 and  incorporated  herein by
      reference.

(17)  Previously  filed as Exhibit 4.2 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(18)  Previously  filed as Exhibit 4.3 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(19)  Previously  filed as Exhibit 4.4 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(20)  Previously  filed as Exhibit 4.5 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(21)  Previously  filed as Exhibit 4.6 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(22)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(23)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 7, 2004 and  incorporated  herein by
      reference.

(24)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 16, 2004 and incorporated  herein by
      reference.

(25)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission  on October 25, 2004 and  incorporated  herein by
      reference.

(26)  Previously  filed as Exhibit 2.1 to the Form 8-K filed with the Securities
      and Exchange Commission on November 15, 2004.

(27)  Previously  filed  as  Exhibit  4.0 to the  Form  10-QSB  filed  with  the
      Securities and Exchange Commission on May 5, 2003.

(28)  Previously  filed  as  Exhibit  10.3 to the  Form  10-QSB  filed  with the
      Securities and Exchange Commission on November 15, 2004.

(29)  Previously  filed  as  Exhibit  10.4 to the  Form  10-QSB  filed  with the
      Securities and Exchange Commission on November 15, 2004.

                                       29
<PAGE>

(30)  Previously  filed  as  Exhibit  10.1 to the  Form  10-QSB  filed  with the
      Securities and Exchange Commission on May 17, 2004.

(31)  Previously  filed  as  Exhibit  10.2 to the  Form  10-QSB  filed  with the
      Securities and Exchange Commission on May 17, 2004.

(32)  Previously  filed as  Exhibit  10.1 to the Form  10-QSB/A  filed  with the
      Securities and Exchange Commission on September 9, 2004.

(33)  Previously  filed as  Exhibit  10.2 to the Form  10-QSB/A  filed  with the
      Securities and Exchange Commission on September 9, 2004.

(34)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange Commission on December 3, 2004.

(35)  Previously filed as Exhibit 10.2 to the Form 8-K filed with the Securities
      and Exchange Commission on December 3, 2004.

(36)  Previously filed as Exhibit 3.11 to the Form 8-K filed with the Securities
      and Exchange Commission on March 21, 2004.

(37)  Previously  filed as  Exhibit  10.4 to the form  10-QSB/A  filed  with the
      Securities and Exchange Commission on September 9, 2004.

(38)  Previously  filed as Exhibit 2.1 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on June 20,  2003 and  incorporated  herein  by
      reference.

(39)  Previously  filed  as  Exhibit  2.3 to the  Form  10-QSB  filed  with  the
      Securities  and Exchange  Commission  on August 12, 2003 and  incorporated
      herein by reference.

(40)  Previously  filed as Exhibit 2.1 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on July 18,  2003 and  incorporated  herein  by
      reference.

(41)  Previously  filed as Exhibit 2.1 to the Form 8-K filed with the Securities
      and Exchange  Commission on September 16, 2003 and incorporated  herein by
      reference.

(42)  Previously  filed as Exhibit 2.2 to the Form 8-K filed with the Securities
      and  Exchange  Commission  on October 8, 2003 and  incorporated  herein by
      reference.

(43)  Previously  filed as Exhibit 2.1 to the Form 8-K filed with the Securities
      and Exchange  Commission  on November 6, 2003 and  incorporated  herein by
      reference.

(44)  Previously  filed as an  Exhibit  4.1 to the Form  10-KSB  filed  with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(45)  Previously  filed as an  Exhibit  4.2 to the Form  10-KSB  filed  with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(47)  Previously  filed  as  Exhibit  10.6 to the  Form  10-QSB  filed  with the
      Securities and Exchange  Commission on November 14, 2003 and  incorporated
      herein by reference.

(48)  Previously  filed as an  Exhibit  10.7to  the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(49)  Previously  filed as an  Exhibit  10.8to  the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(50)  Previously  filed as an  Exhibit  10.9 to the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(51)  Previously  filed  as  Exhibit  10.5 to the  Form  10-QSB  filed  with the
      Securities and Exchange  Commission on November 14, 2003 and  incorporated
      herein by reference.

(52)  Previously  filed  as  Exhibit  10.2 to the  Form  10-QSB  filed  with the
      Securities and Exchange  Commission on November 14, 2003 and  incorporated
      herein by reference.

(53)  Previously  filed  as  Exhibit  10.3 to the  Form  10-QSB  filed  with the
      Securities and Exchange  Commission on November 14, 2003 and  incorporated
      herein by reference.

(54)  Previously  filed as an Exhibit  10.12 to the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(55)  Previously  filed as an Exhibit  10.13 to the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(56)  Previously filed as Exhibit 10.1 to the Form 8-K filed with the Securities
      and Exchange  Commission  on January 12, 2004 and  incorporated  herein by
      reference.

(57)  Previously filed as Exhibit 10.2 to the Form 8-K filed with the Securities
      and Exchange  Commission  on January 12, 2004 and  incorporated  herein by
      reference.

(58)  Previously filed as Exhibit 10.3 to the Form 8-K filed with the Securities
      and Exchange  Commission  on January 12, 2004 and  incorporated  herein by
      reference.

(59)  Previously  filed as an Exhibit  10.18to  the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

                                       30
<PAGE>

(60)  Previously  filed as an Exhibit  10.19to  the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(61)  Previously  filed as an Exhibit  10.10 to the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.

(62)  Previously  filed as an Exhibit  10.11 to the Form  10-KSB  filed with the
      Securities  and  Exchange  Commission  on March 30, 2004 and  incorporated
      herein by reference.


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      Information  required by this item is  incorporated  by  reference  to the
Proxy  Statement to be distributed in connection with our 2005 annual meeting of
stockholders.

                                       31
<PAGE>

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.


                                         CRDENTIA CORP.

Dated:  March 31, 2005                  By:  /s/ James D. Durham
                                           -----------------------------------
                                                 James D. Durham
                                                 Chief Executive Officer and
                                                 Chairman of the Board
                                                 (Principal Executive Officer)

Dated:  March 31, 2005                  By:  /s/ Pamela G. Atherton
                                           -----------------------------------
                                                 Pamela G. Atherton
                                                 President

Dated:  March 31, 2005                  By:  /s/ James J. TerBeest
                                           -----------------------------------
                                                 James J. TerBeest
                                                 Chief Financial Officer
                                                 (Principal Financial Officer)

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

Dated:  March 31, 2005                  By:  /s/ Robert J. Kenneth
                                           -----------------------------------
                                                 Robert J. Kenneth
                                                 Director

Dated:  March 31, 2005                  By:  /s/ Robert P. Oliver
                                           -----------------------------------
                                                 Robert P. Oliver
                                                 Director

Dated:  March 31, 2005                  By: /s/ Joseph M. DeLuca
                                           -----------------------------------
                                                Joseph M. DeLuca
                                                Director

Dated:  March 31, 2005                  By:  /s/ Thomas Herman
                                           -----------------------------------
                                                 Thomas Herman
                                                 Director

Dated:  March 31, 2005                  By:  /s/ C. Fred Toney
                                           -----------------------------------
                                                 C. Fred Toney
                                                 Director


                                       32
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Crdentia Corp.

We have audited the  accompanying  consolidated  balance sheet of Crdentia Corp.
(the "Company") as of December 31, 2004 and the related consolidated  statements
of operations,  stockholders'  equity (deficit) and cash flows for the year 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 audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Crdentia  Corp.  as of December 31, 2004 and the  consolidated  results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
accounting principles generally accepted in the United States of America.



/s/ KBA Group LLP
--------------------
KBA Group LLP
Dallas, Texas
March 29, 2005

                                       F-1

<PAGE>

Report of Independent Registered Public Accounting Firm



Board of Directors
Crdentia Corp.
Dallas, Texas

We have audited the accompanying consolidated balance sheet of Crdentia Corp. as
of December  31, 2003 and the related  consolidated  statements  of  operations,
stockholders'  equity,  and cash flows for the year then ended.  These financial
statements   are  the   responsibility   of  the   Company's   management.   Out
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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  audit  provides  a
reasonable basis for our opinion.

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


/s/ BDO Seidman, LLP

March 24, 2004
San Francisco, California


                                       F-2
<PAGE>

                                 CRDENTIA CORP.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                              DECEMBER 31,
                                                                                     ------------------------------
                                                                                         2004               2003
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Current assets:
   Cash and cash equivalents                                                         $    362,472      $  1,469,076
   Accounts receivable, net of allowance for doubtful accounts
     of $114,957 in 2004 and $195,465 in 2003                                           2,908,403         3,058,086
   Unbilled receivables                                                                   303,626           268,590
   Other current assets                                                                   495,579           333,379
                                                                                     ------------      ------------
Total current assets                                                                    4,070,080         5,129,131

Property and equipment, net                                                               293,600           363,815
Goodwill                                                                               12,974,973         8,519,821
Intangible assets, net                                                                  1,660,717         3,485,334
Other assets                                                                              837,061            98,297
                                                                                     ------------      ------------
Total assets                                                                         $ 19,836,431      $ 17,596,398
                                                                                     ============      ============

Current liabilities:
   Accounts payable and accrued expenses                                             $  2,523,069      $    901,410
   Accrued  dividends on convertible preferred stock                                    1,027,254                --
   Accrued employee compensation and benefits                                             554,945           684,160
   Revolving lines of credit                                                            2,521,598         2,871,890
   Current portion of notes payable to lenders, net of discount                         2,049,816           166,667
   Note payable to stockholders                                                           400,000            25,000
   Current portion of notes payable to sellers                                            184,948         1,435,115
   Other current liabilities                                                              100,017            14,921
   Subordinated convertible notes, net of discount                                         50,000           250,833
                                                                                     ------------      ------------
Total current liabilities                                                               9,411,647         6,349,996

Notes payable to lender, less current portion                                                  --            27,777
Long term bonus payable                                                                   884,962           801,000
Notes payable to sellers, less current portion                                                 --         3,925,983
Other long-term liabilities                                                                33,045                --
                                                                                     ------------      ------------
Total liabilities                                                                      10,329,654        11,104,756
                                                                                     ------------      ------------

Commitments and contingencies

Convertible preferred stock, 10,000,000 shares authorized:
   Series A Convertible Preferred Stock $0.0001 par value, no shares issued and
     outstanding at 2004 and 1,750,000 shares issued and outstanding
     at 2003 (liquidation preference of $1,750,000 in 2003)                                    --         1,750,000
   Series B Convertible Preferred Stock
     $0.0001 par value, 3,750,000 shares issued and outstanding
      at 2004 (liquidation preference of $750,000 in 2004)                                750,000                --
   Series B-1 Convertible Preferred Stock
     $0.0001 par value, 93,043 shares issued and outstanding
     at 2004 (liquidation preference of $5,582,580 in 2004)                            30,123,400                --
   Series C Convertible Preferred Stock
     $0.0001 par value, 52,501 shares issued and outstanding
     at 2004 (liquidation preference of $15,750,300 in 2004)                            1,070,510                --
   Series C preferred stock warrants                                                    2,079,910

Stockholders' equity (deficit):
   Common stock, par value $0.0001,
     50,000,000 shares authorized in 2004 and 2003, 14,202,883 shares issued and
     13,126,477 shares outstanding in 2004 and 7,355,758 shares issued
     and 6,279,352 shares outstanding in 2003                                               1,420               736
   Additional paid in capital                                                          68,447,288        60,547,358
   Treasury stock, 1,076,406 shares at cost                                                    --                --
   Deferred non-cash stock compensation                                                  (648,746)         (828,000)
   Accumulated deficit                                                                (92,317,005)      (54,978,452)
                                                                                     ------------      ------------
Total stockholders' equity (deficit)                                                  (24,517,043)        4,741,642
                                                                                     ------------      ------------

Total liabilities and stockholders' equity (deficit)                                 $ 19,836,431      $ 17,596,398
                                                                                     ============      ============

</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.


                                       F-3

<PAGE>

                                 CRDENTIA CORP.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                         2004              2003
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Revenue from services                                                                $ 23,018,389      $  4,711,972
Direct operating expenses                                                              18,251,274         3,571,281
                                                                                     ------------      ------------
   Gross profit                                                                         4,767,115         1,140,691
                                                                                     ------------      ------------

Operating expenses:
   Selling, general, and administrative expenses                                        9,517,218         3,409,707
   Loss on impairment of intangibles                                                    1,800,000                --
   Non-cash stock based compensation                                                      393,857        51,638,254
                                                                                     ------------      ------------
Total operating expenses                                                               11,711,075        55,047,961
                                                                                     ------------      ------------

Loss from operations                                                                   (6,943,960)      (53,907,270)

Non-cash expense for conversion of debt                                               (24,541,000)               --
Interest expense, net                                                                  (2,217,894)         (408,835)
                                                                                     ------------      ------------

Loss before income taxes                                                              (33,702,854)      (54,316,105)

Income tax expense                                                                             --                --
                                                                                     ------------      ------------
Net loss                                                                             $(33,702,854)     $(54,316,105)
                                                                                     ============      ============

Deemed dividend related to beneficial
  conversion feature on Series A
  convertible preferred stock                                                          (1,000,000)       (1,750,000)
Deemed dividend related to beneficial
  conversion feature on Series B
  convertible preferred stock                                                          (1,250,000)               --
Deemed dividend related to beneficial
  conversion feature on Series B-1
  convertible preferred stock                                                          (1,328,400)               --
Deemed dividend related to beneficial
  conversion feature on Series C
  convertible preferred stock                                                          (1,070,510)               --
Non-cash preferred stock dividends                                                     (3,635,699)               --
                                                                                     ------------      ------------
Net loss attributable to common stockholders                                         $(41,987,463)     $(56,066,105)
                                                                                     ============      ============
Basic and diluted loss per common share
  attributable to common stockholders                                                $      (5.23)     $     (12.95)
                                                                                     ============      ============

Weighted average number of common
 shares outstanding                                                                     8,033,725         4,330,704
                                                                                     ============      ============
</TABLE>

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


                                       F-4

<PAGE>

                                 CRDENTIA CORP.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)


<TABLE>
<CAPTION>
                                                COMMON STOCK
                                               PAR VALUE $.0001
                                             -------------------       ADDITIONAL    DEFERRED
                                                                        PAID-IN      NON-CASH       ACCUMULATED
                                               SHARES     AMOUNT        CAPITAL     COMPENSATION      DEFICIT             TOTAL
                                             ------------------------------------------------------------------------------------
<S>                                          <C>           <C>      <C>               <C>           <C>              <C>
Balance December 31, 2002                    3,666,055     $367     $    822,077      $     --      $  (662,347)     $    160,097

Common stock issued in
  acquisition of Baker,
  Anderson, Christie, Inc.                     160,000       16          172,784                                          172,800

Common Stock issued in
  acquisition of New Age
  Staffing, Inc.                             2,294,872      229        2,478,232                                        2,478,461

Common Stock issued in
  acquisition of
  Nurses Network, Inc.                          39,362        4           42,506                                           42,510

Common Stock issued in
  acquisition of PSR Nurses
   Recruiting, Inc. and
   PSR Nurses Holdings Corp.                 1,139,596      114        3,247,719                                        3,247,833

Common Stock issued in
  conversion of debt                            55,873        6          408,994                                          409,000

Common Stock repurchased
  from terminated employee                                                (1,208)                                          (1,208)

Beneficial conversion feature
  of subordinated convertible notes                                      910,000                                          910,000

Common Stock returned to company
  and related compensation expense                                     5,750,593                                        5,750,593

Compensation expense related to
  restricted stock and options
  issued to directors and employees                                    2,770,176      (828,000)                         1,942,176

Compensation expense related to
  restricted stock purchase rights
  issued to Chief Executive Officer                                   13,495,485                                       13,495,485

Compensation expense related to
  stock options issued
  to Chief Executive Officer                                          30,450,000                                       30,450,000

Benefit and deemed dividend of
   beneficial conversion price
   of Series A convertible                                             1,750,000                                        1,750,000
   preferred stock                                                    (1,750,000)                                      (1,750,000)

Net loss                                                                                            (54,316,105)      (54,316,105)
                                             ------------------------------------------------------------------------------------
Balance December 31, 2003                    7,355,758      736       60,547,358      (828,000)     (54,978,452)        4,741,642
</TABLE>

                                       F-5

<PAGE>

                                 CRDENTIA CORP.
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                COMMON STOCK
                                               PAR VALUE $.0001
                                             -------------------       ADDITIONAL    DEFERRED
                                                                        PAID-IN      NON-CASH       ACCUMULATED
                                               SHARES     AMOUNT        CAPITAL     COMPENSATION      DEFICIT             TOTAL
                                             ------------------------------------------------------------------------------------
<S>                                          <C>           <C>      <C>               <C>           <C>              <C>
Stock dividends on Convertible
  Preferred Stock                              735,778       74        2,608,371                     (3,635,699)       (1,027,254)

Common stock issued in
  acquisition of Arizona Home
   Health Care/Private Duty Inc.               200,000       20          689,980                                          690,000


Conversion of Convertible Series A
   into Common Stock                         4,583,333      458        2,733,279                                        2,733,737

Conversion of Convertible Series B
  into Common Stock                            833,333       83          492,349                                          492,432

Conversion of Convertible Series B-1
  into Common Stock                            453,900       45          268,791                                          268,836

Issuance of term loan warrants                                           810,000                                          810,000


Benefit and deemed dividend of
   beneficial conversion price of
   Series A convertible                                                1,000,000                                        1,000,000
   preferred stock                                                    (1,000,000)                                      (1,000,000)

Benefit and deemed dividend of
   beneficial conversion price of
   Series B convertible                                                1,250,000                                        1,250,000
   preferred stock                                                    (1,250,000)                                      (1,250,000)




enefit and deemed dividend of
   beneficial conversion price of
   Series B-1 convertible                                              1,328,400                                        1,328,400
   preferred stock                                                    (1,328,400)                                      (1,328,400)



Benefit and deemed dividend of
   beneficial conversion price of
   Series C convertible                                                1,070,510                                        1,070,510
   preferred stock                                                    (1,070,510)                                      (1,070,510)

Conversion of seller note to Common Stock       40,822        4          126,544                                          126,548

Other                                              (41)                  170,616       179,254                            349,870

Net Loss                                                                                            (33,702,854)      (33,702,854)

                                             ------------------------------------------------------------------------------------
Balance December 31, 2004                    14,202,883    $1,420    $68,447,288     $(648,746)    $(92,317,005)     $(24,517,043)
                                             ====================================================================================
</TABLE>


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

                                       F-6


<PAGE>

                                 CRDENTIA CORP.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        YEAR ENDED DECEMBER 31,
                                                                                     ------------------------------
                                                                                         2004               2003
                                                                                     ------------      ------------
<S>                                                                                  <C>               <C>
Operating activities
Net loss                                                                             $(33,702,854)     $(54,316,105)
Adjustments to reconcile net loss to
  net cash used in operating activities:
  Amortization of subordinated convertible note discounts                                 659,167           250,833
  Amortization of lender note discounts                                                   162,014                --
  Amortization of debt issue costs                                                        365,324                --
  Amortization of long-term bonus payable                                                  83,962                --
  Depreciation and amortization                                                         1,019,461           111,827
  Bad debt expense                                                                         44,264           195,465
  Non-cash stock based compensation                                                       393,857        51,638,254
  Non-cash expense for conversion of debt                                              24,541,000                --
  Loss on impairment of intangibles                                                     1,800,000                --
  Changes in operating assets and liabilities, net of effects of
     purchases of subsidiaries:
     Accounts receivable                                                                  167,259           313,254
     Unbilled receivables                                                                 (35,036)         (268,590)
     Other current assets and liabilities                                                (227,249)          398,597
     Accounts payable and accrued expenses                                              1,603,962          (388,773)
     Accrued employee compensation and benefits                                           (61,868)          107,354
     Long term bonus payable                                                                   --           801,000
                                                                                     ------------      ------------
Net cash used in operating activities                                                  (3,186,737)       (1,156,884)
                                                                                     ------------      ------------

Investing activities
Purchases of property and equipment                                                      (223,726)          (50,435)
Cash paid for acquisition of subsidiaries, net of cash received                        (4,180,483)          (13,700)
Other                                                                                      96,555                --
                                                                                     ------------      ------------
Net cash used in investing activities                                                  (4,307,654)          (64,135)
                                                                                     ------------      ------------

Financing activities
Issuance of preferred stock                                                             5,970,300         1,750,000
Repurchase of common stock                                                                     --            (1,208)
Net increase/(decrease) in revolving lines of credit                                     (350,292)           39,404
Proceeds from notes payable to lenders                                                  2,697,802           275,000
Proceeds from note payable to majority stockholder                                        400,000                --
Repayment of notes payable to lenders                                                    (219,444)          (60,328)
Proceeds from subordinated convertible notes                                                   --           910,000
Repayment of subordinated convertible notes                                              (120,000)               --
Repayment of notes to sellers                                                            (825,465)         (325,638)
Debt issuance costs                                                                    (1,165,114)          (22,598)
                                                                                     ------------      ------------
Net cash provided by financing activities                                               6,387,787         2,564,632
                                                                                     ------------      ------------

Net increase (decrease) in cash                                                        (1,106,604)        1,343,613
Cash and cash equivalents at beginning of year                                          1,469,076           125,463
                                                                                     ------------      ------------
Cash and cash equivalents at end of year                                             $    362,472      $  1,469,076
                                                                                     ============      ============
</TABLE>

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

                                       F-7

<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Crdentia  Corp  (the  "Company"),  a  Delaware  corporation,  is a  provider  of
healthcare  staffing services in the United States. Such services include travel
nursing, per diem staffing,  contractual clinical services and private duty home
health care. The Company  considers  these  services to be one segment.  Each of
these services relate solely to providing  healthcare  staffing to customers and
the Company  utilizes  common  systems,  databases,  procedures,  processes  and
similar methods of identifying and serving these customers.

At the beginning of 2003,  the Company was a  development  stage company with no
commercial  operations.  During that year, the Company  pursued its  operational
plan of acquiring  companies in the healthcare  staffing field and completed the
acquisition of four operating companies. The companies acquired in 2003 -- Baker
Anderson  Christie,  Inc., New Age Nurses,  Inc., Nurses Network,  Inc., and PSR
Nurse  Recruiting,  Inc. and PSR Nurses Holdings Corp.,  which holds the limited
partner  and  general  partner  interests  in PSR  Nurses,  Ltd.  -- provide the
foundation   for  future  growth.   During  2004,  the  Company   completed  the
acquisitions  of Arizona  Home  Health  Care/Private  Duty,  Inc.  and Care Pros
Staffing, Inc.

The accompanying  financial  statements  include the results of the wholly-owned
subsidiaries  discussed above from their  respective  dates of acquisition.  All
intercompany transactions have been eliminated in consolidation.

On June 28, 2004, the Company  executed a  one-for-three  reverse stock split of
the  outstanding  shares  of  Common  Stock.  All  common  share  and per  share
information  included  in these  financial  statements  have been  retroactively
adjusted to reflect the reverse stock split.

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 amount of assets and liabilities and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period.  The most  significant  estimates  relate to the  allowance for doubtful
accounts,  the  valuation  and  allocation  of  acquired  intangible  assets and
goodwill,  the stock  valuation of the shares used to  consummate  the Company's
acquisitions,  and  analysis  of  impairment  of goodwill  and other  intangible
assets. Actual results could differ from those estimates.

Liquidity

Although the Company ended 2004 with a working  capital deficit of $5.3 million,
the Company  was able to secure  additional  funding  during 2004 to finance its
operations  as it  continued  to execute its  business  plan to acquire and grow
companies  involved in  healthcare  staffing.  As discussed in Note 20, in March
2005 the Company's majority  stockholder  exercised warrants to purchase 108,333
shares of Series C Convertible  Preferred  Stock  providing  $6.5 million to the
Company.  The infusion of $6.5  million  into the Company  enabled it to acquire
additional  companies  and to  retire  certain  liabilities  and,  based  on the
Company's  projections,   will  generate  cash  flow  from  operations  in  2005
sufficient  to  service  its debt and fund its  operations  for the  foreseeable
future.  The Company will also be able to borrow on its existing  line of credit
to finance the growth in receivables.

                                      F-8
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Fair Value of Financial Instruments

The  company's  financial  instruments  consist  of cash and  cash  equivalents,
accounts  receivable,  accounts  payable,  revolving lines of credit,  and notes
payable. The Company believes the reported carrying amounts of its cash and cash
equivalents,  accounts receivable, and accounts payable approximates fair value,
based  upon the  maturities  and  short-term  nature of those  instruments.  The
Company  believes that the fair value of the revolving lines of credit and notes
payable  approximates  the fair  value  based on the  terms and  conditions  the
Company feels could be attained from other institutions.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less at the date of maturity to be cash  equivalents.  At times,
the Company's cash balances may exceed the Federal Deposit Insurance Corporation
(FDIC) insured limit of $100,000.  However,  management  presently believes that
the risk of loss is not  significant.  To date, the Company has not  experienced
any losses in such accounts.

Trade Receivables

Accounts receivable are  uncollateralized  customer obligations due under normal
trade terms. The Company provides services to various public and private medical
facilities such as hospitals,  prisons, and nursing care facilities.  Management
performs continuing credit evaluations of the customers' financial condition. In
addition,  the Company  provides home healthcare to individuals on a private pay
arrangement or state funded insurance reimbursement.

Senior management reviews accounts receivable on a regular basis to determine if
any receivables  will  potentially be  uncollectible.  An allowance for doubtful
accounts is recorded  based upon  management's  evaluation  of current  industry
conditions,  historical  collection experience and other relevant factors which,
in the opinion of management,  require  recognition in estimating the allowance.
After all  attempts to collect a  receivable  have  failed,  the  receivable  is
written off against the allowance.

Property and Equipment

Property and equipment is stated at cost.  Depreciation is provided by utilizing
the straight-line method over the estimated useful life of the assets (generally
three to ten years). Amortization of leasehold improvements is being provided on
the straight-line method over the various lease terms or estimated useful lives,
if shorter.  The cost of  maintenance  and repairs is charged to  operations  as
incurred.

                                      F-9
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Long-Lived Assets

Long-lived assets,  including property and equipment,  are assessed for possible
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amounts may not be recoverable or whenever  management has committed to
a plan to dispose of the  assets.  Such  assets are carried at the lower of book
value or fair value as  estimated by  management  based on  appraisals,  current
market value,  and comparable  sales value,  as appropriate.  Long-lived  assets
affected by such  impairment  loss are  depreciated  or  amortized  at their new
carrying  amount  over  the  remaining  estimated  life.  Assets  to be  sold or
otherwise disposed are not subject to further deprecation or amortization.

Goodwill and Intangible Assets

Intangible  assets other than  goodwill  consist of customer  relationships  and
international nurse contracts, are presented net of accumulated amortization and
are amortized  over their  respective  useful lives  estimated to be five years.
Goodwill is assessed for  impairment at least  annually.  The valuation of these
intangibles  is  determined  based  upon  valuations  performed  by  third-party
specialists  and  management's  best estimates of fair value.  As a result,  the
ultimate value and  recoverability of these assets is subject to the validity of
the assumptions used.

Income Taxes

The Company accounts for income taxes under an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the expected
future tax  consequences  of events that have been  recognized  in the Company's
financial statements or tax return. A valuation allowance is recorded,  based on
currently available information, when it is more likely than not that any or all
of a deferred tax asset will not be realized.  The Company files a  consolidated
Federal income tax return with its subsidiaries.

Revenue Recognition

The Company  recognizes  revenue generally on the date the Company's  healthcare
staff provides  services to healthcare  facilities or individuals in their home.
For certain permanent placement  contracts,  revenue if recognized over the life
of the guarantee period provided in the contract.

Unbilled  receivables  represent an estimate of revenue earned during the period
in excess of amounts billed.

Stock-Based Compensation

As permitted under the provisions of Statement of Financial  Accounting Standard
(SFAS) No. 123, Accounting for Stock-Based  Compensation,  the Company continues
to account for employee  stock-based  transactions  under Accounting  Principles
Board Opinion (APB) No. 25,  Accounting for Stock Issued to Employees.  However,
SFAS 123  requires the Company to disclose pro forma net loss and loss per share
as if the fair value  method  had been  adopted.  Under the fair  value  method,
compensation  cost is  measured at the grant date based on the fair value of the
award and is recognized  over the service  period,  which is usually the vesting
period.  For  non-employees,  cost is also measured at the grant date, using the
fair value method, but is actually  recognized in the financial  statements over
the vesting period or immediately if no further services are required.

                                      F-10
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

If the  Company had elected the fair value  method of  accounting  for  employee
stock-based  compensation,  compensation  cost would be accrued at the estimated
fair value of the stock  award  grants over the service  period,  regardless  of
later  changes  in stock  prices  and price  volatility.  The date of grant fair
values  for  options  granted  have been  estimated  based on the  Black-Scholes
pricing model with the assumptions identified in the following table:

                                                       DECEMBER 31,
                                                       ------------
                                                 2004              2003
                                                 ----              ----

Dividend Yield                                     0                 0
Volatility                                     134%-162%            60%
Risk-Free Interest Rates                         4.5%              4.5%
Expected Lives in Years                       1-10 years         0-5 years

The table below shows net loss per share attributable to common stockholders for
December 31, 2004 and 2003 as if the Company had elected the fair value method
of accounting for stock options.

<TABLE>
<CAPTION>
                                                               DECEMBER 31,
                                                       ---------------------------
                                                            2004              2003
                                                            ----              ----
<S>                                                    <C>             <C>
Net loss attributable to common
  stockholders as reported                             $(41,987,463)   $(56,066,105)
Add:  stock-based employee compensation
  in reported net income, net of related tax effects        179,254      51,638,254
Deduct:  total stock-based employee
  compensation determined under fair value
  method for all awards, net of related tax effects      (2,354,388)    (51,974,747)
                                                       ------------    ------------

Proforma net loss attributable to common
  Stockholders, as adjusted                            $(44,162,597)   $(56,402,598)
                                                       ============    ============

Loss per share attributable to common
  stockholders:
    Basic and diluted, as reported                     $      (5.23)   $     (12.95)
    Basic and diluted, as adjusted                     $      (5.50)   $     (13.02)
</TABLE>


                                      F-11
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Earnings Per Share

The Company  adopted the  standards set by the  Financial  Accounting  Standards
Board and computes  earnings per share in accordance with SFAS No. 128 "Earnings
per Share." The basic per share data has been computed on the loss  attributable
to common  stockholders for the period divided by the weighted average number of
shares of common stock  outstanding for the period.  Diluted earnings per common
share  include both the weighted  average  number of shares and any common share
equivalents  such  as  convertible  securities,   options  or  warrants  in  the
calculation.  As the  Company  recorded  losses in 2004 and 2003,  common  share
equivalents  outstanding  would be  anti-dilutive,  and as  such,  have not been
included in weighted average shares outstanding.

New Accounting Pronouncements

On December 16, 2004, the Financial  Accounting  Standards Board ("FASB") issued
SFAS No. 123 (revised 2004),  Share-Based  Payment,  which is a revision of SFAS
No. 123, Accounting for Stock-Based Compensation.  Statement 123R supersedes APB
Opinion No. 25,  Accounting  for Stock Issued to Employees,  and amends SFAS No.
95,  Statement  of Cash Flows.  Generally,  the  approach in  Statement  123R is
similar to the approach  described in Statement  123.  However,  Statement  123R
requires all  share-based  payments to employees,  including  grants of employee
stock  options,  to be  recognized in the income  statement  based on their fair
values. Pro forma disclosure is no longer an alternative. The company expects to
adopt Statement 123R on January 1, 2006.

The Company is  evaluating  the impact of adopting SFAS 123R and expects that it
will record  substantial  non-cash stock compensation  expense.  The adoption of
SFAS  123R  is not  expected  to  have a  significant  effect  on the  Company's
financial  condition or cash flows but is expected to have a significant  effect
on the  company's  results of  operations.  The future impact of the adoption of
SFAS 123R cannot be  predicted at this time because it will depend on the levels
of share-based  payments granted by the Company in the future.  However, had the
Company  adopted SFAS 123R in prior  periods,  the impact of the standard  would
have  approximated the impact of SFAS 123 as described in the pro forma net loss
attributable to common  shareholders  included in the  Stock-Based  Compensation
policy footnote.

NOTE 2. ACQUISITIONS

Arizona Home Health Care/Private Duty, Inc.

On August 31, 2004, the Company acquired Arizona Home Health  Care/Private Duty,
Inc.  ("AHHC")  in  exchange  for  $3,900,000  in cash,  200,000  shares  of the
Company's  Common Stock valued at $690,000,  (determined by the average of $3.45
per share as of the two days prior to and subsequent to the acquisition  date as
quoted on the OTC Bulletin  Board),  and $77,154 of net acquisition  costs.  The
primary  purpose  of the  acquisition  was to enable  the  Company to expand its
market share in the nurse staffing industry.  The following table summarizes the
assets acquired and liabilities assumed as of the closing date:

                                      F-12
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004


               Cash acquired                        $   35,000
               Tangible assets acquired                 76,853
               Customer related intangible assets      705,487
               Goodwill                              3,849,814
                                                    ----------
                 Total assets acquired               4,667,154
               Liabilities assumed                          --
                                                    ----------
                 Net assets acquired                $4,667,154
                                                    ==========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years.  Allocation of the excess of merger  consideration  over the
fair value of assets acquired  between goodwill and customer  relationships  was
determined  by  management's  estimate  based  on a  consistent  model  for  all
acquisitions  developed by a professional  valuation  group. The Company will be
required  to  issue  additional  shares  of  its  Common  Stock  to  the  former
stockholders  of AHHC  should  its  results  of  operations  exceed  performance
standards established in the merger agreement.  The goodwill acquired may not be
amortized for federal income tax purposes.

Care Pros Staffing, Inc.

On August 13, 2004, the Company  acquired Care Pros  Staffing,  Inc. in exchange
for $275,000 in cash,  $275,000 in notes payable and $39,706 of net  acquisition
costs.  The  primary  purpose of the  acquisition  was to enable the  Company to
expand  its market  share in the nurse  staffing  market.  The  following  table
summarizes the assets acquired and liabilities assumed as of the closing date:

                 Cash acquired                        $     86
                 Tangible assets acquired               61,842
                 Customer related intangible assets     51,993
                 Goodwill                              475,785
                                                      --------
                   Total assets acquired               589,706
                 Liabilities assumed                        --
                                                      --------
                   Net assets acquired                $589,706
                                                      ========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years.  Allocation of the excess of merger  consideration  over the
fair value of assets acquired  between goodwill and customer  relationships  was
determined  by  management's  estimate  based  on a  consistent  model  for  all
acquisitions  developed by a professional  valuation  group. The Company will be
required to issue shares of its Common Stock to the former  stockholders of Care
Pros  Staffing,  Inc.  should  its  results  of  operations  exceed  performance
standards established in the merger agreement.  The goodwill acquired may not be
amortized for federal income tax purposes.

                                      F-13
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

PSR Nurse Recruiting, Inc. and PSR Nurses Holdings Corp.

On December 2, 2003,  the Company  acquired PSR Nurse  Recruiting,  Inc. and PSR
Nurses Holdings Corp., which held the general and limited partnership  interests
in PSR Nurses,  Ltd., in exchange for 1,139,596  shares of the Company's  common
stock,  which was valued  based upon an appraisal  performed by an  independent,
third-party  professional valuation firm. The primary purpose of the acquisition
was to enable  the  Company to expand  its  market  share in the nurse  staffing
industry.  The following  table  summarizes the assets  acquired and liabilities
assumed as of the closing date:


               Cash acquired                        $   262,721
               Tangible assets acquired               2,995,043
               Customer related intangible assets     1,260,000
               International nurse contracts          1,820,000
               Goodwill                               4,549,239
                                                    -----------
                 Total assets acquired               10,887,003
               Liabilities assumed                    6,854,039
                                                    -----------
                 Net assets acquired                $ 4,032,964
                                                    ===========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer  related and  international  nurse contract  intangible  assets will be
amortized  over their  estimated  useful life of five years.  Allocation  of the
excess  of  merger  consideration  over the net book  value of  assets  acquired
between goodwill, customer relationships,  and international nurse contracts was
determined by an independent,  third-party  professional  valuation firm. As the
merger  consideration was paid entirely in shares of the Company's common stock,
the goodwill acquired may not be amortized for federal income tax purposes.  The
Company was  obligated  to issue  additional  shares of its common  stock to the
sellers of the acquired  business if it reached certain  performance  targets in
future periods, but these targets were not achieved.

Nurses Network, Inc.

On October 2, 2003, the Company  acquired Nurses  Network,  Inc. in exchange for
$114,432 in notes payable due in 2004 and 39,361 shares of the its common stock,
which  was  valued  based  upon  an  appraisal   performed  by  an  independent,
third-party  professional valuation firm. The primary purpose of the acquisition
was to enhance the Company's  presence in the San Francisco  market by combining
the Nurses Network  operations of per diem clinical staffing with Baker Anderson
Christie,   Inc.  The  following  table   summarizes  the  assets  acquired  and
liabilities assumed as of the closing date:

                                      F-14
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

                      Tangible assets acquired   $ 11,081
                      Goodwill                    113,414
                                                 --------
                        Total assets acquired     124,495
                      Liabilities assumed          22,211
                                                 --------
                        Net assets acquired      $102,284
                                                 ========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years.  Allocation of the excess of merger  consideration  over the
net book value of assets acquired  between  goodwill and customer  relationships
was determined by an independent,  third-party professional valuation firm. As a
material portion of the merger consideration was paid in shares of the Company's
common stock, the goodwill  acquired may not be amortized for federal income tax
purposes.  The Company was  obligated to issue  additional  shares of its common
stock to the sellers of the acquired business if it reached certain  performance
targets in future periods, but these targets were not achieved.

New Age Staffing, Inc.

On September 22, 2003, the Company  acquired New Age Staffing,  Inc.  ("NAS") in
exchange for $400,000 in cash,  $265,000 in notes payable  maturing during 2003,
$1,025,000 in notes  maturing  during 2004, a $360,000 note payable  maturing in
2005, and 2,294,871 shares of the Company's common stock, which was valued based
upon  an  appraisal  performed  by  an  independent,   third-party  professional
valuation  firm.  The  notes  due in 2004 and 2005,  totaling  $1,385,000,  were
amended in January,  2004. Beginning January 31, 2004, the revised note is to be
paid in equal installments for 21 months at 4% interest.  The primary purpose of
the  acquisition  was to enable the  Company  to expand its market  share in the
nurse staffing industry.  The following table summarizes the assets acquired and
liabilities assumed as of the closing date:

             Cash acquired                        $   61,887
             Tangible assets acquired              1,410,491
             Customer related intangible assets      460,000
             Goodwill                              3,592,287
                                                  ----------
               Total assets acquired               5,524,665
             Liabilities assumed                     877,615
                                                  ----------
               Net assets acquired                $4,647,050
                                                  ==========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years.  Allocation of the excess of merger  consideration  over the
net book value of assets acquired  between  goodwill and customer  relationships
was determined by an independent,  third-party professional valuation firm. As a
material portion of the merger consideration was paid in shares of the Company's
common stock, the goodwill  acquired may not be amortized for federal income tax
purposes.

                                      F-15
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Baker Anderson Christie, Inc.

On August 7, 2003, the Company acquired Baker Anderson Christie, Inc. ("BAC") in
exchange for 160,000 shares of its common stock,  which was valued based upon an
appraisal performed by an independent,  third-party professional valuation firm.
The primary  purpose of the  acquisition was to enable the Company to expand its
market share in the nurse staffing industry.  The following table summarizes the
assets acquired and liabilities assumed as of the closing date:


               Cash acquired                        $ 77,254
               Tangible assets acquired              171,398
               Customer related intangible assets      5,000
               Goodwill                               45,444
                                                    --------
                 Total assets acquired               299,096
               Liabilities assumed                   126,296
                                                    --------
                 Net assets acquired                $172,800
                                                    ========

The  acquisition  was  accounted  for using the purchase  method of  accounting.
Customer related intangible assets will be amortized over their estimated useful
life of five years.  Allocation of the excess of merger  consideration  over the
net book value of assets acquired  between  goodwill and customer  relationships
was determined by management's  estimate.  As the merger  consideration was paid
entirely in shares of the company's common stock, the goodwill  acquired may not
be amortized for federal income tax purposes. The Company was obligated to issue
additional shares of its common stock to the sellers of the acquired business if
it reached certain performance targets in future periods, but these targets were
not achieved.

Unaudited Pro Forma Summary Information

The following unaudited pro forma summary  approximates the consolidated results
of  operations as if all  acquisitions  had occurred as of the beginning of each
period  presented,  after  giving  effect  to  certain  adjustments,   including
amortization of specifically  identifiable intangibles and interest expense. The
pro forma financial information does not purport to be indicative of the results
of operations that would have occurred had the  transactions  taken place at the
beginning of the periods presented or of future results of operations.

                                      F-16
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004


                                                         DECEMBER 31,
                                                         ------------
                                                    2004            2003
                                                    ----            ----

Revenue from services                          $ 29,248,404    $ 33,920,780

Net loss from operations                        (33,815,679)    (43,911,025)

Net loss attributable to common stockholders    (42,100,288)    (45,661,025)

Basic and diluted net loss per common share
  attributable to common stockholders                 (5.15)          (6.19)

Weighted-average shares of common stock
  outstanding                                     8,167,058       7,380,145


NOTE 3. CONCENTRATION OF CREDIT RISK

During 2004,  sales to one  customer  group,  Rhode Island  Hospital and Newport
Hospital,  represented  approximately  16.3% of the Company's  revenues.  In the
third  quarter of 2004,  the Company  experienced  a decline in revenue at these
facilities  and travel  nurse  assignments  have not been  renewed to date.  The
Company's top ten customers  accounted for 48% of revenues in 2004. During 2003,
one hospital accounted for 32.8% of total revenue.

NOTE 4. PROPERTY AND EQUIPMENT

Property and equipment consisted of the following:


                                                       DECEMBER 31,
                                                       ------------
                                                    2004         2003
                                                 ---------    ---------

Leasehold improvements                           $  87,346    $  21,688
Computers, office furniture and equipment          837,717      371,691
                                                 ---------    ---------
                                                   925,063      393,379
Less accumulated depreciation and amortization    (631,463)     (29,564)
                                                 ---------    ---------
                                                 $ 293,600    $ 363,815
                                                 =========    =========


NOTE 5. GOODWILL AND OTHER INTANGIBLE ASSETS

In June 2001, the Financial  Accounting  Standards  Board (FASB) issued SFAS No.
141,  "Business  Combinations," and SFAS No. 142, "Goodwill and Other Intangible
Assets." Under the new rules,  goodwill and indefinite lived  intangible  assets
are no longer amortized and will be reviewed annually for impairment. Intangible
assets  that are not  deemed  to have an  indefinite  life will  continue  to be
amortized over their useful lives.

                                      F-17
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

SFAS No. 142 uses a two-step  process to measure  potential  impairment.  In the
first step, the fair values of the Company's reporting units are compared to the
units' carrying  amounts.  Reporting  units with similar  economic and operating
characteristics  may be combined into a single segment level evaluation.  If the
fair value of a  reporting  unit  exceeds  its  carrying  cost,  goodwill is not
considered  impaired.  If the carrying cost exceeds fair value, a second step is
used to  determine  the amount of  impairment.  The second step  determines  the
implied  fair value of goodwill for a reporting  unit by applying the  estimated
fair value to the tangible and separately  identifiable intangible assets of the
reporting unit, with any remaining amount considered goodwill.

During  2004,   the  Company   completed  the  first  step  analysis  under  the
requirements of the standard and determined that goodwill was not impaired. Fair
value of the Company's  reporting unit was determined  using a capitalized  cash
flow  technique.  The  Company  used an  outside  valuation  firm to  assist  in
developing   the  primary   assumptions,   such  as  projected  cash  flows  and
capitalization  rates and to perform  the  valuation  to apply to the  reporting
unit. The Company next evaluated its tangible and identifiable intangible assets
and liabilities to estimate their fair values.

Due to the  decline  in  revenue  related  to the  loss  of  certain  customers,
including  a  significant  customer  relationship,  and due to the impact of new
immigration  regulations  limiting  access to foreign  nurses,  the  Company has
determined that certain intangibles are impaired.  As a result of this analysis,
$1,800,000 was recorded as an impairment loss in 2004.

Goodwill and other intangible assets at December 31, 2004 and 2003 consist of:

                                         DECEMBER 31,
                                         ------------
                                     2004           2003
                                  ---------       ---------

Goodwill                        $ 12,974,973    $  8,519,821
                                ============    ============

Customer relationships          $  1,912,480    $  1,725,000
International nurse contracts        590,000       1,820,000
Other intangibles                         --          22,598
                                ------------    ------------
                                   2,502,480       3,567,598
Less accumulated amortization       (841,763)        (82,264)
                                ------------    ------------
  Net other intangible assets   $  1,660,717    $  3,485,334
                                ============    ============


                                      F-18
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Following  is a table of  estimated  amortization  expense  of other  intangible
assets for the next five years:

                                             ESTIMATED
                                            AMORTIZATION
                           YEAR               EXPENSE
                           ----               -------

                           2005           $   641,966
                           2006               437,763
                           2007               277,996
                           2008               151,496
                           2009               151,496

Amortization expense of other intangible assets amounted to $759,499 in 2004 and
$82,264 in 2003.

NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following:


                                        DECEMBER 31,
                                        ------------
                                      2004         2003
                                  ----------   ----------

               Accounts payable   $1,815,778   $  655,701
               Accrued expenses      707,291      245,709
                                  ----------   ----------
                                  $2,523,069   $  901,410
                                  ==========   ==========

NOTE 7. INCOME TAXES

At December  31,  2004,  the Company had net  operating  loss  carryfowards  for
federal and state income tax purposes of approximately $8,000,000,  which expire
in varying amounts  beginning in 2019 through 2024. The Company has undergone an
ownership  change as  defined  in  Section  382 of the  Internal  Revenue  Code.
Therefore,  utilization  of its tax net operating  loss  carryforwards  incurred
prior to August 2003 will be limited.

                                      F-19
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Deferred taxes are comprised of the following:

                                                           DECEMBER 31,
                                                           ------------
                                                       2004           2003
                                                    ---------       ---------

Net operating loss carryforwards                   $ 3,128,000   $   765,000
Deferred compensation stock options and rights      19,628,000    19,413,000
Accrued bonuses                                        327,000       296,000
Intangibles                                            756,000            --
Other                                                   54,000        78,000
                                                   -----------   -----------

  Total deferred tax assets                         23,893,000    20,552,000
  Less:  Valuation allowance                       (23,893,000) ( 20,552,000)
                                                   -----------   -----------

  Net deferred tax assets                          $        --   $        --
                                                   ===========   ===========


A  reconciliation  of the  difference  between  the  provision  computed  at the
statutory  federal tax rate and the  Company's  effective tax rate is as follows
(in thousands):

                                                            DECEMBER 31,
                                                            ------------
                                                        2004           2003
                                                     ---------       ---------

Provision computed at statutory federal tax rate   $(11,459,000)   $(18,749,000)
Permanent differences (primarily non-cash
  expense for conversion of debt in 2004)             8,857,000          89,000
State tax expense                                      (667,000)     (1,655,000)
Other                                                   (72,000)          8,000
Increase in valuation allowance                       3,341,000      20,307,000
                                                   ------------    ------------

  Income tax expense (benefit)                     $         --    $         --
                                                   ============    ============


The Company believes that, based on a number of factors, the available objective
evidence  creates  sufficient  uncertainty  regarding the  realizability  of the
deferred  tax assets such that a full  valuation  allowance  has been  recorded.
These factors include the Company's  history of losses,  relatively high expense
levels,  the fact that the market in which the  Company  competes  is  intensely
competitive and the lack of carryback  capacity to realize  deferred tax assets.
The Company will continue to assess the realizability of the deferred tax assets
based on actual and forecasted operating results.

                                      F-20
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE 8.  REVOLVING LINES OF CREDIT

On June 16, 2004, the Company entered into a Loan and Security  Agreement with a
company  specializing  in  healthcare  finance,  pursuant  to which the  Company
obtained a revolving credit facility up to $15,000,000 (the "Loan").  Subsequent
to year-end,  the revolving  line of credit  facility was reduced to $10,000,000
permitting  the Company to lower its  effective  interest  rate through  reduced
unused  line fees.  The Loan has a term of three  years and bears  interest at a
rate equal to the greater of three percent  (3.0%) per annum over the prime rate
or nine and  one-half  percent  (9.5%) per annum  (9.5% at December  31,  2004).
Interest is payable monthly. Accounts receivable serves as security for the Loan
and the Loan is subject to certain financial and reporting  covenants.  Customer
payments are used to repay the advances on the credit  facility after  deducting
charges for  interest  expense,  unused line and account  management  fees.  The
financial  covenants are for the maintenance of minimum net worth,  minimum debt
service coverage ratio,  minimum EBITDA,  maximum capital expenditure limits and
maximum operating lease  obligations.  At December 31, 2004, the Company was out
of compliance with certain  financial  covenants of the Loan, for which a waiver
was received from the lender.  Until such time as the Company  demonstrates  its
ability to comply with the  financial  covenants  of the Loan,  the  outstanding
balance has been  classified as a current  liability on the Balance  Sheet.  The
outstanding balance on the Loan is $2,521,598 at December 31, 2004.

In 2003, the Company had a line of credit with a financial  institution  secured
by the accounts receivable and fixed assets of the Company.  Interest accrued at
the financial  institution's Base Rate plus 1% (5% at December 31, 2003) and was
payable  monthly.  The  Company  was  permitted,  at its  option  and within the
covenants of the loan  agreement,  to repay  principal at its  discretion.  On a
quarterly basis, the Company had to comply with certain  financial and operating
covenants.  As of December 31, 2003,  the Company  failed to comply with certain
financial  and  operating  covenants  of the line of  credit  and the  financial
institution  waived  all  such   non-compliance.   At  December  31,  2003,  the
outstanding  balance was $86,272.  The entire line of credit was paid in full on
March 12, 2004.

The Company had credit facilities with two commercial financing institutions for
the financing of eligible accounts receivable.  These accounts receivable served
as security for the lines of credit.  The Company paid  interest  monthly at 24%
per annum on one obligation  and  approximately  10% on the other,  based on the
daily  outstanding  balance.  Customer  payments were used to repay the advances
from the financing  institutions after deducting charges for bad debts, reserves
for charge backs, and interest expense. These credit facilities were paid off on
June 16, 2004 with the proceeds from the Loan as described above.

The  Company  assumed  a note in  connection  with  the PSR  acquisition  from a
commercial finance entity, which held a second secured position on the Company's
accounts receivable,  in the amount of $689,001 with an interest rate of 20% per
annum.  Interest was accrued and payable monthly on the outstanding balance. The
Company paid $50,000 of principal at the  acquisition  closing.  The Company was
further  obligated  to make a  principal  payment in the amount of  $139,000  on
December  31,  2003.  The  payment  was made on January 1, 2004.  An  additional
principal  payment in the amount of $161,000  was due on February  29, 2004 with
the  balance  paid over 10 months.  The balance of the note was paid off on June
16, 2004 with the proceeds from the Loan as described above.

                                      F-21
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

The Company had a variable rate installment note with a financial institution in
the amount of $250,000. The note was subject to the same security as the related
line of credit with the same financial institution. Under the terms of the loan,
the Company was required to make monthly  payments plus accrued  interest on the
unpaid principal at the  institution's  Base Rate plus 2%. The note was paid off
on June 16, 2004, with the proceeds from the Loan as described above.

NOTE 9. NOTES PAYABLE TO LENDER

Pursuant to a loan agreement dated August 31, 2004, the Company  obtained a term
loan credit  facility  ("Term  Loan") in the amount up to $10.0  million  from a
company  specializing in healthcare finance.  The Company may obtain loans under
the agreement to fund permitted acquisitions.  Any loans obtained under the Term
Loan  agreement are due and payable in full on August 31, 2007 and bear interest
at the rate of fifteen and one-quarter  percent (15.25%) per annum.  Interest is
payable  monthly.  The Term Loan is secured by all  assets of the  borrower.  On
August 31, 2004, the Company received  proceeds from the Term Loan of $2,697,802
for the  acquisitions  of Arizona Home Health  Care/Private  Duty, Inc. and Care
Pros Staffing, Inc.

The Term Loan provides that the Company shall issue warrants to purchase  shares
of Common Stock to the lender up to 12% of the Company's overall  capitalization
on the date of borrowing.  On August 31, 2004,  the Company  issued  warrants to
purchase  905,758 shares of Common Stock in connection  with the first borrowing
under the credit facility. As a result, the Term Loan has been recorded net of a
discount of $810,000 which represents the estimated fair market value related to
the warrants at the date of issuance. The discount will be amortized to interest
expense over the life of the Term Loan.

The Term Loan financial  covenants are for the maintenance of minimum net worth,
minimum debt service coverage ratio, minimum EBITDA, maximum capital expenditure
limits and maximum  operating  lease  obligations.  At December  31,  2004,  the
Company was out of compliance with certain financial covenants of the Term Loan,
for which a waiver was received from the lender.  Until such time as the Company
demonstrates  its ability to comply  with the  financial  covenants  of the Term
Loan, the outstanding  balance has been classified as a current liability on the
Balance Sheet.

NOTE 10. NOTES PAYABLE TO STOCKHOLDERS

On November 29, 2004, MedCap Partners L.P., the majority stockholder, loaned the
Company $400,000 for working capital purposes. The Note bears interest at 5% and
is payable on demand.  As  discussed in Note 20, this amount was repaid in March
2005 when the majority stockholder exercised 108,333 warrants to purchase Series
C Convertible Preferred Stock for $6.5 million.

On June 30, 2003, the Company  executed a Promissory Note in favor of one of its
stockholders,  Atlantic  International Capital Holdings,  Ltd., in the principal
amount of $25,000 in exchange for cash in the same amount.  This Promissory Note
accrued  interest  at 12% per annum and matured on August 13, 2003 at which time
the  principal  plus  accrued  interest  would  have been  payable  in full.  On
September 29, 2003, the scheduled repayment date was extended by the maker until
November 30, 2003.  The maker further  extended the repayment  until January 31,
2004. The note, plus accrued interest, was paid in full on February 2, 2004.

                                      F-22
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE 11. SUBORDINATED CONVERTIBLE NOTES

During 2003, the Company issued $910,000 in Convertible  Subordinated Promissory
Notes (the "Notes") to twelve  investors.  Subject to the conversion  provisions
set forth in the Notes, the unpaid principal  together with all accrued interest
on the Notes is due and payable in full one year  following the issuance date of
each such note (from  September  to  December,  2004).  Interest  accrues on the
unpaid  principal  balance  at a rate of ten  percent  (10%) per  annum,  simple
interest,  and is payable in quarterly  payments.  The notes are  convertible to
Common  Stock at the  holder's  option,  prior to the due  date,  at an  initial
conversion  price of $1.50 per  share.  The  conversion  price was  subsequently
adjusted  to $1.00 per  share  upon the  issuance  of the  Series A  Convertible
Preferred Stock. The Company recorded a beneficial conversion charge of $910,000
which represents the lesser of the proceeds or beneficial  conversion feature of
$2.0 million. The beneficial conversion was calculated as the difference between
the conversion price and the Company's Common Stock market price at the date the
note proceeds were received.  The beneficial conversion charge is amortized over
the one year life of the notes,  resulting  in interest  expense of $659,167 and
$250,833 for the years ended December 31, 2004 and 2003, respectively.

On  September  30,  2004,  $740,000  of the  principal  amount of the Notes plus
accrued  interest was  converted  into 12,642  shares of Series B-1  Convertible
Preferred Stock.  The holders of such notes included the Company's  Chairman and
Chief  Executive  Officer,  a member of the Company's  Board of Directors and an
entity whose  managing  member is also on the Company's  Board of Directors.  On
November 16, 2004,  $120,000 of the  principal  amount of the Notes plus accrued
interest  were repaid.  The  remaining  $50,000 of the Notes was due on March 7,
2005.  This $50,000 note was extended in March 2005 to be repaid with  principal
and interest payments on June 2, 2005,  September 2, 2005,  December 2, 2005 and
March 2, 2006.

NOTE 12. NOTES PAYABLE TO SELLERS

As partial  consideration  for the  acquisition  of New Age  Staffing,  Inc.  on
September  22, 2003,  the Company  issued  unsecured  subordinated  notes to the
former  stockholders.  A note for  $265,000  was payable upon the earlier of the
closing of additional  financing or October 15, 2003. The Company made a payment
of approximately $97,000 on October 15, 2003, and the holders of the note agreed
to defer the  remaining  balance  of  $168,000  until  such time as the  Company
secured  additional  financing.  The $168,000  plus  interest at 10% was paid on
December 22, 2003. A second note to the sellers of New Age  Staffing,  Inc. with
the principal amount of $1,385,000 was payable in equal installments of $65,952,
beginning  January 31,  2004,  for 21 months  plus  interest at 4%. The note was
payable  to a former  owner who was hired by the  Company  as a Vice  President.
Remaining amounts due on the note were converted to stock as discussed below.

                                      F-23
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

There are two notes to the sellers of Nurses Network, the first in the amount of
$64,000 was due in three equal  installments on October 2, 2004, October 2, 2005
and October 2, 2006. Interest was accrued at a financial institution's Base Rate
plus 1%. The second note,  in the amount of $50,432 plus  interest  accrued at a
financial  institution's  Base Rate plus 1% was due and payable on July 2, 2004.
Remaining amounts due on the note were converted to stock as discussed below.

The Company assumed two notes in the acquisition of the PSR entities, one with a
balance of $188,911,  which is based on outstanding credit card balances owed by
the  previous  seller.  The Company will make at least  minimum  payments on the
credit  card  balances  until  they  are  paid in full.  The  second  note had a
principal  amount of $2,525,000 and was due to a previous owner of the business.
Interest only  payments  were payable each month at a rate of 8%.  Principal and
interest payments due monthly were to begin on December 1, 2004 for eight years.
Remaining amounts due on these notes were converted to stock as discussed below.

A note to a seller of the PSR entities with a principal amount of $1,200,000 was
payable  monthly  over a three year  period  beginning  November  30, 2003 at an
interest rate of 12%.  Remaining amounts due on the note were converted to stock
as discussed below.

On August 9, 2004,  holders of  approximately  $2.2 million of the notes payable
and accrued interest to selling shareholders accepted a cash payment of $225,000
to reduce the principal  outstanding and converted  their  remaining  balance to
common and preferred stock. Approximately $127,000 of the seller notes converted
to Common  Stock  (40,822  shares at $3.10 per  share  price)  and $1.8  million
converted to Series B-1 Convertible Preferred Stock (29,990 shares at $60.00 per
share price).  Approximately $1.0 million of the notes were with an employee and
approximately  $96,000 of the notes were with a member of the Company's Board of
Directors.  The  conversion was recorded as an inducement and as a result of the
fair  market  value  of  the  preferred   stock  issued  to  convert  the  debt,
approximately  $7.5 million was recorded as a non-cash expense for conversion of
debt in the accompanying statement of operations.

During  November  2004,  the  Company  entered  into  an  agreement  to  convert
approximately  $2.7 million of Seller  Notes and accrued  interest to Series B-1
Convertible  Preferred  Stock. As a result,  the Company issued 45,450 shares of
Series B-1  Convertible  Preferred  Stock.  The  conversion  was  recorded as an
inducement  and as a result the Series B-1 was  recorded at fair market value on
the date of  issuance  totaling  $19.8  million.  As a result of the fair market
valuation,  approximately  $17.0 million was recorded as a non-cash  expense for
conversion of debt on the accompanying statement of operations.

Four notes to the sellers of Care Pros  Staffing,  Inc.  totaling  $275,000  are
payable  in monthly  installments  over one year from  August 13,  2004 and bear
interest  at the rate of 5% per year.  One of the selling  shareholders  of Care
Pros Staffing, Inc. was hired by the Company as a Vice President.

At December 31, 2004 and 2003,  the long-term  debt discussed in Notes 9, 10, 11
and 12 consists of the following:

                                      F-24
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

                                                         DECEMBER 31,
                                                         ------------
                                                      2004           2003
                                                 -----------    -----------

Term Loan, 15.25% interest, maturity date
  August 31, 2007                                $ 2,697,802             $-
Variable Rate Installment Note, maturity date
  March 1, 2005                                           --        194,444
Stockholder Note - Promissory Note,
  5% interest, due on demand                         400,000             --
Stockholder Note - Promissory Note,
  12% interest, maturity date January 31, 2004            --         25,000
Subordinated Convertible Notes                        50,000        910,000
Seller Note - New Age Staffing, Inc.                      --      1,385,000
Seller Note - Nurses Network, Inc.                        --        114,432
Assumed Notes - PSR Nurses                                --      2,717,659
Seller Note - PSR Nurses                                  --      1,144,007
Seller Note - Care Pros Staffing, Inc.               184,948             --
                                                 -----------    -----------
  Total long-term debt                             3,332,750      6,490,542
  Less debt discount                                (647,986)      (659,167)
  Less current portion                            (2,684,764)    (1,877,615)
                                                 -----------    -----------

  Long-term debt                                 $        --    $ 3,953,760
                                                 ===========    ===========

Amounts reconcile to the financial statements as follows:

                                                         DECEMBER 31,
                                                        ------------
                                                      2004         2003
                                                  ----------   ----------

Current portion of notes payable to lenders       $2,049,816   $  166,667
Notes payable to stockholders                        400,000       25,000
Subordinated convertible notes, net of discount       50,000      250,833
Current portion of notes payable to sellers          184,948    1,435,115
Notes payable to lender, less current portion             --       27,777
Note payable to sellers, less current portion             --    3,925,983
Discount on subordinated debt                             --      659,167
Discount on term loan                                647,986           --
                                                  ----------   ----------

                                                  $3,332,750   $6,490,542
                                                  ==========   ==========

All debt is  classified  as current at December  31, 2004.  Accordingly,  a debt
maturity schedule has not been presented.

                                      F-25
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE 13. LONG TERM BONUS PAYABLE

On December 16, 2003, the Board of Directors granted the Chief Executive Officer
two cash bonuses in the amount of $540,000  each.  The bonuses are to be paid on
December  31,  2006 and January 4, 2007.  The present  value of bonuses has been
recorded at the Company's estimated incremental cost of borrowing of 10%.

NOTE 14. CONVERTIBLE PREFERRED STOCK

Convertible Preferred Stock Issued and Outstanding

The Company is authorized to issue 10,000,000 shares of preferred stock at a par
value of  $0.0001.  At December  31,  2004 and 2003 there are shares  issued and
outstanding consisting of the following:

<TABLE>
<CAPTION>
                                                DECEMBER 31, 2004             DECEMBER 31, 2003
                                                -----------------             -----------------
                                              SHARES         SHARES        SHARES         SHARES
                                              ISSUED      OUTSTANDING      ISSUED       OUTSTANDING
                                              ------      -----------      ------       -----------
<S>                                         <C>            <C>            <C>            <C>
Series A Convertible Preferred Stock               --             --      1,750,000      1,750,000
Series B Convertible Preferred Stock        6,250,000      3,750,000             --             --
Series B-1 Convertible Preferred Stock         97,582         93,043             --             --
Series C Convertible Preferred Stock           52,501         52,501             --             --
</TABLE>


The  conversion  price  of  all  Convertible   Preferred  Stock  is  subject  to
appropriate  adjustment in the event of stock splits,  stock dividends,  reverse
stock splits, capital reorganizations, recapitalizations, reclassifications, and
similar  occurrences as well as the issuance of Common Stock in consideration of
an amount less than the then-effective conversion price.

All  Convertible   Preferred  Shares  issued  and  outstanding  are  convertible
currently at the option of the holder.  The Company has  evaluated the potential
effect of any beneficial conversion terms related to convertible instruments. As
a result,  the  convertible  instruments may have a carrying amount that differs
significantly  from its redemption amount. In such cases, the difference between
the carrying  amount and the redemption  amount  (limited to the actual proceeds
received)  is  recorded as a  beneficial  conversion  feature and  deducted as a
deemed dividend in determining net loss attributable to common stockholders. The
table below summarizes the redemption  requirements and beneficial conversion of
the Convertible Preferred Shares outstanding:

                                             COMMON SHARES   BENEFICIAL
   SHARES OF                                    ISSUABLE     CONVERSION
 CONVERTIBLE         SHARES       CARRYING        UPON       RECORDED AT
PREFERRED STOCK   OUTSTANDING      AMOUNT      CONVERSION     ISSUANCE
---------------   -----------   -----------   -----------   -----------

       B            3,750,000   $   750,000     1,250,000   $ 1,250,000
      B-1              93,043    30,123,400     9,304,300     1,328,400
       C               52,501     1,070,510     5,250,100     1,070,510

                                      F-26
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Series A Convertible Preferred Stock (Series A)

The holders of the Series A Convertible Preferred Stock (Series A) were entitled
to receive, when declared by the Board of Directors, a quarterly dividend in the
amount equal to .025 shares of Common Stock for each share of outstanding Series
A held by them. The Series A automatically  converted into Common Stock,  unless
previously  voluntarily  converted prior to such time, at a conversion  ratio of
one share of Common  Stock for three  shares of Series A, one year from the date
of issuance of such shares.  The holders of Series A were  granted  registration
rights by the  Company.  Once the Series A  converted  into  Common  Stock,  the
Company is obligated to register the Common Stock on a "best efforts" basis.

On December 17,  2003,  the Company  issued an  aggregate of 1,750,000  share of
Series A at a per share price of $1.00 to two investors,  which included  MedCap
Partners  L.P.  The Company  recorded a deemed  dividend  due to the  beneficial
conversion  price of $1,750,000  which  represents the lesser of the proceeds or
the beneficial conversion feature of $5.2 million.

On February 4, 2004, the Company issued an additional 1,000,000 shares of Series
A at a per share price of $1.00 to MedCap  Partners L.P. The Company  recorded a
deemed  dividend due to the  beneficial  conversion  price of  $1,000,000  which
represents  the lesser of the proceeds or the beneficial  conversion  feature of
$2.5 million.

On April 8, 2004 the Board of  Directors  declared  a  dividend  to the Series A
stockholders  equal to .025 shares of Common  Stock for each holder of Series A.
As a result, 22,917 shares of Common Stock were issued on May 26, 2004.

The Series A dividend  amount was adjusted to .04167 shares of Common Stock as a
result of (i) the issuance of shares of Series B Convertible  Preferred Stock on
June 16, 2004 at a price per share of $0.20,  and (ii) the  reverse  stock split
effected by the Company as of the close of business on June 28, 2004.

On  September  30,  2004  the  Board  of  Directors   declared  a  dividend  and
distribution  to the  Series  A  stockholders.  The  dividend  and  distribution
consisted of quarterly  dividends that were payable on June 16, 2004,  September
16, 2004 and  December 16, 2004 in  consideration  for early  conversion  of the
Series A into Common  Stock.  As a result,  343,750  shares of Common Stock were
issued on September 30, 2004 related to the dividend and distribution.

On September 30, 2004, the holders of Series A converted  into 4,583,333  shares
of Common Stock.

                                      F-27
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Series B Convertible Preferred Stock (Series B)

The holder of the Series B is  entitled  to receive a  quarterly  dividend in an
amount  equal to .00833  shares of Common  Stock for each  share of  outstanding
Series B held by them.  In the event of any  liquidation  or  winding  up of the
Company,  the  holder of the  Series B shares  will be  entitled  to  receive in
preference  to the holders of Common  Stock,  and any other  series of Preferred
Stock,  an amount equal to the amount of their purchase  price.  The Series B is
convertible  at the  option of the  holder  into  common  shares  at an  initial
conversion  ratio of one share of Common Stock for three shares of Series B. The
conversion  ratio upon  voluntary  conversion  is subject  to  adjustment  under
certain  circumstances.  Unless previously  voluntarily  converted prior to such
time the Series B shares will be automatically  converted into Common Stock at a
conversion  ratio of one share of Common Stock for three shares of Series B upon
the earlier of the closing of an  underwritten  public  offering of Common Stock
pursuant  to a  registration  statement  under the  Securities  Act of 1933,  as
amended,  with  aggregate  net  proceeds  of at least $25  million,  or the date
specified  by written  consent or  agreement of the holders of a majority of the
then outstanding shares of Series B.

On June 16, 2004, the Company issued 6,250,000 shares of Series B at a per share
price of $0.20 to MedCap  Partners L.P. The Company  recorded a deemed  dividend
due to the beneficial conversion price of $1,250,000 which represents the lesser
of the proceeds or the beneficial conversion feature of $3.2 million.

On  September  30,  2004  the  Board  of  Directors   declared  a  dividend  and
distribution to the Series B holder. The dividend and distribution  consisted of
quarterly  dividends that were payable on September 30, 2004, December 31, 2004,
March 31, 2005 and June 30, 2005 in  consideration  for early  conversion of the
Series B into Common  Stock.  As a result,  114,583  shares of Common Stock were
issued on September 30, 2004 related to the dividend and distribution.  On March
22, 2005, the Board of Directors declared a dividend to the Series B holder. The
dividend consisted of quarterly dividends that were payable on December 31, 2004
which had an estimated  fair value of $81,218.  This amount has been recorded as
accrued dividends on convertible preferred stock.

On September 30, 2004, the holder  converted  2,500,000  shares of Series B into
833,333 shares of Common Stock.

Series B-1 Convertible Preferred Stock (Series B-1)

The holders of the Series B-1 are entitled to receive a quarterly dividend in an
amount equal to 2.5 shares of Common Stock for each share of outstanding  Series
B-1 held by them. If any dividend is declared on the Common  Stock,  the holders
of the  Series B-1 will be  entitled  to receive  dividends  out of the  legally
available  funds as if each  share of Series  B-1 had been  converted  to Common
Stock. The holders of the Series B-1 have the right, at the option of the holder
at any time,  to convert  shares of the Series B-1 into shares of the  Company's
Common  Stock at an initial  conversion  ratio of one  hundred  shares of Common
Stock for each one share of Series  B-1.  The Series B-1 is  convertible  at the
option of the holder into common  shares at an initial  conversion  ratio of one
hundred  shares of Common  Stock for each share of Series  B-1.  The  conversion
ratio  upon  voluntary   conversion  is  subject  to  adjustment  under  certain
circumstances.  Unless previously  voluntarily  converted prior to such time the
Series  B-1 shares  will be  automatically  converted  into  Common  Stock at an
initial conversion ratio of one hundred shares of Common Stock for each share of
Series B-1 upon the earlier of the closing of an underwritten public offering of
Common Stock  pursuant to a registration  statement  under the Securities Act of
1933, as amended,  with  aggregate net proceeds of at least $25 million,  or the
date  specified by written  consent or agreement of the holders of a majority of
the then outstanding shares of Series B-1.

                                      F-28
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On August 9, 2004,  the Company  issued 3,750  shares of Series B-1  Convertible
Preferred  Stock at a per share price of $60.00 to an investor for cash proceeds
of  $225,000.  The  Company  recorded a deemed  dividend  due to the  beneficial
conversion  price of $225,000 which represents the lesser of the proceeds or the
beneficial conversion feature of $937,500.

Also on  August  9,  2004,  the  Company  issued  4,166  shares  of  Series  B-1
Convertible  Preferred  Stock at a per share  price of  $60.00 to the  Company's
Chairman and Chief Executive Officer for cash proceeds of $249,960.  The Company
recorded a deemed  dividend due to the beneficial  conversion  price of $249,960
which represents the lesser of the proceeds or the beneficial conversion feature
of $1.0 million.

On August 9, 2004,  the Company  issued 29,990 shares of Series B-1  Convertible
Preferred  Stock,  issued 40,822  shares of Common Stock and paid  approximately
$225,000  in  cash  in  exchange  for the  cancellation  of all the  outstanding
principal and accrued and unpaid interest under certain promissory notes (Seller
Notes)  that were  issued in 2003 in  connection  with the  purchase  of certain
subsidiaries.  Portions of the Seller Notes were held by a current  employee who
was a former owner of the subsidiary  purchased and by a member of the Company's
Board  of  Directors.  See  discussion  of the  Seller  Notes  in Note  12.  The
conversion was recorded as an inducement and the Series B-1 was recorded at fair
market  value on the date of issuance of $9.3  million.  As a result of the fair
market  valuation,  approximately  $7.5  million  was  recorded as a loss on the
conversion of debt.

On  September  30,  2004,  the  Company  issued  12,642  shares  of  Series  B-1
Convertible  Preferred  Stock in  exchange  for the  conversion  of  $758,640 in
outstanding principal plus accrued and unpaid interest under certain Convertible
Subordinated  Promissory Notes (Notes) issued in 2003. The holders of such Notes
included the Company's  Chairman and Chief  Executive  Officer,  a member of the
Company's  Board of Directors and an entity whose managing member is also on the
Company's Board of Directors.  The Company recorded a deemed dividend due to the
beneficial  conversion  price of  $758,640  which  represents  the lesser of the
cancelled principal and accrued interest or the beneficial conversion feature of
$3.7 million.

On August  31,  2004,  the  Company  issued  MedCap  Partners  L.P. a warrant to
purchase  6,000  shares of Series B-1  Convertible  Preferred  Stock for $60 per
share for five years.  These  warrants  have not been  exercised at December 31,
2004.

                                      F-29
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On  September  30,  2004,  the  Board  of  Directors  declared  a  dividend  and
distribution to the Series B-1 holders. The dividend and distribution  consisted
of quarterly  dividends  that were payable on September 30, 2004.  Additionally,
the Board of Directors declared a distribution equal to the dividends that would
have been  payable on  December  31,  2004,  March 31, 2005 and June 30, 2005 in
consideration for certain  shareholders  electing early conversion of the Series
B-1 into Common Stock.  As a result,  157,203 shares of Common Stock were issued
on September  30, 2004 related to the  dividend and  distribution.  On March 22,
2005, the Board of Directors declared a dividend to the Series B-1 holders.  The
dividend consisted of quarterly dividends that were payable on December 31, 2004
which had an estimated  fair value of 604,780.  This amount has been recorded as
accrued dividends on convertible preferred stock.

On September 30, 2004,  certain  holders of 4,112 shares of Series B-1 converted
their shares into 411,200 shares of Common Stock.  On October 19, 2004, a holder
of 427 shares of Series B-1  converted  his shares into 42,700  shares of common
stock.

As  discussed  in Note 12, on November  10,  2004,  the Company  entered into an
agreement  to convert  approximately  $2.7  million of Seller  Notes and accrued
interest to Series B-1 Convertible  Preferred  Stock.  As a result,  the Company
issued 45,450 shares of Series B-1 Convertible  Preferred  Stock. The conversion
will be  recorded as an  inducement  and the Series B-1 will be recorded at fair
market value on the date of issuance of $19.8  million.  As a result of the fair
market valuation,  approximately $17.0 million will be recorded as a loss on the
conversion of debt.

On December 16, 2004, the Company issued 1,582 shares of Series B-1  Convertible
Preferred Stock at a per share price of $60.00 to investors for cash proceeds of
$94,920. The Company recorded a deemed dividend due to the beneficial conversion
price of $94,920 which  represents  the lesser of the proceeds or the beneficial
conversion feature of $447,962.

Series C Convertible Preferred Stock (Series C)

The holders of Series C are entitled to receive,  when  declared by the Board of
Directors,  a dividend on each  quarter  end  beginning  September  30, 2004 and
ending  December  31, 2005 in an amount  equal to 2.5 shares of Common Stock for
each share of outstanding Series C held by them. In the event of any liquidation
or winding up of the  Company,  the  holders of the Series C will be entitled to
receive in  preference  to the holders of Common  Stock an amount  equal to five
times their initial  purchase  price plus any declared but unpaid  dividends and
any remaining  liquidation proceeds will thereafter be distributed on a pro rata
basis to the  holders  of the  Company's  Common  Stock and any other  series of
Preferred  Stock  expressly  entitled to participate in such  distribution.  The
Series C is  convertible  at the option of the holder into  common  shares at an
initial conversion ratio of one hundred shares of Common Stock for each share of
Series  C.  The  conversion  ratio  upon  voluntary  conversion  is  subject  to
adjustment under certain circumstances.  Unless previously voluntarily converted
prior to such time,  the Series C will be  automatically  converted  into Common
Stock at an initial  conversion  ratio of one hundred shares of Common Stock for
each share of Series C upon the  earlier of (i) the  closing of an  underwritten
public  offering of our Common Stock pursuant to a registration  statement under
the Securities Act of 1933, as amended,  with aggregate net proceeds of at least
$25 million,  or (ii) the date specified by written  consent or agreement of the
holders  of a  majority  of  the  then  outstanding  shares  of  Series  C.  The
description of the foregoing rights,  preferences and privileges of the Series C
is qualified in its entirety by the Certificate of Designations, Preferences and
Rights of Series C filed with the Secretary of State of the State of Delaware on
August 31, 2004.

                                      F-30
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On August 31, 2004,  the Company  issued  35,840  shares of Series C Convertible
Preferred  Stock  (Series C) in exchange for cash  proceeds of  $2,150,400.  The
shares were issued to certain  accredited  investors as well as MedCap  Partners
L.P. and the Company's Chairman and Chief Executive Officer. The purchasers were
granted  Series  C  Warrants  to  purchase  an  aggregate  of  89,600  Series  C
Convertible Preferred Shares. The Series C Warrants are exercisable for a period
of five years at a price per Series C share of $60.00.  The  Company  valued the
warrants  at $1.3  million  and has  accordingly  reduced  the face value of the
Series C by this  amount.  The  Company  recorded a deemed  dividend  due to the
beneficial conversion price of $876,000 which represents the lesser of the value
assigned to the Series C and the beneficial conversion feature of $11.7 million.

On September 30, 2004, the Board of Directors  declared a dividend to the Series
C holders.  The dividend  consisted of quarterly  dividends that were payable on
September  30, 2004.  As a result,  97,325 shares of Common Stock were issued on
September 30, 2004 related to the dividend and distribution.  On March 22, 2005,
the Board of Directors declared a dividend to the Series C holders. The dividend
consisted  of quarterly  dividends  that were payable on December 31, 2004 which
had an  estimated  fair value of  $341,257.  This  amount has been  recorded  as
accrued dividends on convertible preferred stock.

Makewell Agreement

Pursuant with the Term Loan, in August 2004,  MedCap  Partners L.P. (a member of
the Company's Board of Directors is the managing  member of MedCap  Management &
Research  LLC,  the general  partner of MedCap  Partners  L.P.)  entered  into a
Makewell Agreement with the lender to provide equity to the Company (in the form
of purchases of additional  shares of Series C Convertible  Preferred  Stock and
warrants) up to $1.0 million to be issued if the Company  failed to meet certain
monthly financial targets which did occur and resulted in the purchase of shares
and issuance of warrants. The proceeds from the shares issued under the Makewell
Agreement are to be used to pay down the balance of the revolving line of credit
Loan (as  described  in Note 8 above),  which will allow the Company  additional
availability to draw on the Loan.

In connection  with the Makewell  Agreement,  the Company  agreed that for every
share of Series C Convertible  Preferred Stock purchased by MedCap Partners L.P.
under the Makewell  Agreement,  the Company  would grant MedCap  Partners L.P. a
warrant to purchase  2.5 shares of Series C  Convertible  Preferred  Stock.  For
every  share over 4,333  shares  purchased  by MedCap  Partners  L.P.  under the
Makewell  Agreement,  the Company would grant MedCap Partners L.P. an additional
warrant to purchase  10 shares of Series C  Convertible  Preferred  Stock (for a
total of 12.5 warrants to purchase Series C for every share over 4,333).

Pursuant to the Makewell Agreement,  the Company issued to MedCap Partners L.P.,
(i) 3,090 shares of Series C Convertible Preferred Stock (Series C) on September
23, 2004, (ii) 1,250 shares of Series C on October 12, 2004,  (iii) 5,000 shares
of Series C on October 18,  2004,  (iv) 1,417  shares of Series C on October 25,
2004 and (v) 5,910 shares of Series C on November 3, 2004. Such shares of Series
C were  issued at a cash  price per share of  $60.00.  Each share of Series C is
convertible  into one hundred shares of the Company's Common Stock. The proceeds
were used to reduce the amount outstanding on the revolving line of credit Loan.

                                      F-31
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

In connection  with the Company's  issuances of the shares of Series C described
above,  MedCap Partners L.P., was granted (i) a warrant to purchase 7,725 shares
of Series C on September  25, 2004 (ii) a warrant to purchase  65,685  shares of
Series C on October  18,  2004,  (iii) a warrant to  purchase  17,712  shares of
Series C on October  25, 2004 and (iv) a warrant to  purchase  73,875  shares of
Series C on November 3, 2004. Such warrants are exercisable for a period of five
years at a price  per  share of  Series C of  $60.00.  The  Company  valued  the
warrants at $805,000 and has accordingly  reduced the face value of the Series C
Preferred  Shares by this amount.  The Company recorded a deemed dividend due to
the beneficial  conversion  price of $195,000 which represents the lesser of the
value assigned to the Series C and the beneficial conversion of $6.3 million.

The Makewell  Agreement  terminated on November 3, 2004 as MedCap  Partners L.P.
has made an  aggregate  of $1.0  million  in  contributions  under the  Makewell
Agreement triggered by failure of the Company to meet certain financial targets.

Warrants to Purchase Convertible Preferred Stock

As of December 31, 2004,  warrants to purchase  Convertible  Preferred Stock had
been granted as follows:

   SERIES OF CONVERTIBLE                                    EXERCISE PRICE
      PREFERRED STOCK                WARRANTS                  PER SHARE
      ---------------                --------                  ---------
            B-1                        6,000                   $60.00
             C                       254,597                   $60.00

There were no warrants  outstanding  at December 31, 2003.  As discussed in Note
20,  108,333 of the Series C warrants  were  exercised  in March 2005.  No other
warrants have been exercised.

NOTE 15. STOCKHOLDERS' EQUITY

Common Stock

The Company is authorized to issue  150,000,000  shares of common stock at a par
value of $0.0001.  The  authorized  shares were  increased  in January 2005 from
50,000,000 shares.  Currently there are 14,202,883 shares issued with 13,126,477
shares outstanding. The difference of 1,076,406 shares is held by the Company in
treasury.

On August 6, 2003, a number of the  Company's  stockholders  agreed to return an
aggregate of 1,016,000  shares of the Company's  common stock to treasury for no
consideration,  thus reducing the total number of the Company's  then issued and
outstanding   shares  of  common  stock  from  3,666,055  to  2,650,055.   These
stockholders  determined in consultation with the Company's  management that, in
connection  with  the  Company's  acquisition  program  and  on-going  financing
efforts,  it would be in the  Company's  best  interests  to reduce the  overall
number of shares of the  Company's  issued  and  outstanding  common  stock.  In
accordance  with the  provisions  of APB  Statement  No.  25, the effect of this
return of shares to the Company's treasury was to generate non-cash compensation
expense of $5,750,593 due to the imputed increase in ownership percentage of the
Company's stock held by its officers and directors at the date of return.

                                      F-32
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On August 7, 2003,  the Company  completed  the  acquisition  of Baker  Anderson
Christie,  Inc.  pursuant to which 160,000 shares of the Company's  common stock
were issued to the stockholders of Baker Anderson Christie, Inc.

On  September  22,  2003,  the  Company  completed  the  acquisition  of New Age
Staffing,  Inc. pursuant to which 2,294,871 shares of the Company's common stock
were issued to the stockholders of New Age Staffing, Inc.

On October 2, 2003, the Company  completed the  acquisition  of Nurses  Network,
Inc.  pursuant to which 39,361 shares of the Company's  common stock were issued
to the stockholders of Nurses Network, Inc.

On  December  2,  2003,  the  Company  completed  the  acquisition  of PSR Nurse
Recruiting,  Inc.  and PSR Nurses  Holdings  Corp.  pursuant to which  1,139,596
shares of the  Company's  common  stock were issued to the  stockholders  of PSR
Nurse Recruiting, Inc. and PSR Nurses Holdings Corp.

The Company granted the holder of a debt obligation of the Company, the right to
convert outstanding  principal debt to common stock. The conversion agreement is
based on the per share price of $7.32.  The debt holder elected,  on December 2,
2003, to exchange $409,000 of principal note balance for 55,874 shares of common
stock.

On September 2, September 29, October 16, December 3, and December 12, 2003, the
Company  issued  convertible  subordinated  notes  in the  aggregate  amount  of
$910,000 to twelve  investors.  The conversion  privilege enables the holders of
the note to exchange  their notes for the  Company's  common stock at an initial
price  of  $4.50  per  share.  As a  result  of the  issuance  of the  Series  A
Convertible Preferred Stock discussed above, the conversion price, per the terms
of the note agreement, was reduced to $3.00 per share.

In connection  with an agreement,  250,000 shares of Common Stock were delivered
by a party to the agreement,  to an escrow agent.  These shares will be released
from escrow as follows:  (i)  beginning  on July 1, 2004 and  continuing  on the
first day of each month through and including June 1, 2005, the Company,  or its
assignee,  shall pay  $31,250 to the escrow  agent,  and the escrow  agent shall
cause 10,417 shares to be transferred  to the Company or its assignee;  and (ii)
beginning on July 1, 2005 and  continuing on the first day of each month through
and including June 1, 2006, the Company,  or its assignee,  shall pay $46,875 to
the escrow agent,  and the escrow agent shall cause 10,417 shares to be released
to the Company or its assignee. The escrow agent shall distribute funds received
from the Company,  or its assignee,  to the  stockholders who are parties to the
Stock Purchase  Agreement.  For July, 2004 through  December,  2004, the Company
assigned its right to purchase under the Stock Purchase Agreement to an existing
shareholder.

                                      F-33
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On June 28, 2004, the Company  executed a  one-for-three  reverse stock split of
the  outstanding  shares  of  Common  Stock.  All  common  share  and per  share
information  included in these  financial  statements  and  footnotes  have been
retroactively adjusted to reflect the reverse stock split.

On August 31, 2004, the Company completed the acquisition of Arizona Home Health
Care/Private Duty, Inc. pursuant to which 200,000 shares of the Company's common
stock were issued to the stockholders of Arizona Home Health  Care/Private Duty,
Inc. The Company may be obligated to issue additional shares of its common stock
as merger consideration in subsequent fiscal years.

On September 30, 2004, the Company  issued (i) 4,583,333  shares of Common Stock
in  connection  with the voluntary  conversion  of 2,750,000  shares of Series A
Convertible  Preferred  Stock (Series A); (ii) 833,333 shares of Common Stock in
connection  with the  voluntary  conversion  of  2,500,000  shares  of  Series B
Convertible Preferred Stock (Series B); and (iii) 411,200 shares of Common Stock
in  connection  with the  voluntary  conversion  of 4,112  shares of Series  B-1
Convertible  Preferred  Stock (Series B-1). On October 19, 2004, a holder of 427
shares of Series B-1  converted  his shares into 42,700  shares of common stock.
All such conversions  were effected  pursuant to the provisions of the Company's
Amended  and  Restated  Certificate  of  Incorporation  and the  Certificate  of
Designations,  Preferences  and Rights of each  respective  series of  Preferred
Stock.

Warrants to Purchase Common Stock

Pursuant to the Term Loan (see Note 9), the Company agreed to issue Common Stock
warrants to the lender,  at $3.15 per share,  to purchase up to 12% of the total
capitalization  of the Company as defined in the Term Loan. The Company made its
first draw on the facility in the amount of $2,697,801  on August 31, 2004.  The
Company  issued a warrant for 905,758 shares of Common Stock related to the Term
Loan. The Company valued the warrant at $810,000 and recorded this as a discount
to the debt.  The debt will be  recorded  at face value of  $2,697,801  less the
discount of  $810,000,  which will be  amortized  to interest  expense  over the
three-year life of the Term Loan.

Employee Stock Options and Restricted Stock Grants

Subject to the terms and conditions of a Common Stock Purchase Agreement dated
May 15, 2002 with the Chief Executive Officer, the Company granted the right to
purchase, at a purchase price of $0.0003 per share, up to a number of additional
shares of common stock equal to twenty-five (25%) of the aggregate number of
additional shares of common stock and other securities convertible into common
stock issued or issuable in connection with any acquisitions the Company
completed on or before August 7, 2004. The Company has issued an aggregate of

                                      F-34
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

3,689,703 shares as consideration  for the four completed  acquisitions of Baker
Anderson Christie, Inc., New Age Staffing, Inc., Nurses Network, Inc., PSR Nurse
Recruiting,  Inc. and PSR Nurses Holdings Corp. As a result of the completion of
these acquisitions,  the Chief Executive Officer has the right to purchase up to
922,426  shares of common  stock at $0.0003  per share and such  option is fully
vested and exercisable. On December 31, 2003 the Common Stock Purchase Agreement
dated  May  15,  2002  was  modified  such  that  the  Chief  Executive  Officer
relinquished his rights to purchase  additional  shares of common stock (but not
as to the  922,426  shares  discussed  above)  that  were  to  accrue  to him in
connection with  acquisitions  that occurred either before or after December 31,
2003. In consideration for this modification and based on extensive analysis and
review of the Company's  planned  acquisition  program by the Board of Directors
and with the  assistance of a  third-party  compensation  specialist,  the Chief
Executive  Officer was granted an option to purchase up to  2,333,333  shares of
common stock at an exercise price of $.30 per share. The options expire December
31, 2018.  One hundred  percent  (100%) of the shares of common stock subject to
the  option to  purchase  2,333,333  shares  shall be  exercisable  by the Chief
Executive  Officer on December 31,  2008.  The  difference  between the purchase
price of the common stock and option ($0.0003 and $0.30 per share, respectively)
and the closing price of common stock on the respective grant date, as quoted on
the OTC  Bulletin  Board,  has been  accounted  for as a  non-cash  compensation
expense.  The  total  amount  of  expense  recorded  by the  Company  in 2003 is
$43,945,485.

The  Company's  President  had the option to purchase  shares at the fair market
value of common  stock from the Company  equal to 4.167% of the number of shares
of the  Company's  common  stock issued or issuable in  connection  with certain
acquisitions  completed  by  the  Company  on or  before  August  7,  2004.  The
difference  between the purchase  price of the option  ($2.88 per share) and the
closing  price of common stock on the grant date,  has been  accounted  for as a
non-cash compensation expense in 2003 totaling $1,848,490.

On December  16,  2003,  the Company  issued  options to purchase  shares to two
directors in exchange for  providing  services to the Company.  The options vest
over a three year  period.  The  difference  between the  purchase  price of the
option ($2.88 per share) and the closing price of the Company's  common stock on
the grant date,  has been  accounted for as a non-cash  compensation  expense in
2003 of $828,000.

On May 27, 2004, the Company  adopted a stock  incentive plan (the "2004 Plan").
The 2004 Plan  provides for the  granting of stock  options,  restricted  stock,
restricted stock units, stock appreciation rights and dividend equivalent rights
(collectively referred to as "awards") to employees,  directors and consultants.
A total of 800,000 shares of common stock were  initially  reserved for issuance
plus  annual  increases  equal to the  lesser of (a) 5% of the  total  number of
shares  outstanding as of that date, (b) 1,000,000 shares or (c) a lesser number
of shares determined by the Board.

The  2004  Plan  is  administered  by the  Board  of  Directors  or one or  more
committees  designated by the Board. The Board or committee  determines  whether
and to what extent  awards are  granted,  to  determine  the number of shares of
common stock to be covered by each award,  to approve award  agreements  for use
under the 2004 Plan, and to determine the terms and conditions of any award. The
term of any  incentive  stock option  granted under the 2004 Plan may not be for
more than ten years and may not be  granted at an  exercise  price less than the
fair market value of the common stock on the date the option is granted.  In the
event of a corporate  transaction or change in control,  the Administrator shall
have the  discretion  to provide that  outstanding  awards  shall  automatically
become  fully vested and  exercisable  for all or a portion of the shares at the
time represented by the award, immediately prior to the specified effective date
of  such  corporate  transaction  or  change  in  control.  Effective  upon  the
consummation of a corporate transaction, all outstanding awards shall terminate.
However,  all such  awards  shall not  terminate  to the extent the  contractual
obligations represented by the award are assumed by the successor entity.

                                      F-35
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Options to purchase  50,000 common  shares were issued to Board  members  during
2004 with an exercise  price of $5.10.  On August 3, 2004, the Company's CEO was
granted  the  option  to  purchase  866,666  shares  at $3.10  per share and the
Company's  President was granted the option to purchase  433,333 shares at $3.10
per share. The grants to the CEO and President contained vesting provisions that
were  contingent  upon the  completion  of three  acquisitions,  listing  of the
Company  on AMEX,  closing  of a term  loan  agreement  and  meeting  a  defined
stockholders'  equity goal by December 31, 2004. Two of the four provisions were
met by December 31, 2004. In accordance  with grant  provisions,  any non-vested
shares at December 31, 2004 were terminated.

Stock option activity is summarized as follows:



                                                     DECEMBER 31,
                                                     ------------
                                                2004             2003
                                            -------------    -------------

Outstanding, January 1                          3,528,500               --
Granted                                         1,460,503        3,528,500
Exercised                                              --               --
Forfeited                                        (732,878)              --
                                            -------------    -------------
Outstanding, December 31                        4,256,126        3,528,500
                                            =============    =============

Exercisable                                     2,628,348        1,128,501

Available for grant                               750,000               --

Average exercise price per share:
  Outstanding, January 1                    $         .42    $          --
  Granted                                            4.13              .42
  Exercised                                            --               --
  Forfeited                                          3.15               --
  Outstanding, December 31                           1.19              .42
  Exercisable, December 31                           1.16              .17

Weighted average grant date fair value of
options granted during the year                      3.04             4.43


                                      F-36
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

The  following  table  summarizes   information  about  employee  stock  options
outstanding at December 31, 2004:

                                 OPTIONS OUTSTANDING
                -------------------------------------------------------
               NUMBER       WEIGHTED AVERAGE       WEIGHTED AVERAGE
             OUTSTANDING      EXERCISE PRICE   REMAINING CONTRACTUAL LIFE
             -----------    ----------------   --------------------------

               922,426            .0003                14.0
             2,333,333            .30                  14.0
               272,741           2.88                   9.0
               650,000           3.10                   9.6
                27,626           3.15                    .8
                50,000           5.10                   9.4
             ---------
             4,256,126
             =========


Common Shares Reserved

The following table summarizes the number of shares of common stock reserved for
future issuance as of December 31, 2004:

      Employee stock options:
        Options granted                                           4,256,126
        Shares reserved for future grants                           750,000
      Stock purchase warrants and convertible preferred stock:
        Term loan                                                   905,758
        Series B convertible preferred stock                      1,250,000
        Series B-1 convertible preferred stock and warrants       9,904,300
        Series C convertible preferred stock and warrants        30,709,800
                                                                 ----------
                                                                 47,775,984
                                                                 ==========


NOTE 16. COMMITMENTS AND CONTINGENCIES

Commitment to Issue Additional Common Stock Warrants

In accordance  with the terms of the Term Loan (see Note 9), the Company  agreed
to issue  warrants  to  purchase  Common  Shares to the  lender up to 12% of the
Company's  overall  capitalization  at a price of $3.15 per share. On August 31,
2004, the Company issued a warrant for 905,758 Common Shares in connection  with
the first borrowing on the credit facility.  If borrowing were to continue up to
the  maximum of  $10,000,000,  the  Company  would  have to issue an  additional
2,451,605 warrants to purchase Common Shares.

                                      F-37
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Employment Agreement

On August 14, 2002,  the Company  entered into an Agreement  for a period of two
years  with its  Chairman  and  Chief  Executive  Officer,  which  provided  for
compensation  of $200,000 per year.  The  agreement  also provided for severance
benefits upon  termination  other than for cause of a payment equal to two times
his then  current  base salary and an  automatic  acceleration  of all  unvested
options and stock grants. On December 16, 2003, the board of directors  adjusted
the compensation to $320,000 per year beginning  January 1, 2004. In addition on
December 31, 2003,  the board of directors  granted two cash bonuses of $540,000
payable on December  31, 2006 and January 4, 2007.  The Company has recorded the
two cash bonuses at their  present  value in the amount of $884,962 and $801,000
at December 31, 2004 and 2003, respectively.

Operating Leases

In 2002,  the  Company  entered  into a sublease  as  successor  in  interest to
premises in San Francisco, California. This sublease expired on July 31, 2004.

The Company assumed several operating leases in connection to the acquisition of
Baker, Anderson, Christie, Inc., New Age Staffing, Inc., and PSR Nurses Holdings
Corp. The Company moved the corporate  headquarters to Dallas, Texas. This lease
was renewed in 2004 and expires on November 30, 2005.

Minimum lease payments are as follows:

                                             MINIMUM
                                              LEASE
                           YEAR              PAYMENTS
                           ----              --------

                           2005            $   259,491
                           2006                 92,299
                           2007                 49,271
                           2008                 26,078
                                           -----------
                             Total         $   427,139
                                           ===========

Lease expense amounted to $343,427 in 2004 and $50,935 in 2003.

Stock issuance

A liability  has been  recorded at December  31, 2004 for the issuance of 82,540
shares  of  common  stock to be  distributed  to  certain  nurses  in 2005.  The
liability at December 31, 2004 related to this  commitment was $214,604 based on
the fair market value of the common stock at December 31, 2004.

                                      F-38
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

Indemnification

Pursuant to its bylaws,  the Company has agreed to  indemnify  its  officers and
directors for certain events or  occurrences  arising as a result of the officer
or director serving in such capacity.  The term of the indemnification period is
for the officer's or director's lifetime.  To date, the Company has not incurred
any costs as there  have been no  lawsuits  or claims  that would  invoke  these
indemnification agreements. Accordingly, the Company has no liabilities recorded
for these  agreements as of December 31, 2004. The Company  carries  appropriate
levels of Directors  and Officers  insurance to minimize the risk of claims that
could arise from litigation.

The Company enters into indemnification provisions under (i) its agreements with
other  companies in its ordinary  course of business,  typically  with  business
partners,  contractors  and customers,  its  sublandlord and (ii) its agreements
with  investors.  Under these  provisions  the  Company has agreed to  generally
indemnify  and hold  harmless  the  indemnified  party for  losses  suffered  or
incurred by the indemnified party as a result of the Company's activities or, in
some  cases,  as a  result  of the  indemnified  party's  activities  under  the
agreement.  These  indemnification  provisions  often  include  indemnifications
relating  to  representations  made by the Company  with regard to  intellectual
property rights. These indemnification  provisions generally survive termination
of the underlying agreement. The maximum potential amount of future payments the
Company  could be  required to make under these  indemnification  provisions  is
unlimited. To date, the Company has not incurred any costs as there have been no
lawsuits or claims related to these indemnification agreements. Accordingly, the
Company has no  liabilities  recorded  for these  agreements  as of December 31,
2004.

Litigation

From time to time, the Company may become involved in various lawsuits and legal
proceedings which arise in the ordinary course of business.  However, litigation
is subject to inherent  uncertainties,  and an adverse  result in these or other
matters may arise from time to time that may harm the  business.  The Company is
not  currently  aware of any such legal  proceedings  or claims that it believes
will have,  individually or in the aggregate,  a material  adverse affect on its
business, financial condition or operating results.

NOTE 17. RELATED PARTY TRANSACTIONS

As of December 31, 2004,  $21,752 was recorded in the financial  statements as a
payable to the selling  shareholders  of AHHC. The amount is related to customer
payments received on accounts receivable that were not purchased by the Company.
A selling shareholder of AHHC joined the Company as an Executive Vice President.

Ameristar Group Incorporated ("Ameristar") is a corporation that is an affiliate
of a stockholder  of the  Company's  and is  considered  to be a related  party.
During the year ended December 31, 2003,  the Company paid  Ameristar  financial
consulting fees totaling $50,000,  with an additional $10,000 accrued but unpaid
at year end. On September 9, 2003, the audit committee of the Company's Board of
Directors approved a Consulting  Agreement with Ameristar pursuant to which they
will  provide the Company  with  assistance  relating  to the  Company's  filing
requirements  with the Securities and Exchange  Commission in exchange for a fee
of $5,000 per month. This Agreement expired on March 31, 2004.

                                      F-39
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

On June 30, 2003, the Company  executed a Promissory Note in favor of one of its
stockholders,  Atlantic  International Capital Holdings,  Ltd., in the principal
amount of $25,000 in exchange for cash in the same amount.  This Promissory Note
accrued  interest  at 12% per annum and matured on August 13, 2003 at which time
the  principal  plus  accrued  interest  would  have been  payable  in full.  On
September 29, 2003, the scheduled repayment date was extended by the maker until
November 30, 2003.  The maker further  extended the repayment  until January 31,
2004. The note, plus accrued interest, was paid in full on February 2, 2004.

On July 21, 2003, the Company  executed a Promissory Note in favor of one of its
stockholders,  Gable  International  Holdings,  Ltd., in the principal amount of
$25,000 in exchange for cash in the same amount.  This  Promissory  Note accrued
interest  at 12% per annum and  matured on  September  3, 2003 at which time the
principal  plus accrued  interest  would have been payable in full. On September
29, 2003, the scheduled  repayment date was extended by the maker until November
30,  2003.  The note,  plus accrued  interest,  was paid in full on December 12,
2003.

On  September  2, 2003,  the  Company  issued  $675,000 in  principal  amount of
Convertible  Subordinated  Promissory Notes (the "Notes") to six investors.  The
Company issued additional Notes in the principal amounts of $25,000 and $120,000
on September 29 and October 16, 2003,  respectively.  Subject to the  conversion
provisions  set forth in the  Notes,  the  unpaid  principal  together  with all
accrued  interest on the Notes is due and payable in full one year following the
issuance  date of each such  Note.  Interest  accrues  on the  unpaid  principal
balance  at a rate of ten  percent  (10%) per  annum,  simple  interest,  and is
payable in quarterly payments. Three of the investors included Joseph M. DeLuca,
Robert P.  Oliver and James D.  Durham.  Messrs.  DeLuca and Oliver are  current
members of the  Company's  board of directors and its audit  committee.  Each of
them  purchased,  together  with an  affiliate  of Mr.  DeLuca's,  Notes  in the
aggregate  principal  amount  of  $125,000.  James D.  Durham,  a member  of the
Company's  board of  directors  and its Chairman  and Chief  Executive  Officer,
purchased a Note in the  principal  amount of $50,000.  At  December  31,  2004,
$50,000 of the Notes remain outstanding.

The Company sub-leased until December 1, 2004, 1,980 square feet of office space
at  Dallas,  Texas to Rison  Management  Services  for  $2,393  per  month.  The
principal of Rison  Management  Services is a  stockholder  of the Company.  The
monthly  rental  amount  is  based on the  Company's  rental  obligation  to the
landlord.

NOTE 18. EMPLOYEE BENEFITS

The Company has  maintained  the  established  401(k) plans of Baker,  Anderson,
Christie, Inc. and PSR Nurses, Ltd. The Baker, Anderson,  Christie, Inc. plan is
maintained  only for those who were  participating  on the  acquisition  date of
August 7, 2003. The plan allows for voluntary  contribution of up to the maximum
dollar amount  allowable by the Internal Revenue Service or $13,000 in 2004. Any
matching  contribution is discretionary  and none were made during 2004 or 2003.
All other  employees are eligible to  participant  in the PSR Nurses,  Ltd. plan
once they have  completed one year or 1,000 hours of service.  Participants  may
contribute from 1% to 20% of pretax annual compensation,  as defined in the Plan
with a maximum deferral determined annually by the Internal Revenue Service. The
maximum dollar limit  allowable in 2004 was $13,000.  The Company may contribute
discretionary matching contributions and none were made during 2004 or 2003.

                                      F-40
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

NOTE 19. SUPPLEMENTAL DISCLOSURE TO THE CASH FLOW STATEMENT

                                                      DECEMBER 31,
                                                      ------------
                                                   2004          2003
                                               -----------   -----------

Supplemental cash flow disclosures:
  Cash paid for interest                       $ 1,068,476   $   153,407
  Cash paid for income taxes                            --            --

Non-cash investing and financing activities:
  Conversion of debt into common stock             126,548       409,000
  Conversion of debt into preferred stock       29,825,860            --
  Conversion of preferred stock in common        3,495,005            --
stock
  Issuance of the following in connection
with a merger:
        Common stock issued                        690,000     5,941,604
        Notes payable issued and assumed           275,000     5,683,173
  Common stock warrants                            810,000            --


NOTE 20. SUBSEQUENT EVENTS

Subsequent to December 31, 2004, the Company has borrowed $1,050,000 for working
capital from MedCap  Partners L.P. The underlying  notes bear interest at 5% and
are payable on demand.

On March 29, 2005, holders of the Convertible Preferred Series B and Convertible
Preferred  Series B-1 voted to convert their preferred  shares to common shares.
The Series B converted their 3,750,000 shares of preferred into 1,250,000 shares
of common and the Series B-1  converted  their 93,043  shares of preferred  into
9,304,300 shares of common. Convertible preferred stock and stockholders' equity
reflected  on a pro forma basis as if the  conversion  occurred on December  31,
2004 (but not including the exercise of warrants discussed below or the issuance
of common  shares in  connection  with the  acquisition  discussed  below) is as
follows:

                                      F-41
<PAGE>

                                 CRDENTIA CORP.
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2004

                                                    AS REPORTED      PRO FORMA
                                                   ------------    ------------


Series B convertible preferred stock               $    750,000    $         --

Series B-1 convertible preferred stock               30,123,400              --

Series C convertible preferred stock                  1,070,510       1,070,510

Series C preferred stock warrants                     2,079,910       2,079,910


Stockholders' equity (deficit):

  Common stock                                            1,420           2,475

  Additional paid in capital                         68,447,288      99,319,633

  Treasury stock                                             --              --

  Deferred non-cash stock compensation                 (648,746)       (648,746)

  Accumulated deficit                               (92,317,005)    (92,317,005)
                                                   ------------    ------------

Total stockholders' equity                         $(24,517,043)   $  6,356,357
                                                   ============    ============

In addition, on March 29, 2005, MedCap Partners L. P. exercised 108,333 warrants
to purchase Convertible Series C Preferred Stock at $60 per share. This provided
the  Company  with $6.5  million.  Proceeds  were  used to repay the  $1,050,000
borrowed in 2005 and the $400,000  borrowed in 2004 from the Company's  majority
stockholder  and to fund the cash portion of two  acquisitions  discussed  below
plus interest on the amounts due the stockholder and working capital needs.

On March 29,  2005,  the Company  acquired  TravMed  USA,  Inc. in exchange  for
$3,215,490  in cash and a note for  $3,215,490.  The note is a three-year  note,
interest  only for the first  six  months,  and then  fully  amortized  over the
remaining  thirty months.  The note bears interest at 2% over prime. The primary
purpose of the  acquisition was to enable the Company to expand it's presence in
the travel and per diem  markets of the nurse  staffing  industry.  The acquired
company reported  unaudited  revenues of approximately  $12,600,000 for the year
ended December 31, 2004.

On March 29, 2005, the Company  acquired Health Industry  Professionals,  LLC in
exchange for  $1,350,900 in cash and 1,281,576  shares of common stock valued at
$2,601,600.  The primary purpose of the acquisition was to enable the Company to
expand  it's  presence  in the per diem and home  health  markets  of the  nurse
staffing   industry.   The  acquired  company  reported  unaudited  revenues  of
approximately $4,700,000 for the year ended December 31, 2004.

On March 29, 2005, the Company's  revolving credit facility  discussed in Note 8
was reduced from $15 million to $10 million based on the Company's present needs
and agreement was reached to amend the  revolving  credit  facility and the term
loan discussed in Note 9 to enable the Company to comply with revised  covenants
in the future.

                                      F-42

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-2.9
<SEQUENCE>2
<FILENAME>v014915_ex2-9.txt
<TEXT>
                                                                     Exhibit 2.9

================================================================================


                      AGREEMENT AND PLAN OF REORGANIZATION

                                  by and among

                                 CRDENTIA CORP.,
                           CPS ACQUISITION CORPORATION

                                       and

                            CARE PROS STAFFING, INC.,

                and the Shareholders of Care Pros Staffing, Inc.

                              dated August 13, 2004

================================================================================

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

ARTICLE 1. DEFINITIONS........................................................2
   1.1     Defined Terms......................................................2
   1.2     Construction of Certain Terms and Phrases..........................2

ARTICLE 2. THE MERGER.........................................................2
   2.1     The Merger.........................................................2
   2.2     Effective Time.....................................................2
   2.3     Effect of the Merger...............................................2
   2.4     Certificate of Incorporation; Bylaws...............................2
   2.5     Directors and Officers.............................................2
   2.6     Effect on Capital Stock/Merger Consideration.......................2
   2.7     Revenue Adjustments to Merger Consideration........................2
   2.8     Exchange Procedure.................................................2
   2.9     Closing............................................................2
   2.10    Exemption from Registration........................................2
   2.11    Authorization of the CPS Stockholder Representative................2

ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................2
   3.1     Organization of the Company........................................2
   3.2     Capital Stock of the Company.......................................2
   3.3     Ownership of Shares................................................2
   3.4     Authority of the Company...........................................2
   3.5     No Affiliates......................................................2
   3.6     No Conflicts.......................................................2
   3.7     Consents and Governmental Approvals and Filings....................2
   3.8     Books and Records..................................................2
   3.9     Company Financial Statements.......................................2
   3.10    Absence of Changes.................................................2
   3.11    No Undisclosed Liabilities.........................................2
   3.12    Tangible Personal Property.........................................2
   3.13    Benefit Plans; ERISA...............................................2
   3.14    Real Property......................................................2
   3.15    Proprietary Information of Third Parties...........................2
   3.16    Compliance with Legal Requirements; Governmental Authorizations....2
   3.17    Legal Proceedings; Orders..........................................2
   3.18    Contracts..........................................................2
   3.19    Accounts Receivable................................................2
   3.20    Accounts Payable...................................................2
   3.21    Equipment..........................................................2
   3.22    Insurance..........................................................2
   3.23    Tax Matters........................................................2
   3.24    Labor and Employment Relations.....................................2

                                       i
<PAGE>

   3.25    Certain Employees..................................................2
   3.26    Absence of Certain Developments....................................2
   3.27    Customers..........................................................2
   3.28    Bank Accounts......................................................2
   3.29    Permits............................................................2
   3.30    Regulatory Compliance..............................................2
   3.31    Third Party Consents...............................................2
   3.32    Relationships with Related Persons.................................2
   3.33    Certain Payments...................................................2
   3.34    Brokers............................................................2
   3.35    Verification of Credentials........................................2
   3.36    [Intentionally Deleted]............................................2
   3.37    Existing Indebtedness..............................................2
   3.38    Material Misstatements and Omissions...............................2

ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION CO........2
   4.1     Organization.......................................................2
   4.2     Authority..........................................................2
   4.3     Litigation.........................................................2
   4.4     Reports and Financial Statements...................................2
   4.5     No Conflicts.......................................................2
   4.6     Consents and Governmental Approvals and Filings....................2
   4.7     Brokers............................................................2

ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.................2
   5.1     Requisite Power and Authority......................................2
   5.2     Investment Representations.........................................2
   5.3     Transfer Restrictions..............................................2
   5.4     Market Standoff....................................................2
   5.5     Filings............................................................2

ARTICLE 6. ADDITIONAL AGREEMENTS..............................................2
   6.1     Access to Information..............................................2
   6.2     Public Announcements; Company Literature...........................2
   6.3     Fees and Expenses..................................................2
   6.4     Confidentiality....................................................2

ARTICLE 7. CONDITIONS TO CONSUMMATION OF THE MERGER...........................2
   7.1     Conditions to Each Party's Obligations to Effect the Merger........2
   7.2     Conditions to the Obligations of the Company.......................2
   7.3     Conditions to the Obligations of Parent and Acquisition Co.........2

ARTICLE 8. TERMINATION; AMENDMENT; WAIVER.....................................2
   8.1     Termination........................................................2
   8.2     Effect of Termination..............................................2
   8.3     Amendment..........................................................2
   8.4     Extension; Waiver..................................................2

                                       ii
<PAGE>

ARTICLE 9. ACTIONS BY THE PARTIES AFTER THE CLOSING...........................2
   9.1     Survival of Representations, Warranties, Etc.......................2
   9.2     Indemnification....................................................2
   9.3     Right of Offset....................................................2
   9.4     Non-Exclusivity....................................................2

ARTICLE 10. ARBITRATION.......................................................2
   10.1    Arbitration........................................................2

ARTICLE 11. MISCELLANEOUS.....................................................2
   11.1    Further Assurances.................................................2
   11.2    Notices............................................................2
   11.3    Entire Agreement...................................................2
   11.4    Waiver.............................................................2
   11.5    Amendment..........................................................2
   11.6    No Third Party Beneficiary.........................................2
   11.7    No Assignment; Binding Effect......................................2
   11.8    Headings...........................................................2
   11.9    Severability.......................................................2
   11.10   Governing Law......................................................2
   11.11   Consent to Jurisdiction and Forum Selection........................2
   11.12   Construction.......................................................2
   11.13   Counterparts.......................................................2
   11.14   Attorney's Fees....................................................2
   11.15   Continued Representation...........................................2

                             SCHEDULES AND EXHIBITS

Exhibits
--------
Exhibit A         -        Articles of Merger
Exhibit B         -        Form of Promissory Note
Exhibit C         -        Additional Merger Consideration Calculation
Exhibit D-1 to D-4         Non-Competition and Non-Solicitation Agreements
Exhibit E         -        Company Secretary Certificate
Exhibit F         -        Release
Exhibit G         -        Opinion of Company Counsel to Company
Exhibit H         -        Subordination Agreement
Exhibit I         -        Parent Secretary Certificate
Exhibit J         -        Acquisition Co. Secretary Certificate

                                       iii
<PAGE>


                      AGREEMENT AND PLAN OF REORGANIZATION

         This Agreement and Plan of Reorganization (this "Agreement") is made
and entered into as of August 13, 2004, by and among Crdentia Corp., a Delaware
corporation ("Parent"), CPS Acquisition Corporation, a Texas corporation and a
wholly-owned subsidiary of Parent ("Acquisition Co."), Care Pros Staffing, Inc.,
a Texas corporation (the "Company"), and Dan Ross, David Kingery, David Gorman
and John Pencsak who currently constitute all of the Shareholders of the Company
(individually a "Shareholder" and collectively, the "Shareholders").

                                    RECITALS:

         A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the Texas Business Corporation Act (the "TBCA"), Parent and
the Company will enter into a business combination transaction pursuant to which
the Company will merge with and into Acquisition Co. (the "Merger").

         B. The Board of Directors of Parent has (i) determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
Parent and fair to, and in the best interests of, Parent and its shareholders,
and (ii) approved this Agreement, the Merger and the other transactions
contemplated by this Agreement.

         C. The Board of Directors of the Company (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of the Company and fair to, and in the best interests of, the Company and its
Shareholders, and (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement.

         D. The Shareholders of the Company have unanimously approved this
Agreement, the Merger and the other transactions contemplated by this Agreement.

         E. The sole Shareholder of Acquisition Co. has approved this Agreement,
the Merger and other transactions contemplated by this Agreement.

         F. Parent, Acquisition Co. and the Company desire to make certain
representations and warranties and other agreements in connection with the
Merger.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:

                                       1
<PAGE>

                                   ARTICLE 1.

                                   DEFINITIONS

      1.1 Defined Terms. As used in this Agreement, the following defined terms
have the meanings indicated below:

      "Acquisition Co." has the meaning set forth in the first paragraph of this
Agreement.

      "Acquisition Co. Common Stock" has the meaning set forth in Section
2.6(c)(iii).

      "Actions or Proceedings" means any action, suit, proceeding, arbitration,
Order, inquiry, hearing, assessment with respect to fines or penalties or
litigation (whether civil, criminal, administrative, investigative or informal)
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental or Regulatory Authority.

      "Affiliate" means, with respect to any Person, a Family Member or another
Person that directly, or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person.

      "Agreement" has the meanings set forth in the first paragraph of this
Agreement and in Section 2.2.

      "Articles of Merger" has the meaning set forth in Section 2.2.

      "Assets and Properties" and "Assets or Properties" of any Person each
means all assets and properties of every kind, nature, character and description
(whether real, personal or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed or otherwise and wherever situated),
including the goodwill related thereto, operated, owned or leased by such
Person, including, without limitation, cash, cash equivalents, accounts and
notes receivable, chattel paper, documents, instruments, general intangibles,
real estate, equipment, inventory, goods and Intellectual Property.

      "Auditor" shall mean BDO Seidman, LLP, or such other certified public
accounting firm engaged by Parent.

      "Benefit Plan" means any Plan established, arranged or maintained by the
Company or any corporate group of which the Company is or was a member, existing
at the Closing Date or prior thereto, to which the Company contributes or has
contributed, or under which any employee, officer, director or former employee,
officer or director of the Company or any beneficiary thereof is covered, is
eligible for coverage or has benefit rights.

      "Books and Records" of any Person means all files, documents, instruments,
papers, books, computer files (including but not limited to files stored on a
computer's hard drive or on floppy disks), electronic files and records in any
other medium relating to the business, operations, accounting practices or
condition of such Person.

                                       2
<PAGE>

      "Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of Texas are authorized or obligated to close.

      "Cash Consideration" has the meaning set forth in Section 2.6(b)(i).

      "Closing" has the meaning set forth in Section 2.9(a).

      "Closing Date" has the meaning set forth in Section 2.9(a).

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Company" has the meaning set forth in the first paragraph of this
Agreement.

      "Company Common Stock" has the meaning set forth in Section 3.2(a) of this
Agreement.

      "Company Disclosure Schedule" means the disclosure schedule attached
hereto which sets forth the exceptions to the representations and warranties
contained in Article III hereof and certain other information called for by this
Agreement.

      "Company Financial Statements" means (i) the unaudited balance sheets of
the Company and the related audited statements of income and retained earnings
for the fiscal periods ended December 31, 2003, December 31, 2002 and December
31, 2001, and (ii) the Interim Financial Statements.

      "Company Year-End Financial Statements" shall mean the unaudited balance
sheet of the Company and the related statements of income and retained earnings
for the year-end ended December 31, 2003 prepared in accordance with GAAP and
audited by the Auditors in the sole and absolute discretion of the Parent.

      "Consent" means any approval, consent, ratification, waiver, or other
authorization (including any Governmental Authorization).

      "Contemplated Transactions" means all of the transactions contemplated by
this Agreement, including: (a) the Merger; (b) the execution, delivery, and
performance of the Non-Competition Agreements, the Subordination Agreements, and
the Releases; (c) the performance by Parent and the Company of their respective
covenants and obligations under this Agreement; and (d) Parent's acquisition and
ownership of the Company Common Stock and exercise of control over the Company.

      "Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.

      "Copyrights" has the meaning set forth in the definition of "Intellectual
Property."

      "CPS Shareholder Representative" has the meaning set forth in Section
2.11(a).

      "Damages" has the meaning set forth in Section 9.2(a).

                                       3
<PAGE>

      "Defined Benefit Plan" means each Benefit Plan which is subject to Part 3
of Title I of ERISA, Section 412 of the Code or Title IV of ERISA.

      "Effective Time" has the meaning set forth in Section 2.2.

      "Encumbrances" means any mortgage, pledge, assessment, security interest,
deed of trust, lease, lien, adverse claim, equitable interest, levy, charge,
community property interest, right of first refusal or other encumbrance of any
kind, or any conditional sale or title retention agreement or other agreement to
give any of the foregoing in the future.

      "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.

      "ERISA Affiliate" means any entity which is a member of a "controlled
group of corporations" or which is or was under "common control" with the
Company as defined in Section 414 of the Code.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended.

      "Family Member" of an individual Person means (i) the individual's spouse
and former spouses, (ii) any other natural person who is related to the
individual or the individual's spouse within the second degree, and (iii) any
other natural person who resides with such individual.

      "Final Date" has the meaning set forth in Section 8.1(b).

      "GAAP" means United States generally accepted accounting principles, as
currently in effect, applied on a basis consistent with the basis on which
Parent's audited financial statements are prepared.

      "Governmental Authorization" means any approval, consent, license, permit,
waiver, or other authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental or Regulatory Authority
or pursuant to any Legal Requirement.

      "Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States or other country, any state, county, city or other political
subdivision.

      "Industry Acquisitions" shall mean acquisitions by Parent or any Affiliate
thereof of temporary health staffing companies or travel nurse companies.

      "Intellectual Property" means (i) trademarks, service marks, trade dress,
logos, trade names and corporate names, together with all translations,
adaptations, derivations and combinations thereof and including all goodwill
associated therewith, and all applications, registrations and renewals in
connection therewith (collectively, "Trademarks"), (ii) trade secrets and
confidential business information (including without limitation, know-how,
customer lists, current and anticipated customer requirements, price lists,

                                       4
<PAGE>

market studies, business plans), however documented; (iii) proprietary computer
software and programs (including object code and source code) and other
proprietary rights and copies and tangible embodiments thereof (in whatever form
or medium); (iv) database technologies, systems, structures and architectures
(and related processes, formulae, compositions, improvements, devices, know-how,
inventions, discoveries, concepts, ideas, designs, methods and information) and
any other related information, however, documented; (v) any and all information
concerning the business and affairs of a Person (which includes historical
financial statements, financial projections and budgets, historical and
projected sales, capital spending budgets and plans, the names and backgrounds
of key personnel and personnel training and techniques and materials), however
documented; (vi) any and all notes, analysis, compilations, studies, summaries,
and other material prepared by or for a Person containing or based, in whole or
in part, on any information included in the foregoing, however documented; and
(vii) any similar or equivalent rights to any of the foregoing.

      "Interim Financial Statements" means the unaudited balance sheet and the
related unaudited statement of income and retained earnings for the Company, in
each case for the period ending August 13, 2004.

      "Key Employees" means those employees of the Company that Parent in its
sole discretion has designated as "key employees" prior to the Closing and set
forth on Schedule 1.1(c) attached hereto.

      "Knowledge of the Company" or "Known to the Company" means the knowledge
of any officer, director or Shareholder of the Company. An officer, director or
Shareholder of the Company will be deemed to have Knowledge of a particular fact
or other matter if such individual is actually aware of such fact or other
matter.

      "Knowledge of the Parent" or "Known to the Parent" means the knowledge of
any officer or director of the Parent. An officer or director of Parent will be
deemed to have Knowledge of a particular fact or other matter if such individual
is actually aware of such fact or other matter.

      "Legal Requirement" means any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute or treaty.

      "Letter of Transmittal" has the meaning set forth in Section 2.8(a).

      "Material Adverse Effect" means, for any Person, a material adverse effect
whether individually or in the aggregate (a) on the business, operations,
financial condition, Assets and Properties, liabilities or prospects of such
Person, or (b) on the ability of such Person to consummate the transactions
contemplated hereby.

      "Merger" has the meaning set forth in the first recital of this Agreement.

      "Non-Competition Agreements" has the meaning set forth in Section
2.9(b)(iii).

      "Note" shall have the meaning set forth in Section 2.6(b)(ii).

      "Note Consideration" shall have the meaning set forth in Section
2.6(b)(ii).



                                       5
<PAGE>

      "Order" means any award, decision, writ, judgment, decree, ruling,
subpoena, verdict, injunction or similar order of any Governmental or Regulatory
Authority (in each such case whether preliminary or final).

      "Ordinary Course of Business" means the action of a Person that is (i)
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person; (ii) not required to
be authorized by the board of directors of the Company; and (iii) similar in
nature and magnitude to actions customarily taken, without the action of the
board of directors or similar body, in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
the Company.

      "OTCBB" shall mean the regulated quotation service known as the OTC
Bulletin Board.

      "Outstanding Company Common Stock" has the meaning set forth in Section
2.6(a).

      "Parent" has the meaning set forth in the first paragraph of this
Agreement.

      "Parent Group" has the meaning set forth in Section 9.2(a).

      "Parent SEC Documents" means each form, report, schedule, statement and
other document filed by the Parent beginning in August 2003 through the date of
this Agreement under the Exchange Act or the Securities Act, including any
amendment to such document.

      "Permits" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations and similar consents granted or issued
by any Governmental or Regulatory Authority.

      "Permitted Encumbrance" means (a) any Encumbrance for taxes not yet due or
delinquent or being contested in good faith by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP and (b) any
minor imperfection of title or similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not impair the value of the property
subject to such Encumbrance or the use of such property in the conduct of the
business of the Company.

      "Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company, proprietorship, other business
organization, trust, union, association or Governmental or Regulatory Authority.

      "Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workers' compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of ERISA.

      "Proceeding" means any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority.

                                       6
<PAGE>

      "Qualified Plan" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.

      "Real Property" has the meaning set forth in Section 3.14.

      "Release" has the meaning set forth in Section 2.9(b)(v).

      "SEC" shall mean the Securities & Exchange Commission of the United
States.

      "Securities Act" means the Securities Act of 1933, as amended.

      "Shareholders" has the meaning set forth in the first paragraph of this
Agreement.

      "Stock Certificates" has the meaning set forth in Section 2.8(a).

      "Subordination Agreement" has the meaning set forth in Section 2.9(b)(ix).

      "Surviving Corporation" has the meaning set forth in Section 2.1.

      "Tax" (and, with correlative meaning, "Taxes," "Taxable" and "Taxing")
means (i) any federal, state, local or foreign income, alternative or add-on
minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental or Regulatory
Authority responsible for the imposition of any such tax (domestic or foreign),
(ii) any liability for payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined, unitary or
other group for any Taxable period and (iii) any liability for the payment of
any amounts of the type described in (i) or (ii) as a result of any express or
implied obligation to indemnify any other Person.

      "Tax Return" means any return, report, information return, schedule or
other document (including any related or supporting information) filed or
required to be filed with respect to any taxing authority with respect to Taxes.

      "Third Party Expenses" has the meaning set forth in Section 6.3.

      "Threatened" means a claim, Proceeding, dispute, action or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in writing),
or if any other event has occurred or any other circumstances exist that would
lead a prudent Person to conclude that such a claim, proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.

                                       7
<PAGE>

      "Trademarks" has the meaning set forth in the definition of "Intellectual
Property."

      1.2 Construction of Certain Terms and Phrases. Unless the context of this
Agreement otherwise requires, (a) words of any gender include each other gender;
(b) words using the singular or plural number also include the plural or
singular number, respectively; (c) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement; (d) the terms
"Article" or "Section" refer to the specified Article or Section of this
Agreement; (e) the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or;" and (f) "including" means
"including without limitation." Whenever this Agreement refers to a number of
days, such number shall refer to calendar days unless Business Days are
specified. All accounting terms used in this Agreement shall have the meanings
given to them under GAAP.

                                   ARTICLE 2.

                                   THE MERGER

      2.1 The Merger. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the applicable provisions of the TBCA, the
Company shall be merged with and into Acquisition Co., the separate corporate
existence of the Company shall cease and Acquisition Co. shall continue as the
surviving corporation. Acquisition Co. as the surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."

      2.2 Effective Time. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by the filing of the
articles of merger substantially in the form attached hereto as Exhibit A (the
"Articles of Merger") with the Secretary of State of the State of Texas in
accordance with the relevant provisions of the TBCA (the time of acceptance by
the Secretary of State of the State of Texas such filing, or such later time as
may be agreed in writing by the parties and specified in the Articles of Merger,
being the "Effective Time") as soon as practicable on the Closing Date. Unless
the context otherwise requires, the term "Agreement" as used herein refers
collectively to this Agreement and the Articles of Merger.

      2.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of TBCA.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
the Company and Acquisition Co. shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Acquisition Co. shall become
the debts, liabilities and duties of the Surviving Corporation.

      2.4 Certificate of Incorporation; Bylaws.

            (a) At the Effective Time, the Certificate of Incorporation of
Acquisition Co. shall be the Certificate of Incorporation of the Surviving
Corporation, except that Article I thereof shall be amended to read in its
entirety as follows: "The name of the Corporation is Care Pros Staffing, Inc."

                                       8
<PAGE>

            (b) At the Effective Time, the Bylaws of Acquisition Co. shall be
the Bylaws of the Surviving Corporation, except that the Bylaws shall be amended
to reflect that the name of the Surviving Corporation shall be "Care Pros
Staffing, Inc."

      2.5 Directors and Officers. The directors of Acquisition Co. immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, to serve until their respective successors are duly elected or
appointed and qualified. The officers of Acquisition Co. immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation,
to serve until their successors are duly elected or appointed or qualified.

      2.6 Effect on Capital Stock/Merger Consideration.

            (a) Conversion of Company Common Stock. At the Effective Time, by
virtue of the Merger and without any action on the part of any Person, each
share of the Company Common Stock issued and outstanding immediately prior to
the Effective Time (the "Outstanding Company Common Stock") shall be canceled
and automatically converted into the right to receive, upon surrender of the
certificates representing such shares and a Letter of Transmittal, a ratable
portion of the Cash Consideration and Note Consideration as determined in
Section 2.6(b) below. At the Effective Time, all rights in respect of such
Outstanding Company Common Stock shall cease to exist, other than the right to
receive the Cash Consideration and Note Consideration, and all such shares shall
be cancelled and retired.

            (b) Merger Consideration. The merger consideration shall consist of
$550,000 (the "Merger Consideration") and be paid on the Closing Date as
follows:

                  (i) Cash Consideration. $275,000 in the aggregate shall be
paid in cash (the "Cash Consideration") to the Shareholders based on his pro
rata share of the Merger Consideration by wire transfer to the Shareholders or
by cashier's checks drawn upon a federally insured lending institution on the
Closing Date; and

                  (ii) Note Consideration. $275,000 (the "Note Consideration")
shall be paid in the form of a one-year subordinated promissory note (the
"Note") in the form attached hereto as Exhibit B issued by the Parent to the
Shareholders in the aggregate original principal amount of the Note
Consideration. The Parent shall issue a Note to each Shareholder in accordance
with their pro rata share of the Merger Consideration.

            (c) Actions at the Effective Time. At the Effective Time:

                  (i) Except for the securities referred to in Section
2.6(c)(ii) below, each share of Outstanding Company Common Stock will
automatically, by virtue of the Merger and without any action on the part of the
holder thereof, be canceled and converted into a right to receive from Parent
the Cash Consideration and the Note Consideration in the amount as determined
pursuant to this Section 2.6.

                  (ii) Each share of Company Common Stock held in the treasury
of the Company shall be canceled and retired without payment of any
consideration therefor.

                                       9
<PAGE>

                  (iii) Each share of common stock of Acquisition Co.
("Acquisition Co. Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock of the Surviving Corporation
and shall constitute the only shares of capital stock of the Surviving
Corporation outstanding immediately after the Effective Time. Each stock
certificate of Acquisition Co. evidencing ownership of any such shares shall
continue to evidence ownership of such shares of capital stock of the Surviving
Corporation.

            (d) Cash/Accounts Receivable Balances/Loan Balances. The Parent
recognizes and agrees that, immediately prior to Closing, the Company will
distribute all cash on hand to the Shareholders. Additionally, the Company and
the Shareholders agree to collect its accounts receivable in the ordinary course
and that, at the Closing, the accounts receivable shall not be less than
$60,000. The Company currently has outstanding a line of credit with First
American Bank (the "Bank"). The Company and the Shareholders agree that, at the
Closing, the outstanding amounts under the line of credit with the Bank shall
not exceed $10,000.

      2.7 Revenue Adjustments to Merger Consideration. The Parent may pay
additional Merger Consideration in accordance with the terms and conditions set
forth:

            (a) Calculation of Additional Merger Consideration. The Parent may
pay additional Merger Consideration in accordance with the terms and conditions
set forth on Exhibit C attached hereto. The Company's revenues shall be
calculated by management of Parent in good faith and in a manner consistent with
Parent's consolidated audited financial statements and the determination of
management, absent fraud, shall be final and binding on all parties. The
additional consideration payable pursuant to this Section 2.7(a), if any, shall
be made in accordance with each Shareholder's respective pro rata share of the
Merger Consideration paid on the Closing Date. The additional consideration if
any, issuable and payable pursuant to this Section 2.7(a) shall be referred to
as the "Incremental Revenue Payment."

            (b) Incremental Revenue Payment Date. Parent shall pay the
Incremental Revenue Payment, if any, on or before October 15, 2005 unless the
Shareholders dispute Parent's calculations pursuant to Exhibit C, in which case
Parent shall pay the applicable Incremental Revenue Payment, if any, within
thirty (30) days after resolution of the dispute in accordance with the dispute
provisions of Article 10 regarding arbitration.

      2.8 Exchange Procedure.

            (a) Promptly after the Effective Time, Parent shall mail to each
holder of record of a certificate or certificates which immediately prior to the
Effective Time represented Company Common Stock (the "Stock Certificates") whose
shares are being converted into a ratable portion of the Cash Consideration and
Note Consideration pursuant to Section 2.6 above, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Stock Certificates shall pass, only upon delivery of the Stock
Certificates to the Parent and which shall be in such form and have such other
provisions as Parent may reasonably specify) (the "Letter of Transmittal") and
(ii) instructions for use in effecting the surrender of the Stock Certificates
in exchange for the Cash Consideration and Note Consideration. Upon surrender of
a Stock Certificate for cancellation to Parent or to such other agent or agents
as may be appointed by Parent, duly endorsed in blank (or accompanied by duly
executed stock powers) and, if necessary, spousal consents by each spouse, if
any, of each Shareholder, duly executed by such spouses, together with such
Letter of Transmittal duly executed, the holder of such Stock Certificate shall
be entitled to receive in exchange therefor the Cash Consideration and Note
Consideration to which such holder of Company Common Stock is entitled pursuant
to Section 2.6 above. The Stock Certificates so surrendered shall forthwith be
canceled. No interest will accrue or be paid to the holder of any Company Common
Stock. From and after the Effective Date, until surrendered as contemplated by
this Section 2.8, each Stock Certificate shall be deemed for all corporate
purposes to evidence the amount of the Cash Consideration and Note Consideration
into which the Company Common Stock represented by such Stock Certificate have
been converted.

                                       10
<PAGE>

            (b) The Cash Consideration and Note Consideration delivered upon the
surrender for exchange of Company Common Stock in accordance with the terms
hereof shall be deemed to have been delivered in full satisfaction of all rights
pertaining to such Company Common Stock. There shall be no further registration
of transfers on the stock transfer books of the Surviving Corporation of Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Stock Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.8, provided that the presenting holder is listed on the Company's
Shareholder list as a holder of Company Common Stock.

            (c) In the event that any Stock Certificates evidencing Company
Common Stock shall have been lost, stolen or destroyed, the Parent shall pay in
exchange for such lost, stolen or destroyed Stock Certificates, upon the making
of an affidavit of that fact by the holder thereof, such Merger Consideration as
may be required pursuant to Section 2.6 above; provided, however, that Parent
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Stock Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Stock Certificates alleged to have been lost, stolen or destroyed.

            (d) Notwithstanding anything to the contrary in this Section 2.8,
none of the Surviving Corporation or any party hereto shall be liable to a
holder of Company Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.

            (e) Each of the Parent, Acquisition Co. and the Company will take
all such reasonable and lawful acts as may be necessary or desirable in order to
effectuate the Merger in accordance with this Agreement as promptly as possible.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets, property,
rights, privileges, powers and franchises of the Company, the officers and
directors of the Company and Acquisition Co. are fully authorized in the name of
the respective corporations or otherwise to take, and will take, all such lawful
and necessary action so long as such action is not inconsistent with this
Agreement.

                                       11
<PAGE>

      2.9 Closing.

            (a) Time and Place. The closing of the Merger under this Agreement
(the "Closing") shall take place at the offices of Kane, Russell, Coleman &
Logan, P.C., 1601 Elm Street, Suite 3700, Dallas, Texas 75201, at 10:00 a.m. on
August 16, 2004, or at such time and in such manner as the parties mutually
agree (the "Closing Date").

            (b) Closing Deliveries by the Company and the Shareholders. At the
Closing, the Company and the Shareholders, as the case may be, shall have
delivered or caused to be delivered to Parent and/or Acquisition Co., as the
case may be:

                  (i) the Articles of Merger, duly executed by the Company;

                  (ii) [Intentionally Deleted];

                  (iii) the Non-Competition and Non-Solicitation Agreement by
and between Parent and each Shareholder, substantially in the form of Exhibit
D-1 through Exhibit D-4, as appropriate, (the "Non-Competition Agreement"), duly
executed by such parties;

                  (iv) a certificate of the Secretary of the Company
substantially in the form of Exhibit E attached hereto, certifying as of the
Closing Date (A) a true and complete copy of the organizational documents of the
Company certified as of a recent date by the Secretary of State of Texas, (B) a
certificate of each appropriate Secretary of State certifying the good standing
of the Company in its state of incorporation and all states in which it is
qualified to do business, (C) a true and complete copy of the resolutions of the
board of directors of the Company and the resolutions of the Shareholders of the
Company, each authorizing the execution, delivery and performance of this
Agreement by the Company and the consummation of the transactions contemplated
hereby and (D) incumbency matters;

                  (v) a Release by each of the Shareholders, substantially in
the form of Exhibit F attached hereto (the "Release"), duly executed by each
Shareholder;

                  (vi) resignation letter of each of the officers and directors
of the Company, dated effective as of the Closing;

                  (vii) an opinion of Shamoun & Klasky, P.C., counsel to the
Company substantially in the form attached hereto as Exhibit G;

                  (viii) a listing of the amount of Note Consideration and Cash
Consideration to be paid at the Closing to each Person entitled to receive a
portion thereof pursuant to the terms hereof to be attached as Schedule 2.9
hereto;

                  (ix) a Subordination Agreement by each Shareholder
substantially in the form of Exhibit H (each, a "Subordination Agreement");

                  (x) such other documents as Parent may reasonably request for
the purpose of facilitating the consummation of the Contemplated Transactions.



                                       12
<PAGE>

            (c) Closing Deliveries By Parent. At the Closing, Parent and/or
Acquisition Co., as the case may be, shall have delivered or caused to be
delivered to the Company and/or the Company Shareholders, as the case may be:

                  (i) the Non-Competition Agreement, duly executed by Parent;

                  (ii) a certificate of the Secretary of Parent substantially in
the form of Exhibit I attached hereto, certifying as of the Closing Date (A) a
true and complete copy of the organizational documents of Parent certified as of
a recent date by the Secretary of State of Delaware, (B) a true and complete
copy of the resolutions of the board of directors of Parent authorizing the
execution, delivery and performance of this Agreement by Parent and the
consummation of the transactions contemplated hereby and (C) incumbency matters;

                  (iii) the Note Consideration and Cash Consideration for each
Shareholder as set forth on Section 2.9 of the Company Disclosure Schedule; and

                  (iv) a certificate of the Secretary of Acquisition Co.
substantially in the form of Exhibit J attached hereto, certifying as of the
Closing Date (A) a true and complete copy of the organizational documents of
Acquisition Co., (B) a true and complete copy of the resolutions of the board of
directors and shareholder of Acquisition Co. authorizing the execution, delivery
and performance of this Agreement by Acquisition Co. and the consummation of the
transactions contemplated hereby and (C) incumbency matters.

      2.10 Exemption from Registration. The issuance of the Parent Common Stock
issuable as Merger Consideration will be exempt from registration requirements
of the Securities Act pursuant to the private placement exemption provided by
Rule 505 and/or 506 of Regulation D promulgated under the Securities Act and/or
Section 4(2) of the Securities Act, and applicable state securities laws.

      2.11 Authorization of the CPS Stockholder Representative.

                  (a) Dan Ross (and each successor appointed in accordance with
this Section 2.11) hereby is appointed, authorized and empowered to act as the
stockholder representative (when acting in such capacity, the "CPS Stockholder
Representative") on behalf of the Shareholders, in connection with and to
facilitate the consummation of the transactions contemplated by this Agreement,
which powers shall include, without limitation: (i) to deliver all certificates
representing the Company Common Stock tendered therewith to Parent; (ii) to
prosecute, negotiate, defend, agree to, enter into settlements and comprises of,
and comply with orders of courts and awards of arbitrators with respect to
indemnification claims or other disputes arising under this Agreement; (iii) to
resolve any indemnification claims under this Agreement; and (iv) to make,
execute, acknowledge and deliver all such other agreements, guarantees, orders,
receipts, endorsements, notices, requests, instructions, certificates, stock
powers, letters and other writings, and, in general, do to any and all things
and to take any and all actions that the CPS Stockholder Representative in his
sole and absolute discretion, may consider necessary or proper or convenient in
connection with the consummation of the transactions contemplated by this
Agreement.

                                       13
<PAGE>

      Accordingly, the CPS Stockholder Representative shall have unlimited
authority and power to act on behalf of the Shareholders with respect to this
Agreement and the disposition, settlement or other handling of all disputes and
indemnification claims, and other rights or obligations arising from or taken
pursuant to this Agreement. Each Shareholder will be bound by all actions taken
by the CPS Stockholder Representative in connection with this Agreement. The CPS
Stockholder Representative shall not be liable to any Shareholder for any costs,
damages or expenses incurred in connection with the performance of his
responsibilities hereunder, except to the extent such costs, damages or expenses
arise from the CPS Stockholder Representative's intentional misconduct, gross
negligence or fraudulent acts.

      The grant of authority provided for in this Section 2.11 is coupled with
an interest and is being granted, in part, as an inducement to Parent and
Acquisition Co. to enter into this Agreement, and shall be irrevocable and
survive the death, incompetency, bankruptcy or liquidation of any Shareholder
and shall be binding upon any successor thereto.

      Parent, Acquisition Co. and Surviving Corporation shall have the right to
rely upon all actions taken or omitted to be taken by the CPS Stockholder
Representative pursuant to this Agreement or any applicable ancillary document,
and notwithstanding anything herein to the contrary, Parent, Acquisition Co. and
Surviving Corporation shall not have any responsibility or obligation whatsoever
to any Shareholder or to any other party with respect to or arising out of the
actions taken or any inaction by the CPS Stockholder Representative.

            (b) If the CPS Stockholder Representative is unable or unavailable
to perform his duties hereunder, a successor CPS Stockholder Representative
shall be selected by a majority (based on percentage of stock ownership) of the
Shareholders of the Company.

                                   ARTICLE 3.

                         REPRESENTATIONS AND WARRANTIES
                                 OF THE COMPANY

      The Company and each of the Shareholders, jointly and severally, represent
and warrant to Parent and Acquisition Co. as of the date hereof and as of the
Closing Date, except as set forth on the Company Disclosure Schedule furnished
to Parent specifically identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and warranties as if made
hereunder, as follows:

      3.1 Organization of the Company. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Texas. The Company is duly authorized to conduct business and is in good
standing in Texas and each jurisdiction where such qualification is required
except for any jurisdiction where failure so to qualify would not have a
Material Adverse Effect upon the Company. The Company has full power and
authority, and holds all Permits and authorizations necessary to carry on its
business and to own and use the Assets and Properties owned and used by the
Company except where the failure to have such power and authority or to hold
such Permit or authorization would not have a Material Adverse Effect on the
Company's business. The Company has delivered to Parent correct and complete
copies of its charter documents and organizational documents, each as amended to
date.

                                       14
<PAGE>

      3.2 Capital Stock of the Company.

            (a) The authorized capital stock of the Company consists of (i)
100,000 shares of common stock, par value $0.001 per share ("Company Common
Stock"), of which 100,000 shares are issued and outstanding as of the date
hereof; (ii) no shares of capital stock of the Company in treasury; and (iii) no
shares of preferred stock. Each share of the issued and outstanding capital
stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. Section 3.2(a) of the Company Disclosure Schedule sets forth a
complete and accurate list specifying the number of shares of Company Common
Stock held by each Shareholder.

            (b) There are no subscriptions, options, warrants, calls,
commitments and other rights of any kind for the purchase or acquisition of, and
any securities convertible or exchangeable for, any capital stock of the
Company, including the holder thereof, the number of shares of Company Common
Stock subject thereto, the exercise price, date of grant, vesting schedule and
expiration thereof and any terms regarding the acceleration of vesting thereof.

            (c) There are no agreements to which the Company is a party or by
which it is bound with respect to the voting (including voting trusts or
proxies), registration under the Securities Act, or sale or transfer (including
agreements relating to pre-emptive rights, rights of first refusal, co-sale
rights or "drag-along" rights) of any securities of the Company. To the
Knowledge of the Company, there are no agreements among other parties, to which
the Company is not a party and by which it is not bound, with respect to the
voting (including voting trusts or proxies) or sale or transfer (including
agreements relating to rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Company.

      3.3 Ownership of Shares. Each of the Shareholders owns beneficially and of
record that number of shares of Company Common Stock listed opposite such
Shareholder's name in Section 3.2(a) of the Company Disclosure Schedule, free
and clear of all Encumbrances, and has good and valid title to such shares. The
delivery of the stock certificate(s) representing the Outstanding Common Stock
in the manner provided in Section 2.8 will transfer to the Parent good and valid
title thereto free and clear of all Encumbrances.

      3.4 Authority of the Company. The Company has all necessary power and
authority and has taken all action necessary to enter into this Agreement, to
consummate the transactions contemplated hereby and to perform its obligations
hereunder and no other proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by the Company
and constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

      3.5 No Affiliates. The Company does not have any Affiliates or
subsidiaries and is not a partner in any partnership or a party to a joint
venture.

                                       15
<PAGE>

      3.6 No Conflicts. The execution and delivery by the Company of this
Agreement does not, and the performance by the Company of its obligations under
this Agreement and the consummation of the transactions contemplated hereby will
not:

            (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of the Company;

            (b) conflict with or result in a violation or breach of, or give any
Governmental or Regulatory Authority the right to revoke, withdraw, suspend,
cancel, termination or modify any term or provision of any law, Order, Permit,
statute, rule or regulation applicable to the Company, the business or Assets or
Properties of the Company or the capital stock of the Company Common Stock;

            (c) result in a breach of, or default under (or give rise to right
of termination, modification, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other similar instrument or obligation to which the Company,
any of its Assets and Properties or the Company Common Stock may be bound,
except for such breaches or defaults as set forth in Section 3.6(c) of the
Company Disclosure Schedule as to which requisite waivers or consents will have
been obtained by the Closing Date;

            (d) cause any of the Assets or Properties of the Company to be
reassessed or revalued by any taxing authority or any Governmental or Regulatory
Authority;

            (e) result in an imposition or creation of any Encumbrance or Tax on
the business or Assets or Properties of the Company or the Company Common Stock.

      3.7 Consents and Governmental Approvals and Filings. No consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
on the part of the Company is required in connection with the execution,
delivery and performance of this Agreement or the consummation of the
transactions contemplated hereby.

      3.8 Books and Records. The minute books and other corporate records of the
Company as made available to Parent contain a true and complete record of all
actions taken at all meetings and by all written consents in lieu of meetings of
the Shareholders, the boards of directors and committees of the boards of
directors of the Company. The Company has delivered or made available true and
complete copies of each document which has been requested by Parent or its
counsel in connection with their legal and accounting review of the Company. The
stock transfer ledgers and other similar records of the Company accurately
reflect all issuances and record transfers in the capital stock of the Company.
The other Books and Records of the Company are true, correct and complete,
represent bonafide business transactions and have been maintained in accordance
with sound business practices, including the maintenance of an adequate system
of internal controls.

      3.9 Company Financial Statements. The Company has previously delivered to
Parent the Company Financial Statements. Such Company Financial Statements (i)
are materially true, correct and complete, (ii) have been prepared in accordance
with the Books and Records of the Company, (iii) have been prepared in
conformity with GAAP, and (iv) fairly present the financial condition and
results of operations of the Company as of the respective dates thereof and for
the periods covered thereby; provided that the Interim Financial Statements are
subject to normal year-end adjustments and lack footnotes and certain other
presentation items.

                                       16
<PAGE>

      3.10 Absence of Changes. Except for the execution and delivery of this
Agreement and the transactions to take place pursuant hereto on or prior to the
Closing Date, since December 31, 2003, there has not been any material adverse
change, or any event or development which, individually or together with other
such events, could reasonably be expected to result in a Material Adverse Effect
on the Company.

      3.11 No Undisclosed Liabilities. Except as disclosed in Section 3.11 of
the Company Disclosure Schedule or in the Company Financial Statements, there
are no liabilities, whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, whether or not of a kind
required by GAAP to be set forth on a financial statement or on the notes
thereto, including but not limited to any liability for Taxes (the
"Liabilities"), nor any basis for any claim against the Company for any such
liabilities, relating to or affecting the Company or any of its Assets and
Properties, other than such liabilities incurred after December 31, 2003 in the
Ordinary Course of Business which have not had, and could not reasonably be
expected to result in, individually or in the aggregate, a Material Adverse
Effect on the Company. To the Knowledge of the Company there is no circumstance,
condition, event or arrangement that may hereafter give rise to any liabilities
of the Company or any successor to its business except in the Ordinary Course of
Business or is otherwise set forth on in Section 3.11 of the Company Disclosure
Schedule.

      3.12 Tangible Personal Property. The Company is in possession of and has
good and marketable title to, or has valid leasehold interests in or valid
rights under written agreements to use, all tangible personal property,
equipment, plants, buildings, structures, facilities and all other Assets and
Properties used in or reasonably necessary for the conduct of the Company's
business, including all tangible personal property reflected on the Company
Financial Statements and any tangible personal property acquired since that date
other than property disposed of since such date in the Ordinary Course of
Business. All such tangible personal property, equipment, plants, buildings,
structures, facilities and all other assets and properties are listed in Section
3.12 of the Company Disclosure Schedule and are free and clear of all
Encumbrances, other than Permitted Encumbrances which have not had a Material
Adverse Effect on the Company.

      3.13 Benefit Plans; ERISA.

            (a) Section 3.13(a) of the Company Disclosure Schedule lists each
Benefit Plan together with a brief description of the type of plan and benefit
provided thereunder. The Company has no commitment, proposal, or communication
to employees regarding the creation of an additional Plan or any increase in
benefits under any Benefit Plan. The Company has provided to Parent (i) a copy
of each Benefit Plan (including amendments) and a list of persons participating
in such arrangement, (ii) the three most recent annual reports on the Form 5500
series for each Benefit Plan required to file such report and (iii) the most
recent trustee's report for each Benefit Plan funded through a trust.

                                       17
<PAGE>

            (b) Neither the Company, an ERISA Affiliate or predecessor thereof
has ever maintained, contributed to or been obligated to contribute to any
Defined Benefit Plan or multiemployer plan (as defined in Section (3)(37) or
4001(a)(3) of ERISA) and no condition exists that presents a material risk to
the Company or an ERISA Affiliate of incurring a liability under Title IV of
ERISA.

            (c) Each Benefit Plan has been operated and administered in all
material respects in accordance with its terms and, as of the Closing Date, will
be in full compliance, in form and operation, with all applicable laws
(including but not limited to ERISA and the Code). The reserves reflected in the
Company Financial Statements for the obligations of the Company under all
Benefit Plans are adequate and were determined in accordance with GAAP.

            (d) Each Qualified Plan has received a determination letter from the
Internal Revenue Service confirming that it qualifies under Section 401(a) of
the Code and nothing has occurred since the issuance of that letter which would
adversely affect such qualified status or the plan sponsor's ability to rely on
such determination letter.

            (e) No Benefit Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current or
former employees of the Company or any ERISA Affiliate beyond their termination
of service (other than (i) coverage mandated by applicable law, (ii) benefits
under a Qualified Plan, (iii) deferred compensation benefits accrued as
liabilities on the books of the Company or any ERISA Affiliate or (iv) benefits
the full cost of which is borne by any current or former employee (or his or her
beneficiary)).

            (f) The consummation of the transactions contemplated by this
Agreement will not, either immediately or upon the occurrence of any event
thereafter, (i) entitle any current or former employee or officer or director of
the Company or any ERISA Affiliate to severance pay, unemployment compensation
or any other payment, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation otherwise due any such individual.

            (g) There are no pending or, to the Knowledge of the Company,
anticipated or threatened claims by or on behalf of any Benefit Plan, by any
employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than routine claims for benefits).

      3.14 Real Property. The Company does not own any real property. Section
3.14 of the Company Disclosure Schedule contains a complete and accurate legal
description of each parcel of real property leased by the Company (as lessee or
lessor) (the "Real Property") and all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the Real Property. The Company has a
valid leasehold interest in all real property used in or relating to the conduct
of the Company's business, free and clear of all Encumbrances other than
Permitted Encumbrances. The Company has rights of ingress and egress with
respect to the Real Property, and all buildings, structures, facilities,
fixtures and other improvements thereon material for the operation of the
Company's business. Each lease with respect to the Real Property is a legal,
valid and binding agreement of the Company subsisting in full force and effect
enforceable in accordance with its terms, and except as set forth in Section
3.14 of the Company Disclosure Schedule, there is no, and the Company has not
received notice of any, default (or any condition or event which, after notice
or lapse of time or both, would constitute a default) thereunder.

                                       18
<PAGE>

      3.15 Proprietary Information of Third Parties. No third party has claimed
or, to the Knowledge of the Company, has reason to claim that any Person
employed by or affiliated with the Company in connection with and during the
Company's operation of its business has (i) violated or may be violating any of
the terms or conditions of such Person's employment, non-competition or
non-disclosure agreement with such third party, (ii) disclosed or may be
disclosing or utilized or may be utilizing any proprietary information or
documentation of such third party, or (iii) interfered or may be interfering in
the employment relationship between such third party and any of its present or
former employees. No third party has requested information from the Company
which relates to such a claim. To the Knowledge of the Company, no Person
employed by or affiliated with the Company in connection with and during the
Company's ownership and operation of its business has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer and no Person employed by or affiliated with the Company in
connection with and during the Company's ownership and operation of its business
has violated any confidential relationship which such Person may have had with
any third party, in connection with the sale of any service or proposed service
of the Company, and to the Knowledge of the Company, there is no reason to
believe there will be any such employment or violation.

      3.16 Compliance with Legal Requirements; Governmental Authorizations.

            (a) Except as set forth in Section 3.16(a) of the Company Disclosure
Schedule:

                  (i) the Company is, and at all times since its incorporation
has been, in full compliance with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its Assets and Properties;

                  (ii) no event has occurred or circumstance exists that (with
or without notice or lapse of time) (A) may constitute or result in a violation
by the Company of, or failure on the part of the Company to comply with, any
Legal Requirement, or (B) may give rise to any obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature; and

                  (iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental or Regulatory
Authority or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential obligation on the part of the
Company to undertake, or to bear all or any portion of the cost of, any remedial
action of any nature.

                                       19
<PAGE>

            (b) Section 3.16(b) of the Company Disclosure Schedule contains a
complete and accurate list of each Governmental Authorization that is held by
the Company or that otherwise relates to the business of, or to any of the
Assets and Properties owned or used by, the Company. Each Governmental
Authorization listed or required to be listed in Section 3.16(b) of the Company
Disclosure Schedule is valid and is in full force and effect. Except as set
forth on Section 3.16(b) of the Company Disclosure Schedule:

            (i) the Company is, and at all times has been, in full compliance
with all of the terms and requirements of each Governmental Authorization
identified or required to be identified in Section 3.16(b) of the Company
Disclosure Schedule;

            (ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Section 3.16(b) of
the Company Disclosure Schedule, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Section 3.16(b) of the Company Disclosure Schedule;

            (iii) the Company has not received any notice or other communication
(whether oral or written) from any Governmental or Regulatory Authority or any
other Person regarding (A) any actual, alleged, possible, or potential violation
of or failure to comply with any term or requirement of any Governmental
Authorization, or (B) any actual, proposed, possible, or potential revocation,
withdrawal, suspension, cancellation, termination of, or modification to any
Governmental Authorization; and

      (iv) all applications required to have been filed for the renewal of the
Governmental Authorizations listed or required to be listed in Section 3.16(b)
of the Company Disclosure Schedule have been duly filed on a timely basis with
the appropriate Governmental or Regulatory Authority, and all other filings
required to have been made with respect to such Governmental Authorizations have
been duly made on a timely basis with the appropriate Governmental or Regulatory
Authority.

      The Governmental Authorizations listed in Section 3.16(b) of the Company
Disclosure Schedule collectively constitute all of the Governmental
Authorizations necessary to permit the company to lawfully conduct and operate
its business in the manner it currently conducts and operates such business and
to permit the Company to own and use its assets in the manner in which it
currently owns and uses such assets.

      3.17 Legal Proceedings; Orders.

            (a) Except as set forth in Section 3.17(a) of the Company Disclosure
Schedule, there is no pending Proceeding:

                  (i) To the Knowledge of the Company, that has been commenced
by or against the Company or that otherwise relates to or may affect the
business of, or any of the Assets or Properties owned or used by the Company; or

                                       20
<PAGE>

                  (ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions.

      To the Knowledge of the Company, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. The
Company has delivered to Parent copies of all pleadings, correspondence, and
other documents relating to each Proceeding listed in Section 3.17(a) of the
Company Disclosure Schedule. The Proceedings listed in Section 3.17(a) of the
Company Disclosure Schedule will not have a material adverse effect on the
business, operations, assets, condition, or prospects of the Company.

            (b) Except as set forth in Section 3.17(b) of the Company Disclosure
Schedule:

                  (i) the Company is not subject to any Order that relates to
the business of, or any of the assets owned or used by, the Company; and

                  (ii) no officer, director, agent, or employee of the Company
is subject to any Order that prohibits such officer, director, agent, or
employee from engaging in or continuing any conduct, activity, or practice
relating to the business of the Company.

            (c) Except as set forth in Section 3.17(c) of the Company Disclosure
Schedule:

                  (i) the Company is, and at all times has been, in full
compliance with all of the terms and requirements of each Order to which it, or
any of the Assets or Properties owned or used by it, is or has been subject;

                  (ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which the
Company, or any of the Assets or Properties owned or used by the Company, is
subject; and

                  (iii) the Company has not received any notice or other
communication (whether oral or written) from any Governmental or Regulatory
Authority or any other Person regarding any actual, alleged, possible, or
potential violation of, or failure to comply with, any term or requirement of
any Order to which the Company, or any of the Assets or Properties owned or used
by the Company, is or has been subject.

      3.18 Contracts.

            (a) Section 3.18 of the Company Disclosure Schedule contains a true
and complete list of each of the following contracts, agreements or other
arrangements to which the Company is a party or by which any of its Assets and
Properties is bound (and, to the extent oral, accurately describes the terms of
such contracts, agreements and arrangements):

                  (i) all collective bargaining or similar labor agreements;

                                       21
<PAGE>

                  (ii) all contracts for the employment of any officer, employee
or other Person or entity on a full time, part time, consulting or other basis
and all independent contractor agreements;

                  (iii) all loan agreements, indentures, debentures, notes or
letters of credit relating to the borrowing of money or to mortgaging, pledging
or otherwise placing a lien on any material asset or material group of assets of
the Company;

                  (iv) each written warranty, guaranty, or other similar
undertaking with respect to contractual performance extended by the Company;

                  (v) all leases or agreements under which the Company is lessee
or lessor of, or holds, or operates, any property, real or personal, owned by
any other party;

                  (vi) all commitments, contracts, sales contracts, purchase
orders, mortgage agreements or groups of related agreements with the same party
or any group or affiliated parties which require or may in the future require
payment of any consideration by the Company;

                  (vii) all license agreements, distribution agreements or any
other agreements involving any of the Company's Intellectual Property, including
agreements with current and former employees, consultants or contractors
regarding the appropriation or the non-disclosure of any Intellectual Property;

                  (viii) each joint venture partnership and other Contract
(however named) involving a sharing of profits, losses, costs or liabilities by
the Company with any other Person;

                  (ix) any Contract for payments to or by any Person by the
Company based on sales, purchases or profits, other than direct payments for
goods;

                  (x) each power of attorney that is currently effective and
outstanding; (xi) each Contract entered into other than in the Ordinary Course
of Business that contains or provides for an express undertaking by the Company
to be responsible for consequential damages;

                  (xii) each Contract for capital expenditures in excess of
$10,000;

                  (xiii) all subscription or other agreements related to the
equity ownership of the Company;

                  (xiv) all contracts or commitments that in any way restrict
the Company from carrying on its business anywhere in the world;

                  (xv) all other contracts and agreements that (A) involve the
payment or potential payment in excess of $10,000, pursuant to the terms of any
such contract or agreement, by the Company and (B) cannot be terminated within
30 days after giving notice of termination without resulting in any cost or
penalty to the Company;

                  (xvi) all contracts or commitments that in any way grants a
third party a right of first refusal for the purchase of the Company or any of
its Assets or Properties; and

                                       22
<PAGE>

                  (xvii) each amendment, supplement, and modification (whether
oral or written) in respect to any of the foregoing.

            (b) A correct and complete copy of each Contract disclosed in the
Company Disclosure Schedule has been previously provided to Parent. Each
contract, agreement or other arrangement disclosed in the Company Disclosure
Schedule is in full force and effect and constitutes a legal, valid and binding
agreement, enforceable in accordance with its terms, of the Company, and to the
Knowledge of the Company, the other parties thereto; and the Company has
performed all of its required obligations under, and is not in violation or
breach of or default under, any such contract, agreement or arrangement. To the
Knowledge of the Company, the other parties to any such contract, agreement or
arrangement are not in violation or breach of or default under any such
contract, agreement or arrangement. To the Knowledge of the Company, none of the
present or former employees, officers, directors or Shareholders of the Company
is a party to any oral or written contract or agreement prohibiting any of them
from freely competing with other parties or engaging in the Company's business
as now operated. No event has occurred or circumstance exists that (with or
without notice or the lapse of time) may contravene, conflict with, or result in
a violation or breach of, or give the Company or any other Person the right to
declare a default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, termination, or modify, any Contract to which the
Company is a party. The Company has not given to or received from any other
Person any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default under
any Contract. There are no renegotiations of, attempts to renegotiate or
outstanding rights to renegotiate any material amounts paid or payable to the
Company under current or complete Contract with any Person and, to the Knowledge
of the Company, no such Person has made written demand for such renegotiation.
The Contracts relating to the sale of services of the Company have been entered
into in the Ordinary Course of Business and have been entered into without the
commission of any act alone or in concert with any other Person, or any
consideration having been paid or promised, that would be in violation of any
Legal Requirement.

      3.19 Accounts Receivable. All accounts receivable of the Company that are
reflected on the Company Financial Statements or the accounting records of the
Company as of the Closing (collectively, the "Accounts Receivable") represent or
will represent valid obligations arising from sales actually made or services
actually performed in the Ordinary Course of Business. There is no contest,
claim, or right of set-off, other than returns in the Ordinary Course of
Business under any contract with any obligor of Accounts Receivable relating to
the amount or validity of such Accounts Receivable. Section 3.19 of the Company
Disclosure Schedule contains a complete and accurate list of all Accounts
Receivable as of July 31, 2004, which lists sets forth the aging of such
Accounts Receivable.

      3.20 Accounts Payable. Set forth in Section 3.20 of the Company Disclosure
Schedule is a complete and accurate list of all accounts payable or the Company
as of July 31, 2004 (collectively, the "Accounts Payable") which represent or
will represent obligations of the Company arising from purchases actually made,
services actually received or obligations otherwise incurred by the Company.

                                       23
<PAGE>

      3.21 Equipment. All tangible personal property and equipment used by the
Company in the conduct of its business are in good operating condition and
repair (subject to normal wear and tear) with no known material defects so as to
permit the operation of its business as presently conducted, no such equipment
or tangible personal property is in need of maintenance or repairs except for
ordinary, routine maintenance and repairs which are not material in nature or
cost, and with respect to each item of equipment and tangible personal property,
the Company has not received notification that it is in violation, in any
material respect, of any applicable building, zoning, subdivision, fire
protection, health or other law, Order, ordinance or regulation and no such
violation exists.

      3.22 Insurance. Set forth in Section 3.22 of the Company Disclosure
Schedule is a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of and/or providing insurance coverage to the Company or the Assets and
Properties of the Company (or any of the Company's directors, officers,
salespersons, agents or employees), including the following information for each
such policy: type(s) of insurance coverage provided; name of insurer; effective
dates; policy number; per occurrence and annual aggregate deductibles or
self-insured retentions; per occurrence and annual aggregate limits of liability
and the extent, if any, to which the limits of liability have been exhausted.
All policies set forth on the Company Disclosure Schedule are in full force and
effect, and with respect to such policies, all premiums currently payable or
previously due have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. All such policies are sufficient
for compliance with all requirements of law and all agreements to which the
Company is a party or otherwise bound, and are valid, outstanding, collectible
and enforceable policies and, to the Knowledge of the Company, provide adequate
insurance coverage for the Company and the business and Assets and Properties of
the Company and will remain in full force and effect through the respective
dates set forth in Section 3.22 of the Company Disclosure Schedule. None of such
policies contains a provision that would permit the termination, limitation,
lapse, exclusion or change in the terms of coverage of such policy (including,
without limitation, a change in the limits of liability) by reason of the
consummation of the Contemplated Transactions. Complete and accurate copies of
all such policies and related documentation have previously been provided to the
Parent.

      3.23 Tax Matters.

            (a) Except as set forth in Section 3.23 of the Company Disclosure
Schedule, all Tax Returns required to be filed by or on behalf of the Company
have been duly filed on a timely basis and to the Knowledge of the Company such
Tax Returns are true, complete and correct. Except as set forth in Section 3.23
of the Company Disclosure Schedule, all Taxes shown to be payable on the Tax
Returns or on subsequent assessments with respect thereto have been paid in full
on a timely basis, and no other Taxes are payable by the Company with respect to
items or periods covered by such Tax Returns (whether or not shown on or
reportable on such Tax Returns) or with respect to any period prior to Closing.
The Company has withheld and paid over all Taxes required to have been withheld
and paid over, and complied with all information reporting and backup
withholding requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. There are no liens on any of the
assets of the Company with respect to Taxes, other than liens for Taxes not yet
due and payable. The Company is not currently the beneficiary of any extension
of time within which to file any Tax Return.

                                       24
<PAGE>

            (b) Except as set forth in Section 3.23 of the Company Disclosure
Schedule, the amount of the Company's liability for unpaid Taxes for all periods
ending on or before July 31, 2004 does not, in the aggregate, exceed the amount
of the current liability accruals for Taxes (excluding reserves for deferred
Taxes), reflected on the Company Financial Statements, and except as provided in
Section 3.23 of the Company Disclosure Schedule, the amount of the Company's
liability for unpaid Taxes for all periods ending on or before the Closing Date
shall not, in the aggregate, exceed the amount of the current liability accruals
for Taxes (excluding reserves for deferred Taxes), as such accruals are
reflected on the Company Financial Statements, as adjusted for operations and
transactions in the Ordinary Course of Business since July 31, 2004 in
accordance with past custom and practice. There are no contracts, agreements,
arrangements, commitments or undertakings relating to any prior audit of the
Company, and there are no contracts, agreements, arrangements, commitments or
undertakings with the Internal Revenue Service or any other Governmental or
Regulatory Authority that have or are reasonably likely to have a material and
adverse impact on the Company's Taxes that are not reflected in the Company
Financial Statements.

            (c) To the extent such documents exist, Parent has been furnished by
the Company true and complete copies of (i) relevant portions of income tax
audit reports, statements of deficiencies, closing or other agreements received
by the Company or on behalf of the Company relating to Taxes, and (ii) except as
set forth in Section 3.23 of the Company Disclosure Schedule, all federal and
state income or franchise tax returns for the Company for all periods ending on
and after December 31, 2001.

            (d) The Tax Returns of the Company have never been audited by a
Governmental or Regulatory Authority, nor is any such audit in process, pending
or threatened (either in writing or verbally, formally or informally). To the
Knowledge of the Company, and except as set forth in Section 3.23 of the Company
Disclosure Schedule, no deficiencies exist or have been asserted (either in
writing or verbally, formally or informally) or are expected to be asserted with
respect to Taxes of the Company, and the Company has not received notice (either
in writing or verbally, formally or informally) or expects to receive notice
that it has not filed a Tax Return or paid Taxes required to be filed or paid by
it. The Company is neither a party to any action or proceeding for assessment or
collection of Taxes, nor has such event been asserted or threatened (either in
writing or verbally, formally or informally) against the Company or any of its
assets. No waiver or extension of any statute of limitations is in effect with
respect to Taxes or Tax Returns of the Company. The Company has disclosed on its
federal income tax returns all positions taken therein that could give rise to a
substantial understatement penalty within the meaning of Section 6662 of the
Code.

            (e) The Company is not (nor has it ever been) a party to any Tax
sharing agreement or Tax indemnity agreement and has not assumed the Tax
liability of any other Person under contract. The Company is not or has ever
been a member of an affiliated group filing a consolidated federal income Tax
Return and, except as set forth in Section 3.23 of the Company Disclosure
Schedule, the Company has no liability for the Taxes of any individual or entity
under Section 1.1502-6 of the Treasury Regulations (or any similar provision of
state, local or foreign law) as a transferee or successor, by contract or
otherwise.

                                       25
<PAGE>

            (f) The Company does not have any deferred income or gains
reportable for Tax purposes in any period ending after the Closing Date but that
is attributable to a transaction occurring in, or resulting from a change in
accounting method for a period prior to the Closing Date.

            (g) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Books and Records provided to Parent.

            (h) All of the Shareholders are "United States Persons," within the
meaning of Section 7701(a)(30) of the Code.

      3.24 Labor and Employment Relations. To the Knowledge of the Company, no
officer, executive or group of five or more employees of the Company has or have
any plans to terminate his, her or their employment with the Company. The
Company is not a party to or bound by any collective bargaining agreement with
any labor organization, group or association covering any of its employees, and
to the Knowledge of the Company, there are no attempts to organize any of the
Company's employees by any Person, unit or group seeking to act as their
bargaining agent. The Company has complied with all applicable laws relating to
the employment of labor, including provisions thereof relating to wages, hours,
equal opportunity, collective bargaining, discrimination against race, color,
national origin, religious creed, physical or mental disability, sex, age,
ancestry, medical condition, marital status or sexual orientation, occupational
health and safety and the withholding and payment of social security and other
Taxes. The Company is not liable for the payment of any compensation, damages,
taxes, fines, penalties or other amounts, however designated, for the failure to
comply with any of the foregoing Legal Requirements. To the Knowledge of the
Company, no employees of the Company are in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to any such employee to
be employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by the Company or the use of trade secrets or
proprietary information of others. There are no pending or, to the Knowledge of
the Company, threatened charges (by employees, independent contractors, their
representatives or governmental authorities) of unfair labor practices or of
employment discrimination or of any other wrongful action with respect to any
aspect of employment of any Person employed or formerly employed by the Company.
To the Knowledge of the Company, no union representation elections relating to
the Company's employees have been scheduled by any Governmental or Regulatory
Authority, no organizational effort is being made with respect to any of such
employees, and no investigation of the Company's employment policies or
practices by any Governmental or Regulatory Authority is pending or threatened.
The Company is not currently, and in the past has not been, involved in labor
negotiations with any unit or group seeking to become the bargaining unit for
any employees of the Company. The Company has never experienced any work
stoppages and to the Knowledge of the Company, no work stoppage has been
threatened or is planned.

                                       26
<PAGE>

      3.25 Certain Employees. Set forth in Section 3.25 of the Company
Disclosure Schedule is (i) the name, title and total compensation of each
officer and director of the Company; (ii) the name, title and total compensation
for each other employee, consultant, agent or other representative of the
Company for 2002 and 2003; (iii) all wage and salary increase, bonuses and
increases and any other direct or indirect compensation received by any such
Person since December 31, 2003; (iv) any payments or commitments to pay any
severance or termination pay to any current or former officer, director,
employee, consultant, contractor or agent of the Company; and (v) any accrual
for, or commitment or agreement by the Company to pay, such increases, bonus or
pay. Except as set forth on Schedule 3.25, the Company has not received any
notice from any such Person whether orally or in writing that he or she will
cancel or otherwise terminate such Person's relationship with the Company. None
of such Persons has an employment agreement or understanding, whether oral or
written, with the Company which is not terminable on notice by the Company
without cost or other liability to the Company.

      3.26 Absence of Certain Developments. Except as set forth on Schedule
3.26, since December 31, 2003, the Company has not:

            (a) issued any stock, bonds or other corporate securities or any
right, options or warrants with respect thereto;

            (b) borrowed any amount, obtained any letters of credit or incurred
or become subject to any liabilities in excess of $10,000 in the aggregate;

            (c) discharged or satisfied any lien or Encumbrance or paid any
obligation or liability, other than current liabilities paid in the Ordinary
Course of Business and other than current federal income Tax liabilities;

            (d) declared or made any payment or distribution of cash or other
property to Shareholders with respect to its stock, or purchased or redeemed any
shares of its capital stock;

            (e) mortgaged or pledged any of its Assets or Properties, or
subjected them to any lien, charge or any other Encumbrance, except liens for
current property Taxes not yet due and payable;

            (f) sold, leased, subleased, assigned or transferred any of its
Assets or Properties, except in the Ordinary Course of Business, or cancelled
any debts or claims;

            (g) made any changes in any employee, consultant or contractor
compensation, severance or termination agreement, commitment or transaction
other than routine salary increases consistent with past practice or offer
employment to any individuals;

            (h) entered into any material transaction or modified any existing
transaction (the aggregate consideration for which is in excess of $10,000);

                                       27
<PAGE>

            (i) suffered any damage, destruction or casualty loss, whether or
not covered by insurance;

            (j) made any capital expenditures, additions or improvements or
commitments for the same, except those made in the Ordinary Course of Business
which in the aggregate do not exceed $10,000;

            (k) entered into any transaction or operated the Company's business
not in the Ordinary Course of Business;

            (l) made any change in its accounting methods or practices or ceased
making accruals for taxes, obsolete inventory, vacation and other customary
accruals;

            (m) ceased from reserving cash to pay taxes, principal and interest
on borrowed funds, and other customary expenses and payments;

            (n) caused to be made any reevaluation of any of its Assets or
Properties;

            (o) caused to be entered into any amendment or termination of any
lease, customer or supplier contract or other material contract or agreement to
which it is a party, other than in the Ordinary Course of Business;

            (p) made any material change in any of its business policies,
including, without limitation, advertising, distributing, marketing, pricing,
purchasing, personnel, sales, returns, budget or product acquisition or sale
policies;

            (q) terminated or failed to renew, or received any written threat
(that was not subsequently withdrawn) to terminate or fail to renew, any
contract or other agreement that is or was material to the Company's business or
its financial condition;

            (r) permitted to occur or be made any other event or condition of
any character which has had a Material Adverse Effect on it;

            (s) waived any rights material to its financial or business
condition;

            (t) made any illegal payment or rebates; or

            (u) entered into any agreement to do any of the foregoing.

      3.27 Customers. The Company has previously provided to Parent a true and
correct list of the Company's current customers and the Company's customers
during the 2002 and 2003 fiscal years related to the Company business. Since
January 1, 2003 no single customer or group of affiliated customers contributing
more than $10,000 per annum to the gross revenues of the Company's business has
stopped doing business with the Company, and no such customer has given notice
to the Company of an intention to discontinue doing business or reduce the level
of gross revenues from that in fiscal year 2003 with the Company.

                                       28
<PAGE>

      3.28 Bank Accounts. Section 3.28 of the Company Disclosure Schedule
contains a complete and accurate list of each deposit account or asset
maintained by or on behalf of the Company with any bank, brokerage house or
other financial institution, specifying with respect to each the name and
address of the institution, the name under which the account is maintained, the
account number, and the name and title or capacity of each Person authorized to
have access thereto.

      3.29 Permits. Section 3.29 of the Company Disclosure Schedule contains a
true and complete list of all Permits used in and material, individually or in
the aggregate, to the Company's business. All such Permits are currently
effective and valid and have been validly issued. No additional Permits are
necessary to enable the Company to conduct its business in material compliance
with all applicable federal, state and local laws. Neither the execution,
delivery or performance of this Agreement nor the mere passage of time will have
any effect on the continued validity or sufficiency of the Permits, nor will any
additional Permits be required by virtue of the execution, delivery or
performance of this Agreement to enable the Company to conduct its business as
now operated. To the Knowledge of the Company, there is no pending Action or
Proceeding by any Governmental or Regulatory Authority which could affect the
Permits or their sufficiency for the current conduct of the Company's business
or of the conduct of the Company's business after the Closing. The Company has
provided Parent with true and complete copies of all Permits listed in the
Company Disclosure Schedule.

      3.30 Regulatory Compliance. Neither the Company nor any of its operations
are regulated by any Governmental or Regulatory Authority and the Company has
complied with all applicable requirements of any Governmental or Regulatory
Authority with respect to any services provided by it (including but not limited
to the Medicare Anti-Kickback Statute, the Health Insurance Portability and
Accountability Act of 1996, the Federal False Claims Act, the Federal laws
concerning physician self-referral known as "Stark I" and "Stark II", and the
rules and regulations of the Joint Commission on Accreditation of Healthcare
Organizations).

      Neither the Company, nor any officer, employee or agent of the Company has
made an untrue statement of a material fact or fraudulent statement to any
Governmental or Regulatory Authority, failed to disclose a material fact
required to be disclosed to any Governmental or Regulatory Authority, or
committed an act, made a statement, or failed to make a statement that, at the
time such disclosure was made, could reasonably be expected to provide a basis
for any Governmental or Regulatory Authority to invoke its policies respecting
fraud, untrue statements of material facts, bribery or illegal gratuities or any
similar policies.

      3.31 Third Party Consents. No consent, approval or authorization of any
third party on the part of the Company is required in connection with the
consummation of the transactions contemplated hereunder except as otherwise
provided in Section 3.31 of the Company Disclosure Schedule.

      3.32 Relationships with Related Persons. Except as set forth on Schedule
3.32, no Shareholder or any Affiliate of the Company has, or since January 1,
2002 has had, any interest in the property, whether real, personal or mixed, or
whether tangible or intangible, used in or pertaining to the Company's
businesses. No Shareholder or any Affiliate of the Company owns, or since
January 1, 2002 has owned (of record or as beneficial owner) an equity interest
or any other financial or profit interest in a Person that has (i) had business
dealings or a material financial interest in any transaction with the Company or
(ii) engaged in competition with the Company with respect to any line of the
products or services of the Company. Except as set forth in Section 3.32 of the
Company Disclosure Schedule, no Shareholder nor any Affiliate of the Company is
a party to any Contract with or has any right or claim against the Company.

                                       29
<PAGE>

      3.33 Certain Payments. Neither the Company nor any director, officer,
agent or employee of the Company, or to the Knowledge of the Company, any other
Person associated with or acting for or on behalf of the Company, has directly
or indirectly (i) made any contribution, gift, bribe, rebate, payoff, influence
payment, kick-back or other payment to any Person, private or public, regardless
of any form, whether in money, property or services (A) to obtain favorable
treatment in securing business, (B) to pay for favorable treatment for business
secured, (C) to obtain special concessions or for special concessions already
obtained for or in respect of the Company or any Affiliate thereof, or (D) in
violation of any Legal Requirement, or (ii) established or maintained any fund
or asset that has not been recorded in the Books and Records of the Company.

      3.34 Brokers. Except as set forth in Section 3.34 of the Company
Disclosure Schedule, neither the Shareholders nor the Company have retained any
broker in connection with the transactions contemplated hereunder. Parent has,
and will have, no obligation to pay any broker's, finder's, investment banker's,
financial advisor's or similar fee in connection with this Agreement or the
transactions contemplated hereby by reason of any action taken by or on behalf
of the Shareholders or the Company.

      3.35 Verification of Credentials. Except as set forth in Section 3.35 of
the Company Disclosure Schedule, the Company has implemented policies and
procedures to verify the credentials (including, but not limited to, with
respect to education and licensure) of personnel that the Company places with
its clients and to collect, maintain and update such credentialing information.
To the Knowledge of the Company, employees, contractors and consultants each
consistently follow and have followed such policies and procedures.

      3.36 [Intentionally Deleted]

      3.37 Existing Indebtedness. As of the date of this Agreement and as of the
close of business on the day prior to the Closing Date, (i) all indebtedness of
or any obligation of the Company (whether as obligor or as guarantor) for
borrowed money, whether current, short-term, or long-term, secured or unsecured,
(ii) all indebtedness of the Company (whether as obligor or as guarantor) for
the deferred purchase price for purchases of property outside the ordinary
course which is not evidenced by trade payables, (iii) all lease obligations of
the Company (whether as obligor or as guarantor) under leases which are capital
leases in accordance with GAAP, (iv) all off-balance sheet financings of the
Company (whether as obligor or as guarantor), (v) any payment obligations of the
Company (whether as obligor or as guarantor) in respect of banker's acceptances
or letters of credit (other than stand-by letters of credit in support of
ordinary course trade payables), (vi) any liability of the Company (whether as
obligor or as guarantor) with respect to interest rate swaps, collars, caps and
similar hedging obligations, (vii) any present, future or contingent obligations
of the Company under (A) any phantom stock or equity appreciation rights, plan
or agreement, (B) any consulting, deferred pay-out or earn-out arrangements in
connection with the purchase of any business or entity, (C) any non-competition
agreement, (viii) any accrued bonuses, (ix) any accrued Taxes other than payroll
Taxes accrued in the Ordinary Course of Business, (x) any accrued and unpaid
interest or any contractual prepayment premiums, penalties or similar
contractual charges resulting from the Contemplated Transactions or the
discharge of such obligations with respect to any of the foregoing, (xi) all
indebtedness of or any obligation of the Company owed to the Shareholders or to
any Affiliate of the Shareholders and (xii) all indebtedness of or any
obligation of the Company incurred for the personal benefit of the Shareholders
or any Affiliate of the Shareholders, including without limitation, any Family
Members of the Shareholders, is listed on Schedule 3.37 hereto (collectively,
but without duplication, the "Existing Indebtedness").

                                       30
<PAGE>

      3.38 Material Misstatements and Omissions. The statements, representations
and warranties of the Company contained in this Agreement (including the
exhibits and schedules hereto) and in each document, statement, certificate or
exhibit furnished or to be furnished by or on behalf of the Company pursuant
hereto, or in connection with the transactions contemplated hereby, taken
together, do not contain and will not contain any untrue statement of a material
fact and do not or will not omit to state a material fact necessary to make the
statements or facts contained herein or therein, in light of the circumstances
made, not misleading.

                                   ARTICLE 4.

                         REPRESENTATIONS AND WARRANTIES
                          OF PARENT AND ACQUISITION CO.

      Parent and Acquisition Co., jointly and severally, represent and warrant
to the Company as of the date hereof and as of the Closing Date, as follows:

      4.1 Organization. Parent is a corporation duly organized, validly existing
and in good standing under the laws of the State of the Delaware. Acquisition
Co. is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Texas. Each of Parent and Acquisition Co. is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required except for any jurisdiction
where failure so to qualify would not have a Material Adverse Effect upon Parent
or Acquisition Co., as the case may be.

      4.2 Authority. Each of Parent and Acquisition Co. has all necessary
corporate power and corporate authority and has taken all corporate actions
necessary to enter into this Agreement, to consummate the transactions
contemplated hereby and to perform its respective obligations hereunder and no
other proceedings on the part of Parent or Acquisition Co. are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by each of
Parent and Acquisition Co. and constitutes a legal, valid and binding obligation
of Parent and Acquisition Co., respectively, enforceable against each of Parent
and Acquisition Co. in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.

                                       31
<PAGE>

      4.3 Litigation. There are no Actions or Proceedings pending or, to the
Knowledge of Parent, threatened or anticipated against, relating to or affecting
the transactions contemplated by this Agreement, and, to the Knowledge of
Parent, there is no basis for any such Action or Proceeding.

      4.4 Reports and Financial Statements. As of the date hereof, the Parent
has furnished or made available to the Company and the Shareholders true and
complete copies of all Parent SEC Documents. As of their respective filing
dates, all such Parent SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act, as applicable, and none
of such Parent SEC Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. The Parent Financial Statements comply as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) and present fairly the consolidated
financial position of the Parent at the dates thereof and the consolidated
results of its operations and cash flows for the periods then ended (subject, in
the case of unaudited statements, to normal audit adjustments).

      4.5 No Conflicts. The execution and delivery by the Parent of this
Agreement does not, and the performance by the Parent of its obligations under
this Agreement and the consummation of the transactions contemplated hereby will
not:

            (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the charter documents, bylaws or other
organizational documents of the Parent;

            (b) conflict with or result in a violation or breach of, or give any
Governmental or Regulatory Authority the right to revoke, withdraw, suspend,
cancel, termination or modify any term or provision of any law, Order, Permit,
statute, rule or regulation applicable to the Parent, the business or Assets or
Properties of the Parent or the capital stock of the Parent Common Stock;

            (c) result in a breach of, or default under (or give rise to right
of termination, modification, cancellation or acceleration) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, license,
agreement, lease or other similar instrument or obligation to which the Parent,
any of its Assets and Properties or the Parent Common Stock may be bound;

            (d) cause any of the Assets or Properties of the Parent to be
reassessed or revalued by any taxing authority or any Governmental or Regulatory
Authority;

            (e) result in an imposition or creation of any Encumbrance or Tax on
the business or Assets or Properties of the Parent or the Parent Common Stock.

                                       32
<PAGE>

      4.6 Consents and Governmental Approvals and Filings. No consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
on the part of the Parent is required in connection with the execution, delivery
and performance of this Agreement or the consummation of the transactions
contemplated hereby.

      4.7 Brokers. Neither Parent nor Acquisition Co. has retained any broker in
connection with the transactions contemplated hereunder. Neither the Company nor
the Shareholders has, and will have, any obligation to pay any broker's,
finder's investment banker's, financial advisor's or similar fee in connection
with this Agreement or the transactions contemplated hereby by reason of any
action taken by or on behalf of Parent or Acquisition Co.

                                   ARTICLE 5.

                         REPRESENTATIONS AND WARRANTIES
                               OF THE SHAREHOLDERS

      Each Shareholder hereby represents and warrants to Parent and Acquisition
Co. as follows (such representations and warranties do not lessen or obviate the
representations and warranties of the Company and the Shareholders set forth in
Article III above):

      5.1 Requisite Power and Authority. Such Shareholder has all necessary
power and authority under all applicable provisions of law to execute and
deliver this Agreement and to carry out its provisions. All action on such
Shareholder's part required for the lawful execution and delivery of this
Agreement has been or will be effectively taken prior to the Closing. Upon
execution and delivery, this Agreement will be the valid and binding obligation
of such Shareholder, enforceable in accordance with its terms.

      5.2 Investment Representations. Such Shareholder understands that the
shares of the Parent Common Stock have not been registered under the Securities
Act. Such Shareholder also understands that the shares of Parent Common Stock
are being offered and sold pursuant to an exemption from registration contained
in the Securities Act based in part upon such Shareholder's representations and
warranties contained in this Agreement. Such Shareholder hereby represents and
warrants as follows:

            (a) [INTENTIONALLY OMITTED]

            (b) Such Shareholder has substantial experience in evaluating and
investing in private placement transactions of securities in companies similar
to Parent so that he, she or it is capable of evaluating the merits and risks of
his, her or its investment in Parent and has the capacity to protect his, her or
its own interests. Such Shareholder must bear the economic risk of this
investment indefinitely unless the shares of Parent Common Stock are registered
pursuant to the Securities Act, or an exemption from registration is available.
Such Shareholder also understands that there is no assurance that any exemption
from registration under the Securities Act will be available and that, even if
available, such exemption may not allow such Shareholder to transfer all or any
portion of the shares of Parent Common Stock under the circumstances, in the
amounts or at the times such Shareholder might propose.

                                       33
<PAGE>

            (c) Such Shareholder is acquiring the shares of Parent Common Stock
for such Shareholder's own account for investment only, and not with a view
towards their distribution.

            (d) Such Shareholder represents that by reason of his, her or its
business or financial experience, such Shareholder has the capacity to protect
his, her or its own interests in connection with the transactions contemplated
in this Agreement. Further, such Shareholder is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.

            (e) Such Shareholder has received and read the Parent SEC Filings
and has had an opportunity to discuss Parent's business, management and
financial affairs with directors, officers and management of Parent and has had
the opportunity to review Parent's operations and facilities. Such Shareholder
has also had the opportunity to ask questions of and receive answers from Parent
and its management regarding the terms and conditions of this investment.

            (f) Such Shareholder acknowledges and agrees that the shares of
Parent Common Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Such Shareholder has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act as in effect from time to time,
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
availability of certain current public information about Parent, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market (as said term is defined
under the Exchange Act) and the number of shares being sold during any three
month period not exceeding specified limitations.

            (g) Such Shareholder resides in the state or province identified in
the address of such Shareholder set forth on the signature page to this
Agreement.

      5.3 Transfer Restrictions. Such Shareholder acknowledges and agrees that
the shares of Parent Common Stock are subject to restrictions on transfer set
forth in this Section 5.3. Such Shareholder agrees not to make any disposition
of all or any portion of the shares of Parent Common Stock unless and until: (i)
there is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or (ii) the transferee (except for transfers
in compliance with Rule 144) has agreed in writing to be bound by the terms of
Article 5 of this Agreement, such Shareholder shall have notified Parent of the
proposed disposition and shall have furnished Parent with a detailed statement
of the circumstances surrounding the proposed disposition and if reasonably
requested by Parent, such Shareholder shall have furnished Parent with an
opinion of counsel, reasonably satisfactory to Parent, that such disposition
will not require registration of such shares under the Securities Act.
Notwithstanding the provisions of clauses (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by such Shareholder to a family member of such Shareholder or trust for the
benefit of such Shareholder or family member; provided, however, that in each
case the transferee will be subject to the terms of Article 5 of this Agreement
to the same extent as if he, she or it were an original Shareholder hereunder.
Parent shall be entitled to impose stop transfer instructions with respect to
the Parent Common Stock in order to enforce the foregoing restrictions.

                                       34
<PAGE>

      The certificates representing the Parent Common Stock (when issued
pursuant to this Agreement) shall bear the following legend restricting
transfer, and such other legends as may be required by any applicable state
securities law:

            THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
            OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
            OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
            WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF
            COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
            REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT.

            THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
            CERTAIN PROVISIONS OF THE TERMS AND CONDITIONS OF THAT CERTAIN
            AGREEMENT AND PLAN OF REORGANIZATION DATED ________, 2004 BY AND
            AMONG CRDENTIA CORP., CPS ACQUISITION CORPORATION, CARE PROS
            STAFFING, INC. AND THE SHAREHOLDERS OF CARE PROS STAFFING, INC.

      5.4 Market Standoff. Such Shareholder agrees that he, she or it will not,
without the prior written consent of Parent, during the period commencing on the
date of filing of a registration statement by Parent pursuant to an underwritten
public offering by Parent of its capital stock or securities convertible into
its capital stock and ending on the date specified by Parent (such period not to
exceed 180 days following the filing of the final prospectus relating to such
offering), transfer or dispose of any shares of Parent Common Stock owned by
such Shareholder. In order to enforce the foregoing covenant, Parent may impose
stop-transfer instructions with respect to such securities of the Shareholder
(and the shares or securities of every other Person subject to the foregoing
restriction) until the end of such period.

      5.5 Filings. The Parent agrees to continue to file all reports and filings
under the Securities Exchange Act of 1934, as amended, during the time Rule 144
shall be available to the Shareholders until such time as the Shareholders may
sell under the provisions of Rule 144k.

                                       35
<PAGE>

                                   ARTICLE 6.

                              ADDITIONAL AGREEMENTS

      6.1 Access to Information. The Company has given Parent and its authorized
representatives (including, without limitation, its attorneys and accountants),
reasonable access to all employees, customers, plants, offices, warehouses and
other facilities, to (and where necessary, provide copies of) all books and
records, contracts and all personnel files of current employees of the Company
and its subsidiaries and the Company has caused its officers and those of its
subsidiaries to furnish Parent with such financial and operating data and other
information with respect to the business and properties of the Company and its
subsidiaries as Parent has requested.

      6.2 Public Announcements; Company Literature. None of Parent, Acquisition
Co. or the Company shall issue any press release or otherwise make any public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, without the prior consent of Parent and Acquisition Co.
(in the case of the Company) or the Company (in the case of Parent or
Acquisition Co.), except as may be required by applicable law, including any
determination by Parent that a press release or other public statement is
required under applicable securities or regulatory rules. The parties agree
there shall be no public announcement of this Agreement or the consummation of
the Merger except as may be required by applicable law. The parties agree to
announce this Agreement or the consummation of the Merger to the Company's
employees, customers, vendors and strategic partners at such time and in such
form as is mutually agreed upon by all parties to this Agreement.

      6.3 Fees and Expenses. Whether or not the Merger is consummated, all fees,
costs and expenses incurred in connection with the Merger, this Agreement and
the other agreements and transactions contemplated hereby and thereby, including
all legal, accounting, financial advisory, broker's consulting and other fees
and expenses of third parties incurred by a party in connection with the
negotiation, documentation and effectuation of the terms and conditions of the
Merger, this Agreement and the other agreements and Contemplated Transactions
hereby and thereby ("Third Party Expenses"), shall be the obligation of the
respective party incurring such Third Party Expenses. Notwithstanding the
foregoing, the Shareholders shall severally be responsible and bear all costs
and expenses incurred and fees payable for counsel for the Company in connection
with the Contemplated Transactions, or any broker, finder or financial
intermediary representing the Company. The Shareholders shall further personally
and severally bear the incremental costs (if any) of bringing the Company's
accounting Books and Records to a state which is in accordance with sound
business practices and in accordance with GAAP in preparation for Crdentia's
audit of such accounting Books and Records.

      6.4 Confidentiality. The parties hereto will maintain in confidence, and
will direct its directors, officers, employees, agents, Affiliates and advisors
to maintain in confidence any written, oral or other information furnished by
another party to this Agreement in connection with the Contemplated
Transactions, unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated by this Agreement, or (c) the furnishing or use of such information
is required by law. If the Merger is not consummated, each party will return or,
at the request of the party supplying the information, destroy as much of such
written information as the other party may reasonably request.

                                       36
<PAGE>

                                   ARTICLE 7.

                    CONDITIONS TO CONSUMMATION OF THE MERGER

      7.1 Conditions to Each Party's Obligations to Effect the Merger. The
respective obligations of each party hereto to effect the Merger are subject to
the satisfaction at or prior to the Effective Time of the following conditions:

            (a) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
United States federal or state court or United States federal or state
Governmental or Regulatory Authority that prohibits, restrains, enjoins or
restricts the consummation of the Merger; and

            (b) any governmental or regulatory notices, approvals or other
requirements necessary to consummate the transactions contemplated hereby shall
have been given, obtained or complied with, as applicable.

      7.2 Conditions to the Obligations of the Company. The obligation of the
Company to effect the Merger is subject to the satisfaction at or prior to the
Effective Time of the following conditions:

            (a) the representations and warranties of Parent and Acquisition Co.
contained in this Agreement shall be true and correct in all material respects
at and as of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations specifically relate to
an earlier date, in which case such representations shall be true and correct in
all material respects as of such earlier date, and in any event, subject to the
foregoing materiality qualification) and, at the Closing, Parent and Acquisition
Co. shall have delivered to the Company a certificate to that effect, executed
by an officer of Parent and Acquisition;

            (b) each of the covenants and obligations of Parent and Acquisition
Co. to be performed at or before the Effective Time pursuant to the terms of
this Agreement shall have been duly performed in all material respects at or
before the Effective Time and, at the Closing, Parent and Acquisition Co. shall
have delivered to the Company a certificate to that effect, executed by an
officer of Parent and Acquisition Co.;

            (c) Parent shall have delivered all of Closing deliveries set forth
in Section 2.9(c) above; and

            (d) all proceedings taken by the Parent and Acquisition Co. and all
instruments executed and delivered by Parent and Acquisition Co. on or prior to
the Closing in connection with the Contemplated Transactions shall be reasonably
satisfactory in form and substance to counsel for the Company.

                                       37
<PAGE>

      7.3 Conditions to the Obligations of Parent and Acquisition Co. The
respective obligations of Parent and Acquisition Co. to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:

            (a) the representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects at and as of
the Effective Time with the same effect as if made at and as of the Effective
Time (except to the extent such representations specifically relate to an
earlier date, in which case such representations shall be true and correct in
all material respects as of such earlier date) and, at the Closing, the Company
shall have delivered to Parent and Acquisition Co. a certificate to that effect,
executed by an executive officer of the Company;

            (b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company shall have delivered to
Parent and Acquisition Co. a certificate to that effect, executed by an
executive officer of the Company;

            (c) the consents specified on Section 3.6(c) of the Company
Disclosure Schedule and any other material third party consents necessary to
consummate the transactions contemplated hereby shall have been given, obtained
or complied with as applicable;

            (d) there shall have been no events, changes or effects,
individually or in the aggregate, with respect to the Company or its
subsidiaries having, or that would reasonably be expected to have, a Material
Adverse Effect on the Company;

            (e) none of the Key Employees shall have terminated their employment
with the Company or given written or oral notice to the Company or Parent of
their intention to do so after the consummation of the Merger;

            (f) the results of Parent's due diligence investigations of the
Company shall be satisfactory to Parent, as determined in a sole amount and
absolute discretion;

            (g) the Company and the Shareholders, as the case may be, shall have
delivered all of the Closing deliveries set forth in Section 2.9(b) above;

            (h) all proceedings taken by the Company and the Shareholders and
all instruments executed and delivered by the Company and the Shareholders on or
prior to the Closing in connection with the Contemplated Transactions shall be
reasonably satisfactory in form and substance to counsel for the Parent and
Acquisition Co.

                                       38
<PAGE>

                                   ARTICLE 8.

                         TERMINATION; AMENDMENT; WAIVER

      8.1 Termination. This Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time whether before or after
approval and adoption of this Agreement:

            (a) by written consent of Parent, Acquisition Co., and the Company;

            (b) by Parent and Acquisition Co. or the Company if (i) any court of
competent jurisdiction in the United States or other United States federal or
state governmental entity shall have issued a final order, decree or ruling, or
taken any other final action, restraining, enjoining or otherwise prohibiting
the Merger and such order, decree, ruling or other action is or shall have
become non-appealable, or (ii) the Merger has not been made effective by August
31, 2004 (the "Final Date"); provided that no party may terminate this Agreement
pursuant to this clause (ii) if such party's failure to fulfill any of its
obligations under this Agreement shall have been a principal reason that the
Effective Time shall not have occurred on or before said date.

            (c) by the Company if (i) there shall have been a material breach of
any representations or warranties on the part of Parent or Acquisition Co. set
forth in this Agreement or if any representations or warranties of Parent or
Acquisition Co. shall have become untrue in any material respect, provided that
the Company has not breached any of its obligations hereunder in any material
respect; or (ii) there shall have been a breach by Parent or Acquisition Co. of
any of their respective covenants or agreements hereunder in any material
respect or materially adversely affecting (or materially delaying) the ability
of Parent, Acquisition Co. or the Company to consummate the Merger, and Parent
or Acquisition Co., as the case may be, has not cured such breach within ten
Business Days after notice by the Company thereof, provided that the Company has
not breached any of its obligations hereunder in any material respect; or

            (d) by Parent and Acquisition Co. if (i) there shall have been a
breach of any representations or warranties on the part of the Company set forth
in this Agreement or if any representations or warranties of the Company shall
have become untrue in any material respect, provided that neither Parent nor
Acquisition Co. has breached any of their respective obligations hereunder in
any material respect; or (ii) there shall have been a breach by the Company of
one or more of its covenants or agreements hereunder in any material respect or
materially adversely affecting (or materially delaying) the ability of Parent,
Acquisition Co. or the Company to consummate the Merger, and the Company has not
cured such breach within ten Business Days after notice by Parent or Acquisition
Co. thereof, provided that neither Parent nor Acquisition has breached any of
their respective obligations hereunder in any material respect.

      8.2 Effect of Termination. In the event of the termination and abandonment
of this Agreement pursuant to Section 8.1 above, this Agreement shall forthwith
become void and have no effect without liability on the part of any party hereto
or its Affiliates, directors, officers or Shareholders other than the provisions
of this Section 8.2 and Sections 6.2, 6.3 and 6.4.

                                       39
<PAGE>

      8.3 Amendment. This Agreement may be amended by action taken by the
Company, Parent and Acquisition Co. at any time before or after approval of the
Merger by the Shareholders of the Company but after any such approval no
amendment shall be made that requires the approval of such Shareholders under
applicable law without such approval. This Agreement (including the Company
Disclosure Schedule) may be amended only by an instrument in writing signed on
behalf of the parties hereto.

      8.4 Extension; Waiver. At any time prior to the Effective Time, each party
hereto may, only by action taken in writing, (i) extend the time for the
performance of any of the obligations or other acts of the other party, (ii)
waive any inaccuracies in the representations and warranties of the other party
contained herein or in any document certificate or writing delivered pursuant
hereto or (iii) waive compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part of any party hereto to
any such extension or waiver shall be valid only if set forth in an instrument,
in writing, signed on behalf of such party. The failure of any party hereto to
assert any of its rights hereunder shall not constitute a waiver of such rights.

                                   ARTICLE 9.

                    ACTIONS BY THE PARTIES AFTER THE CLOSING

      9.1 Survival of Representations, Warranties, Etc. The representations,
warranties and covenants contained in or made pursuant to this Agreement or any
certificate, document or instrument delivered pursuant to or in connection with
this Agreement in the transactions contemplated hereby shall survive the
execution and delivery of this Agreement and the Closing hereunder
(notwithstanding any investigation, analysis or evaluation by any party hereto
or their designees of the Assets and Properties, business, operations or
condition (financial or otherwise) of the other party) until the third
anniversary of the Effective Time; provided, however, that the representations
and warranties of the parties contained in Sections 3.2, 3.3, 3.4, 3.23, 3.28,
3.34 and 5.2 shall continue to survive indefinitely in full force and effect
following the Effective Time.

      9.2 Indemnification.

            (a) By the Company and the Shareholders. The Company and the
Shareholders shall severally indemnify, defend and hold harmless Parent,
Acquisition Co. and the Surviving Corporation and their respective officers,
directors, employees, Affiliates, agents, successors, subsidiaries and assigns
(collectively the "Parent Group") from and against any and all costs, losses
(including, without limitation, diminution in value), liabilities, damages,
lawsuits, deficiencies, claims and expenses, including without limitation,
interest, penalties, costs of mitigation, lost profits and other losses
resulting from any shutdown or curtailment of operations, attorneys' fees and
all amounts paid in investigation, defense or settlement of any of the foregoing
(collectively, the "Damages"), incurred in connection with, arising out of,
resulting from or incident to (i) any breach of any covenant, representation,
warranty or agreement or the inaccuracy of any representation, made by the
Company or the Shareholders in or pursuant to this Agreement, or in the other
documents delivered in connection with the Contemplated Transactions, (ii)
Actions or Proceedings set forth in the Company Disclosure Schedule or in the
other documents delivered in connection with the Contemplated Transactions and
(iii) Actions or Proceedings involving the Company whether disclosed in the
Company Disclosure Schedule or not.

                                       40
<PAGE>

            (b) By Parent. Parent and Acquisition Co. shall, jointly and
severally, indemnify, defend and hold harmless the Company and the Shareholders
and their respective officers, employees, agents, successors and assigns from
and against any and all Damages incurred in connection with, arising out of,
resulting from or incident to any breach of any covenant, representation,
warranty or agreement or the inaccuracy of any representation, made by Parent in
or pursuant to this Agreement, or in any other documents delivered in connection
with the Contemplated Transactions.

            (c) Third Party Claims; Defense of Claims. If any Action or
Proceeding is filed or initiated against any party entitled to the benefit of
indemnity hereunder, written notice thereof shall be given to the indemnifying
party as promptly as practicable (and in any event within ten days after the
service of the citation or summons); provided, however, that the failure of any
indemnified party to give timely notice shall not affect rights to
indemnification hereunder except to the extent that the indemnifying party
demonstrates actual damage caused by such failure. After such notice, if the
indemnifying party shall acknowledge in writing to the indemnified party that
the indemnifying party shall be obligated under the terms of its indemnity
hereunder in connection with such Action or Proceeding, then the indemnifying
party shall be entitled, if it so elects, to take control of the defense and
investigation of such Action or Proceeding and to employ and engage attorneys of
its own choice to handle and defend the same, such attorneys to be reasonably
satisfactory to the indemnified party, at the indemnifying party's cost, risk
and expense (unless (i) the indemnifying party has failed to assume the defense
of such Action or Proceeding or (ii) the named parties to such Action or
Proceeding include both of the indemnifying party and the indemnified party, and
the indemnified party and its counsel determine in good faith that there may be
one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party and
that joint representation would be inappropriate), and to compromise or settle
such Action or Proceeding, which compromise or settlement shall be made only
with the written consent of the indemnified party, such consent not to be
unreasonably withheld. The indemnified party may withhold such consent if such
compromise or settlement would adversely affect the conduct of business or
requires less than an unconditional release to be obtained. If (i) the
indemnifying party fails to assume the defense of such Action or Proceeding
within 15 days after receipt of notice thereof pursuant to this Section 9.2, or
(ii) the named parties to such Action or Proceeding include both the
indemnifying party and the indemnified party and the indemnified party and its
counsel determine in good faith that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party and that joint representation would be
inappropriate, the indemnified party against which such Action or Proceeding has
been filed or initiated will (upon delivering notice to such effect to the
indemnifying party) have the right to undertake, at the indemnifying party's
cost and expense, the defense, compromise or settlement of such Action or
Proceeding on behalf of and for the account and risk of the indemnifying party.
In the event the indemnified party assumes defense of the Action or Proceeding,
the indemnified party will keep the indemnifying party reasonably informed of
the progress of any such defense, compromise or settlement and will consult
with, when appropriate, and consider any reasonable advice from, the
indemnifying party of any such defense, compromise or settlement. The
indemnifying party shall be liable for any settlement of any action effected
pursuant to and in accordance with this Section 9.2 and for any final judgment
(subject to any right of appeal), and the indemnifying party agrees to indemnify
and hold harmless the indemnified party from and against any Damages by reason
of such settlement or judgment.

                                       41
<PAGE>

      Regardless of whether the indemnifying party or the indemnified party
takes up the defense, the indemnifying party will pay reasonable costs and
expenses in connection with the defense, compromise or settlement for any Action
or Proceeding under this Section 9.2.

      The indemnified party shall cooperate in all reasonable respects with the
indemnifying party and such attorneys in the investigation, trial and defense of
such Action or Proceeding and any appeal arising therefrom; provided, however,
that the indemnified party may, at its own cost, participate in the
investigation, trial and defense of such Action or Proceeding and any appeal
arising therefrom. The indemnifying party shall pay all expenses due under this
Section 9.2 as such expenses become due.

            (d) Indemnity Claims. A claim for indemnification for any matter not
involving a third-party claim may be asserted by notice to the party from whom
indemnification is sought.

      9.3 Right of Offset. In the event that Parent suffers Damages pursuant to
this Article 9, it shall have the right to offset such Damages against the
principal amount of the Notes in the event any Note is outstanding as of the
date hereof.

      9.4 Non-Exclusivity. The parties hereto acknowledge and agree that the
indemnity obligations set forth above shall not be the exclusive remedy of the
indemnified parties with respect to the Contemplated Transactions.

                                  ARTICLE 10.

                                   ARBITRATION

      10.1 Arbitration. In the event of any dispute among the parties hereto as
to the interpretation of any provision of this Agreement or the rights and
obligations of any party hereunder, such dispute shall be resolved through
binding arbitration as hereinafter provided. If arbitration is required to
resolve a dispute hereunder, any party may notify the American Arbitration
Association in Dallas, Texas ("AAA") and request AAA to select one person to act
as the arbitrator for resolution of the dispute. The arbitrator so selected
shall conduct any such proceedings using the International Arbitration Rules
(the "IAR") of the AAA and such rules will be binding upon all parties to the
arbitration proceeding. The arbitrator is encouraged to modify the application
of the IAR as the arbitrator deems appropriate to accomplish the arbitration in
the quickest and least expensive manner possible. Accordingly, the arbitrator
may (i) dispense with any formal rules of evidence and allow hearsay testimony
so as to limit the number of witnesses required, (ii) accept evidence of
property values without formal appraisals and upon such information provided by
the parties or other persons and otherwise minimize discovery procedures as the
arbitrator deems appropriate, (iii) act upon his understanding or interpretation
of the law on any issue without the obligation to research such issue or accept
or act upon briefs of the issue prepared by any party, (iv) limit the time for
presentation of any party's case as well as the amount of information or number
of witnesses to be presented in connection with any hearing, and (v) impose any
other rules which the arbitrator believes appropriate to effect a resolution of
the dispute as quickly and inexpensively as possible. The arbitrator will have
the exclusive authority to determine and award costs of arbitration and the
costs incurred by any party for their attorneys, advisors and consultants.

                                       42
<PAGE>

                                  ARTICLE 11.

                                  MISCELLANEOUS

      11.1 Further Assurances. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the parties will take such further action (including the execution and
delivery of such further instruments and documents) as the other party
reasonably may request, all the sole cost and expense of the requesting party
(unless the requesting party is entitled to indemnification therefor under
Article IX).

      11.2 Notices. All notices, requests and other communications hereunder
must be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission with answer back
confirmation or mailed (postage prepaid by certified or registered mail, return
receipt requested) or by overnight courier to the parties at the following
addresses or facsimile numbers:

                  If to Parent or Surviving Corporation:
                           Crdentia Corp.
                           14114 Dallas Parkway, Suite 600
                           Dallas, Texas  75254
                           Facsimile No.: (972) 392-2722
                           Attention:  Chief Executive Officer

                  with copies to:
                           Kane, Russell, Coleman & Logan, P.C.
                           1601 Elm Street, Suite 3700
                           Dallas, Texas 75201
                           Facsimile No.: (214) 777-4299
                           Attention:  Patrick V. Stark, Esq.

                  If to Shareholders:
                           2316 Flanders Lane
                           Plano, Texas 75025
                           Attention:  Dan Ross

                                       43
<PAGE>

All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 11.2, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 11.2, be deemed given upon receipt, and (iii) if
delivered by mail in the manner described above to the address as provided in
this Section 11.2, be deemed given upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice, request or other communication is to be
delivered pursuant to this Section). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.

      11.3 Entire Agreement. This Agreement (and all exhibits and schedules
attached hereto, all other documents delivered in connection herewith) supersede
all prior discussions and agreements among the parties with respect to the
subject matter hereof and contains the sole and entire agreement among the
parties hereto with respect thereto, including, without limitation, the binding
provision of the letter of intent dated March 25, 2004.

      11.4 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.

      11.5 Amendment. This Agreement may be amended, supplemented or modified
only by a written instrument duly executed by or on behalf of each party hereto.

      11.6 No Third Party Beneficiary. The terms and provisions of this
Agreement are intended solely for the benefit of each party hereto and their
respective successors or permitted assigns, and it is not the intention of the
parties to confer third-party beneficiary rights upon any other Person other
than any Person entitled to indemnity under Article IX.

      11.7 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned by any party hereto without the
prior written consent of the other parties hereto and any attempt to do so will
be void. This Agreement is binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective successors and assigns.

      11.8 Headings. The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.

      11.9 Severability. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and mutually
acceptable to the parties herein.

                                       44
<PAGE>

      11.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas applicable to contracts executed
and performed in such State, without giving effect to conflicts of laws
principles.

      11.11 Consent to Jurisdiction and Forum Selection. Each of the Parent,
Acquisition Co., the Company and the Shareholders irrevocably agrees that any
legal action or proceeding with respect to this Agreement (including any legal
action or proceeding to enforce the arbitration provisions of this Agreement) or
for the recognition and enforcement of any judgment obtained through the
arbitration provisions of this Agreement will be brought and determined in the
federal or state courts or other courts located in Dallas County, Texas, and
each of the Parent, Acquisition Co., the Company and the Shareholders hereby
irrevocably submits with regard to any such action or proceeding for itself and
in respect to its property, generally and unconditionally, to the exclusive
jurisdiction of the aforesaid courts.

      11.12 Construction. No provision of this Agreement shall be construed in
favor of or against any party on the ground that such party or its counsel
drafted the provision. Any remedies provided for herein are not exclusive of any
other lawful remedies which may be available to either party. This Agreement
shall at all times be construed so as to carry out the purposes stated herein.

      11.13 Counterparts. This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be deemed an original, but all
of which together will constitute one and the same instrument.

      11.14 Attorney's Fees. In the event any action is brought for enforcement
or interpretation of this Agreement, the prevailing party shall be entitled to
recover reasonable attorney's fees and costs incurred in said action.

      11.15 Continued Representation. The Parent recognizes that, as of the
Closing Date, Shamoun & Klasky, P.C. shall cease to represent the Company.

                  [Remainder of page intentionally left blank.]


                                       45
<PAGE>

      IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto, or their duly authorized officer, as of the date first above
written.

                                                  CRDENTIA CORP.
                                                  a Delaware corporation

                                                  By: /s/ Pamela G. Atherton
                                                     ---------------------------
                                                  Name:    Pamela G. Atherton
                                                  Title:   President

                                                  CPS ACQUISITION CORPORATION,
                                                  a Texas corporation

                                                  By: /s/ William S. Leftwich
                                                     ---------------------------
                                                  Name: William S. Leftwich
                                                  Title:    President

                                                  CARE PROS STAFFING, INC.,
                                                  a Texas corporation

                                                  By: /s/ Dan Ross
                                                     ---------------------------
                                                  Name:  Dan Ross
                                                  Title:    President

                                                  /s/ Dan Ross
                                                  ------------------------------
                                                  Dan Ross

                                                  /s/ David Kingery
                                                  ------------------------------
                                                  David Kingery

                                                  /s/ David Gorman
                                                  ------------------------------
                                                  David Gorman

                                                  /s/ John Pencsak
                                                  ------------------------------
                                                  John Pencsak


                                       46
<PAGE>


                                    EXHIBIT A

                               ARTICLES OF MERGER



                                       A-1

<PAGE>

                                    EXHIBIT B

                             FORM OF PROMISSORY NOTE



                                       B-1

<PAGE>


                                    EXHIBIT C

                                ADDITIONAL MERGER

                            CONSIDERATION CALCULATION



                                       C-1
<PAGE>


                                    EXHIBIT D

                 NON-COMPETITION AND NON-SOLICITATION AGREEMENT


                                       D-1

<PAGE>


                                    EXHIBIT E

                          COMPANY SECRETARY CERTIFICATE


                                       E-1

<PAGE>


                                    EXHIBIT F

                                     RELEASE



                                       F-1


<PAGE>


                                    EXHIBIT G

                      OPINION OF COMPANY COUNSEL TO COMPANY



                                       G-1

<PAGE>


                                    EXHIBIT H

                             SUBORDINATION AGREEMENT



                                       H-1


<PAGE>


                                    EXHIBIT I

                          PARENT SECRETARY CERTIFICATE


                                       I-1

<PAGE>


                                    EXHIBIT J

                      ACQUISITION CO. SECRETARY CERTIFICATE



                                       J-1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4.10
<SEQUENCE>3
<FILENAME>v014915_ex4-10.txt
<TEXT>
                                                                    EXHIBIT 4.10

THIS CONVERTIBLE SUBORDINATED PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE SECURITIES,
BLUE SKY OR OTHER APPLICABLE LAWS OF ANY STATE, OR ANY OTHER RELEVANT
JURISDICTION, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS IT IS (A) REGISTERED AND/OR QUALIFIED PURSUANT TO THE
RELEVANT PROVISIONS OF U.S. FEDERAL SECURITIES LAWS, THE SECURITIES, BLUE SKY,
OR OTHER APPLICABLE LAWS OF ANY STATE, OR OTHER RELEVANT JURISDICTION OR (B)
EXEMPT FROM SUCH REGISTRATION OR QUALIFICATION. THEREFORE, NO SALE, PLEDGE OR
OTHER TRANSFER OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE, PLEDGE OR
OTHER TRANSFER SHALL BE VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY
EFFECT TO ANY SUCH TRANSACTION UNLESS (A) SUCH TRANSACTION SHALL HAVE BEEN DULY
REGISTERED UNDER THE SECURITIES ACT AND QUALIFIED OR APPROVED UNDER THE
SECURITIES, BLUE SKY, OR OTHER APPLICABLE LAWS OF ANY STATE, OR OTHER RELEVANT
JURISDICTION, OR (B) THE OBLIGOR SHALL HAVE BEEN SATISFIED THAT SUCH
REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.


                    CONVERTIBLE SUBORDINATED PROMISSORY NOTE


$50,000 - Principal Amount                       Issue Date - September 2, 2003

      FOR VALUE RECEIVED, Crdentia Corp, a Delaware corporation ("Obligor"),
hereby promises to pay to the order of The DeLuca Trust, Joseph M. DeLuca,
Trustee, dated 1/7/2000 or its assigns ("Holder"), in lawful money of the United
States at the address of Holder set forth below, the principal sum of Fifty
Thousand dollars ($50,000), together with interest thereon from the date of this
Promissory Note (the "Note") on the unpaid principal balance. Interest shall
accrue at a rate of ten percent (10%) per annum, simple interest, and shall be
payable quarterly. Subject to the conversion provisions set forth herein, unpaid
principal together with all accrued and unpaid interest shall be due and payable
in full on September 2, 2004 (the "Due Date"). This Note may be prepaid, in
whole or in part, at any time without premium or penalty.

      This Note is being issued as one of a series of convertible subordinated
promissory notes (collectively, the "Notes") issued by the Obligor on or about
the date hereof pursuant to certain Subscription Agreements among the Obligor
and the holders of the Notes. Any of the terms of this Note may be waived or
modified only in writing, signed by the Obligor and the holders of sixty six and
two-thirds percent (66 2/3%) of the aggregate principal amount of all then
outstanding notes issued by the Obligor pursuant to the Subscription Agreements.

      The outstanding principal balance plus accrued and unpaid interest on this
Note shall be converted at Holder's option and in Holder's sole discretion prior
to the Due Date into shares of the Obligor's Common Stock (the "Common Stock").
The number of shares of Common Stock shall be equal to the quotient obtained by
dividing (a) the aggregate outstanding principal due, plus accrued and unpaid
interest on this Note on the date of conversion by (b) the Conversion Price. For
purposes of this Note, the "Conversion Price" shall mean the lesser of (x) one
<PAGE>

dollar and fifty cents ($1.50) or (y) the per share price of the Obligor's
equity securities issued upon the closing of the Obligor's next private equity
financing (the "New Financing"). If Obligor shall issue after the Issue Date any
Additional Stock for a consideration per share less than the Conversion Price in
effect immediately prior to the issuance of such Additional Stock, the
Conversion Price in effect immediately prior to such issuance shall be forthwith
adjusted to the price paid per share for such Additional Stock. For purposes of
this Note, Additional Stock shall mean any shares of Common Stock issued by
Obligor after the Issue Date other than: (a) Common Stock issued pursuant to the
conversion of the Notes or the conversion of exercise of any convertible or
exercisable instrument outstanding prior to the Issue Date, (b) Common Stock
issuable or issued to employees, consultants, directors or vendors of Obligor
pursuant to a stock plan or restricted stock plan, (c) Common Stock issued or
issuable in a public offering, (d) Common Stock issued in connection with the
acquisition of another corporation or entity by Obligor and (e) Common Stock
issued in connection with strategic alliances or to strategic corporate partners
or to parties that are providing Obligor with equipment loans, real property
leases, loans, credit lines, guarantees of indebtedness, licensing agreements,
consulting agreements, cash price reductions or similar transactions.

      In the event that Obligor completes a New Financing prior to the Due Date,
the outstanding principal balance plus accrued and unpaid interest on this Note
shall be converted at Holder's option and in Holder's sole discretion into the
equity securities issued in the New Financing. The number of shares of equity
securities shall be equal to the quotient obtained by dividing (a) the aggregate
outstanding principal due, plus accrued and unpaid interest on this Note on the
date of such conversion by (b) the per share price of such equity securities
issued in the New Financing.

      No fractional shares will be issued upon conversion of this Note. In lieu
of any fractional share to which Holder would otherwise be entitled, Obligor
will pay to Holder in cash that amount of the unconverted principal and interest
balance of this Note. Upon conversion of this Note into such equity securities,
Holder shall surrender this Note, duly endorsed, at the principal offices of the
Obligor or any transfer agent for the Obligor. At its expense, Obligor will, as
soon as practicable thereafter, issue and deliver to Holder a certificate for
the number of shares of equity securities to which Holder is entitled upon such
conversion, together with any other securities and property to which Holder is
entitled upon such conversion under the terms of this Note, including a check
payable to Holder for any cash amounts payable as described above. Upon
conversion of this Note into such equity securities, Obligor will be forever
released from all its obligations and liabilities under this Note, including
without limitation the obligation to pay the principal and interest amounts.

      If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday, or a public holiday under the laws of the State of California,
such payment shall be made on the next succeeding business day and such
extension of time shall be included in computing interest in connection with
such payment.

      The indebtedness evidenced by this Note is hereby expressly subordinated,
to the extent and in the manner hereinafter set forth, in right of payment to
the prior payment in full of all the Obligor's Senior Debt. For purposes of this
Note, "Senior Debt" shall mean the principal of (and premium, if any) and unpaid

                                       2
<PAGE>

interest on, or other payment obligation with respect to (a) all indebtedness of
the Obligor to commercial banks, equipment lessors and other traditional lending
institutions for money borrowed by the Obligor whether or not secured, and (b)
any such indebtedness to commercial banks or any debentures, notes or other
evidence of indebtedness issued in exchange for such indebtedness.
Notwithstanding anything herein to the contrary, no payment of principal or
interest shall be made on this Note if, but only as long as, there exists any
default, or the existence of any event which, with the giving of notice, would
constitute a default, in the payment of Senior Debt, as determined by the terms
of any such Senior Debt. Holder shall execute, at or following the date hereof,
as the case may be, all subordination documents required by the holders of
Senior Debt necessary to effectuate the terms of the foregoing.

      In the event that Obligor (a) fails to make payment on any date for
payment herein above specified of all principal and interest due hereunder on
such date, (b) admits in writing its inability to pay its debts as they become
due, or makes a general assignment for the benefit of creditors or files any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for the relief of, or relating to,
debtors or (c) an involuntary petition is filed against Obligor under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for the relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within sixty (60) days of the date thereof, Obligor shall
be deemed to be in default hereunder. In the event of such default, Holder may,
at Holder's option and in Holder's sole discretion, five (5) days after giving
notice of default to Obligor, accelerate the maturity of all amounts due under
this Note by giving notice of such acceleration.

      The acceptance by Holder of any payment hereunder which is less than the
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder except as and to the extent otherwise provided by law.

      Obligor waives presentment, demand for performance, notice of
nonperformance, protest, notice of protest, and notice of dishonor (but not
notice of default). No delay on the part of Holder in exercising any right
hereunder shall operate as a waiver of such right under this Note. This Note is
being delivered in and shall be construed in accordance with the laws of the
State of California as applied to contracts entered into by California residents
within the State of California, which contracts are to be performed entirely
within the State of California.

      The right to plead any and all statutes of limitations as a defense to any
demand on this Note, or any guaranty hereof, or any agreement to the same, or
any instrument securing this Note, or any and all obligations or liabilities
arising out of or in connection with this Note, is expressly waived by Obligor
and each and every endorser or guarantor if any, to the fullest extent permitted
by law.

      Notwithstanding anything to the contrary contained herein, the total
liability for payments hereunder in the nature of interest shall not exceed the
limits imposed by applicable interest rate limitation laws.

                                       3
<PAGE>

      The provisions of this Note are intended by Obligor to be severable and
divisible and the invalidity or unenforceability of a provision or term herein
shall not invalidate or render unenforceable the remainder of this Note or any
part thereof.

      If the indebtedness represented by this Note or any part thereof is
collected at law or in equity or in bankruptcy, receivership or other judicial
proceedings or if this Note is placed in the hands of attorneys for collection
after default, Obligor agrees to pay, in addition to the principal and interest
payable hereon, reasonable attorneys' fees and costs incurred by Holder.

      Any notice or other communication (except payment) required or permitted
hereunder shall be in writing and shall be deemed to have been given upon
delivery if personally delivered or one day after deposit if deposited in the
United States mail for mailing by certified mail, postage prepaid, and addressed
as follows:

         If to Holder:              Joseph M. DeLuca
                                    1221 Grand Street
                                    Alameda, CA 94501

         If to Obligor:             Crdentia Corp.
                                    Attention: James D. Durham
                                    455 Market Street, Suite 1220
                                    San Francisco, California 94105


         with a copy to:            Steven G. Rowles, Esq.
                                    Morrison & Foerster LLP
                                    3811 Valley Centre Drive, Suite 500
                                    San Diego, CA 92130

Any payment shall be deemed made upon receipt by Holder. Holder or Obligor may
change their address for purposes of this paragraph by giving to the other party
notice in conformance with this paragraph of such new address.

OBLIGOR:                               CRDENTIA CORP.,
                                       a Delaware corporation



                                       By: /s/ James D. Durham
                                          --------------------------------------
                                          Name: James D. Durham
                                          Title:  Chief Executive Officer


                                       4
<PAGE>

                                 CRDENTIA CORP.

              AMENDMENT TO CONVERTIBLE SUBORDINATED PROMISSORY NOTE

      This Amendment to Convertible Subordinated Promissory Note (this
"Amendment") is made effective as of September 2, 2004 by and among Crdentia
Corp., a Delaware corporation (the "Company") and The DeLuca Trust, Joseph M.
DeLuca Trustee, dated 1/7/2000 (the "Noteholder").


                                    RECITALS

      A. On or about September 2, 2003, the Company issued to the Noteholder a
certain Convertible Subordinated Promissory Note in the original principal
amount of $50,000 (the "Note").

      B. The Company and the Noteholder desire to amend certain terms of the
Note.

      In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows. Any capitalized terms not
otherwise defined herein shall have the meanings given such terms in the Note:

      1. Amendment to First Paragraph of the Note.

      The first paragraph of the Note shall be amended and restated to read as
follows:

                  FOR VALUE RECEIVED, Crdentia Corp, a Delaware corporation
         ("Obligor"), hereby promises to pay to the order of The DeLuca Trust,
         Joseph M. DeLuca, Trustee, dated 1/7/2000 or its assigns ("Holder"), in
         lawful money of the United States at the address of Holder set forth
         below, the principal sum of Fifty Thousand dollars ($50,000), together
         with interest thereon from the date of this Promissory Note (the
         "Note") on the unpaid principal balance. Interest shall accrue at a
         rate of ten percent (10%) per annum, simple interest, and shall be
         payable quarterly. Subject to the conversion provisions set forth
         herein, unpaid principal together with all accrued and unpaid interest
         shall be due and payable in full on March 2, 2005 (the "Due Date").
         This Note may be prepaid, in whole or in part, at any time without
         premium or penalty.

      2. Effect of Amendment. Except as expressly amended, restated or consented
to in this Amendment, the Note shall continue in full force and effect. In the
event of any conflict between the terms of this Amendment and the Note, the
terms of this Amendment shall govern and control.

      3. Governing Law. This Amendment shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.

                                       5
<PAGE>

      4. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      5. Severability. If one or more provisions of this Amendment are held to
be unenforceable under applicable law, such provision shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

      6. Entire Agreement. This Amendment, together with the Note and the
agreements executed pursuant hereto and thereto, constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       6
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.

COMPANY:

CRDENTIA CORP.


By: /s/ James D. Durham
    -------------------------
    James D. Durham
    Chief Executive Officer


NOTEHOLDER:

THE DELUCA TRUST, JOSEPH M. DELUCA TRUSTEE, DATED 1/7/2000


By: /s/ Joseph M. DeLuca
    -------------------------
    Joseph M. DeLuca
    Trustee


                                       7
<PAGE>

                                 CRDENTIA CORP.

          AMENDMENT NO. 2 TO CONVERTIBLE SUBORDINATED PROMISSORY NOTE

      This Amendment No. 2 to Convertible Subordinated Promissory Note (this
"Amendment") is made effective as of March 2, 2005 by and among Crdentia Corp.,
a Delaware corporation (the "Company") and The DeLuca Trust, Joseph M. DeLuca
Trustee, dated 1/7/2000 (the "Noteholder").


                                    RECITALS

      A. On or about September 2, 2003, the Company issued to the Noteholder a
certain Convertible Subordinated Promissory Note in the original principal
amount of $50,000 (the "Note").

      B. On or about September 2, 2004, the Company and the Noteholder entered
into an Amendment to the Note ("Amendment No. 1").

      B. The Company and the Noteholder desire to amend certain terms of the
Note, as previously amended by Amendment No. 1.

      In consideration of the foregoing and the promises and covenants contained
herein and other good and valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows. Any capitalized terms not
otherwise defined herein shall have the meanings given such terms in the Note:

      7. Amendment to First Paragraph of the Note.

      The first paragraph of the Note, as previously amended by Amendment No. 1,
shall be amended and restated to read as follows:

                  FOR VALUE RECEIVED, Crdentia Corp, a Delaware corporation
         ("Obligor"), hereby promises to pay to the order of The DeLuca Trust,
         Joseph M. DeLuca, Trustee, dated 1/7/2000 or its assigns ("Holder"), in
         lawful money of the United States at the address of Holder set forth
         below, the principal sum of Fifty Thousand dollars ($50,000), together
         with interest thereon from the date of this Promissory Note (the
         "Note") on the unpaid principal balance. Simple interest shall accrue
         at a rate of ten percent (10%) per annum. Accrued and unpaid interest
         shall be payable, together with a pro rata portion of the unpaid
         principal balance hereunder, on each of June 2, 2005, September 2,
         2005, December 2, 2005 and March 2, 2006 (March 2, 2006 being sometimes
         referred to herein as the "Due Date"). This Note may be prepaid, in
         whole or in part, at any time without premium or penalty.

      8. Effect of Amendment. Except as expressly amended, restated or consented
to in this Amendment, the Note shall continue in full force and effect. In the
event of any conflict between the terms of this Amendment and the Note, the
terms of this Amendment shall govern and control.

                                       8
<PAGE>

      9. Governing Law. This Amendment shall be governed by and construed under
the laws of the State of California as applied to agreements among California
residents entered into and to be performed entirely within California.

      10. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

      11. Severability. If one or more provisions of this Amendment are held to
be unenforceable under applicable law, such provision shall be excluded from
this Amendment and the balance of the Amendment shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.

      12. Entire Agreement. This Amendment, together with the Note and the
agreements executed pursuant hereto and thereto, constitutes the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof.


                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]


                                       9
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.

COMPANY:

CRDENTIA CORP.


By: /s/ James D. Durham
    --------------------------
    James D. Durham
    Chief Executive Officer


NOTEHOLDER:

THE DELUCA TRUST, JOSEPH M. DELUCA TRUSTEE, DATED 1/7/2000


By: /s/ Joseph M. DeLuca
    --------------------------
    Joseph M. DeLuca
    Trustee

                                       10
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.12
<SEQUENCE>4
<FILENAME>v014915_ex10-12.txt
<TEXT>
                                                                   Exhibit 10.12

                                     CRDENTIA CORP. 2004 STOCK INCENTIVE PLAN

                                           NOTICE OF STOCK OPTION AWARD



         Grantee's Name and Address:                 _____________________

                                                     _____________________

                                                     _____________________

         You (the "Grantee") have been granted an option to purchase shares of
Common Stock, subject to the terms and conditions of this Notice of Stock Option
Award (the "Notice"), the Crdentia Corp. 2004 Stock Incentive Plan, as amended
from time to time (the "Plan") and the Stock Option Award Agreement (the "Option
Agreement") attached hereto, as follows. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings in this Notice.

         Award Number

         Date of Award

         Vesting Commencement Date

         Exercise Price per Share                    $

         Total Number of Shares Subject
         to the Option (the "Shares")

         Total Exercise Price                        $

         Type of Option:

         Expiration Date:

         Post-Termination Exercise Period:           ___________ Days

Vesting Schedule:

         Subject to the Grantee's Continuous Service and other limitations set
forth in this Notice, the Plan and the Option Agreement, the Option may be
exercised, in whole or in part, in accordance with the following schedule:

         1/3rd of the Shares subject to the Option shall vest twelve months
after the Vesting Commencement Date, and 1/36th of the Shares subject to the
Option shall vest on each monthly anniversary of the Vesting Commencement Date
thereafter.


                                       1
<PAGE>

         IN WITNESS WHEREOF, the Company and the Grantee have executed this
Notice and agree that the Option is to be governed by the terms and conditions
of this Notice, the Plan, and the Option Agreement.

                                  Crdentia Corp.,
                                  a Delaware corporation

                                  By:
                                      ------------------------------------------

                                  Title:
                                      ------------------------------------------

THE GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THE OPTION SHALL
VEST, IF AT ALL, ONLY DURING THE PERIOD OF THE GRANTEE'S CONTINUOUS SERVICE (NOT
THROUGH THE ACT OF BEING GRANTED THE OPTION OR ACQUIRING SHARES HEREUNDER).

         The Grantee acknowledges receipt of a copy of the Plan and the Option
Agreement, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts the Option subject to all of the terms
and provisions hereof and thereof. The Grantee has reviewed this Notice, the
Plan, and the Option Agreement in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Notice, and fully
understands all provisions of this Notice, the Plan and the Option Agreement.
The Grantee hereby agrees that all questions of interpretation and
administration relating to this Notice, the Plan and the Option Agreement shall
be resolved by the Administrator in accordance with Section 13 of the Option
Agreement. The Grantee further agrees to the venue selection and waiver of a
jury trial in accordance with Section 14 of the Option Agreement. The Grantee
further agrees to notify the Company upon any change in the residence address
indicated in this Notice.


Dated: ______________________                Signed: ___________________________
                                                              Grantee


                                       2
<PAGE>

                                                                Award Number: __

                    CRDENTIA CORP. 2004 STOCK INCENTIVE PLAN

                          STOCK OPTION AWARD AGREEMENT

      1. Grant of Option. Crdentia Corp., a Delaware corporation (the
"Company"), hereby grants to the Grantee (the "Grantee") named in the Notice of
Stock Option Award (the "Notice"), an option (the "Option") to purchase the
Total Number of Shares of Common Stock subject to the Option (the "Shares") set
forth in the Notice, at the Exercise Price per Share set forth in the Notice
(the "Exercise Price") subject to the terms and provisions of the Notice, this
Stock Option Award Agreement (the "Option Agreement") and the Company's 2004
Stock Incentive Plan, as amended from time to time (the "Plan"), which are
incorporated herein by reference. Unless otherwise defined herein, the terms
defined in the Plan shall have the same defined meanings in this Option
Agreement.

      The Option is intended to qualify as a Non-Qualified Stock Option and not
as an Incentive Stock Option as defined in Section 422 of the Code.

      2. Exercise of Option.

            (a) Right to Exercise. The Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice and with the
applicable provisions of the Plan and this Option Agreement. The Option shall be
subject to the provisions of Section 11 of the Plan and Section 2(d) of this
Option Agreement relating to the exercisability or termination of the Option in
the event of a Corporate Transaction or Change in Control. The Grantee shall be
subject to reasonable limitations on the number of requested exercises during
any monthly or weekly period as determined by the Administrator. In no event
shall the Company issue fractional Shares.

            (b) Method of Exercise. The Option shall be exercisable by delivery
of an exercise notice (a form of which is attached as Exhibit A) or by such
other procedure as specified from time to time by the Administrator which shall
state the election to exercise the Option, the whole number of Shares in respect
of which the Option is being exercised, and such other provisions as may be
required by the Administrator. The exercise notice shall be delivered in person,
by certified mail, or by such other method (including electronic transmission)
as determined from time to time by the Administrator to the Company accompanied
by payment of the Exercise Price. The Option shall be deemed to be exercised
upon receipt by the Company of such notice accompanied by the Exercise Price,
which, to the extent selected, shall be deemed to be satisfied by use of the
broker-dealer sale and remittance procedure to pay the Exercise Price provided
in Section 3(d), below.

            (c) Taxes. No Shares will be delivered to the Grantee or other
person pursuant to the exercise of the Option until the Grantee or other person
has made arrangements acceptable to the Administrator for the satisfaction of
applicable income tax and employment tax withholding obligations, including,
without limitation, such other tax obligations of the Grantee incident to the
receipt of Shares. Upon exercise of the Option, the Company or the Grantee's
employer may offset or withhold (from any amount owed by the Company or the
Grantee's employer to the Grantee) or collect from the Grantee or other person
an amount sufficient to satisfy such tax withholding obligations.

                                       1
<PAGE>

      (d) Acceleration of Option Upon Corporate Transaction or Change in
Control.

            (i) Corporate Transaction. In the event of a Corporate Transaction
and irrespective of whether the Option is Assumed or Replaced, the Option
automatically shall become fully vested and exercisable immediately prior to the
specified effective date of such Corporate Transaction, for all of the Shares at
the time represented by the Option, provided that the Grantee's Continuous
Service has not terminated prior to such date.

            (ii) Change in Control. In the event of a Change in Control (other
than a Change in Control which also is a Corporate Transaction), the Option
shall become fully vested and exercisable immediately prior to the specified
effective date of such Change in Control, for all of the Shares at the time
represented by the Option, provided that the Grantee's Continuous Service has
not terminated prior to such date.

      3. Method of Payment. Payment of the Exercise Price shall be made by any
of the following, or a combination thereof, at the election of the Grantee;
provided, however, that such exercise method does not then violate any
Applicable Law and, provided further, that the portion of the Exercise Price
equal to the par value of the Shares must be paid in cash or other legal
consideration permitted by the Delaware General Corporation Law:

            (a) cash;

            (b) check;

            (c) surrender of Shares or delivery of a properly executed form of
attestation of ownership of Shares as the Administrator may require which have a
Fair Market Value on the date of surrender or attestation equal to the aggregate
Exercise Price of the Shares as to which the Option is being exercised,
provided, however, that Shares acquired under the Plan or any other equity
compensation plan or agreement of the Company must have been held by the Grantee
for a period of more than six (6) months (and not used for another Award
exercise by attestation during such period); or

            (d) payment through a broker-dealer sale and remittance procedure
pursuant to which the Grantee (i) shall provide written instructions to a
Company-designated brokerage firm to effect the immediate sale of some or all of
the purchased Shares and remit to the Company sufficient funds to cover the
aggregate exercise price payable for the purchased Shares and (ii) shall provide
written directives to the Company to deliver the certificates for the purchased
Shares directly to such brokerage firm in order to complete the sale
transaction.

      4. Restrictions on Exercise. The Option may not be exercised if the
issuance of the Shares subject to the Option upon such exercise would constitute
a violation of any Applicable Laws. If the exercise of the Option within the
applicable time periods set forth in Section 6, 7 and 8 of this Option Agreement
is prevented by the provisions of this Section 5, the Option shall remain
exercisable until one (1) month after the date the Grantee is notified by the
Company that the Option is exercisable, but in any event no later than the
Expiration Date set forth in the Notice.

                                       2
<PAGE>

      5. Termination or Change of Continuous Service. In the event the Grantee's
Continuous Service terminates, the Grantee may, but only during the
Post-Termination Exercise Period, exercise the portion of the Option that was
vested at the date of such termination (the "Termination Date"). The
Post-Termination Exercise Period shall commence on the Termination Date. In no
event, however, shall the Option be exercised later than the Expiration Date set
forth in the Notice. In the event of the Grantee's change in status from
Employee, Director or Consultant to any other status of Employee, Director or
Consultant, the Option shall remain in effect and vesting of the Option shall
continue only to the extent determined by the Administrator as of such change in
status. Except as provided in Sections 6 and 7 below, to the extent that the
Option was unvested on the Termination Date, or if the Grantee does not exercise
the vested portion of the Option within the Post-Termination Exercise Period,
the Option shall terminate.

      6. Disability of Grantee. In the event the Grantee's Continuous Service
terminates as a result of his or her Disability, the Grantee may, but only
within twelve (12) months commencing on the Termination Date (but in no event
later than the Expiration Date), exercise the portion of the Option that was
vested on the Termination Date. To the extent that the Option was unvested on
the Termination Date, or if the Grantee does not exercise the vested portion of
the Option within the time specified herein, the Option shall terminate.

      7. Death of Grantee. In the event of the termination of the Grantee's
Continuous Service as a result of his or her death, or in the event of the
Grantee's death during the Post-Termination Exercise Period or during the twelve
(12) month period following the Grantee's termination of Continuous Service as a
result of his or her Disability, the person who acquired the right to exercise
the Option pursuant to Section 8 may exercise the portion of the Option that was
vested at the date of termination within twelve (12) months commencing on the
date of death (but in no event later than the Expiration Date). To the extent
that the Option was unvested on the date of death, or if the vested portion of
the Option is not exercised within the time specified herein, the Option shall
terminate.

      8. Transferability of Option. The Option may not be transferred in any
manner other than by will or by the laws of descent and distribution, provided,
however, that the Option may be transferred during the lifetime of the Grantee
to the extent and in the manner authorized by the Administrator. Notwithstanding
the foregoing, the Grantee may designate one or more beneficiaries of the
Grantee's Option in the event of the Grantee's death on a beneficiary
designation form provided by the Administrator. Following the death of the
Grantee, the Option, to the extent provided in Section 7, may be exercised (a)
by the person or persons designated under the deceased Grantee's beneficiary
designation or (b) in the absence of an effectively designated beneficiary, by
the Grantee's legal representative or by any person empowered to do so under the
deceased Grantee's will or under the then applicable laws of descent and
distribution. The terms of the Option shall be binding upon the executors,
administrators, heirs, successors and transferees of the Grantee.

                                       3
<PAGE>

      9. Term of Option. The Option must be exercised no later than the
Expiration Date set forth in the Notice or such earlier date as otherwise
provided herein. After the Expiration Date or such earlier date, the Option
shall be of no further force or effect and may not be exercised.

      10. Tax Consequences. Set forth below is a brief summary as of the date of
this Option Agreement of some of the federal tax consequences of exercise of the
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE GRANTEE SHOULD
CONSULT A TAX ADVISER BEFORE EXERCISING THE OPTION OR DISPOSING OF THE SHARES.

            (a) Exercise of Non-Qualified Stock Option. On exercise of a
Non-Qualified Stock Option, the Grantee will be treated as having received
compensation income (taxable at ordinary income tax rates) equal to the excess,
if any, of the Fair Market Value of the Shares on the date of exercise over the
Exercise Price. If the Grantee is an Employee or a former Employee, the Company
will be required to withhold from the Grantee's compensation or collect from the
Grantee and pay to the applicable taxing authorities an amount in cash equal to
a percentage of this compensation income at the time of exercise, and may refuse
to honor the exercise and refuse to deliver Shares if such withholding amounts
are not delivered at the time of exercise.

            (b) Disposition of Shares. In the case of a Non-Qualified Stock
Option, if Shares are held for more than one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes.

      11. Entire Agreement: Governing Law. The Notice, the Plan and this Option
Agreement constitute the entire agreement of the parties with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan and this Option Agreement (except as expressly provided therein) is
intended to confer any rights or remedies on any persons other than the parties.
The Notice, the Plan and this Option Agreement are to be construed in accordance
with and governed by the internal laws of the State of Texas without giving
effect to any choice of law rule that would cause the application of the laws of
any jurisdiction other than the internal laws of the State of Texas to the
rights and duties of the parties. Should any provision of the Notice, the Plan
or this Option Agreement be determined to be illegal or unenforceable, such
provision shall be enforced to the fullest extent allowed by law and the other
provisions shall nevertheless remain effective and shall remain enforceable.

      12. Construction. The captions used in the Notice and this Option
Agreement are inserted for convenience and shall not be deemed a part of the
Option for construction or interpretation. Except when otherwise indicated by
the context, the singular shall include the plural and the plural shall include
the singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.

                                       4
<PAGE>

      13. Administration and Interpretation. Any question or dispute regarding
the administration or interpretation of the Notice, the Plan or this Option
Agreement shall be submitted by the Grantee or by the Company to the
Administrator. The resolution of such question or dispute by the Administrator
shall be final and binding on all persons.

      14. Venue and Waiver of Jury Trial. The Company, the Grantee, and the
Grantee's assignees pursuant to Section 8 (the "parties") agree that any suit,
action, or proceeding arising out of or relating to the Notice, the Plan or this
Option Agreement shall be brought in the United States District Court for the
Northern District of Texas (or should such court lack jurisdiction to hear such
action, suit or proceeding, in a Texas state court in the County of Dallas) and
that the parties shall submit to the jurisdiction of such court. The parties
irrevocably waive, to the fullest extent permitted by law, any objection the
party may have to the laying of venue for any such suit, action or proceeding
brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY HAVE OR
MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or
more provisions of this Section 14 shall for any reason be held invalid or
unenforceable, it is the specific intent of the parties that such provisions
shall be modified to the minimum extent necessary to make it or its application
valid and enforceable.

      15. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit for delivery by an internationally recognized express mail courier
service or upon deposit in the United States mail by certified mail (if the
parties are within the United States), with postage and fees prepaid, addressed
to the other party at its address as shown in these instruments, or to such
other address as such party may designate in writing from time to time to the
other party.

                                END OF AGREEMENT


                                       5
<PAGE>

                                    EXHIBIT A

                    CRDENTIA CORP. 2004 STOCK INCENTIVE PLAN

                                 EXERCISE NOTICE

Crdentia Corp.
14114 Dallas Parkway, Suite 600
Dallas, Texas  75254
Attention: Secretary

      1. Exercise of Option. Effective as of today, ______________, ___ the
undersigned (the "Grantee") hereby elects to exercise the Grantee's option to
purchase 25,000 shares of the Common Stock (the "Shares") of Crdentia Corp. (the
"Company") under and pursuant to the Company's 2004 Stock Incentive Plan, as
amended from time to time (the "Plan") and the Non-Qualified Stock Option Award
Agreement (the "Option Agreement") and Notice of Stock Option Award (the
"Notice") dated May 27, 2004. Unless otherwise defined herein, the terms defined
in the Plan shall have the same defined meanings in this Exercise Notice.

      2. Representations of the Grantee. The Grantee acknowledges that the
Grantee has received, read and understood the Notice, the Plan and the Option
Agreement and agrees to abide by and be bound by their terms and conditions.

      3. Rights as Stockholder. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the Shares, notwithstanding the exercise of the Option. The Company
shall issue (or cause to be issued) such stock certificate promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the stock certificate is issued,
except as provided in Section 10 of the Plan.

      4. Delivery of Payment. The Grantee herewith delivers to the Company the
full Exercise Price for the Shares, which, to the extent selected, shall be
deemed to be satisfied by use of the broker-dealer sale and remittance procedure
to pay the Exercise Price provided in Section 3(d) of the Option Agreement.

      5. Tax Consultation. The Grantee understands that the Grantee may suffer
adverse tax consequences as a result of the Grantee's purchase or disposition of
the Shares. The Grantee represents that the Grantee has consulted with any tax
consultants the Grantee deems advisable in connection with the purchase or
disposition of the Shares and that the Grantee is not relying on the Company for
any tax advice.

      6. Taxes. The Grantee agrees to satisfy all applicable foreign, federal,
state and local income and employment tax withholding obligations and herewith
delivers to the Company the full amount of such obligations or has made
arrangements acceptable to the Company to satisfy such obligations.

                                       1
<PAGE>

      7. Successors and Assigns. The Company may assign any of its rights under
this Exercise Notice to single or multiple assignees, and this agreement shall
inure to the benefit of the successors and assigns of the Company. This Exercise
Notice shall be binding upon the Grantee and his or her heirs, executors,
administrators, successors and assigns.

      8. Construction. The captions used in this Exercise Notice are inserted
for convenience and shall not be deemed a part of this agreement for
construction or interpretation. Except when otherwise indicated by the context,
the singular shall include the plural and the plural shall include the singular.
Use of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.

      9. Administration and Interpretation. The Grantee hereby agrees that any
question or dispute regarding the administration or interpretation of this
Exercise Notice shall be submitted by the Grantee or by the Company to the
Administrator. The resolution of such question or dispute by the Administrator
shall be final and binding on all persons.

      10. Governing Law; Severability. This Exercise Notice is to be construed
in accordance with and governed by the internal laws of the State of Texas
without giving effect to any choice of law rule that would cause the application
of the laws of any jurisdiction other than the internal laws of the State of
Texas to the rights and duties of the parties. Should any provision of this
Exercise Notice be determined by a court of law to be illegal or unenforceable,
such provision shall be enforced to the fullest extent allowed by law and the
other provisions shall nevertheless remain effective and shall remain
enforceable.

      11. Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, upon
deposit for delivery by an internationally recognized express mail courier
service or upon deposit in the United States mail by certified mail (if the
parties are within the United States), with postage and fees prepaid, addressed
to the other party at its address as shown below beneath its signature, or to
such other address as such party may designate in writing from time to time to
the other party.

      12. Further Instruments. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this agreement.

      13. Entire Agreement. The Notice, the Plan and the Option Agreement are
incorporated herein by reference and together with this Exercise Notice
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and the Grantee with respect to the subject matter
hereof, and may not be modified adversely to the Grantee's interest except by
means of a writing signed by the Company and the Grantee. Nothing in the Notice,
the Plan, the Option Agreement and this Exercise Notice (except as expressly
provided therein) is intended to confer any rights or remedies on any persons
other than the parties.

                                       2
<PAGE>

Submitted by:                                   Accepted by:
GRANTEE:                                        CRDENTIA CORP.
                                                By:
                                                Title:
-----------------------------------------
                   (Signature)
Address:                                        Address:
-------                                         -------

_____________________                           14114 Dallas Parkway, Suite 600
_____________________                           Dallas, Texas  75254


                                       3

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.15
<SEQUENCE>5
<FILENAME>v014915_ex10-15.txt
<TEXT>
                                                                   EXHIBIT 10.15

                              AMENDED AND RESTATED
                  LOAN AND SECURITY AGREEMENT - REVOLVING LOANS

                          DATED AS OF NOVEMBER 30, 2004

                                     BETWEEN

                         BRIDGE HEALTHCARE FINANCE, LLC

                                   AS LENDER,

                                       AND

                           CRDENTIA CORP. ("CRDENTIA")
                     BAKER ANDERSON CHRISTIE, INC.("BAKER")
                     NURSES NETWORK, INC.("NURSES NETWORK")
                       NEW AGE STAFFING, INC. ("NEW AGE")
                          PSR NURSES, LTD. ("PSR LTD.")
                  PSR NURSE RECRUITING, INC. ("PSR RECRUITING")
                    PSR NURSES HOLDINGS CORP. ("PSR HOLDING")
                      CRDE CORP. ("ACQUISITION SUBSIDIARY")
              ARIZONA HOME HEALTH CARE/PRIVATE DUTY, INC. ("AHHC")
                     CARE PROS STAFFING, INC. ("CARE PROS")

                                   AS BORROWER

<PAGE>

                                                 Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
1.       DEFINITIONS.............................................................................................2
         (a)      Defined Terms..................................................................................2
         (b)      Accounting Terms...............................................................................2
         (c)      Terms Defined in UCC...........................................................................2
         (d)      Other Definitional Provisions; Construction....................................................3
         (e)      References to Agreements, Enactments, Etc......................................................3
2.       LOANS...................................................................................................3
         (a)      Revolving Loans................................................................................3
         (b)      Notes..........................................................................................5
3.       [LEFT BLANK]............................................................................................5
4.       INTEREST, FEES AND CHARGES..............................................................................5
         (a)      Interest Rate..................................................................................5
         (b)      Fees and Charges...............................................................................6
         (c)      Maximum Interest...............................................................................7
5.       COLLATERAL..............................................................................................7
         (a)      Grant of Security Interest to Lender...........................................................7
         (b)      Other Security.................................................................................8
         (c)      Possessory Collateral..........................................................................8
         (d)      Electronic Chattel Paper.......................................................................8
         (e)      Letter-of-Credit Rights........................................................................8
         (f)      Third-Party Collateral.........................................................................9
         (g)      Deposit Account................................................................................9
         (h)      Insurance Proceeds.............................................................................9
6.       PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS THEREIN.................................9
7.       POSSESSION OF COLLATERAL AND RELATED MATTERS...........................................................10
8.       COLLECTIONS............................................................................................10
9.       COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES...........................................12
         (a)      Borrowing Base Reports........................................................................12
         (b)      Monthly Reports...............................................................................12
         (c)      Financial Statements..........................................................................12
         (d)      Annual Projections............................................................................13
         (e)      Explanation of Budgets and Projections........................................................13
         (f)      Invoices and Billing Statements...............................................................13
         (g)      Obligor Financial Statements and Tax Returns..................................................13
         (h)      Other Information.............................................................................13
         (i)      Post-Closing Review...........................................................................13
         (j)      Public Reporting..............................................................................14
10.      TERMINATION; AUTOMATIC RENEWAL; EARLY TERMINATION FEE..................................................14
11.      REPRESENTATIONS AND WARRANTIES.........................................................................15
         (a)      Financial Statements and Other Information....................................................15
         (b)      Locations; Certain Collateral.................................................................15
         (c)      Loans by Borrower.............................................................................15
         (d)      Accounts......................................................................................16
</TABLE>

<PAGE>


                                                 Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
         (e)      Liens.........................................................................................16
         (f)      Organization, Authority and No Conflict.......................................................16
         (g)      Litigation....................................................................................16
         (h)      Compliance with Laws and Maintenance of Permits...............................................16
         (i)      Affiliate Transactions........................................................................17
         (j)      Names and Trade Names.........................................................................17
         (k)      Equipment.....................................................................................17
         (l)      Enforceability................................................................................17
         (m)      Solvency......................................................................................17
         (n)      Indebtedness..................................................................................17
         (o)      Margin Security and Use of Proceeds...........................................................17
         (p)      Parent, Subsidiaries and Affiliates...........................................................17
         (q)      No Defaults...................................................................................18
         (r)      Employee Matters..............................................................................18
         (s)      Intellectual Property.........................................................................18
         (t)      Environmental Matters.........................................................................18
         (u)      ERISA Matters.................................................................................18
         (v)      Eligible Accounts.............................................................................19
         (w)      Reimbursement.................................................................................21
         (x)      Compliance with Healthcare Regulations........................................................21
         (y)      Immigration Matters...........................................................................21
         (z)      Licenses, Permits, etc........................................................................21
         (aa)     Collective Enterprise.........................................................................21
         (bb)     Acquisition...................................................................................22
         (cc)     Certain Financial Information.................................................................22
12.      AFFIRMATIVE COVENANTS..................................................................................22
         (a)      Maintenance of Records........................................................................22
         (b)      Notices.......................................................................................22
         (c)      Compliance with Laws and Maintenance of Permits...............................................24
         (d)      Inspection and Audits.........................................................................24
         (e)      Insurance.....................................................................................25
         (f)      Collateral....................................................................................26
         (g)      Use of Proceeds...............................................................................26
         (h)      Taxes.........................................................................................26
         (i)      Intellectual Property.........................................................................26
         (j)      Staffing Contracts............................................................................27
         (k)      Billing and Collection System.................................................................27
         (l)      Integration of Systems........................................................................27
         (m)      Subordination Agreement.......................................................................27
13.      NEGATIVE COVENANTS.....................................................................................27
         (a)      Indebtedness..................................................................................27
         (b)      Liens.........................................................................................28
         (c)      Mergers, Sales, Acquisitions, Subsidiaries and Other Transactions Outside the Ordinary
                  Course of Business............................................................................28
         (d)      Dividends and Distributions...................................................................29
</TABLE>

<PAGE>

                                                 Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
         (e)      Investments; Loans............................................................................30
         (f)      Fundamental Changes, Line of Business.........................................................30
         (g)      Equipment.....................................................................................30
         (h)      Affiliate Transactions........................................................................30
         (i)      Settling of Accounts..........................................................................30
         (j)      Restricted Payments...........................................................................31
         (k)      Restricted Locations..........................................................................31
14.      FINANCIAL COVENANTS....................................................................................31
         (a)      Tangible Net Worth............................................................................31
         (b)      Senior Debt Service Coverage Ratio............................................................32
         (c)      Minimum EBITDA................................................................................32
         (d)      Acquisition Subsidiary Debt Service Coverage Ratio............................................33
         (e)      Acquisition Subsidiary Debt Leverage Ratio....................................................34
         (f)      Acquisition Subsidiary Term Loan Debt Leverage Ratio..........................................34
         (g)      Capital Expenditure Limitations...............................................................34
         (h)      Operating Lease Obligations...................................................................34
         (i)      Financial Reporting Consolidation.............................................................35
15.      DEFAULT................................................................................................35
         (a)      Payment.......................................................................................35
         (b)      Breach of This Agreement, the Other Agreements and the Term Loan Agreement....................35
         (c)      Breach of Subordination Agreement.............................................................35
         (d)      Breaches of Other Obligations.................................................................35
         (e)      Breach of Representations and Warranties......................................................36
         (f)      Loss of Collateral............................................................................36
         (g)      Levy, Seizure or Attachment...................................................................36
         (h)      Bankruptcy or Similar Proceedings.............................................................36
         (i)      Appointment of Receiver.......................................................................36
         (j)      Judgment......................................................................................36
         (k)      Default or Revocation of Guaranty; Subordination Agreement....................................36
         (l)      Change of Ownership/Management................................................................37
         (m)      Material Adverse Change.......................................................................37
         (n)      Governmental Authorizations...................................................................37
         (o)      Lockbox Account Instructions..................................................................37
         (p)      Failure to Maintain Third-Party Payroll Tax Service Provider..................................37
16.      REMEDIES UPON AN EVENT OF DEFAULT......................................................................37
17.      CONDITIONS PRECEDENT...................................................................................38
18.      JOINT AND SEVERAL LIABILITY............................................................................40
19.      RELEASES; INDEMNITIES..................................................................................43
20.      NOTICE.................................................................................................43
21.      CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.................................................44
22.      MODIFICATION AND BENEFIT OF AGREEMENT..................................................................44
23.      HEADINGS OF SUBDIVISIONS...............................................................................45
24.      POWER OF ATTORNEY......................................................................................45
25.      CONFIDENTIALITY........................................................................................45
</TABLE>

<PAGE>



                                                 Table of Contents

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                             <C>
26.      BROKERAGE FEES.........................................................................................45
27.      PUBLICITY..............................................................................................45
28.      LIMITATION OF ACTIONS..................................................................................46
29.      LIABILITY..............................................................................................46
30.      COUNTERPARTS...........................................................................................46
31.      ELECTRONIC SUBMISSIONS.................................................................................47
32.      WAIVER OF JURY TRIAL; OTHER WAIVERS....................................................................47
33.      AMENDMENT AND RESTATEMENT..............................................................................48
</TABLE>

<PAGE>


ANNEX 1 - DEFINITIONS

EXHIBIT A - BORROWING BASE CERTIFICATE

EXHIBIT B - COMPLIANCE CERTIFICATE

EXHIBIT C - CLOSING CHECKLIST

EXHIBIT D - INFORMATION CERTIFICATE

EXHIBIT E - NOTICE OF BORROWING

SCHEDULE 1 - PERMITTED LIENS

SCHEDULE 11(b) - BUSINESS AND COLLATERAL LOCATIONS

SCHEDULE 11(b) - CERTAIN COLLATERAL

SCHEDULE 11(g) - LITIGATION

SCHEDULE 11(i) - AFFILIATE TRANSACTIONS

SCHEDULE 11(j) - NAMES & TRADE NAMES

SCHEDULE 11(n) - INDEBTEDNESS

SCHEDULE 11(p) - PARENT, SUBSIDIARIES AND AFFILIATES

SCHEDULE 11(q) - DEFAULTS

SCHEDULE 11(t) - ENVIRONMENTAL MATTERS

SCHEDULE 11(z) - LICENSES AND PERMITS

<PAGE>

                AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

         THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (as amended,
modified or supplemented from time to time, this "Agreement") is made this 30th
day of November, 2004 by and between BRIDGE HEALTHCARE FINANCE, LLC ("Lender"),
and Crdentia Corp. ("Crdentia"), Baker Anderson Christie, Inc.("Baker"), Nurses
Network, Inc.("Nurses Network"), New Age Staffing, Inc. ("New Age"), PSR Nurses,
Ltd. ("PSR Ltd."), PSR Nurse Recruiting, Inc. ("PSR Recruiting"), PSR Nurses
Holdings Corp. ("PSR Holding"; and together with Crdentia, Baker, Nurses
Network, New Age, PSR Ltd., and PSR Recruiting, each a "Crdentia Proper
Borrower"), CRDE Corp. ("Acquisition Subsidiary"), Arizona Home Health
Care/Private Duty, Inc. ("AHHC"), Care Pros Staffing, Inc. ("Care Pros; and
together with CRDE and AHHC, each a "New Borrower") each, having its principal
place of business at 14114 Dallas Parkway, Suite 600, Dallas, Texas 75254
(Crdentia Proper Borrowers and New Borrowers are referred to individually and
collectively as "Borrower").

                              W I T N E S S E T H:

         WHEREAS, Crdentia Proper Borrowers and Lender entered into that certain
Loan and Security Agreement - Revolving Loans dated as of June 16, 2004 (the
"Original Loan Agreement");

         WHEREAS, Crdentia has formed Acquisition Subsidiary, a wholly owned
Subsidiary of Crdentia, to facilitate certain Permitted Acquisitions;

         WHEREAS, Crdentia formed AHHC Acquisition Corporation ("AHHC
Acquisition") and CPS Acquisition Corporation ("CPS Acquisition"), each a wholly
owned Subsidiary of Acquisition Subsidiary, for purposes of acquiring certain
Targets;

         WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
dated as of August 31, 2004 by and among Crdentia, Acquisition Subsidiary, AHHC
Acquisition, AHHC, and the former shareholders of AHHC, AHHC Acquisition merged
with and into AHHC with AHHC being the surviving entity;

         WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
dated as of August 31, 2004, by and among Crdentia, Acquisition Subsidiary, CPS
Acquisition, Care Pros and the former shareholders of Care Pros, Care Pros
merged with and into CPS Acquisition with CPS Acquisition being the surviving
entity and immediately upon such merger changed its name to "Care Pros Staffing,
Inc.";

         WHEREAS, Borrower has, as of August 31, 2004, entered into that certain
Loan and Security Agreement - Term Loan with Bridge Opportunity Finance, LLC,
which Term Loan shall be secured by a second priority security interest in the
Collateral;

         WHEREAS, Borrower and Lender desire to amend and restate the Original
Loan Agreement to provide for, among other things, the addition of the New
Borrowers as additional Borrowers hereunder;

                                       1
<PAGE>

         WHEREAS, the Borrowers and Lender desire to amend and restate the
Original Loan Agreement upon the terms and conditions set forth in this
Agreement;

         NOW, THEREFORE, in consideration of any Loan (including any Loan by
renewal or extension) made to Borrower by Lender, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by Borrower, the parties agree as follows:

      1. DEFINITIONS.

            (a) Defined Terms. For the purposes of this Agreement, the following
capitalized words and phrases shall have the meanings set forth in Annex I
attached hereto and made a part hereof.

            (b) Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined herein shall have the meanings customarily
given them in accordance with GAAP. Calculations and determinations of financial
and accounting terms used and not otherwise specifically defined hereunder and
the preparation of financial statements to be furnished to the Lender pursuant
hereto shall be made and prepared, both as to classification of items and as to
amount, in accordance with GAAP as used in the preparation of the financial
statements of the Borrower on the Original Closing Date. If any changes in
accounting principles or practices from those used in the preparation of the
financial statements are hereafter occasioned by the promulgation of rules,
regulations, pronouncements and opinions by or required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or any successor thereto or agencies with similar functions), which
results in a material change in the method of accounting in the financial
statements required to be furnished to the Lender hereunder or in the
calculation of financial covenants, standards or terms contained in this
Agreement, the parties hereto agree to enter into good faith negotiations to
amend such provisions so as equitably to reflect such changes to the end that
the criteria for evaluating the financial condition and performance of the
Borrower will be the same after such changes as they were before such changes;
and, if the parties fail to agree on the amendment of such provisions, the
Borrower will furnish financial statements in accordance with such changes but
shall provide calculations for all financial covenants, perform all financial
covenants and otherwise observe all financial standards and terms in accordance
with applicable accounting principles and practices in effect immediately prior
to such changes.

            (c) Terms Defined in UCC. The terms "Account", "Account Debtor",
"Certificated Security", "Chattel Paper", "Commercial Tort Claim", "Deposit
Account", "Document", "Electronic Chattel Paper", "Equipment", "Financial
Asset", "Fixture", "General Intangible", "Goods", "Health-Care-Insurance
Receivables", "Instrument", "Inventory", "Investment Property",
"Letter-of-Credit Right", "Payment Intangible", "Proceeds", "Security",
"Securities Account", "Security Entitlement", "Software", "Supporting
Obligation", "Tangible Chattel Paper" and "Uncertificated Security" shall have
the respective meanings assigned to such terms in the UCC. All other capitalized
words and phrases used herein and not otherwise specifically defined shall have
the respective meanings assigned to such terms in the UCC, to the extent the
same are used or defined therein.

                                       2
<PAGE>

            (d) Other Definitional Provisions; Construction. Whenever the
context so requires, the neuter gender includes the masculine and feminine, the
single number includes the plural, and vice versa, and in particular the word
"Borrower" shall be so construed. The words "hereof", "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
references to Article, Section, Subsection, Annex, Schedule, Exhibit and like
references are references to this Agreement unless otherwise specified. The word
"including" shall mean "including, without limitation". An Event of Default
shall "continue" or be "continuing" until such Event of Default has been waived
in accordance with Section 32(e) hereof. References in this Agreement to any
party shall include such party's successors and permitted assigns. References to
any "Section" shall be a reference to such Section of this Agreement unless
otherwise stated. To the extent any of the provisions of the Other Agreements
are inconsistent with the terms of this Agreement, the provisions of this
Agreement shall govern. This Agreement and the Other Agreements are the result
of negotiations among and have been reviewed by counsel to the Lender, Borrower
and any other parties thereto, are product of all parties and, accordingly, they
shall not be construed against the Lender.

            (e) References to Agreements, Enactments, Etc. Unless otherwise
expressly provided herein, (i) references to agreements (including this
Agreement) and other contractual instruments shall be deemed to include all
subsequent amendments and other modifications thereto, but only to the extent
such amendments, restatements, supplements and other modifications are not
prohibited by the terms of this Agreement or any Other Agreement, and (ii)
references to any statute or regulation shall be construed as including all
statutory and regulatory provisions amending, replacing, supplementing or
interpreting such statute or regulation.

      2. LOANS.

            (a) Revolving Loans. Subject to the terms and conditions of this
Agreement and the Other Agreements, during the Term, Lender shall, absent a
Default or an Event of Default, make revolving loans and advances (the
"Revolving Loans") in an amount up to the sum of the following sublimits (the
"Revolving Borrowing Base Amount"):

                  (i) Up to eighty five percent (85%), or such lesser percentage
as determined by Lender in its sole discretion exercised in good faith, of
Borrowers' Eligible Accounts (as such Borrowers exist as of the Closing Date);
provided that such advance rate shall be reduced by one (1) percentage point for
each whole or partial percentage point by which Dilution (as determined by
Lender in good faith based on the results of the most recent twelve (12) month
period for which Lender has conducted a field audit of Borrower) exceeds five
percent (5%); plus

                  (ii) Accounts that are unbilled and aged less than seven (7)
days from the date that the applicable Staffing Services were rendered or
delivered not to exceed an aggregate amount of $250,000 at any time, provided
that Lender determines that satisfactory documentation exists to generate valid
invoices for such unbilled Eligible Accounts; minus

                                       3
<PAGE>

                  (iii) such reserves against Eligible Accounts as Lender
elects, in its good faith credit judgment, determined in good faith, to
establish, increase, or decrease from time to time;

      provided that the Revolving Borrowing Base Amount shall in no event exceed
Fifteen Million Dollars ($15,000,000) (the "Maximum Revolving Loan Limit")
except as such amount may be increased or decreased by Lender, in its sole
discretion.

      The aggregate unpaid principal balance of the Revolving Loans shall not at
any time exceed the lesser of the (x) Revolving Borrowing Base Amount and (y)
the Maximum Revolving Loan Limit. If at any time the amount of outstanding
Revolving Loans exceeds either the Revolving Borrowing Base Amount or the
Maximum Revolving Loan Limit, or any portion of the Revolving Loans exceeds any
applicable sublimit within the Revolving Borrowing Base Amount, Borrowers shall
immediately, and without the necessity of demand by Lender, pay to Lender such
amount as may be necessary to eliminate such excess and Lender shall apply such
payment to the Obligations in such order as Lender shall determine in its sole
discretion.

      Subject to the terms and conditions of this Agreement, Revolving Loans
shall be made against the Revolving Borrowing Base Amount. The Revolving
Borrowing Base Amount shall be determined by Lender (including the eligibility
of Accounts) based on the most recent Borrowing Base Certificate delivered to
Lender in accordance with this Agreement and such other information as may be
available to Lender. Without limiting any other rights and remedies of Lender
hereunder or under the other Loan Documents, the Revolving Loans shall be
subject to Lender's continuing right to withhold from the Revolving Borrowing
Base Amount reserves, and to increase and decrease such reserves from time to
time, if and to the extent that in Lender's good faith credit judgment such
reserves are necessary, including to protect Lender's interest in the Collateral
or to protect Lender against possible non-payment of Accounts for any reason by
Account Debtors or possible diminution of the value of any Collateral or
possible non-payment of any of the Obligations or for any taxes or customs
duties or in respect of any state of facts which may constitute an Event of
Default. Lender may, at its option, implement reserves by designating as
ineligible a sufficient amount of Accounts which would otherwise be Eligible
Accounts, so as to reduce the Revolving Borrowing Base Amount by the amount of
the intended reserves. Lender, in its discretion, may further adjust the
Revolving Borrowing Base Amount by applying percentages (known as "liquidity
factors") to Eligible Accounts by payor class based upon Borrower's actual
recent collection history for each such payor class. Such liquidity factors may
be adjusted by Lender from time to time as warranted by Lender's underwriting
practices and procedures and using its discretion.

      Borrower hereby authorizes Lender, in its sole discretion, to charge any
of Borrower's accounts or advance Revolving Loans to make any payments of
principal, interest, fees, costs or expenses required to be made under this
Agreement or the Other Agreements.

      A request for a Revolving Loan shall be made or shall be deemed to be
made, each in the following manner: Borrowing Agent may give Lender same-day
notice, no later than 11:00 a.m. Central time on such day, of its request for a
Revolving Loan by submitting a Notice of Borrowing, in which notice Borrowing
Agent shall specify the amount of the proposed borrowing and the proposed
borrowing date; provided, however, that no such request may be made at a time
when there exists an Event of Default or an event which, with the passage of
time or giving of notice, will become an Event of Default. In the event that
Borrower maintains a controlled disbursement account with Lender, each check
presented for payment against such controlled disbursement account and any other

                                       4
<PAGE>

charge or request for payment against such controlled disbursement account shall
constitute a request for a Revolving Loan. Borrowing Agent's Notice of Borrowing
shall be accompanied with a certificate, on a form designated by Lender and in
substance satisfactory to Lender, certifying the amount of the Borrowing Base
and providing such backup information as Lender shall deem necessary. Lender may
from time to time change the form of such Borrowing Base Certificate and/or
Notice of Borrowing and shall at all times have the right to request a separate
Borrowing Base Certificate from each entity constituting the Borrower. As an
accommodation to Borrower, Lender may permit electronic transmittal of
instructions, authorizations, agreements or reports to Lender by Borrower.
Unless Borrower specifically directs Lender in writing not to accept or act upon
telephonic or electronic communications from Borrower, Lender shall have no
liability to Borrower for any loss or damage suffered by Borrower as a result of
Lender's honoring of any requests, execution of any instructions, authorizations
or agreements or reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Lender by Borrower, and
Lender shall have no duty to verify the origin of any such communication or the
authority of the Person sending it.

      Borrower hereby irrevocably authorizes Lender to disburse the proceeds of
each Revolving Loan requested by Borrowing Agent, or deemed to be requested by
Borrowing Agent, as follows: the proceeds of each Revolving Loan requested under
Section 2(a) shall be disbursed by Lender in lawful money of the United States
of America in immediately available funds, in the case of the initial borrowing,
in accordance with the terms of the written disbursement letter from Borrowing
Agent, and in the case of each subsequent borrowing, by wire transfer or
Automated Clearing House (ACH) transfer to such bank account as may be agreed
upon by Borrowing Agent and Lender from time to time, or elsewhere if pursuant
to a written direction from Borrowing Agent. The Revolving Loans and all other
Obligations shall be repaid on the last day of the Term.

            (b) Notes. The Loans shall, in Lender's sole discretion, be
evidenced by one or more promissory notes in form and substance satisfactory to
Lender. However, if such Loans are not so evidenced, such Loans may be evidenced
solely by entries upon the books and records maintained by Lender.

      3. [LEFT BLANK]

      4. INTEREST, FEES AND CHARGES.

            (a) Interest Rate.

      Each Revolving Loan shall bear interest at the rate of three percent
(3.0%) per annum in excess of the Prime Rate in effect from time to time, which
rate shall not be less than nine and one-half percent (9.5%), all such interest
to be payable on the first Business Day of each month in arrears. Said rate of
interest shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the effective date of each such change
in the Prime Rate. Upon the occurrence of an Event of Default and during the
continuance thereof, each Loan shall bear interest at the rate of four percent
(4%) per annum in excess of the interest rate otherwise payable thereon, which
interest shall be payable on demand. All interest shall be calculated on the
basis of a 360-day year.

                                       5
<PAGE>

            (b) Fees and Charges.

                  (i) Closing Fee: Borrower has paid to Lender a closing fee of
one hundred fifty thousand dollars ($150,000).

                  (ii) Unused Line Fee: Borrower shall pay to Lender an unused
line fee of one-half percent (0.50%) per annum of the difference between the
Maximum Revolving Loan Limit and the average daily balance of the Revolving
Loans for each month, which fee shall be fully earned by Lender and payable
monthly in arrears on the first Business Day of each month. Said fee shall be
calculated on the basis of a 360-day year.

                  (iii) Collateral Monitoring Fee: On the first Business Day of
each calendar month following the Closing Date, Borrower shall pay Lender a
monthly collateral monitoring fee of Four Thousand and No/100 Dollars ($4,000)
with respect to the Revolving Loans (pro rated for the first month, if it is a
partial month), which fee shall be deemed earned at the beginning of each month.

                  (iv) Costs and Expenses: Borrower shall reimburse Lender for
all reasonable costs and expenses, including, without limitation, legal expenses
and reasonable attorneys' fees (whether for internal or outside counsel),
incurred by Lender in connection with the (i) documentation and consummation of
this transaction and any other transactions between Borrower and Lender,
including, without limitation, Uniform Commercial Code and other public record
searches and filings, overnight courier or other express or messenger delivery,
appraisal costs and surveys (ii) collection, protection or enforcement of any
rights in or to the Collateral; (iii) collection of any Obligations; and (iv)
administration and enforcement of any of Lender's rights under this Agreement or
any Other Agreement. Borrower shall also pay all normal service charges with
respect to all accounts maintained by Borrower with Lender and any additional
services requested by Borrower from Lender. All such costs, expenses and charges
shall, if owed to Lender, be reimbursed by Lender and, in such event or in the
event such costs and expenses are owed to Lender, shall constitute Obligations
hereunder, shall be payable by Borrower to Lender on demand and, until paid,
shall bear interest at the highest rate then applicable to Loans hereunder.

                  (v) Capital Adequacy Charge: If Lender shall have determined
that the adoption of any law, rule or regulation regarding capital adequacy, or
any change therein or in the interpretation or application thereof, or
compliance by Lender with any request or directive regarding capital adequacy
(whether or not having the force of law) from any central bank or governmental
authority enacted after the date hereof, does or shall have the effect of
reducing the rate of return on such party's capital as a consequence of its
obligations hereunder to a level below that which Lender could have achieved but
for such adoption, change or compliance (taking into consideration Lender's
policies with respect to capital adequacy) by a material amount, then, from time
to time after submission by Lender to Borrower of a written demand therefor

                                       6
<PAGE>

("Capital Adequacy Demand") together with the certificate described below,
Borrower shall pay to Lender such additional amount or amounts ("Capital
Adequacy Charge") as will compensate Lender for such reduction, such Capital
Adequacy Demand to be made with reasonable promptness following such
determination. A certificate of Lender claiming entitlement to payment as set
forth above shall be deemed presumptively correct in the absence of manifest
error. Such certificate shall set forth the nature of the occurrence giving rise
to such reduction, the amount of the Capital Adequacy Charge to be paid to
Lender, and the method by which such amount was determined. In determining such
amount, Lender may use any reasonable averaging and attribution method, applied
on a non-discriminatory basis.

                  (c) Maximum Interest. It is the intent of the parties that the
rate of interest and other charges to Borrower under this Agreement and the
Other Agreements shall be lawful; therefore, if for any reason the interest or
other charges payable under this Agreement are found by a court of competent
jurisdiction, in a final determination, to exceed the limit which Lender may
lawfully charge Borrower, then the obligation to pay interest and other charges
shall automatically be reduced to such limit and, if any amount in excess of
such limit shall have been paid, then such amount shall be refunded to Borrower.

      5. COLLATERAL.

            (a) Grant of Security Interest to Lender. As security for the
payment of all Loans now or in the future made by Lender to Borrower hereunder
and for the payment or other satisfaction of all other Obligations, Borrower
hereby assigns to Lender and grants to Lender a first priority security interest
(subject only to Liens of BOF and other Permitted Liens) in the following
property of Borrower, whether now or hereafter owned, existing, acquired or
arising and wherever now or hereafter located: (a) all Accounts and all Goods
whose sale, lease or other disposition by Borrower has given rise to Accounts
and have been returned to, or repossessed or stopped in transit by, Borrower;
(b) all Chattel Paper, Instruments, Documents and General Intangibles
(including, without limitation, all Intellectual Property, licenses, software,
franchises, tax refund claims, claims against carriers and shippers, guarantee
claims, contract rights, Payment Intangibles, security interests, security
deposits and rights to indemnification); (c) all Inventory; (d) all Goods (other
than Inventory), including, without limitation, Equipment, vehicles and
Fixtures; (e) all Investment Property; (f) all Deposit Accounts, bank accounts,
deposits and cash; (g) all Letter-of-Credit Rights; (h) Commercial Tort Claims
listed on Schedule 11(b) hereto from time to time; (i) any other property of
Borrower now or hereafter in the possession, custody or control of Lender or any
agent or any parent, affiliate or subsidiary of Lender or any participant with
Lender in the Loans, for any purpose (whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise); and (j) all additions
and accessions to, substitutions for, and replacements, products and Proceeds of
the foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of Borrower's books and
records relating to any of the foregoing and to Borrower's business. The
foregoing notwithstanding, the Collateral shall not be deemed to include (y) any
right, title, interest, claim or demand of Borrower in and to any agreement,
document, license or instrument which relates to the foregoing Collateral to the
extent such agreement, document, license or instrument is not assignable or
capable of being encumbered as a matter of law or under the terms of the
agreement, document or instrument applicable thereto or such grant would result
in a breach of the terms of such agreement, document, license, or instrument
(but, in each case, solely to the extent that any such restriction shall be
enforceable under applicable law) without the consent of the applicable party
thereto, and, in each case, only to the extent that any such term would not be
rendered ineffective pursuant to Section 9-406, 9-407, 9-408 or 9-409 of the
Uniform Commercial Code of any relevant jurisdiction.

                                       7
<PAGE>

            (b) Other Security. Lender, in its sole discretion, without waiving
or releasing any obligation, liability or duty of Borrower under this Agreement
or the Other Agreements or any Event of Default, may at any time or times
hereafter, but shall not be obligated to, pay, acquire or accept an assignment
of any Lien asserted by any Person in, upon or against the Collateral, provided,
that Lender may take such actions with respect to Permitted Liens only after the
occurrence and during the continuance of an Event of Default. All sums paid by
Lender in respect thereof and all costs, fees and expenses including, without
limitation, reasonable attorney fees, all court costs and all other charges
relating thereto incurred by Lender shall constitute Obligations payable by
Borrower to Lender on demand and, until paid, shall bear interest at the highest
rate then applicable to Loans hereunder.

            (c) Possessory Collateral. Immediately upon Borrower's receipt of
any portion of the Collateral evidenced by an agreement, Instrument or Document,
including, without limitation, any Tangible Chattel Paper and any Investment
Property consisting of Certificated Securities (not including, however, any
equity interests of any Borrower pledged by Crdentia to BOF under the Pledge
Agreement), Borrower shall deliver the original thereof to Lender together with
an appropriate endorsement or other specific evidence of assignment thereof to
Lender (in form and substance acceptable to Lender). If an endorsement or
assignment of any such items shall not be made for any reason, Lender is hereby
irrevocably authorized, as Borrower's attorney and agent-in-fact, to endorse or
assign the same on Borrower's behalf.

            (d) Electronic Chattel Paper. To the extent that Borrower obtains or
maintains any Electronic Chattel Paper, Borrower shall create, store and assign
the record or records comprising the Electronic Chattel Paper in such a manner
that (i) a single authoritative copy of the record or records exists which is
unique, identifiable and, except as otherwise provided in clauses (iv), (v) and
(vi) below, unalterable, (ii) the authoritative copy identifies Lender as the
assignee of the record or records, (iii) the authoritative copy is communicated
to and maintained by the Lender or its designated custodian, (iv) copies or
revisions that add or change an identified assignee of the authoritative copy
can only be made with the participation of Lender, (v) each copy of the
authoritative copy and any copy of a copy is readily identifiable as a copy that
is not the authoritative copy and (vi) any revision of the authoritative copy is
readily identifiable as an authorized or unauthorized revision.

            (e) Letter-of-Credit Rights. If Borrower at any time is a
beneficiary under a letter of credit now or hereafter issued in favor of
Borrower, at the request and option of Lender, Borrower shall, pursuant to an
agreement in form and substance satisfactory to Lender, either (i) arrange for
the issuer and any confirmer of such letter of credit to consent to an
assignment to Lender of the proceeds of any drawing under the letter of credit,
or (ii) arrange for Lender to become the transferee beneficiary of the letter of
credit, with Lender agreeing, in each case, that the proceeds of any drawing
under the letter to credit are to be applied as provided in this Agreement.

                                       8
<PAGE>

            (f) Third-Party Collateral. If Borrower shall at any time hold or
acquire an interest in Collateral in the possession of a third party (other than
Certificated Securities and Goods covered by a Document), Borrower shall
promptly obtain an acknowledgment from the third party that it is holding such
Collateral for the benefit of the Lender.

            (g) Deposit Account. Borrower shall deliver to Lender, with respect
to each Deposit Account maintained by Borrower now or hereafter (other than with
Lender) and that is permitted hereby, upon obtaining an interest in such Deposit
Account, a deposit account control agreement in form and substance satisfactory
to Lender and BOF, executed by the financial institution at which such account
is maintained, and shall take such other actions as Lender and BOF may jointly
request to ensure that Lender's security interest in such account is perfected
by control as such term is used in UCC Section 9-104.

            (h) Insurance Proceeds. The net proceeds of any casualty insurance
insuring the Collateral, after deducting all costs and expenses (including
attorneys' fees) of collection, shall be applied, at Lender's option, either
toward replacing or restoring the Collateral, in a manner and on terms
satisfactory to Lender, or, at Lender's discretion after the occurrence and
during the continuance of an Event of Default, towards payment of the
Obligations. Any proceeds applied to the payment of Obligations shall be applied
in such manner as Lender may elect. In no event shall such application relieve
Borrower from payment in full of all installments of principal and interest
which thereafter become due in the order of maturity thereof.

      6. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN.

      Borrower shall, at Lender's request, at any time and from time to time,
authenticate, execute and deliver to Lender such financing statements, documents
and other agreements and instruments (and pay the cost of filing or recording
the same in all public offices deemed necessary or desirable by Lender) and do
such other acts and things or cause third parties to do such other acts and
things as Lender may deem necessary or desirable in its sole discretion in order
to establish and maintain a valid, attached and perfected security interest in
the Collateral in favor of Lender (free and clear of all other Liens, except
Permitted Liens) to secure payment of the Obligations, and in order to
facilitate the collection of the Collateral. Borrower irrevocably hereby makes,
constitutes and appoints Lender (and all Persons designated by Lender for that
purpose) as Borrower's true and lawful attorney and agent-in-fact to execute and
file such financing statements, documents and other agreements and instruments
and do such other acts and things as may be necessary to preserve and perfect
Lender's security interest in the Collateral. Borrower further agrees that a
carbon, photographic, photostatic or other reproduction of this Agreement or of
a financing statement shall be sufficient as a financing statement. Borrower
further ratifies and confirms the prior filing by Lender of any and all
financing statements which identify the Borrower as debtor, Lender as secured
party and any or all Collateral as collateral.

                                       9
<PAGE>

      7. POSSESSION OF COLLATERAL AND RELATED MATTERS.

      Until otherwise notified by Lender following the occurrence of an Event of
Default, Borrower shall have the right, except as otherwise provided in this
Agreement, in the ordinary course of Borrower's business, to (a) sell, lease or
furnish under contracts of service any of Borrower's assets in the ordinary
course of business; (b) use and consume any raw materials, work in process or
other materials normally held by Borrower for such purpose; (c) dispose of
obsolete or unuseful Equipment or other property or assets so long as all of the
proceeds thereof are used for the replacement or substitution of such Equipment
or other property or assets, or, if not so replaced or substituted within ninety
(90) days, paid to Lender for application to the Obligations (except for such
proceeds which are required to be delivered to the holder of a Permitted Lien
which is prior in right of payment); provided, however, that a sale in the
ordinary course of business shall not include any transfer or sale in
satisfaction, partial or complete, of a debt owed by Borrower, other than a debt
secured by a Permitted Lien; (d) transfer assets to any other Borrower or
Subsidiary which is a Borrower; (e) lease or sublease property; (f) sell or
dispose of assets for its fair market value in an amount not to exceed $50,000
in the aggregate in any fiscal year; and (g) sell or dispose of other assets
with a book value of less than $50,000 in any fiscal year.

      8. COLLECTIONS.

            (a) Borrower shall establish and maintain a lockbox (the "Lockbox")
with a United States depository institution designated from time to time by
Lender (the "Lockbox Bank"), subject to the provisions of this Agreement for
receivables from Account Debtors. Borrower shall execute with the Lockbox Bank a
lockbox agreement for the Account Debtor Collection Lockbox Account in form and
substance acceptable to Lender, and such other agreements related to such
lockbox agreement as Lender may require. Borrower shall ensure that all
collections of Accounts on which Account Debtors are obligated are paid directly
into the Lockbox for deposit into the Account Debtor Collection Lockbox Account,
and that all funds deposited into the Account Debtor Collection Lockbox Account
are immediately transferred into a depository account owned by the Lender (the
"Concentration Account").

            (b) Notwithstanding anything in any lockbox agreement to the
contrary, Borrower agrees that it shall be liable for any fees and charges in
effect from time to time and charged by the Lockbox Bank in connection with the
Lockboxes and Lockbox Accounts, and that Lender shall have no liability
therefor. Borrower further acknowledges and agrees that, to the extent such fees
and charges are not paid by Borrower directly but are satisfied using
collections in the Lockbox Accounts, such fees and charges shall be deemed to be
Revolving Credit Loans made by Lender hereunder and, to the extent that the
payment of such fees or charges by Borrower as provided herein results in any
overadvance under this Agreement, Borrower agrees to immediately (upon notice)
repay to Lender the amount of such overadvance. Borrower agrees to indemnify and
hold Lender harmless from any and all liabilities, claims, losses and demands
whatsoever, including reasonable attorneys' fees and expenses, arising from or
relating to actions of Lender or the Lockbox Bank pursuant to this Section 2.3
or any lockbox agreement, other than if such liability, claim, loss or demand
arises due to the gross negligence or willful misconduct of Lender or the
Lockbox Bank, as determined by a court of competent jurisdiction.

                                       10
<PAGE>

            (c) Borrower agrees that all payments made to the Concentration
Account or otherwise received by Lender, whether in respect of the Accounts or
as Proceeds of other Collateral or otherwise (except for proceeds of Collateral
which are required to be delivered to the holder of a Permitted Lien which is
prior in right of payment and insurance proceeds applied pursuant to Section
5(h)), will be applied on account of the Obligations in accordance with the
terms of this Agreement.

            (d) Subject to all applicable law, Lender may, at any time and from
time to time after the occurrence and during the continuance of an Event of
Default, whether before or after notification to any Account Debtor and whether
before or after the maturity of any of the Obligations, (i) enforce collection
of any of Borrower's Accounts or other amounts owed to Borrower by suit or
otherwise; (ii) exercise all of Borrower's rights and remedies with respect to
proceedings brought to collect any Accounts or other amounts owed to Borrower;
(iii) surrender, release or exchange all or any part of any Accounts or other
amounts owed to Borrower, or compromise or extend or renew for any period
(whether or not longer than the original period) any Indebtedness thereunder;
(iv) sell or assign any Account of Borrower or other amount owed to Borrower
upon such terms, for such amount and at such time or times as Lender deems
advisable; (v) prepare, file and sign Borrower's name on any proof of claim in
bankruptcy or other similar document against any Account Debtor or other Person
obligated to Borrower; and (vi) do all other acts and things which are
necessary, in Lender's sole discretion, to fulfill Borrower's obligations under
this Agreement and the Other Agreements and to allow Lender to collect the
Accounts or other amounts owed to Borrower. In addition to any other provision
hereof, Lender may at any time, after the occurrence and during the continuance
of an Event of Default, at Borrower's expense, notify Account Debtors to make
payment directly to Lender of any amounts due or to become due thereunder (and
once such notice has been given to an Account Debtor, Borrower shall not give
any contrary instructions to such Account Debtor during the continuance of an
Event of Default without Lender's prior written consent).

            (e) For purposes of calculating interest and fees, Lender shall,
within three (3) Business Days after receipt by Lender at its office in Chicago,
Illinois of (i) checks and (ii) cash or other immediately available funds from
collections of items of payment and Proceeds of any Collateral, apply the whole
or any part of such collections or Proceeds against the Obligations in such
order as Lender shall determine in its sole discretion. For purposes of
determining the amount of Loans available for borrowing purposes, checks and
cash or other immediately available funds from collections of items of payment
and Proceeds of any Collateral shall be applied in whole or in part against the
Obligations, in such order as Lender shall determine in its sole discretion, on
the day of receipt, subject to actual collection.

            (f) On a monthly basis, Lender shall deliver to Borrower an account
statement showing all Loans, charges and payments which shall be deemed final,
binding and conclusive upon Borrower unless Borrower notifies Lender in writing,
specifying any error therein, within thirty (30) days of the date such account
statement is sent to Borrower, and any such notice shall only constitute an
objection to the items specifically identified.

      9. COLLATERAL, AVAILABILITY AND FINANCIAL REPORTS AND SCHEDULES.

                                       11
<PAGE>

            (a) Borrowing Base Reports. Borrower shall deliver to Lender an
executed Borrowing Base Certificate in the form of Exhibit A at least once each
week, and otherwise, from time to time, to the extent requested by Lender, and,
in any event, in connection with any Revolving Loan request of Borrower, which
Borrowing Base Certificate shall be accompanied by copies of Borrower's sales
journal, cash receipts journal and credit memo journal, which journal shall
report contractual allowances made by Borrower, for the relevant period. Such
Borrowing Base Certificate shall reflect the activity of Borrower with respect
to Accounts for the immediately preceding week, and shall be in a form and with
such specificity as is satisfactory to Lender and shall contain such additional
information concerning Accounts and other Collateral as may be requested by
Lender, including, without limitation, but only if specifically requested by
Lender, copies of all invoices prepared in connection with such Accounts, and
evidence of the payment of state and federal payroll taxes.

            (b) Monthly Reports. Borrower shall deliver to Lender, in addition
to any other reports, as soon as practicable and in any event: (i) within
fifteen (15) days after the end of each month, (A) a detailed trial balance of
Borrower's Accounts aged by Account Debtor or payor per date of invoice, in form
and substance reasonably satisfactory to Lender, including, without limitation,
the names and addresses of all Account Debtors of Borrower, and (B) a summary
and detail of accounts payable (such Accounts and accounts payable divided into
such time intervals as Lender may require in its sole discretion), including a
listing of any held checks; and (ii) within fifteen (15) days after the end of
each month, (x) completed Account Debtor reconciliation form, in a format
provided by Lender, and (y) a text file containing a list of Borrower's Accounts
aged by payor per date of service, including, without limitation, the names and
addresses of all Account Debtors of Borrower.

            (c) Financial Statements. Borrower shall deliver to Lender the
following financial information, all of which shall be prepared in accordance
with GAAP consistently applied (except where such calculations otherwise
require), and shall be accompanied by a certificate in the form of Exhibit B
hereto, which compliance certificate shall include a calculation of all
financial covenants contained in this Agreement, including the financial tests
set forth in Section 13(j)(iii): (i) no later than fifteen (15) days after each
calendar month, copies of internally prepared financial statements, including,
without limitation, balance sheets and statements of income, retained earnings
and cash flow of the Crdentia Proper Borrowers on a Crdentia Proper Consolidated
Basis and of the Acquisition Subsidiary and its Subsidiaries on an Acquisition
Subsidiary Consolidated Basis, certified by the Chief Financial Officer of
Borrower; (ii) no later than forty-five (45) days after the end of each of the
first three quarters of Borrower's Fiscal Year, copies of internally prepared
financial statements, including, without limitation, balance sheets, statements
of income, retained earnings, cash flows and reconciliation of surplus for the
Crdentia Proper Borrowers on a Crdentia Proper Consolidated Basis and of the
Acquisition Subsidiary and its Subsidiaries on an Acquisition Subsidiary
Consolidated Basis, certified by the Chief Financial Officer of Borrower; and
(iii) no later than ninety (90) days after the end of each of Borrower's Fiscal
Years, audited annual financial statements of the Borrowers on a consolidated
basis, and unaudited financial statements of the Crdentia Proper Borrowers on a
Crdentia Proper Consolidated Basis and of the Acquisition Subsidiary and its
Subsidiaries on an Acquisition Subsidiary Consolidated Basis, with an
unqualified opinion as to the audited financial statements by independent
certified public accountants selected by Borrower and reasonably satisfactory to
Lender. The report of such accounts shall be accompanied by copies of any
management letters sent to the Borrower by such accountants.

                                       12
<PAGE>

            (d) Annual Projections. As soon as practicable and in any event not
less than thirty (30) days prior to the beginning of each Fiscal Year, Borrower
shall deliver to Lender projected balance sheets, statements of income and cash
flow for each of the Crdentia Proper Borrowers and the Acquisition Subsidiary on
a separate basis, for each of the twelve (12) months during such Fiscal Year,
which shall include the assumptions used therein, together with appropriate
supporting details as reasonably requested by Lender.

            (e) Explanation of Budgets and Projections. In conjunction with the
delivery of the annual presentation of projections or budgets referred to in
Subsection 9(d) above, Borrower shall deliver a letter signed by the President
or a Vice President of Borrower and by the Treasurer or Chief Financial Officer
of Borrower, describing, comparing and analyzing, in detail, all changes and
developments between the anticipated financial results included in such
projections or budgets and the historical financial statements of Borrower.

            (f) Invoices and Billing Statements. Promptly following request
therefor by Lender, Borrower shall provide copies of sales journals, cash
receipt journals, and deposit slips, copies of service invoices, customer
statements and credit memoranda issued, remittance advices and reports, evidence
of billing and copies of shipping and delivery documents, each as applicable to
Borrower.

            (g) Obligor Financial Statements and Tax Returns. Borrower shall
cause each Obligor to deliver to Lender such Obligor's annual financial
statement (in form acceptable to Lender) and a copy of such Obligor's federal
income tax return with respect to the corresponding year, in each case on the
date when such tax return is due or, if earlier, on the date when available.

            (h) Other Information. Promptly following request therefor by
Lender, such other business or financial data, reports, appraisals and
projections as Lender may reasonably request. This may include, without
limitation, a monthly certificate from the President and Chief Financial Officer
of Borrower showing Borrower's compliance with each of the financial covenants
set forth in this Agreement, and stating whether any Event of Default has
occurred or event that, with giving of notice or the passage of time, or both,
would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default.

            (i) Post-Closing Review. Within thirty (30) days after any Permitted
Acquisition, Lender shall conduct (or a firm, consultant, advisor or other third
party hired by the Lender), at Borrower's cost, a post-closing audit and review,
which post-closing review shall include (whether conducted after the Closing
Date or after a Permitted Acquisition), without limitation, (i) a review of the
books, records and accounting systems of Borrower, (ii) a review and final
verification of all add-backs used in determining the final pro forma financial
statements of Borrower, and (iii) a review of healthcare regulatory compliance
matters ("Post-Closing Review").

                                       13
<PAGE>

            (j) Public Reporting. Promptly upon the filing thereof, each
Borrower shall deliver to Lender copies of all registration statements and
annual, quarterly, monthly or other regular reports which such Borrower or any
of its Subsidiaries files with the Securities and Exchange Commission, as well
as promptly providing to Lender copies of any reports and proxy statements
delivered to its shareholders.

      10. TERMINATION; AUTOMATIC RENEWAL; EARLY TERMINATION FEE.

            (a) This Agreement shall be in effect for a period of three (3)
years from the date of the Original Loan Agreement until June 16, 2007 (the
"Term"), unless earlier terminated by the terms of this Agreement.

            (b) If this Agreement expires, then (i) Lender shall not make any
additional Loans on or after the date identified as the date on which the
Obligations are to be repaid; and (ii) this Agreement shall terminate on the
date thereafter that the Obligations are paid in full. At such time as Borrower
has repaid all of the Obligations and this Agreement has terminated, Borrower
shall deliver to Lender an indemnification of Lender, in form and substance
satisfactory to Lender, for checks which Lender has credited to Borrower's
account, but which subsequently are dishonored for any reason or for automatic
clearinghouse or wire transfers not yet posted to Borrower's account.

            (c) Borrower may terminate this Agreement at any time but only upon
sixty (60) days prior written notice and prepayment of all Obligations.

            (d) Any prepayment and termination of the Revolving Loan by Borrower
shall also be accompanied by a prepayment fee, equal to the Make Whole Amount.
The following definitions shall apply:

                  (i) "Make Whole Amount" means the amount determined by
discounting the Remaining Payment Amount to the date of the prepayment of the
Revolving Loan, at a discount factor equal to the Loan Yield.

                  (ii) "Remaining Payment Amount" means the sum of amount of the
average outstanding balance of the Revolving Loans during the period from the
date of the initial Loan advance hereunder through the date of prepayment.

                  (iii) "Loan Yield" means the percentage yield earned by Lender
during the period from the initial Loan advance hereunder through the date of
prepayment.

            (e) Notwithstanding the foregoing, Borrower may prepay all of the
Obligations without payment of a prepayment fee, upon written notice to Lender,
if, (i) on or before the first anniversary of the Original Closing Date (which
notice must be given within forty-five (45) days after such anniversary date),
Lender has not amended this Agreement such that the effective annual rate of
interest ("all-in"; taking into account Loan-related fees paid to Lender)
together with the Collateral monitoring fee and unused line fee with respect to

                                       14
<PAGE>

Revolving Loans, is reduced to a rate equal to the greater of (x) the Prime Rate
(subject to fluctuations) plus three percent (3%) and (y) nine and one-half
percent (9.5%), or (ii) at any time during the Term, and so long as no Default
or Event of Default has occurred, (A) Lender reduces the advance rate for
Eligible Accounts (as set forth in Section 2(a)(i) hereto) to an advance rate of
less than eighty-five percent (85%) for a period in excess of 30 days, or (B)
Lender reduces the Maximum Revolving Loan Limit to an amount less than
$15,000,000 for a period in excess of 30 days, or (C) BOF fails to fund a Term
Loan within 12 months of the Original Closing Date (clauses (i) and (ii) above,
collectively, the "Prepayment Fee Exceptions").

      11. REPRESENTATIONS AND WARRANTIES.

      Borrower hereby represents and warrants to Lender, which representations
and warranties (whether appearing in this Section 11 or elsewhere) shall be true
at the time of the Original Closing Date, shall remain true until the repayment
in full and satisfaction of all the Obligations and termination of this
Agreement, and shall be remade by Borrower at the time each Loan is made
pursuant to this Agreement, provided, that representations and warranties made
as of a particular date shall be true and correct as of such date.

            (a) Financial Statements and Other Information. The financial
statements and other information delivered or to be delivered by Crdentia to
Lender at or prior to the date of this Agreement fairly present in all material
respects the financial condition of Borrowers, and there has been no material
adverse change in the financial condition, the operations or any other status of
Borrowers, taken as a whole, since the date of the financial statements
delivered to Lender most recently prior to the date of this Agreement. All
written information now or heretofore furnished by Borrower to Lender is true
and correct in all material respects as of the date with respect to which such
information was furnished, other than budgets and projections, which represent
Borrowers' good faith estimate of the matters contained therein.

            (b) Locations; Certain Collateral. The office where Borrower keeps
its books, records and accounts (or copies thereof) concerning the Collateral,
Borrower's principal place of business and all of Borrower's other places of
business, locations of Collateral and post office boxes and locations of bank
accounts are as set forth in Schedule 11(b) and at other locations within the
continental United States of which Lender has been advised by Borrower in
accordance with Subsection 12(b)(i). The Collateral, including, without
limitation, the Equipment (except any part thereof which Borrower shall have
advised Lender in writing consists of Collateral normally used in more than one
state) is kept, or, in the case of vehicles, based, only at the addresses set
forth on Schedule 11(b), and at other locations within the continental United
States of which Lender has been advised by Borrower in writing in accordance
with Subsection 12(b)(i) hereof. Schedule 11(b) hereto contains a complete
listing of all of the following assets of Borrower as of the Original Closing
Date (a) Intellectual Property which is subject to registration statutes and
licenses of Intellectual Property to which Borrower is a party (whether as
licensor or licensee), (b) Instruments (other than Instruments deposited for
collection in the ordinary course of business), (c) Deposit Accounts, (d)
Investment Property, (e) Letter-of-Credit Rights, (f) Chattel Paper, (g)
Documents, (h) Commercial Tort Claims, (i) Collateral which is subject to
certificate of title statutes, and (j) tangible Collateral located with any
bailee, warehousemen or other third parties.

            (c) Loans by Borrower. Borrower has not made any loans or advances
to any Affiliate or other Person except for advances authorized hereunder to
employees, officers and directors of Borrower for travel and other expenses
arising in the ordinary course of Borrower's business.

                                       15
<PAGE>

            (d) Accounts. Each Account which Borrower shall, expressly or by
implication, request Lender to classify as an Eligible Account shall, as of the
time such request is made, conform in all respects to the requirements of such
classification as set forth in the definition of "Eligible Account" as set forth
herein and as otherwise established by Lender from time to time.

            (e) Liens. Borrower is the lawful owner of all Collateral now
purportedly owned or hereafter purportedly acquired by Borrower, free from all
Liens, other than the Permitted Liens.

            (f) Organization, Authority and No Conflict. Borrower is a
corporation or limited partnership, duly organized, validly existing and in good
standing in the State of its organization, its state organizational
identification number is as set forth on the Information Certificate and
Borrower is duly qualified and in good standing in all states where the nature
and extent of the business transacted by it or the ownership of its assets makes
such qualification necessary or, if Borrower is not so qualified, Borrower may
cure any such failure without losing any of its rights, incurring any Liens or
material penalties, or otherwise affecting Lender's rights. Borrower has the
right and power and is duly authorized and empowered to enter into, execute and
deliver this Agreement and the Other Agreements and perform its obligations
hereunder and thereunder. Borrower's execution, delivery and performance of this
Agreement and the Other Agreements do not conflict with the provisions of the
organizational documents of Borrower, any statute, regulation, ordinance or rule
of law, or any agreement, contract or other document which may now or hereafter
be binding on Borrower, except for conflicts with agreements, contracts or other
documents which would not have a Material Adverse Effect on Borrower, and
Borrower's execution, delivery and performance of this Agreement and the Other
Agreements shall not result in the imposition of any Lien upon any of Borrower's
property (other than Permitted Liens) under any existing indenture, mortgage,
deed of trust, loan or credit agreement or other agreement or instrument by
which Borrower or any of its property may be bound or affected.

            (g) Litigation. Except as disclosed to Lender on Schedule 11(g)
hereto, as of the Original Closing Date there are no actions or proceedings
which are pending or, to the best of Borrower's knowledge, threatened in writing
against Borrower, which are, reasonably likely to have a Material Adverse Effect
on Borrower.

            (h) Compliance with Laws and Maintenance of Permits. Borrower has
obtained all governmental consents, franchises, certificates, licenses,
authorizations, approvals and permits, the lack of which would have a Material
Adverse Effect on Borrower. Borrower is in compliance in all material respects
with all applicable federal, state, local and foreign statutes, orders,
regulations, rules and ordinances (including, without limitation, Environmental
Laws and statutes, orders, regulations, rules and ordinances relating to taxes,
employer and employee contributions and similar items, securities, ERISA or
employee health and safety) the failure to comply with which would have a
Material Adverse Effect on Borrower.

                                       16
<PAGE>

            (i) Affiliate Transactions. Except as set forth on Schedule 11(i)
hereto or as permitted pursuant to Subsection 11(c) and Subsection 13(h) hereof,
Borrower is not conducting, permitting or suffering to be conducted,
transactions with any Affiliate other than transactions with Affiliates for the
purchase or sale of Inventory or services in the ordinary course of business
pursuant to terms that are no less favorable to Borrower than the terms upon
which such transactions would have been made had they been made to or with a
Person that is not an Affiliate.

            (j) Names and Trade Names. Borrower's name, for the past five years,
has always been as set forth on the first page of this Agreement and Borrower
uses no trade names, assumed names, fictitious names or division names in the
operation of its business, except as set forth on Schedule 11(j) hereto.

            (k) Equipment. Except for Permitted Liens, Borrower has good and
indefeasible and merchantable title to and ownership of all Equipment. No
Equipment is a Fixture to real estate unless such real estate is owned by
Borrower and is subject to a mortgage in favor of Lender or, if such real estate
is leased, is subject to a landlord's agreement in favor of Lender on terms
acceptable to Lender, or an accession to other personal property unless such
personal property is subject to a first priority Lien in favor of Lender.

            (l) Enforceability. This Agreement and the Other Agreements to which
Borrower is a party are the legal, valid and binding obligations of Borrower and
are enforceable against Borrower in accordance with their respective terms.

            (m) Solvency. Borrowers on a consolidated basis are, after giving
effect to the transactions contemplated hereby, solvent, able to pay their debts
as they become due, have capital sufficient to carry on their business, now own
property having a value both at fair valuation and at present fair saleable
value greater than the amount required to pay their debts, and will not be
rendered insolvent by the execution and delivery of this Agreement or any of the
Other Agreements or by completion of the transactions contemplated hereunder or
thereunder.

            (n) Indebtedness. Except as set forth on Schedule 11(n) hereto,
Borrower is not obligated (directly or indirectly) for any Indebtedness other
than the Loans and Indebtedness to BOF, and Schedule 11(n) hereto describes all
Indebtedness of the Borrower existing as of the Original Closing Date,
including, without limitation, any Indebtedness permitted under Section 13(a).

            (o) Margin Security and Use of Proceeds. Borrower does not own any
margin securities, and none of the proceeds of the Loans hereunder shall be used
for the purpose of purchasing or carrying any margin securities or for the
purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase any margin securities or for any other purpose not permitted by
Regulation U of the Board of Governors of the Federal Reserve System as in
effect from time to time.

            (p) Parent, Subsidiaries and Affiliates. Except as set forth on
Schedule 11(p) hereto or as otherwise permitted hereunder, including under
Section 13(c) hereof, Borrower has no Parents, Subsidiaries or other Affiliates,
nor is Borrower engaged in any joint venture or partnership with any other
Person.

                                       17
<PAGE>

            (q) No Defaults. Except as set forth on Schedule 11(q) hereto,
Borrower is not in default under any material contract, lease or commitment to
which it is a party or by which it is bound, nor does Borrower know of any
dispute regarding any contract, lease or commitment which would have, in either
case, a Material Adverse Effect on Borrower.

            (r) Employee Matters. As of the Original Closing Date, there are no
controversies pending or threatened between Borrower and any of its employees,
agents or independent contractors, other than employee grievances arising in the
ordinary course of business which would not, in the aggregate, have a Material
Adverse Effect on Borrower, and Borrower is in compliance with all federal and
state laws respecting employment and employment terms, conditions and practices
except for such noncompliance which would not have a Material Adverse Effect on
Borrower.

            (s) Intellectual Property. Borrower possesses adequate licenses,
patents, patent applications, copyrights, service marks, trademarks, trademark
applications, tradestyles and trade names to continue to conduct its business as
heretofore conducted by it except to the extent that the failure to possess such
items would not have a Material Adverse Effect on Borrower.

            (t) Environmental Matters. Except as set forth on Schedule 11(t)
hereto, Borrower has not generated, used, stored, treated, transported,
manufactured, handled, produced or disposed of any Hazardous Materials, on or
off its premises (whether or not owned by it) in any manner which at any time
violates in any material respect any Environmental Law, or any license, permit,
certificate, approval or similar authorization thereunder, and the operations of
the Borrower comply in all material respects with all Environmental Laws and all
licenses, permits, certificates, approvals and similar authorizations
thereunder. There has been no investigation, proceeding, complaint, order,
directive, claim, citation or notice by any governmental authority or any other
Person, nor is any pending or, to the best of the Borrower's knowledge,
threatened with respect to any non-compliance with or violation of the
requirements of any Environmental Law by the Borrower or the release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter which would have a Material Adverse Effect on Borrower or its business,
operations or assets or any properties at which the Borrower has transported,
stored or disposed of any Hazardous Materials. Borrower has no material
liability (contingent or otherwise) in connection with a release, spill or
discharge, threatened or actual, of any Hazardous Materials or the generation,
use, storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.

            (u) ERISA Matters. Borrower has paid and discharged all obligations
and liabilities arising under ERISA of a character which, if unpaid or
unperformed, might result in the imposition of a Lien against any of its
properties or assets.

                                       18
<PAGE>

            (v) Eligible Accounts. With respect to each Account, as of the date
such Account is created and included as an Eligible Account:

                  (i) all documents and agreements relating to the Account
requested by Lender have been delivered to Lender with respect to such Account
and such documents are true and correct in all material respects;

                  (ii) the Account is genuine and in all respects what it
purports to be and is not evidenced by a judgment;

                  (iii) the Account is for a liquidated amount maturing as
stated in a duplicate claim or invoice covering such sale or rendition of
Staffing Services;

                  (iv) the Account is not subject to any offset, Lien (other
than a Lien of Lender or a Permitted Lien), recoupment, deduction, defense,
dispute, counterclaim or any other adverse condition or adjustment of any kind
(in each case other that any such item that is taken into account in determining
the net amount of such Account) that is known to Borrower as existing or
asserted, and each such Account is absolutely owing to Borrower and is not
contingent in any respect or for any reason;

                  (v) there are no facts, events or occurrences which in any way
impair the validity or enforceability of any Accounts or tend to reduce the
amount payable thereunder from the face amount of the claim or invoice and
statements delivered to Lender with respect thereto other than adjustments made
by Borrower in the ordinary course of business;

                  (vi) to the knowledge of the Borrower, the Account Debtor
under the Account had the capacity to contract at the time any contract or other
document giving rise to the Account was executed;

                  (vii) with the exceptions of Accounts described in Section
2(a)(ii), the Account has been billed and forwarded to the Account Debtor for
payment in accordance with applicable laws and compliance and conformance in all
material respects with any and requisite procedures, requirements and
regulations governing payment by such Account Debtor with respect to such
Account;

                  (viii) Borrower has obtained and currently has all licenses,
permits and authorizations that are necessary in the generation of such
Accounts;

                  (ix) Lender has a perfected, first-priority security interest
in such Account to secure the Obligations;

                  (x) the aging of such Eligible Account, as reflected in the
information submitted to Lender, reflects the age of such Eligible Account from
the date of service and not from the date of billing or any re-billing of the
Eligible Account;

                  (xi) Borrower has not made, and will not make without
concurrent written notice provided to Lender, any agreement with any Account
Debtor for any extension of the time for payment of the Account, any compromise
or settlement for less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except a discount or
allowance for prompt or early payment allowed by Borrower in the ordinary course
of its business consistent with its historical practices and as disclosed to
Lender in writing;

                                       19
<PAGE>

                  (xii) all information relating to such Account that has been
delivered to Lender is true and correct in all material respects, such that with
respect to each such Account that has been invoiced, Borrower has delivered or
is delivering to the Account Debtor all requested supporting claim documents and
all information set forth in the invoice and supporting claim documents is true,
complete and correct in all material respects;

                  (xiii) such Account is (i) payable in the amount identified by
Borrower; or, (ii) to the knowledge of Borrower the legally enforceable
obligation of such Account Debtor, and (iii) an account receivable or general
intangible within the meaning of the UCC of the state in which Borrower is
"located" (within the meaning of such term in the UCC);

                  (xiv) no such Account (i) after giving effect to the
provisions of the UCC, requires the approval of any third person for such
Account to be assigned to Lender hereunder, or (ii) is past, or within 120 days
of, the statutory limit for collection applicable to the Account Debtor;

                  (xv) Borrower does not have any guaranty of, letter of credit
support for, or collateral security for, such Account, other than any such
guaranty, letter of credit or collateral security to which Lender has a Lien;

                  (xvi) the fees and charges charged for the services
constituting the basis for such Account were when rendered and are currently
consistent with (i) the usual, customary and reasonable fees charged by Borrower
or (ii) pursuant to negotiated fee contracts, or imposed fee schedules, with or
by the applicable Account Debtors;

                  (xvii) if requested by Lender, a copy of each related contract
and provider agreement to which Borrower is a party has been delivered to Lender
unless Borrower shall have, prior to the related funding date, certified to
Lender that such delivery is prohibited by the terms of the contract or by law,
and the circumstances of such prohibition; and (xviii) such Account was (or if
unbilled, will be (nothing herein implying any obligation of Lender to make
advances in respect of unbilled Accounts other than as provided in Section
2(a)(ii))) in any event billed no later than thirty (30) days after the date the
services or goods giving rise to such Account were rendered or provided, as
applicable, and each bill (other than bills delivered prior to the date that the
lockbox agreements are in effect), contains an express direction requiring the
Account Debtor to remit payments to the applicable lockbox linked to the
applicable Account Debtor Collection Lockbox Account.

                                       20
<PAGE>

      If a breach of any of the representations or warranties contained herein
relating to an Account may, in the reasonable credit judgment of Lender have a
Material Adverse Effect upon the validity, legality or collectibility of such
Account, then such Account shall no longer be deemed an "Eligible Account" as
defined in Section 1(a) hereof.

            (w) Reimbursement. Borrower has provided to Lender copies of all
service contracts with Account Debtors, to the extent required by the Lender.
Borrower is in compliance in all material respects with such contracts and is
entitled to reimbursement under such contracts.

            (x) Compliance with Healthcare Regulations.

                  (i) Borrower is not subject to compliance with any Healthcare
Regulations, including without limitation, the Federal Anti-Kickback Statute (42
U.S.C. ss. 1320a-7b), the False Claims Act (31 U.S.C. ss.ss. 3729 et seq.), the
Health Insurance Portability and Accountability Act of 1996 (Pub. L. No.
104-191, 110 Stat. 1936 (1996)) and the federal physician self-referral laws (42
U.S.C. ss. 1395nn);

                  (ii) Borrower has obtained all necessary licenses and
accreditations to operate its business as now conducted, and currently is in
compliance with all statutory and regulatory requirements applicable to it, the
failure of which would have a Material Adverse Effect upon Borrower; and

                  (iii) All persons providing professional health care services
for or on behalf of Borrower (either as an employee or independent contractor)
are appropriately licensed in every jurisdiction in which they hold themselves
out as professional health care providers.

            (y) Immigration Matters. Borrower has complied with applicable
United States immigration law requirements, including without limitation the
Illegal Immigration Reform and Immigrant Responsibility Act of 1996 (Pub. L. No.
104-193), as such laws apply to Borrower's recruitment of international
temporary professional health care service providers.

            (z) Licenses, Permits, etc. Borrower has all necessary federal,
state and local licenses, permits, registrations, certifications and other
approvals required in order to conduct any healthcare activity in which it is
currently engaged; the failure of Borrower to have such licenses, permits,
registrations, certifications and other approvals would have a Material Adverse
Effect on the Borrower and any Person that provides any healthcare services for
or on behalf of Borrower (either as an employee or independent contractor) holds
the required federal, state and local licenses that are necessary to legally
perform such services and are not suspended or limited in any way; and, except
as set forth on Schedule 11(z) hereto, Borrower is in good standing with the
respective governmental, quasi-governmental and other third party payors and
regulatory agencies that are involved in such healthcare activities.

            (aa) Collective Enterprise. Borrowers are engaged in the businesses
of providing staffing in the healthcare industry as of the Closing Date, as well
as in certain other businesses. These operations require financing on a basis
such that the credit supplied can be made available from time to time to
Borrowers, as required for the continued successful operation of Borrowers taken
as a whole. Borrowers have requested the Lender make credit available hereunder
primarily for the purposes of Subsection 12(g) and generally for the purposes of
financing the operations of Borrowers. Each Borrower expects to derive benefit
(and the Board of Directors of each Borrower has determined that such Borrower
may reasonably be expected to derive benefit), directly or indirectly, from a
portion of the credit extended by Lender hereunder, both in its separate
capacity and as a member of the group of companies, since the successful
operation and condition of each Borrower is dependent on the continued
successful performance of the functions of the group as a whole. Each Borrower
acknowledges that, but for the agreement of each of the other Borrowers to
execute and deliver this Agreement, Lender would not have made available the
credit facilities established hereby on the terms set forth herein.

                                       21
<PAGE>

            (bb) Acquisition. The Closing Date Permitted Acquisitions have been
consummated pursuant to the terms of the Acquisition Documents related thereto
and in compliance with all applicable laws. Borrower has provided to Lender
complete copies of the Acquisition Documents, including all schedules, exhibits
and disclosure letters referred to therein or delivered pursuant thereto, if
any, and all amendments thereto, waivers relating thereto and other side letters
or agreements affecting the term thereof. None of such agreements and documents
has been amended or supplemented, nor have any of the provisions thereof been
waived by the parties thereto, except pursuant to a written agreement or
agreement which has heretofore been delivered to the Lender.

            (cc) Certain Financial Information. The following have been
delivered to Lender as of the Original Closing Date: (i) internally prepared
financial statements of Borrower for the most recent month end and (ii)
projections in form and detail satisfactory to Lender giving effect to each
Permitted Acquisition.

      12. AFFIRMATIVE COVENANTS.

      Until payment and satisfaction in full of all Obligations and termination
of this Agreement, unless Borrower obtains Lender's prior written consent
waiving or modifying any of Borrower's covenants hereunder in any specific
instance, Borrower covenants and agrees as follows (except for the covenant
specifically waived by Lender pursuant to the terms of that certain Specific
Waiver of Default to Loan and Security Agreement dated as of November 4, 2004):

            (a) Maintenance of Records. Borrower shall at all times keep
accurate and complete books, records and accounts with respect to all of
Borrower's business activities, in accordance with sound accounting practices
and GAAP consistently applied, and shall keep such books, records and accounts,
and any copies thereof, only at the addresses indicated for such purpose on
Schedule 11(b) or such other location that is notified to Lender in writing.

            (b) Notices. Borrower shall:

                  (i) Locations. Promptly (but in no event less than ten (10)
days prior to the occurrence thereof) notify Lender of the proposed opening of
any new place of business or new location of Collateral, the closing of any
existing place of business or location of Collateral, any change of the location
of Borrower's books, records and accounts (or copies thereof), the opening or
closing of any post office box, the opening or closing of any bank account or,
if any of the Collateral consists of Goods of a type normally used in more than
one state, the use of any such Goods in any state other than a state in which
Borrower has previously advised Lender that such Goods will be used.

                                       22
<PAGE>

                  (ii) Eligible Accounts. Promptly upon becoming aware thereof
(but in no event later than three (3) days after so becoming aware), notify
Lender if any Account identified by Borrower to Lender as an Eligible Account
becomes ineligible for any reason.

                  (iii) Litigation and Proceedings. Promptly upon becoming aware
thereof (but in no event later than three (3) days after so becoming aware),
notify Lender of (i) any actions or proceedings that are greater than $50,000,
individually or in the aggregate, which are pending or threatened against
Borrower and (ii) any Commercial Tort Claims of Borrower which may arise which
involve an amount in controversy in excess of Fifty Thousand and No/100 Dollars
($50,000.00), which notice shall constitute Borrower's authorization to amend
Schedule 11(b) to add such Commercial Tort Claim.

                  (iv) Names and Trade Names. Notify Lender within ten (10) days
of the change of its name or the use of any trade name, assumed name, fictitious
name or division name not previously disclosed to Lender in writing.

                  (v) ERISA Matters. Promptly notify Lender of (x) the
occurrence of any "reportable event" (as defined in ERISA) which might result in
the termination by the Pension Benefit Guaranty Corporation (the "PBGC") of any
employee benefit plan ("Plan") covering any officers or employees of the
Borrower, any benefits of which are, or are required to be, guaranteed by the
PBGC, (y) receipt of any notice from the PBGC of its intention to seek
termination of any Plan or appointment of a trustee therefor or (z) its
intention to terminate or withdraw from any Plan.

                  (vi) Environmental Matters. Immediately notify Lender upon
becoming aware of any investigation, proceeding, complaint, order, directive,
claim, citation or notice with respect to any noncompliance with or violation of
the requirements of any Environmental Law by Borrower or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or any other environmental, health or safety
matter which affects Borrower or its business operations or assets or any
properties at which Borrower has transported, stored or disposed of any
Hazardous Materials unless the foregoing could not reasonably be expected to
have a Material Adverse Effect on Borrower.

                  (vii) Default; Material Adverse Change. Promptly advise Lender
of any material adverse change in the business, property, assets, prospects,
operations or condition, financial or otherwise, of Borrower, the occurrence of
any Default or Event of Default hereunder or the occurrence of any event which,
if uncured, will become an Event of Default after notice or lapse of time (or
both).

                                       23
<PAGE>

                  (viii) Subordinated Debt. Promptly advise Lender of any
default or any event which, with the giving of notice or lapse of time, or both,
would constitute a default, under any subordination agreement relative to
Subordinated Debt, or any agreement, instrument or document evidencing or
relating to any Subordinated Debt, and a certificate of a authorized officer of
Borrower specifying the nature thereof and Borrower's proposed response thereto,
in reasonable detail.

All of the foregoing notices shall be provided by Borrower to Lender in writing.

            (c) Compliance with Laws and Maintenance of Permits. Borrower shall
maintain all governmental consents, franchises, certificates, licenses,
authorizations, approvals and permits, the lack of which would have a Material
Adverse Effect on Borrower, and Borrower shall remain in compliance with all
applicable federal, state, local and foreign statutes, orders, regulations,
rules and ordinances (including, without limitation, Environmental Laws and
statutes, orders, regulations, rules and ordinances relating to taxes, employer
and employee contributions and similar items, securities, ERISA or employee
health and safety) the failure with which to comply would have a Material
Adverse Effect on Borrower. Following any determination by Lender that there is
noncompliance, or any condition which requires any action by or on behalf of
Borrower in order to avoid noncompliance, with any Environmental Law, at
Borrower's expense, cause an independent environmental engineer acceptable to
Lender to conduct such tests of the relevant site(s) as are appropriate and
prepare and deliver a report setting forth the results of such tests, a proposed
plan for remediation and an estimate of the costs thereof.

            (d) Inspection and Audits. Upon five (5) Business Days prior written
notice so long as no Default or Event of Default exists, Borrower shall permit
Lender, or any Persons designated by it, to call at Borrower's places of
business at any reasonable times during normal business hours and, without
hindrance or delay, to inspect the Collateral and to inspect, audit, check and
make extracts from Borrower's books, records, journals, orders, receipts and any
correspondence and other data relating to Borrower's business, the Collateral or
any transactions between the parties hereto, and shall have the right to make
such verification concerning Borrower's business as Lender may consider
reasonable under the circumstances. Borrower shall furnish to Lender such
information relevant to Lender's rights under this Agreement and the Other
Agreements as Lender shall at any time and from time to time request. Lender,
through its officers, employees or agents, shall have the right, at any time and
from time to time, in Lender's name, to verify the validity, amount or any other
matter relating to any of Borrower's Accounts, by mail, telephone, telecopy,
electronic mail or otherwise, provided that, prior to the occurrence of an Event
of Default, Lender shall conduct such verification in the name of a nominee of
Lender or in Borrower's name. Borrower authorizes Lender to discuss the affairs,
finances and business of Borrower with any officers, employees or directors of
Borrower or with its Parent or any Affiliate or the officers, employees or
directors of its Parent or any Affiliate, and to discuss the financial condition
of Borrower with Borrower's independent public accountants, which shall be
attended by a representative of Borrower. Any such discussions shall be without
liability to Lender or to Borrower's independent public accountants. Borrower
shall pay to Lender all customary fees (currently Eight Hundred Fifty and No/100
Dollars ($850.00) per person, per day) and all reasonable costs and
out-of-pocket expenses incurred by Lender in the exercise of its rights
hereunder, and all of such fees, costs and expenses shall constitute Obligations
hereunder, shall be payable on demand and, until paid, shall bear interest at
the highest rate then applicable to Loans hereunder; provided, however, that so
long as no Event of Default has occurred, Borrower shall not pay for more than
four (4) audits in any Fiscal Year, except for (i) a one-time spot check within
60 days of the Closing Date, or (ii) any audits of a Target in connection with a
proposed Acquisition.

                                       24
<PAGE>

            (e) Insurance. Borrower shall:

                  (i) Keep the Collateral properly housed and insured for the
full insurable value thereof against loss or damage by fire, theft, explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks as
are customarily insured against by Persons engaged in businesses similar to that
of Borrower, with such companies, in such amounts, with such deductibles and
under policies in such form as shall be reasonably satisfactory to Lender and
BOF. Certificates of insurance or, if requested by Lender, original (or
certified) copies of such policies of insurance have been or shall be, within
ninety (90) days of the date hereof, delivered to Lender, together with evidence
of payment of all premiums therefor, and shall contain an endorsement, in form
and substance acceptable to Lender, showing loss under such insurance policies
payable to Lender and BOF, as their interests appear. Such endorsement, or an
independent instrument furnished to Lender, shall provide that the insurance
company shall give Lender at least thirty (30) days' written notice before any
such policy of insurance is altered or canceled (ten (10) days for non-payment
of premiums) and that no act, whether willful or negligent, or default of
Borrower or any other Person shall affect the right of Lender to recover under
such policy of insurance in case of loss or damage. In addition, Borrower shall
cause to be executed and delivered to Lender and BOF, as their interests may
appear, an assignment of proceeds of its business interruption insurance
policies. Borrower hereby directs all insurers under all policies of insurance
to pay all proceeds payable thereunder directly to Lender and BOF, as their
interests may appear. Borrower irrevocably makes, constitutes and appoints
Lender (and all officers, employees or agents designated by Lender) as
Borrower's true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and making all
determinations and decisions with respect to such policies of insurance,
provided however, that if no Event of Default shall have occurred and is
continuing, Borrower may make, settle and adjust claims involving less than
$100,000.00 in the aggregate without Lender's consent.

                  (ii) Maintain, at its expense, such public liability and
third-party property damage insurance as is customary for Persons engaged in
businesses similar to that of Borrower with such companies and in such amounts
with such deductibles and under policies in such form as shall be reasonably
satisfactory to Lender and certificates of insurance or, if requested by Lender,
original (or certified) copies of such policies have been or shall be, within
ninety (90) days after the date hereof, delivered to Lender, together with
evidence of payment of all premiums therefor; each such policy shall contain an
endorsement showing Lender as additional insured thereunder and providing that
the insurance company shall give Lender at least thirty (30) days' written
notice before any such policy shall be altered or canceled.

                                       25
<PAGE>

If Borrower at any time or times hereafter shall fail to obtain or maintain any
of the policies of insurance required above or to pay any premium relating
thereto, then Lender, without waiving or releasing any obligation or default by
Borrower hereunder, may (but shall be under no obligation to) obtain and
maintain such policies of insurance and pay such premiums and take such other
actions with respect thereto as Lender deems advisable. Such insurance, if
obtained by Lender, may, but need not, protect Borrower's interests or pay any
claim made by or against Borrower with respect to the Collateral. Such insurance
may be more expensive than the cost of insurance Borrower may be able to obtain
on its own and may be cancelled only upon Borrower providing evidence that it
has obtained the insurance as required above. All sums disbursed by Lender in
connection with any such actions, including, without limitation, court costs,
expenses, other charges relating thereto and reasonable attorneys' fees, shall
constitute Loans hereunder, shall be payable on demand by Borrower to Lender
and, until paid, shall bear interest at the highest rate then applicable to
Loans hereunder.

            (f) Collateral. Borrower shall keep the Collateral in good
condition, repair and order and shall make all necessary repairs to the
Equipment and replacements thereof so that the operating efficiency and the
value thereof shall at all times be preserved and maintained in all material
respects. Borrower shall permit Lender to examine any of the Collateral at any
time during normal business hours (so long as no Default or Event of Default
exists) and wherever the Collateral may be located and, Borrower shall, promptly
upon request therefor by Lender, deliver to Lender any and all evidence of
ownership of any of the Collateral. Borrower shall, at the request of Lender,
indicate on its records concerning the Collateral a notation, in form
satisfactory to Lender, of the security interest of Lender hereunder. If, prior
to the termination of this Agreement, Borrower shall obtain rights to any new
Collateral of the type described in the last sentence of Subsection 11(b),
Borrower shall notify Lender in writing (with reasonable detail) of such changes
at least once every thirty (30) days. Borrower hereby authorizes Lender to
unilaterally modify this Agreement by amending Schedule 11(b) to include any
such Collateral. Notwithstanding the foregoing, Borrower hereby agrees that
Lender's security interest shall extend to all such Collateral, regardless of
whether Lender actually amends Schedule 11(b).

            (g) Use of Proceeds. All monies and other property obtained by
Borrower from Lender pursuant to this Agreement shall be used solely for
business purposes of Borrower.

            (h) Taxes. Borrower and any other Obligor shall file all required
tax returns and pay all of its taxes when due, subject to any extensions granted
by the applicable taxing authority, including, without limitation, taxes imposed
by federal, state or municipal agencies, and shall cause any Liens for taxes to
be promptly released; provided, that Obligor shall have the right to contest the
payment of such taxes in good faith by appropriate proceedings so long as (i)
the amount so contested is shown on Obligor's financial statements; and (ii) the
contesting of any such payment does not impair the enforceability, validity or
priority of the Lender's Liens. If Obligor fails to pay any such taxes and in
the absence of any such contest by Obligor, Lender may (but shall be under no
obligation to) advance and pay any sums required to pay any such taxes and/or to
secure the release of any Lien therefor, and any sums so advanced by Lender
shall constitute Loans hereunder, shall be payable by Obligor to Lender on
demand and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder.

                                       26
<PAGE>

            (i) Intellectual Property. Borrower shall maintain adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, tradestyles and trade names to continue its business as
heretofore conducted by it or as hereafter conducted by it unless the failure to
maintain any of the foregoing could not reasonably be expected to have a
Material Adverse Effect on Borrower.

            (j) Staffing Contracts. Borrower shall promptly provide true and
complete copies to Lender of all material staffing or similar contracts and, to
the extent requested by Lender, deliver to Lender a collateral assignment
agreement with respect to such contracts.

            (k) Billing and Collection System. After the Closing Date and, if
feasible based on Borrower's accounting system, Borrower shall provide
electronic access to Lender to its billing and collection system, on a read-only
basis, for purposes of permitting Lender to inspect and verify billing and
collections transactions and related data in connection with the Collateral,
from time to time.

            (l) Integration of Systems. Within thirty (30) days after the
Closing Date, Borrower shall fully integrate the accounting and billing systems
of Care Pros Staffing, Inc. and Arizona Home Health Care / Private Duty, Inc.
onto the Crdentia accounting and billing system. Within sixty (60) days of the
Closing Date, Borrower shall have integrated the Closing Date Permitted
Acquisitions into Borrower's accounting system and general ledger.

            (m) Subordination Agreement. On or before November 30, 2004,
Borrower shall use its commercially reasonable efforts to deliver to Lender a
Subordination Agreement executed by Cindy Permenter, in form and substance
acceptable to Lender, with respect to the Indebtedness (i) under that certain
convertible subordinated promissory note dated December 2, 2003 in the original
principal amount of $2,525,000 made payable to Professional Staffing Services,
Inc. and (ii) under that certain convertible subordinated promissory note dated
December 2, 2003 in the original principal amount of $200,000 made payable to
Professional Staffing Services, Inc. and Nursing Services Registry of Savannah,
Inc.

      13. NEGATIVE COVENANTS.

      Until payment and satisfaction in full of all Obligations and termination
of this Agreement, unless Borrower obtains Lender's prior written consent
waiving or modifying any of Borrower's covenants hereunder in any specific
instance, Borrower agrees as follows:

            (a) Indebtedness. Borrower shall not create, incur, assume or become
obligated (directly or indirectly), for any Indebtedness for Borrowed Money
other than the Loans and the Term Loans of BOF, except that Borrower may (i)
maintain its present Indebtedness listed on Schedule 11(n) hereto; and (ii)
incur purchase money Indebtedness or Capital Lease Obligations in connection
with Capital Expenditures permitted pursuant to Section 14 hereof. Borrower
shall not incur any Subordinated Debt without the prior written consent of
Lender (which shall include an indefinite standstill of remedies and payment
blockage rights during any Event of Default), nor during the existence of an
Event of Default, make any payment of any part or all of any Subordinated Debt
or take any other action or omit to take any other action in respect of any
Subordinated Debt, except in accordance with any subordination agreement
relative thereto or the subordination provisions thereof or hereof, or grant any
Liens on any of its assets to secure such Subordinated Debt, or amend or modify
any agreement, instrument or document evidencing or relating to any Subordinated
Debt after Lender consents thereto.

                                       27
<PAGE>

            (b) Liens. Borrower shall not grant or permit to exist (voluntarily
or involuntarily) any Lien on any of its assets, other than Permitted Liens.

            (c) Mergers, Sales, Acquisitions, Subsidiaries and Other
Transactions Outside the Ordinary Course of Business.

                  (i) Borrower shall not, without the prior written consent of
Lender: (A) enter into any merger or consolidation; provided that (i) any
Borrower which is a Crdentia Proper Borrower may merge with and into Crdentia so
long as Crdentia is the surviving entity, and (ii) any Crdentia Proper Borrower
other than Crdentia may merge with another Crdentia Proper Borrower other than
Crdentia, (B) change the state of Borrower's organization or enter into any
transaction which has the effect of changing Borrower's state of organization,
except in connection with a merger permitted in clause (A) above; (C) sell,
lease or otherwise dispose of any of its assets other than in the ordinary
course of business or as permitted under Section 7; (D) purchase the stock,
other equity interests or all or a material portion of the assets of any Person
or division of such Person; or (E) enter into any other transaction outside the
ordinary course of Borrower's business, including, without limitation, any
purchase, redemption or retirement of any shares of any class of its stock or
any other equity interest, and any issuance of any shares of, or warrants or
other rights to receive or purchase any shares of, any class of its stock or any
other equity interest, subject to clause (iii) below.

                  (ii) Borrower shall not form any new Subsidiaries or enter
into any joint ventures or partnerships with any other Person, without the prior
written consent of Lender unless (A) Crdentia (or such other Borrower) pledges
all of the equity interests of such new Subsidiary to Lender, and (B) such
entity enters into a joinder agreement or similar agreement in which such entity
becomes a party to this Agreement, jointly and severally liable for the
Obligations and pledges to Lender all of its assets as Collateral hereunder.

                  (iii) Notwithstanding the foregoing, Crdentia may enter into
certain Permitted Acquisitions with the prior written consent of Lender in its
sole discretion. A permitted acquisition ("Permitted Acquisition") shall mean an
Acquisition which satisfies each of the following conditions: (A) the
Acquisition Subsidiary shall have, on a pro forma basis, independent and
separate from the Crdentia Proper Borrowers: (x) a coverage ratio of Target Pro
Forma EBITDA to Target Pro Forma Debt Service of at least 1.5 to 1.0, (y) a
ratio of Target Pro Forma Senior Debt to Target Pro Forma EBITDA of not more
than 4.0 to 1.0, and (z) a ratio of Target Pro Forma Term Loan Debt to Target
Pro Forma EBITDA of not more than 2.5 to 1.0; (B) Borrowers are in compliance,
and shall be on the date of the consummation of such proposed Acquisition, with
all financial covenants set forth in Section 14 hereof; (C) pro forma financial
projections, prepared by the Borrower in good faith for the period from the date
of the consummation of such proposed Acquisition to the date which is one year
thereafter, shall reflect that the Borrowers shall be in compliance with all
financial covenants set forth in Section 14 hereof; (D) Excess Availability of
the Crdentia Proper Borrowers shall be an amount mutually agreed upon between
Lender and Borrower but in no event less than $250,000 after giving effect to
the proposed Acquisition; (E) the amount of (i) the revolving borrowing base
attributable to the Acquisition Subsidiary, as determined by the Lender in its
good faith credit judgment, less (ii) the sum of the outstanding Revolving Loans
attributable to Acquisition Subsidiary, shall be an amount mutually agreed upon
between Lender and Borrower; (F) the Target entity to be acquired in such
Acquisition shall be a separate, independent Subsidiary of Acquisition
Subsidiary or merged with and into Acquisition Subsidiary as of the date of such
acquisition; (G) the Target entity to be acquired in such Acquisition shall
become a new Borrower hereunder in accordance with the provisions and
requirements of Section 13(c)(ii) hereof, and shall be subject to a Revolving
Borrowing Base Amount calculation (pursuant to Section 2(a) hereof) which is
calculated separate and independent from the Crdentia Proper Borrowers with
respect to any Revolving Loans thereafter advanced to such new Borrower; (H) any

                                       28
<PAGE>

Indebtedness to be issued by any Borrower in respect of such Acquisition shall
be Subordinated Debt subject to Subordination Agreements in form and substance
satisfactory to Lender including, without limitation, payment blockage rights
and indefinite standstill on remedies; (I) Lender shall have reviewed and found
satisfactory all Acquisition Documents in respect thereof prior to Borrower
entering into any such Acquisition Documents; (J) no Default or Event of Default
exists as of the proposed date of the Acquisition or would result after giving
effect thereto; (K) Crdentia shall deliver to Lender a certificate of an officer
of Crdentia certifying compliance with the foregoing, (L) Borrower shall deliver
to Lender any other due diligence reasonably requested by the Lender in
connection with an Acquisition or Target, including, without limitation
collateral, cash-flow, and operational audits, and background checks on Target's
management, in each case to the reasonable satisfaction to the Lender; and (M)
Borrower shall establish and maintain a separate Lockbox with a Lockbox Bank for
receivables from Account Debtors of Acquisition Subsidiary in accordance with
the requirements of the Term Loan Agreement and this Agreement, and Borrower
shall execute with such Lockbox Bank a lockbox agreement, blocked account
agreement, and such other agreements related to the lockbox arrangements, in
each case in form and substance acceptable to the Lender.

            (d) Dividends and Distributions. No Borrower shall declare or pay
any dividend or other distribution (whether in cash or in kind) on any class of
its stock (if Borrower is a corporation) or on account of any equity interest in
Borrower (if Borrower is a partnership, limited liability company or other type
of entity) to any Person; provided, that (i) any Borrower may pay a dividend or
other distribution (whether in cash or in kind) on any class of its stock (if
Borrower is a corporation) or on account of any equity interest in Borrower (if
Borrower is a partnership, limited liability company or other type of entity) to
Crdentia to pay professional fees, franchise taxes and other ordinary course of
business operating expenses incurred by Crdentia solely in its capacity as
parent corporation of Borrower, (ii) any Borrower which exists as of the Closing
Date may pay a dividend or other distribution (whether in cash or in kind) on
any class of its stock (if Borrower is a corporation) or on account of any
equity interest in Borrower (if Borrower is a partnership, limited liability
company or other type of entity) to another Borrower, (iii) any Borrower which
is not a Borrower as of the Closing Date may pay a dividend or other
distribution to Borrower (whether in cash or in kind) on any class of its stock
(if Borrower is a corporation) or on account of any equity interest in Borrower
(if Borrower is a partnership, limited liability company or other type of
entity) so long as (x) no Default or Event of Default exists or results from
such dividend or distribution, (y) Borrowers shall be in compliance with all
financial covenants set forth in Section 14 hereof, and (z) Borrower has
$250,000 of Excess Availability after giving effect to such dividend or other
distribution, and (iv) Crdentia may pay customary stock dividends to holders of
its Series A Preferred Stock, Series B Preferred Stock, Series B-1 Preferred
Stock and Series C Preferred Stock.

                                       29
<PAGE>

            (e) Investments; Loans. Borrower shall not purchase or otherwise
acquire, or contract to purchase or otherwise acquire, the obligations or stock
of any Person, other than investments in the stock of a Borrower, investments in
connection with Permitted Acquisitions under Section 13(c)(iii), direct
obligations of the United States or of any State of the United States or
political subdivision thereof, obligations insured by the Federal Deposit
Insurance Corporation and obligations unconditionally guaranteed by the United
States or of any State of the United States or political subdivision thereof;
nor shall Borrower lend or otherwise advance funds to any Person except for
advances made to employees, officers and directors for travel and other expenses
and extensions of credit to customers arising in the ordinary course of
business.

            (f) Fundamental Changes, Line of Business. Borrower shall not enter
into a new line of business materially different from Borrower's current
business. Borrower further agrees that no Borrower shall amend its
organizational documents or change its Fiscal Year if such actions (i) would
have a Material Adverse Effect on the Borrower; (ii) would affect the
obligations of Borrower to Lender; or (iii) would affect the interpretation of
any of the terms of this Agreement or the Other Agreements unless Lender has
provided written consent after receiving not less than thirty (30) days' prior
written notice of such actions.

            (g) Equipment. Borrower shall not (i) permit any Equipment to become
a Fixture to real property unless such real property is owned by Borrower and is
subject to a mortgage in favor of Lender or, if such real estate is leased, is
subject to a landlord's agreement in favor of Lender on terms acceptable to
Lender, or (ii) permit any Equipment to become an accession to any other
personal property unless such personal property is subject to a first priority
Lien in favor of Lender.

            (h) Affiliate Transactions. Except as set forth on Schedule 11(i)
hereto or as permitted pursuant to Subsection 11(c) hereof, Borrower shall not
conduct, permit or suffer to be conducted, transactions with Affiliates other
than (i) investments by Affiliates in a Borrower; (ii) the provision of
employment, management and consulting services approved by Borrower's
compensation committee; and (iii) other transactions for the purchase or sale of
Inventory or services in the ordinary course of business pursuant to terms that
are no less favorable to Borrower than the terms upon which such transactions
would have been made had they been made to or with a Person that is not an
Affiliate.

            (i) Settling of Accounts. Borrower will not make without concurrent
written notice provided to Lender, any agreement with any Account Debtor for any
extension of the time for payment of the Account, any compromise or settlement
for less than the full amount thereof, any release of any Account Debtor from
liability therefore, or any deduction therefrom except a discount or allowance
for prompt or early payment allowed by Borrower in the ordinary course of its
business consistent with its historical practices and as disclosed to Lender in
writing; provided, that following the occurrence and during the continuance of a
Default an Event of Default, Borrower shall not settle or adjust any Account
without the consent of Lender.

                                       30
<PAGE>

            (j) Restricted Payments. Until the termination of this Agreement,
Borrower shall not make any direct or indirect payment or prepayment, in cash,
in kind, or otherwise, with respect to the following Indebtedness, except as
provided in clauses (i), (ii) and (iii) below:

                  (i) Seller Notes. Scheduled payments of principal and interest
under any Seller Note or other instrument of Subordinated Debt may be paid if,
and only to the extent that, at the time of any such payment no Event of Default
then exists or would result from the making of such payment; and

                  (ii) Management/Advisory Fees. Scheduled payments in respect
of any management fees, advisory fees or similar fees payable by any Borrower to
any other Borrower may be paid if, and only to the extent that, at the time of
any such payment no Event of Default described in this Agreement then exists or
would result from the making of such payment.

                  (iii) Subordinated Debt. Scheduled payments in respect of
Subordinated Debt may be made only if either: (a) the Borrower has Excess
Availability of $500,000, or (b) the Borrower (in the aggregate) have a ratio of
Operating Cash Flow to Total Debt Service of at least 1.00 to 1.00 as a result
of such Subordinated Debt payment.

            (k) Restricted Locations. Borrower shall not move any of its books
or records or any of its other assets of any kind to its offices located at (i)
3000 S. 31st St. #301, Temple, Arizona 76502 or (ii) 5151 E. Broadway #1530,
Tucson, Arizona 85711.

      14. FINANCIAL COVENANTS.

      Borrower shall maintain and keep in full force and effect each of the
financial covenants set forth below:

            (a) Tangible Net Worth. Borrower's Tangible Net Worth, on a Crdentia
Proper Consolidated Basis, shall not at any time be less than the Minimum
Tangible Net Worth; "Minimum Tangible Net Worth" being defined for purposes of
this Subsection as (i) $(1,500,000) at all times from the Closing Date through
September 30, 2004, (ii) $0 at all times from October 1, 2004 through October
31, 2004, and (ii) thereafter, from the last day of each fiscal quarter of the
Crdentia Proper Borrowers through the day prior to the last day of each
immediately succeeding fiscal quarter of the Crdentia Proper Borrowers, the
Minimum Tangible Net Worth during the immediately preceding period plus
seventy-five percent (75%) of the Crdentia Proper Borrowers' net income (but
without reduction for any net loss) for the Fiscal Year ending on the first day
of such period as reflected on the Crdentia Proper Borrowers' audited year end
financial statement; and "Tangible Net Worth" being defined for purposes of this
Subsection as the Crdentia Proper Borrowers' shareholders' equity (including
retained earnings) less the book value of all intangible assets of the Crdentia
Proper Borrowers as determined solely by Lender on a consistent basis plus the
amount of any Subordinated Debt of the Crdentia Proper Borrowers, all as
determined under GAAP applied on a basis consistent with the financial statement
dated March 31, 2004 except as set forth herein;

                                       31
<PAGE>

            (b) Senior Debt Service Coverage Ratio. As of the last day of each
applicable period, the ratio of the Borrower's Operating Cash Flow, on a
Crdentia Proper Consolidated Basis, to Borrower's Senior Debt Service, on a
Crdentia Proper Consolidated Basis, for each period set forth below (which ratio
shall be tested as of the last day of each such period) must be at least the
following:

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                                 Senior Debt Service
          Time Frame                    Date Tested                Coverage Ratio                  Based on
          ----------                    -----------                --------------                  --------
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                         <C>                           <C>
Monthly                         1/31/05                      1.00 to 1.00                 Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         2/28/05                      1.00 to 1.00                 Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         3/31/05                      1.00 to 1.00                 Trailing 3 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         4/30/05                      1.00 to 1.00                 Trailing 4 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         5/31/05                      1.00 to 1.00                 Trailing 5 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         6/30/05                      1.25 to 1.00                 Trailing 6 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         7/31/05                      1.25 to 1.00                 Trailing 7 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         8/31/05                      1.25 to 1.00                 Trailing 8 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         9/30/05                      1.25 to 1.00                 Trailing 9 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         10/31/05                     1.25 to 1.00                 Trailing 10 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         11/30/05                     1.25 to 1.00                 Trailing 11 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         12/31/05                     1.25 to 1.00                 Trailing 12 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       3/31/06  and  each  quarter  1.25 to 1.00                 Trailing 12 months
                                thereafter
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>


                                       32
<PAGE>

            (c) Minimum EBITDA. Borrower shall not permit EBITDA (which
calculation shall include for the months ended 8/31/04 through 12/31/04 any
payment made by MedCap Partners L.P. pursuant to the terms of Makewell
Agreement), on a Crdentia Proper Consolidated Basis, to be less than the amount
set forth below for the corresponding period set forth below:

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
          Time Frame                    Date Tested                Minimum EBITDA                  Based on
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                          <C>                     <C>
Monthly                         8/31/04                      $(151,662)                   Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         9/30/04                      $(83,271)                    Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         10/31/04                     $(28,059)                    Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         11/30/04                     $1,875                       Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Monthly                         12/31/04                     $39,212                      Monthly
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       3/31/05                      $82,501                      Trailing 3 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       6/30/05                      $99,393                      Trailing 6 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       9/30/05                      $158,708                     Trailing  months
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       12/31/05                     $219,897                     Trailing 12 months
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

      Notwithstanding the foregoing, (i) to the extent that the Crdentia Proper
Borrowers maintain a Senior Debt Service Coverage Ratio of 1.50 to 1.00 or
greater as determined at the end of any measuring period as set forth in Section
14(b) above, the Crdentia Proper Borrowers shall not be required to maintain
minimum EBITDA as set forth in this Section for such corresponding month and
during the continuance of such compliance.

            (d) Acquisition Subsidiary Debt Service Coverage Ratio. Commencing
on the last day of the first fiscal quarter following the first Permitted
Acquisition, and continuing quarterly thereafter, Borrower shall not permit the
ratio of (i) Acquisition Subsidiary EBITDA to (ii) scheduled payments of
interest and fees, to the extent carried as interest expense on Acquisition
Subsidiary's consolidated financial statements, with respect to Acquisition
Subsidiary Debt (and, if the period of measurement is less than 12 months,
determined on an annualized basis), to be less than the amount set forth below
for the corresponding period set forth below:

                                       33
<PAGE>

<TABLE>
<CAPTION>
------------------------------- ---------------------------- ---------------------------- ----------------------------
                                                              Acquisition Subsidiary Deb
         Time Frame                    Date Tested              Service Coverage Ratio            Based on
         ----------                    -----------              ----------------------            --------
------------------------------- ---------------------------- ---------------------------- ----------------------------
<S>                             <C>                               <C>                           <C>
Quarterly                       Last   day  of  the   first      1.50 to 1.00                 Trailing 3 months
                                Fiscal  Quarter following
                                the first Permitted
                                Acquisition
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       Next Fiscal Quarter              1.50 to 1.00                 Trailing 6 months
                                Thereafter
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       Next Fiscal Quarter              1.50 to 1.00                 Trailing 9 months
                                Thereafter
------------------------------- ---------------------------- ---------------------------- ----------------------------
Quarterly                       Each Fiscal Quarter              1.50 to 1.00                 Trailing 12 months
                                Thereafter
------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>

            (e) Acquisition Subsidiary Debt Leverage Ratio. Commencing on the
last day of the first fiscal quarter following the first Permitted Acquisition,
and continuing quarterly thereafter, Borrower shall not permit the ratio of
Acquisition Subsidiary Debt to Acquisition Subsidiary EBITDA to be more than the
following:

<TABLE>
<CAPTION>

            Period                         Date Tested                    Coverage                 Based on:
-------------------------       ------------------------------           -----------           ------------------
<S>                             <C>                                      <C>                     <C>
Quarterly                       Last day of the first fiscal             4.0 to 1.0            Trailing 3 Months
                                quarter following the first
                                Permitted Acquisition
Quarterly                       Next Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 6 months
Quarterly                       Next Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 9 months
Quarterly Thereafter            Each Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 12 months
</TABLE>


            (f) Acquisition Subsidiary Term Loan Debt Leverage Ratio. Commencing
on the last day of the first fiscal quarter following the first Permitted
Acquisition, and continuing quarterly thereafter, Borrower shall not permit the
ratio of Acquisition Subsidiary Term Loan Debt to Acquisition Subsidiary EBITDA
to be more than the following:

<TABLE>
<CAPTION>

            Period                         Date Tested                    Coverage                 Based on:
-------------------------       ------------------------------           -----------           ------------------
<S>                                    <C>                              <C>                    <C>
Quarterly                       Last day of the first fiscal             2.50 to 1             Trailing 3 Months
                                quarter following the first
                                Permitted Acquisition
Quarterly                       Next Fiscal Quarter Thereafter           2.50 to 1             Trailing 6 months
Quarterly                       Next Fiscal Quarter Thereafter           2.50 to 1             Trailing 9 months
Quarterly Thereafter            Each Fiscal Quarter Thereafter           2.50 to 1             Trailing 12 months
</TABLE>


                                       34
<PAGE>

            (g) Capital Expenditure Limitations. Borrowers shall not make any
Capital Expenditures if, after giving effect to such Capital Expenditure, the
aggregate cost of all such fixed assets purchased or otherwise acquired would
exceed $200,000 during any Fiscal Year.

            (h) Operating Lease Obligations. Borrower shall not incur operating
lease obligations requiring payments in excess of $300,000 in the aggregate
during any Fiscal Year of Borrower.

            (i) Financial Reporting Consolidation. Lender, in its sole
discretion, will consider permitting a consolidation of Crdentia, Acquisition
Subsidiary, and each of their direct and indirect Subsidiaries for purposes of
financial reporting and financial covenant tests under this Agreement; provided
that, (i) the Borrower's Senior Debt Service Coverage Ratio (determined on a
Crdentia Proper Consolidated Basis) as set forth under Section 14(b) of this
Agreement is 1.25 to 1.00 or greater for a period of six (6) consecutive months,
(ii) the Acquisition Subsidiary Debt Service Coverage Ratio as set forth under
Section 14(d) of this Agreement is 1.50 to 1.00 or greater for a period of six
(6) consecutive months, (iii) the Acquisition Subsidiary Debt Leverage Ratio as
set forth in Section 14(e) of this Agreement is no more than 4.0 to 1.0 for six
(6) consecutive months, (iv) the Acquisition Subsidiary Term Loan Debt Leverage
Ratio as set forth in Section 14(f) of this Agreement is no more than 2.50 to
1.0 for six consecutive months, (v) no Event of Default, which has not been
cured or waived, exists, (vi) Borrower, on a Crdentia Proper Consolidated Basis,
has Excess Availability of at least $250,000, and (vii) Lender is satisfied with
the Operating Cash Flow of all Borrowers, on a consolidated basis, based upon
the completion of a cash flow audit of Borrowers.

      15. DEFAULT.

      The occurrence of any one or more of the following events shall constitute
an "Event of Default" by Borrower hereunder:

            (a) Payment. The failure of any Obligor to pay when due, declared
due, or demanded by Lender, any of the Obligations or the Term Loan Obligations.

            (b) Breach of This Agreement, the Other Agreements and the Term Loan
Agreement. The failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements or the Term Loan Agreement;
provided that (i) any such failure by Borrower under Subsections 12(b)(i), (iv),
(v) and 12(i) of this Agreement (or the Term Loan Agreement) shall not
constitute an Event of Default hereunder until the fifteenth (15th) day
following the occurrence thereof, and (ii) any such failure by Borrower under
Subsections 12(b)(iii) and (vi) of this Agreement (or Sections 12(b)(ii) and (v)
of the Term Loan Agreement) shall not constitute an Event of Default hereunder
until the fifth (5th) day following the occurrence thereof (including any grace
periods thereto).

            (c) Breach of Subordination Agreement. The failure of any Person to
perform, keep or observe any of the covenants, conditions, promises, agreements
or obligations of such Person under any Subordination Agreement.

                                       35
<PAGE>

            (d) Breaches of Other Obligations. The failure of Obligor to pay
when due or within any applicable grace period any obligation of Obligor in
excess of $100,000 (other than its Obligations under this Agreement) for the
payment of Indebtedness, other than Subordinated Debt that is not paid when due
to the operation of the requirements of subordination hereunder, or the becoming
due and payable, or declaration to be due any payable, of such obligation before
the expressed maturity of the obligation, or the occurrence of an event that,
with the giving of notice or lapse of time, or both, would cause any such
obligation to become, or allow any such obligation to be declared to be, due and
payable;

            (e) Breach of Representations and Warranties. The making or
furnishing by any Obligor to Lender of any representation, warranty,
certificate, schedule, report or other communication within or in connection
with this Agreement or the Other Agreements, or in connection with any other
agreement between such Obligor and Lender which is untrue or misleading in any
material respect as of the date made.

            (f) Loss of Collateral. The loss, theft, damage or destruction of
any of the Collateral in an amount in excess of $100,000 in excess of insurance
in the aggregate for all such events during any year of the Term as determined
by Lender in its reasonable discretion determined in good faith, or (except as
permitted hereby) sale, lease or furnishing under a contract of service of, any
of the Collateral.

            (g) Levy, Seizure or Attachment. The making or any attempt by any
Person to make any levy, seizure or attachment upon any of the Collateral with a
value in excess of $100,000.

            (h) Bankruptcy or Similar Proceedings. The commencement of any
proceedings in bankruptcy by or against any Obligor or for the liquidation or
reorganization of any Obligor, or alleging that such Obligor is insolvent or
unable to pay its debts as they mature, or for the readjustment or arrangement
of any Obligor's debts, whether under the United States Bankruptcy Code or under
any other law, whether state or federal, now or hereafter existing, for the
relief of debtors, or the commencement of any analogous statutory or
non-statutory proceedings involving any Obligor; provided, however, that if such
commencement of proceedings against such Obligor is involuntary, such action
shall not constitute an Event of Default unless such proceedings are not
dismissed within forty-five (45) days after the commencement of such
proceedings, though Lender shall have no obligation to make Loans or issue
Letters of Credit to Borrower during such forty-five (45) day period or, if
earlier, until such proceedings are dismissed.

            (i) Appointment of Receiver. The appointment of a receiver or
trustee for any Obligor, for any of the Collateral or for any substantial part
of any Obligor's assets or the institution of any proceedings for the
dissolution, or the full or partial liquidation, or the merger or consolidation,
of any Obligor which is a corporation, limited liability company or a
partnership; provided, however, that, if such appointment or commencement of
proceedings against such Obligor is involuntary, such action shall not
constitute an Event of Default unless such appointment is not revoked or such
proceedings are not dismissed within forty-five (45) days after the commencement
of such proceedings, though Lender shall have no obligation to make Loans or
issue Letters of Credit to Borrower during such forty-five (45) day period or,
if earlier, until such proceedings are dismissed.

                                       36
<PAGE>

            (j) Judgment. The entry of any judgments or orders aggregating in
excess of confirmed insurance coverage in an amount of $100,000 or more against
any Obligor which remain unsatisfied or undischarged and in effect for thirty
(30) days after such entry without a stay of enforcement or execution.

            (k) Default or Revocation of Guaranty; Subordination Agreement. The
occurrence of an event of default under, or the revocation or termination of,
any agreement, instrument or document executed and delivered by any Person to
Lender pursuant to which such Person has guaranteed to Lender the payment of all
or any of the Obligations, has granted Lender a Lien upon some or all of such
Person's real and/or personal property to secure the payment of all or any of
the Obligations or has subordinated indebtedness in whole or in part to the
Obligations.

            (l) Change of Ownership/Management. If any of the following events
occurs: (i) Jim Durham shall cease to be (x) the owner of 1,000,000 shares of
the issued and outstanding capital stock of Crdentia, and (y) the Chief
Executive Officer of Crdentia at any time, (ii) Pam Atherton shall cease to be
the President of the Borrower at any time, and (iii) Fred Toney shall cease to
be a director of the Borrower at any time, unless Borrower has received Lender's
written consent for a replacement of Jim Durham, Pam Atherton or Fred Toney, as
applicable, within 30 days of such notification (such consent not to be
unreasonably withheld).

            (m) Material Adverse Change. Any material adverse change in the
Collateral, business, property, assets, prospects, operations or condition,
financial or otherwise of any Obligor, as determined by Lender in its sole
judgment or the occurrence of any event which, in Lender's sole judgment, could
have a Material Adverse Effect.

            (n) Governmental Authorizations. A Governmental Authority shall have
revoked any Governmental Authorization of Borrower that results in the cessation
of business;

            (o) Lockbox Account Instructions. Any instruction or agreement
regarding an Account Debtor Collection Lockbox Account, or related lockbox is
amended or terminated without the written consent of Lender, or if Borrower
fails, within five (5) Business Days of receipt, to forward proceeds of Accounts
to the applicable lockbox account, or if Borrower directs any Account Debtor to
make a payment in respect of any such Account to any place or account other than
the applicable Account Debtor Collection Lockbox Account or Lockbox and such
directions are not reversed within five (5) Business Days; and/or

            (p) Failure to Maintain Third-Party Payroll Tax Service Provider.
The failure to maintain a contractual relationship with a payroll tax service
provider, acceptable to Lender, at any time.

      16. REMEDIES UPON AN EVENT OF DEFAULT.

            (a) Upon the occurrence and during the continuance of an Event of
Default described in Subsection 15(g) hereof, all of the Obligations shall
immediately and automatically become due and payable, without notice of any
kind. Upon the occurrence of any other Default or Event of Default, all
Obligations may, at the option of Lender, and without demand, notice or legal
process of any kind, be declared, and immediately shall become, due and payable.

                                       37
<PAGE>

            (b) Upon the occurrence and during the continuance of a Default or
an Event of Default, Lender may exercise from time to time any rights and
remedies available to it under the Uniform Commercial Code and any other
applicable law in addition to, and not in lieu of, any rights and remedies
expressly granted in this Agreement or in any of the Other Agreements and all of
Lender's rights and remedies shall be cumulative and non-exclusive to the extent
permitted by law. In particular, but not by way of limitation of the foregoing,
Lender may, without notice, demand or legal process of any kind, take possession
of any or all of the Collateral (in addition to Collateral of which it already
has possession), wherever it may be found, and for that purpose may pursue the
same wherever it may be found and, may enter onto any of Borrower's premises
where any of the Collateral may be, and search for, take possession of, remove,
keep and store any of the Collateral until the same shall be sold or otherwise
disposed of, and Lender shall have the right to store the same at any of
Borrower's premises without cost to Lender. At Lender's request, Borrower shall,
at Borrower's expense, assemble the Collateral and make it available to Lender
at one or more places to be designated by Lender and reasonably convenient to
Lender and Borrower. Borrower recognizes that if Borrower fails to perform,
observe or discharge any of its Obligations under this Agreement or the Other
Agreements, no remedy at law will provide adequate relief to Lender, and agrees
that Lender shall be entitled to temporary and permanent injunctive relief in
any such case without the necessity of proving actual damages. Any notification
of intended disposition of any of the Collateral required by law will be deemed
to be a reasonable authenticated notification of disposition if given at least
ten (10) days prior to such disposition and such notice shall (i) describe
Lender and Borrower, (ii) describe the Collateral that is the subject of the
intended disposition, (iii) state the method of the intended disposition, (iv)
state that Borrower is entitled to an accounting of the Obligations and state
the charge, if any, for an accounting and (v) state the time and place of any
public disposition or the time after which any private sale is to be made.
Lender may disclaim any warranties that might arise in connection with the sale,
lease or other disposition of the Collateral and has no obligation to provide
any warranties at such time. Any Proceeds of any disposition by Lender of any of
the Collateral may be applied by Lender to the payment of expenses in connection
with the Collateral, including, without limitation, legal expenses and
reasonable attorneys' fees, and any balance of such Proceeds may be applied by
Lender toward the payment of such of the Obligations, and in such order of
application as Lender may from time to time elect.

      17. CONDITIONS PRECEDENT.

      The obligation of Lender to fund the initial Revolving Loan is subject to
the satisfaction or waiver on or before the date hereof, of the following
conditions precedent:

            (a) Lender shall have received four (4) originals of each of the
agreements (other than the Subordination Agreements and the Account Control
Agreements for the deposit accounts listed therein), opinions, reports,
approvals, consents, certificates and other documents set forth on the closing
document list attached hereto as Exhibit C (the "Closing Document List"), or any
supplement thereto pertaining to a Permitted Acquisition in each case in form
and substance satisfactory to Lender (other than Notes, of which Lender shall
receive one (1) original) executed by Borrower and other required Persons, as
applicable;

                                       38
<PAGE>

            (b) Lender shall have received such financial statements, reports,
certifications, and other operational information required to be delivered under
this Agreement, including without limitation an initial Borrowing Base
Certificate calculating the Borrowing Base;

            (c) All of the obligations of Borrower to any prior lender (other
than Subordinated Debt) as in effect immediately prior to the Original Closing
Date will be performed and paid in full from the proceeds of the initial
advances under the initial Loans on the Original Closing Date and all Liens of
any such prior lender on any property of Borrower in respect thereof will be
terminated immediately upon such payment;

            (d) Lender shall have received evidence satisfactory to it that the
insurance policies required under Section 5 are in full force and effect,
together with written evidence showing loss payable or additional insured
clauses or endorsements in favor of Lender as required under such section;

            (e) Lender shall have received each of the agreements, opinions,
reports, approvals, consents, certificates and other documents set forth on the
Closing Document List in each case in form and substance satisfactory to Lender;

            (f) Since March 31, 2004, no event shall have occurred which has had
or could reasonably be expected to have a Material Adverse Effect on any
Obligor, as determined by Lender in its reasonable credit judgment, determined
in good faith;

            (g) Lender shall have received payment in full of all fees and
expenses payable to it by Borrower or any other Person in connection herewith,
on or before disbursement of the initial Loans hereunder, including, without
limitation, payment of all underwriting fees as agreed to by the parties;

            (h) Lender shall have determined that immediately after giving
effect to (A) the making of the initial Loans, and (B) the payment of all fees
due upon such date and (C) the payment or reimbursement by Borrower of Lender
for all closing costs and expenses incurred in connection with the transactions
contemplated hereby, Borrower has Excess Availability of not less than Five
Hundred Thousand Dollars ($500,000);

            (i) The Obligors shall have executed and delivered to Lender all
such other documents, instruments and agreements which Lender determines are
reasonably necessary to consummate the transactions contemplated hereby;

            (j) Lender shall have reviewed and found acceptable, in its sole
discretion, a third-party background check on Jim Durham, Pam Atherton and Fred
Toney;

            (k) Lender shall have reviewed the results of, and found such
results acceptable, in its sole discretion, a takedown audit including
verification of payment of all due and owing taxes;

                                       39
<PAGE>

            (l) Lender shall have received the results of a roll-forward
"take-over" audit, which shall be satisfactory to Lender in its sole discretion;

            (m) There is no material default in any of the Borrower's
obligations under any contract to which Borrower is a party;

            (n) Borrower shall be in compliance with all applicable laws;

            (o) Lender shall have received an opinion from Borrower's counsel,
in form and substance reasonably acceptable to the Lender;

            (p) Borrower shall have established and maintained in its name all
Lockboxes as set forth in Section 8 to the satisfaction of the Lender and
Borrower shall have delivered to Lender, with respect to each Deposit Account
maintained by Borrower, a deposit account control agreement in form and
substance satisfactory to the Lender, executed by the financial institution at
which such Deposit Account is maintained;

            (q) Borrower shall have delivered all due diligence materials to the
Lender as Lender has requested;

            (r) Lender shall have received an executed Collection Custodial
Agreement from an officer of the Borrowers in form and substance acceptable to
Lender;

            (s) BOF shall have received (i) the Term Loan Agreement, and (ii)
the Warrant Agreement, fully executed and each in form and substance
satisfactory to BOF;

            (t) Crdentia shall have received on or before the Closing Date a
cash capital contribution in the amount of $1,250,000;

            (u) Lender shall have received satisfactory evidence that Borrower
has secured the services of a third-party payroll tax service provider.

      18. JOINT AND SEVERAL LIABILITY.

            (a) Each Borrower hereby irrevocably designates Borrowing Agent to
be its attorney and agent and in such capacity to borrow, sign and endorse
notes, and execute and deliver all instruments, documents, writings and further
assurances now or hereafter required hereunder, on behalf of such Borrower or
Borrowers, and hereby authorizes Lender to pay over or credit all loan proceeds
hereunder in accordance with the request of Borrowing Agent.

            (b) The handling of this credit facility as a co-borrowing facility
with a borrowing agent in the manner set forth in this Agreement is solely as an
accommodation to Borrowers and at their request. Lender shall not incur
liability to Borrowers as a result thereof. To induce Lender to do so and in
consideration thereof, each Borrower hereby indemnifies Lender and holds Lender
harmless from and against any and all liabilities, expenses, losses, damages and
claims of damage or injury asserted against Lender by any Person arising from or
incurred by reason of the handling of the financing arrangements of Borrowers as
provided herein, reliance by Lender on any request or instruction from Borrowing
Agent or any other action taken by Lender with respect to this Section 18 except
due to willful misconduct or gross (not mere) negligence by the indemnified
party.

                                       40
<PAGE>

            (c) Notwithstanding anything to the contrary contained herein, all
Obligations of each Borrower hereunder shall be joint and several obligations of
Borrowers.

            (d) Notwithstanding any provisions of this Agreement to the
contrary, it is intended that the joint and several nature of the Obligations of
Borrowers, and the liens and security interests granted by Borrowers to secure
the Obligations, not constitute a "Fraudulent Conveyance" (as defined below).
Consequently, Lender and Borrowers agree that if the Obligations of a Borrower,
or any liens or security interests granted by such Borrower securing the
Obligations, would, but for the application of this sentence, constitute a
Fraudulent Conveyance, the Obligations of such Borrower and the liens and
security interests securing such Obligations shall be valid and enforceable only
to the maximum extent that would not cause such Obligations or such lien or
security interest to constitute a Fraudulent Conveyance, and the Obligations of
such Borrower and this Agreement shall automatically be deemed to have been
amended accordingly. For purposes hereof, "Fraudulent Conveyance" means a
fraudulent conveyance under Section 548 of Chapter 11 of Title II of the United
States Code (11 U.S.C. ss. 101, et seq.), as amended (the "Bankruptcy Code"), or
a fraudulent conveyance or fraudulent transfer under the applicable provisions
of any fraudulent conveyance or fraudulent transfer law or similar law of any
state, nation or other governmental unit, as in effect from time to time.

            (e) Each Borrower assumes responsibility for keeping itself informed
of the financial condition of the each other Borrower, and any and all endorsers
and/or guarantors of any instrument or document evidencing all or any part of
such other Borrower's Obligations, and of all other circumstances bearing upon
the risk of nonpayment by such other Borrowers of their Obligations and each
Borrower agrees that Lender shall not have any duty to advise such Borrower of
information known to Lender regarding such condition or any such circumstances
or to undertake any investigation not a part of its regular business routine. If
Lender, in its sole discretion, undertakes at any time or from time to time to
provide any such information to a Borrower, Lender shall not be under any
obligation to update any such information or to provide any such information to
such Borrower on any subsequent occasion.

            (f) Lender is hereby authorized, without notice or demand and
without affecting the liability of a Borrower hereunder, to, at any time and
from time to time, (i) renew, extend, accelerate or otherwise change the time
for payment of, or other terms relating to, a Borrower's Obligations or
otherwise modify, amend or change the terms of any promissory note or other
agreement, document or instrument now or hereafter executed by a Borrower and
delivered to Lender; (ii) accept partial payments on a Borrower's Obligations;
(iii) take and hold security or collateral for the payment of a Borrower's
Obligations hereunder or for the payment of any guaranties of a Borrower's
Obligations or other liabilities of a Borrower and exchange, enforce, waive and
release any such security or collateral; (iv) apply such security or collateral
and direct the order or manner of sale thereof as Lender, in its sole
discretion, may determine; and (v) settle, release, compromise, collect or
otherwise liquidate a Borrower's Obligations and any security or collateral
therefor in any manner, without affecting or impairing the obligations of the
other Borrowers. Lender shall have the exclusive right to determine the time and
manner of application of any payments or credits, whether received from a
Borrower or any other source, and such determination shall be binding on such
Borrower. All such payments and credits may be applied, reversed and reapplied,
in whole or in part, to any of a Borrower's Obligations as Lender shall
determine in its sole discretion without affecting the validity or
enforceability of the Obligations of the other Borrowers.

                                       41
<PAGE>

            (g) Each Borrower hereby agrees that, except as hereinafter
provided, its obligations hereunder shall be unconditional, irrespective of (i)
the absence of any attempt to collect a Borrower's Obligations from any Borrower
or any guarantor or other action to enforce the same; (ii) the waiver or consent
by Lender with respect to any provision of any instrument evidencing Borrowers'
Obligations, or any part thereof, or any other agreement heretofore, now or
hereafter executed by a Borrower and delivered to Lender; (iii) failure by
Lender to take any steps to perfect and maintain its security interest in, or to
preserve its rights to, any security or collateral for Borrowers' Obligations;
(iv) the institution of any proceeding under the Bankruptcy Code, or any similar
proceeding, by or against a Borrower or Lender's election in any such proceeding
of the application of Section 1111(b)(2) of the Bankruptcy Code; (v) any
borrowing or grant of a security interest by any Borrower as
debtor-in-possession under Section 364 of the Bankruptcy Code; (vi) the
disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of
Lender's claim(s) for repayment of any of Borrowers' Obligations; or (vii) any
other circumstance which might otherwise constitute a legal or equitable
discharge or defense of a guarantor.

            (h) Until the Obligations of Lender have been paid in full, no
payment made by or for the account of a Borrower, including, without
limitations, (i) a payment made by such Borrower on behalf of another Borrower's
Obligations or (ii) a payment made by any other person under any guaranty, shall
entitle such Borrower, by subrogation or otherwise, to any payment from such
other Borrower or from or out of such other Borrower's property and such
Borrower shall not exercise any right or remedy against such other Borrower or
any property of such other Borrower by reason of any performance of such
Borrower of its joint and several obligations hereunder.

                                       42
<PAGE>

      19. RELEASES; INDEMNITIES.

      (a) To the fullest extent permitted by applicable law, in consideration of
Lender's entering into this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which Borrower hereby
acknowledges, Borrower, on its own behalf and on behalf of its successors
(including, without limitation, any receiver or trustee acting on behalf of
Borrower and any debtor-in-possession with respect to Borrower), assigns,
subsidiaries and Affiliates (collectively, the "Releasors"), hereby forever
release, discharge and acquit Lender and its parents, subsidiaries,
shareholders, Affiliates, partners, trustees, officers, employees, directors,
agents and attorneys and their respective successors, heirs and assigns
(collectively, the "Releasees") from any and all claims, demands, liabilities,
responsibilities, disputes, causes, damages, actions and causes of actions
(whether at law or in equity) indebtedness and obligations (collectively,
"Claims") of every type, kind, nature, description or character, including,
without limitation, any so-called "lender liability" claims or defenses, and
irrespective of how, why or by reason of what facts, whether such Claims have
heretofore arisen, are now existing or hereafter arise, or which could, might or
be claimed to exist, of whatever kind or nature, whether known or unknown,
suspected or unsuspected, liquidated or unliquidated, matured or unmatured,
fixed or contingent, each as though fully set forth herein at length, which may
in any way arise out of, are connected with or in any way relate to actions or
omissions which occurred on or prior to the date hereof with respect to
Borrower, this Agreement, the Obligations, any Collateral, the Prior Agreements,
any other Loan Document and any third parties liable in whole or in part for the
Obligations, other than such Claims arising out of the gross negligence or
willful misconduct of a Releasee. This provision shall survive and continue in
full force and effect whether or not Borrower shall satisfy all other provisions
of this Agreement or the Loan Documents, including payment in full of the
Obligations.

      (b) Each of the Releasors further agrees to indemnify the Releasees and
hold the Releasees harmless from and against any and all such Claims (as such
term is defined in the immediately preceding paragraph) which may be brought
against any of the Releasees on behalf of any entity or Person, including,
without limitation, officers, directors, agents, trustees, creditors, partners
or shareholders of any of the Releasors, whether threatened or initiated,
asserting any claim for legal or equitable remedy under any statutes, regulation
or common law principle arising from or in connection with the negotiation,
preparation, execution, delivery, performance, administration and enforcement of
this Agreement or any other Loan Document, the Obligations, any Collateral or
the Prior Agreements, other than such Claims arising out of the gross negligence
or willful misconduct of a Releasee. The foregoing indemnity shall survive the
payment in full of the Obligations and the termination of this Agreement and the
other Loan Documents.

      20. NOTICE.

      All written notices and other written communications with respect to this
Agreement shall be sent by ordinary, certified or overnight mail, by telecopy or
delivered in person, and in the case of Lender shall be sent to it at 233 South
Wacker Drive, Suite 5350, Chicago, Illinois 60606, Attention: Chief Credit
Officer, facsimile number: (312) 334-4450, and in the case of Borrower shall be
sent to it at its principal place of business set forth on Schedule 11(b) hereto
or as otherwise directed by Borrower in writing. All notices shall be deemed
received upon actual receipt thereof or refusal of delivery.

                                       43
<PAGE>

      21. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION.

      This Agreement and the Other Agreements are submitted by Borrower to
Lender for Lender's acceptance or rejection at Lender's principal place of
business as an offer by Borrower to borrow monies from Lender now and from time
to time hereafter, and shall not be binding upon Lender or become effective
until accepted by Lender, in writing, at said place of business. If so accepted
by Lender, this Agreement and the Other Agreements shall be deemed to have been
made at said place of business. THIS AGREEMENT AND THE OTHER AGREEMENTS SHALL BE
GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO
INTERPRETATION, ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER
RESPECTS, INCLUDING, WITHOUT LIMITATION, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF THE SECURITY INTERESTS IN COLLATERAL
LOCATED OUTSIDE OF THE STATE OF ILLINOIS, WHICH SHALL BE GOVERNED AND CONTROLLED
BY THE LAWS OF THE RELEVANT JURISDICTION IN WHICH SUCH COLLATERAL IS LOCATED. If
any provision of this Agreement shall be held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or remaining provisions of this Agreement.

      To induce Lender to accept this Agreement, Borrower irrevocably agrees
that, subject to Lender's sole and absolute election, ALL ACTIONS OR PROCEEDINGS
IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR RELATED TO THIS
AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE LITIGATED IN COURTS
HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS. BORROWER HEREBY
CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS
LOCATED WITHIN SAID CITY AND STATE. BORROWER HEREBY WAIVES PERSONAL SERVICE OF
ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON
SUCH BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED,
ADDRESSED TO BORROWER AT THE ADDRESS SET FORTH FOR NOTICE IN THIS AGREEMENT AND
SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED.
BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF
ANY LITIGATION BROUGHT AGAINST BORROWER BY LENDER IN ACCORDANCE WITH THIS
SECTION.

      22. MODIFICATION AND BENEFIT OF AGREEMENT.

      This Agreement and the Other Agreements may not be modified, altered or
amended except by an agreement in writing signed by Borrower or such other
Person who is a party to such Other Agreement and Lender. Borrower may not sell,
assign or transfer this Agreement, or the Other Agreements or any portion
thereof, including, without limitation, Borrower's rights, titles, interest,

                                       44
<PAGE>

remedies, powers or duties hereunder and thereunder. Borrower hereby consents to
Lender's sale, assignment, transfer, pledge or other disposition, at any time
and from time to time hereafter, of this Agreement, or the Other Agreements, or
of any portion thereof, or to Lender granting participations in the Obligations
and related Loan Documents, including, without limitation, Lender's rights,
titles, interest, remedies, powers and/or duties. Borrower agrees that it shall
execute and deliver such documents as Lender may request in connection with the
foregoing. Borrower further consents to the pledge or collateral assignment and
grant of a security interest, by Lender, in connection with its' own financing,
including all rights, benefits, warranties, representations, covenants,
indemnities and remedies, and all proceeds of the foregoing, contained in this
Agreement and any of the Other Agreements.

      23. HEADINGS OF SUBDIVISIONS.

      The headings of subdivisions in this Agreement are for convenience of
reference only, and shall not govern the interpretation of any of the provisions
of this Agreement.

      24. POWER OF ATTORNEY.

      Borrower acknowledges and agrees that its appointment of Lender as its
attorney and agent-in-fact for the purposes specified in this Agreement is an
appointment coupled with an interest and shall be irrevocable until all of the
Obligations are satisfied and paid in full and this Agreement is terminated.

      25. CONFIDENTIALITY.

      Lender hereby agrees to use commercially reasonable efforts to assure that
any and all information relating to Borrower which is (i) furnished by Borrower
to Lender (or to any affiliate of Lender); and (ii) non-public, confidential or
proprietary in nature shall be kept confidential by Lender or such affiliate in
accordance with applicable law; provided, however, that such information and
other credit information relating to Borrower may be distributed by Lender or
such affiliate to Lender's or such affiliate's directors, officers, employees,
attorneys, affiliates, assignees, participants, auditors, agents and regulators,
and upon the order of a court or other governmental agency having jurisdiction
over Lender or such affiliate, to any other party, as long as such person or
entity has been informed of Lender's confidentiality obligation hereunder and
has agreed to abide by its terms. Borrower and Lender further agree that this
provision shall survive the termination of this Agreement. Notwithstanding the
foregoing, Borrower hereby consents to Lender publishing a tombstone or similar
advertising material relating to the financing transaction contemplated by this
Agreement.

      26. BROKERAGE FEES.

      Borrower represents and warrants to Lender that, with respect to the
financing transaction contemplated herein, no Person (other than Roth Capital
Partners, LLC) is entitled to any brokerage fee or other commission and Borrower
agrees to indemnify and hold Lender harmless against any and all such claims.

      27. PUBLICITY.

                                       45
<PAGE>

      Lender is hereby authorized to issue appropriate press releases and to
cause a tombstone to be published announcing the consummation of this
transaction and the aggregate amount thereof.

      28. LIMITATION OF ACTIONS.

      Borrower agrees that any claim or cause of action by Borrower against
Lender, or any of Lender's directors, officers, employees, agents, accountants
or attorneys, based upon, arising from, or relating to this Agreement, or any
other present or future agreement, or any other transaction contemplated hereby
or thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, whether or not relating hereto or thereto, occurred, done, omitted
or suffered to be done by Lender, or by Lender's directors, officers, employees,
agents, accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Borrower by the commencement of an
action or proceeding in a court of competent jurisdiction by the filing of a
complaint within one (1) year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based and service
of a summons and complaint on an officer of Lender or any other Person
authorized to accept service of process on behalf of Lender, within thirty (30)
days thereafter. Borrower agrees that such one-year period of time is a
reasonable and sufficient time for Borrower to investigate and act upon any such
claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by a specific written agreement of Lender.
This provision shall survive any termination of this Agreement or any other
agreement.

      29. LIABILITY.

      Neither Lender nor any Lender Affiliate shall be liable for any indirect,
special, incidental or consequential damages in connection with any breach of
contract, tort or other wrong relating to this Agreement or the Obligations or
the establishment, administration or collection thereof (including without
limitation damages for loss of profits, business interruption, or the like),
whether such damages are foreseeable or unforeseeable, even if Lender has been
advised of the possibility of such damages. Neither Lender, nor any Lender
Affiliate shall be liable for any claims, demands, losses or damages, of any
kind whatsoever, made, claimed, incurred or suffered by the Borrower through the
ordinary negligence of Lender, or any Lender Affiliate.

      30. COUNTERPARTS.

      This Agreement, any of the Other Agreements, and any amendments, waivers,
consents or supplements may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which, when so
executed and delivered, shall be deemed an original, but all of which
counterparts together shall constitute but one agreement.

                                       46
<PAGE>

      31. ELECTRONIC SUBMISSIONS.

      Upon not less than thirty (30) days' prior written notice (the "Approved
Electronic Form Notice"), Lender may permit or require that any of the
documents, certificates, forms, deliveries or other communications, authorized,
required or contemplated by this Agreement or the Other Agreements be submitted
to Lender in "Approved Electronic Form" (as hereafter defined), subject to any
reasonable terms, conditions and requirements in the applicable Approved
Electronic Forms Notice. For purposes hereof, "Electronic Form" means e-mail,
e-mail attachments, data submitted on web-based forms or any other communication
method that delivers machine readable data or information to Lender, and
"Approved Electronic Form" means an Electronic Form that has been approved in
writing by Lender (which approval has not been revoked or modified by Lender)
and sent to Borrower in an Approved Electronic Form Notice. Except as otherwise
specifically provided in the applicable Approved Electronic Form Notice, any
submissions made in an applicable Approved Electronic Form shall have the same
force and effect that the same submissions would have had if they had been
submitted in any other applicable form authorized, required or contemplated by
this Agreement or the Other Agreements.

      32. WAIVER OF JURY TRIAL; OTHER WAIVERS.

            (a) BORROWER AND LENDER EACH HEREBY WAIVES ALL RIGHTS TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS
AGREEMENT, ANY OF THE OTHER AGREEMENTS, THE OBLIGATIONS, THE COLLATERAL, ANY
ALLEGED TORTUOUS CONDUCT BY BORROWER OR LENDER OR WHICH, IN ANY WAY, DIRECTLY OR
INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN BORROWER AND
LENDER. IN NO EVENT SHALL LENDER BE LIABLE FOR LOST PROFITS OR OTHER SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.

            (b) Borrower hereby waives demand, presentment, protest and notice
of nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.

            (c) Borrower hereby waives the benefit of any law that would
otherwise restrict or limit Lender or any affiliate of Lender in the exercise of
its right, which is hereby acknowledged and agreed to, to set-off against the
Obligations, without notice at any time hereafter, any indebtedness, matured or
unmatured, owing by Lender or such affiliate of Lender to Borrower, including,
without limitation, any deposit account at Lender or such affiliate.

            (d) BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY LENDER OF ITS RIGHTS TO REPOSSESS THE COLLATERAL
OF BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL, PROVIDED THAT IN THE EVENT LENDER SEEKS TO ENFORCE ITS RIGHTS
HEREUNDER BY JUDICIAL PROCESS OR SELF-HELP, LENDER SHALL PROVIDE BORROWER WITH
SUCH NOTICES AS ARE REQUIRED BY LAW.

                                       47
<PAGE>

            (e) Lender's failure, at any time or times hereafter, to require
strict performance by Borrower of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any suspension
or waiver by Lender of an Event of Default under this Agreement or any default
under any of the Other Agreements shall not suspend, waive or affect any other
Event of Default under this Agreement or any other default under any of the
Other Agreements, whether the same is prior or subsequent thereto and whether of
the same or of a different kind or character. No delay on the part of Lender in
the exercise of any right or remedy under this Agreement or any Other Agreement
shall preclude other or further exercise thereof or the exercise of any right or
remedy. None of the undertakings, agreements, warranties, covenants and
representations of Borrower contained in this Agreement or any of the Other
Agreements and no Event of Default under this Agreement or default under any of
the Other Agreements shall be deemed to have been suspended or waived by Lender
unless such suspension or waiver is in writing, signed by a duly authorized
officer of Lender and directed to Borrower specifying such suspension or waiver.

      33. AMENDMENT AND RESTATEMENT. This agreement is intended to amend the
Original Agreement, without novation, and, solely for the convenience of
reference, to restate it. All Revolving Loans outstanding under the Original
Credit Agreement shall be Revolving Loans outstanding hereunder. The parties
acknowledge and agree that any reference to the "Loan Agreement" in the other
Loan Documents shall mean and be references to the Original Loan Agreement, as
amended and restated by this Agreement.

                             SIGNATURE PAGES FOLLOW


                                       48
<PAGE>

                  Signature Page to Loan and Security Agreement

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.

                                             CRDENTIA CORP.,
                                             a Delaware corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             BAKER ANDERSON CHRISTIE, INC.,
                                             a California corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             NURSES NETWORK, INC.,
                                             a California corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             NEW AGE STAFFING, INC.,
                                             a Delaware corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

<PAGE>

       (Signature Page to First Amendment to Loan and Security Agreement)

                                             PSR NURSES, LTD.,
                                             a Texas limited partnership

                                             By:  PSR NURSE RECRUITING, INC.
                                             Its: General Partner

                                             By:  /s/ James D. Durham
                                                  James D. Durham
                                                --------------------------------
                                                  Chief Executive Officer


                                             PSR NURSE RECRUITING, INC.,
                                             a Texas corporation

                                             By:  /s/ James D. Durham
                                                --------------------------------
                                                  James D. Durham
                                                  Chief Executive Officer

                                             PSR NURSES HOLDINGS CORP.,
                                             a Texas corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                                  James D. Durham
                                                  Chief Executive Officer

                                             CRDE CORP.,
                                             a Delaware corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

                                             ARIZONA HOME HEALTH CARE/PRIVATE
                                             DUTY, INC., an Arizona corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

<PAGE>

                  Signature Page to Loan and Security Agreement

                                             CARE PROS STAFFING, INC.,
                                             a Texas corporation

                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------


<PAGE>

       (Signature Page to First Amendment to Loan and Security Agreement)

                                             BRIDGE OPPORTUNITY FINANCE, LLC, a
                                             Delaware limited
                                             liability company, as Lender


                                             By:/s/ Randy Abrahams
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

<PAGE>

                              ANNEX I-DEFINED TERMS

         "Account" shall mean all present and future accounts and payment
intangibles (in respect of Staffing Services), as such terms are defined in the
UCC, of Borrower, including, without limitation, all obligations for the payment
of money (including, without limitation, all amounts due and owing from
Governmental Authorities to the extent such amounts are deemed to be or
construed to be general intangibles) arising out of the sale, lease, license or
other disposition of goods or other Property or the rendering of services and
all proceeds thereof.

         "Account Debtor" shall mean, with respect to any Account, the Person
obligated to pay under such Account. The term "Account Debtor" specifically
includes, without limitation, any insurer or Government Reimbursement Program.

         "Account Debtor Collection Lockbox Account" shall mean an account or
accounts maintained at the Lockbox Bank into which all collections of Accounts
are paid directly; the Account Debtor Collection Lockbox Account shall be an
account in the name of Lender (or Borrower for the sole benefit of Lender), and
shall be the sole and exclusive property of Lender.

         "Acquisition" shall mean the purchase by Crdentia (or another Borrower)
of all of the issued and outstanding equity interests or substantially all of
the operating assets of any Person in the healthcare staffing industry pursuant
to the Acquisition Documents.

         "Acquisition Documents" shall mean all agreements, instruments and
documents executed or delivered in connection with an Acquisition.

         "Acquisition Subsidiary" shall mean CRDE Corp., the Subsidiary of
Crdentia formed to hold all Target entities acquired in Permitted Acquisitions,
and shall mean, collectively, CRDE Corp. and each of its direct or indirect
subsidiaries.

         "Acquisition Subsidiary Consolidated Basis" shall mean the financial
reporting by Acquisition Subsidiary and all of its direct or indirect
subsidiaries, on a consolidated basis.

         "Acquisition Subsidiary Debt" shall mean and include, collectively (a)
the outstanding Revolving Loans to Acquisition Subsidiary, plus (b) the
aggregate principal amount of the Term Loan then outstanding, plus (c) all
Capitalized Lease Obligations of Acquisition Subsidiary, plus (d) all other
Indebtedness for Borrowed Money of Acquisition Subsidiary, excluding the
Subordinated Debt.

         "Acquisition Subsidiary EBITDA" shall mean, with respect to any period,
Acquisition Subsidiary's, on an Acquisition Subsidiary Consolidated Basis, net
income after taxes for such period (excluding any after-tax gains or losses and
excluding other after-tax extraordinary gains or losses) plus interest expense,
income tax expense, depreciation and amortization for such period, plus or minus
any other non-cash charges or gains which have been subtracted or added in
calculating net income after taxes for such period. In the event that the period
of measurement is less than 12 months, the Acquisition Subsidiary EBITDA shall
be determined on an annualized basis. Upon each Permitted Acquisition and the
addition of a Target to the consolidated financial reporting of the Acquisition
Subsidiary, the portion of the Acquisition Subsidiary EBITDA attributable to the
Target shall be calculated on an annualized basis, until such Target has been a
part of the Acquisition Subsidiary for 12 months.

                                   Annex I - 1
<PAGE>

         "Acquisition Subsidiary Excess Availability" shall mean, as of any date
of determination by Lender, the excess, if any, of the Revolving Borrowing Base
Amount attributable to the Acquisition Subsidiary less the sum of the
outstanding Revolving Loans to the Acquisition Subsidiary, as of the close of
business on such date and assuming, for purposes of calculation, that all
accounts payable of the Acquisition Subsidiary which remain unpaid more than
thirty (30) days after the due dates thereof (except for professional fees and
amounts contested in good faith) as of the close of business on such date are
treated as additional Revolving Loans outstanding on such date.

          "Acquisition Subsidiary Term Loan Debt" shall mean and include,
collectively, the aggregate principal amount of the Term Loan outstanding
hereunder.

         "Affiliate" shall mean any Person (i) which directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, Borrower, (ii) which beneficially owns or holds five
percent (5%) or more of the voting control or equity interests of Borrower, or
(iii) five percent (5%) or more of the voting control or equity interests of
which is beneficially owned or held by Borrower.

         "Authorized Officer" shall mean, as applied to any Person, any
individual holding the position of chairman of the board (if an officer), chief
executive officer, president or one of its vice presidents (or the equivalent
thereof), and such Person's chief financial officer or treasurer.

         "Borrowed Money" shall mean, as applied to any Person, without
duplication, (a) all Indebtedness of such Person, (b) all debt of such Person,
whether or not evidenced by bonds, debentures, notes or similar instruments, (c)
all obligations of such Person as lessee under Capital Leases which have been or
should be recorded as liabilities on a balance sheet of such Person in
accordance with GAAP, (d) all obligations of such Person to pay the deferred
purchase price of property or services (excluding trade accounts payable in the
ordinary course of business), (e) all indebtedness secured by a Lien on the
property of such Person, whether or not such indebtedness shall have been
assumed by such Person; provided that if such Person has not assumed or
otherwise become liable for such indebtedness, such indebtedness shall be
measured at the fair market value of such property securing such indebtedness at
the time of determination, (f) all obligations, contingent or otherwise, with
respect to the face amount of all letters of credit (whether or not drawn),
bankers' acceptances and similar obligations issued for the account of such
Person (including the Letters of Credit), (g) all hedging, swap, or similar
obligations of such Person, (h) all Contingent Liabilities of such Person and
(i) all debt of any partnership, limited liability company, or other entity
(only if such partnership, limited liability company or other entity is a
Borrower) of which such Person is a majority owner.

         "BOF" shall mean Bridge Opportunity Finance, LLC.

         "Borrower" and "Borrowers" shall mean, individually and collectively,
each of the Borrowers named in the first paragraph hereof provided that each
reference to "Borrower" herein shall mean each Borrower individually and all
Borrowers collectively, as the context requires.

                                   Annex I - 2
<PAGE>

         "Borrowing Agent" shall mean Crdentia.

         "Borrowing Base Certificate" shall mean an officer's certificate, in
the form and substance agreeable to Lender, delivered by Borrower to Lender
pursuant to the terms of this Agreement.

         "Business Day" shall mean any day other than a Saturday, a Sunday or
any day that banks in Chicago, Illinois are required or permitted to close.

         "Capital Expenditures" shall mean with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including Capital Lease Obligations) by Borrowers during such period that
are required by GAAP, consistently applied, to be included in or reflected by
the property, plant and equipment or similar fixed asset accounts (or intangible
accounts subject to amortization) on the balance sheet of Borrowers, excluding
expenditures for any assets or equity interests acquired pursuant to a Permitted
Acquisition.

         "Capital Lease" shall mean, as to any Person, a lease of any interest
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, by such Person as lessee that is, or should be, recorded as a
"capital lease" on the balance sheet of such Person prepared in accordance with
GAAP.

         "Capital Lease Obligations" shall mean, as to any Person, indebtedness
represented by obligations under a Capital Lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP.

         "Closing Date" shall mean August 31, 2004.

         "Closing Date Permitted Acquisitions" shall mean the Permitted
Acquisition by Borrower of (i) Arizona Home Health Care / Private Duty, Inc. and
(ii) Care Pros Staffing, Inc.

         "Closing Document List" shall have the meaning set forth in Section 17
hereof.

         "Collateral" shall mean all of the property of Borrower described in
Section 5 hereof, together with all other real or personal property of any
Obligor or any other Person now or hereafter pledged to Lender to secure, either
directly or indirectly, repayment of any of the Obligations.

         "Concentration Account" shall have the meaning set forth in Section
8(a).

         "Contingent Liability" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to or otherwise to
invest in a debtor, or otherwise to assure a creditor against loss) any
Indebtedness, obligation or other liability of any other Person (other than by
endorsements of instruments in the course of collection), or guarantees the
payment of dividends or other distributions upon the shares of any other Person.
The amount of any Contingent Liability shall (subject to any limitation set
forth herein) be deemed to be the outstanding principal amount (or maximum
permitted principal amount, if larger) of the Indebtedness, obligation or other
liability guaranteed or supported thereby.


                                   Annex I - 3
<PAGE>

         "Crdentia Proper Borrowers" shall mean Crdentia and all of its
Subsidiaries, except for Acquisition Subsidiary and its Subsidiaries.

         "Crdentia Proper Consolidated Basis" shall mean the financial reporting
by the Borrowers of Crdentia all of their Subsidiaries, except for Acquisition
Subsidiary and its Subsidiaries, on a consolidated basis.

         "Default" shall mean an event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.

         "Derivative Obligations" shall mean every obligation of a Person under
any forward contract, futures contract, exchange contract, swap, option or other
financing agreement or arrangement (including, without limitation, caps, floors,
collars and similar agreement), the value of which is dependent upon interest
rates, currency exchange rates, commodities or other indices.

         "Dilution" shall mean, with respect to any period, the percentage
obtained by dividing (i) the sum of non-cash credits against Accounts
(including, but not limited to returns, adjustments and rebates) of Borrower for
such period, plus pending or probable, but not yet applied, non-cash credits
against Accounts of Borrower for such period, as determined by Lender in its
sole discretion, by (ii) gross invoiced sales of Borrower for such period.

         "EBITDA" shall mean, with respect to any period, Crdentia Proper
Borrowers', on a Crdentia Proper Consolidated Basis, net income after taxes for
such period (excluding any after-tax gains or losses and excluding other
after-tax extraordinary gains or losses) plus interest expense, income tax
expense, depreciation and amortization for such period, plus or minus any other
non-cash charges or gains which have been subtracted or added in calculating net
income after taxes for such period.

         "Eligible Account" shall mean an Account arising in the ordinary course
of Borrower's business from the rendition of Staffing Services, which was
generated originally in the name of Borrower and not acquired via assignment or
otherwise from another Person that Lender, in its reasonable credit judgment,
shall deem eligible based on such considerations as Lender may from time to time
deem appropriate. Without limiting the foregoing, an Account shall NOT be deemed
to be an Eligible Account if:

            (i) the Account remains unpaid for a period of one hundred twenty
(120) days past the date of invoice;

            (ii) the Account Debtor has failed to pay more than fifty percent
(50%) of all of the outstanding amounts owed by the particular Account Debtor or
payor to Borrower one hundred twenty (120) days after the dates of service for
such Accounts;

            (iii) the Account Debtor is an Affiliate of Borrower;

                                   Annex I - 4
<PAGE>

            (iv) the Account does not arise out of the ordinary course of
Borrower's business, or as to which a portion, if payable by a third-party payor
or acceptable to Lender pursuant to which payment by the account debtor or payor
may be conditional;

            (v) the Account Debtor is located outside of the United States;

            (vi) the Account Debtor is the United States or any department,
agency or instrumentality thereof, except to the extent that the requirements of
the Federal Assignment of Claims Act, 31 U.S.C. Section 3727;

            (vii) Borrower is or may become liable to the Account Debtor for
goods sold or services rendered by the Account Debtor to Borrower;

            (viii) the Account Debtor's total obligations to Borrower exceed
twenty-five percent (25%) of all Eligible Accounts, to the extent of such
excess;

            (ix) the Account Debtor disputes liability with respect to the
applicable Account or makes any claim with respect thereto (up to the amount of
such liability or claim), or is subject to any insolvency or bankruptcy
proceeding or becomes insolvent, or fails or goes out of a material portion of
its business;

            (x) the amount thereof consists of late charges or finance charges,
but only to the extent of such charges;

            (xi) the amount thereof consists of a credit balance more than one
hundred twenty (120) days past due;

            (xii) the face amount of any single invoice thereof exceeds $20,000
unless accompanied by evidence of invoice relating thereto satisfactory to
Lender in its reasonable credit judgment;

            (xiii) the Account Debtor is an individual or private party not in
the business of providing healthcare services (e.g. "self-pay" individuals not
covered by insurance or workers compensation);

            (xiv) the amount thereof is not yet represented by an invoice or
bill issued in the name of the applicable Account Debtor, other than as
contemplated by Section 2(a)(ii);

            (xv) the amount thereof is denominated in or payable with any
currency other than U. S. Dollars;

            (xvi) the Account is not at all times subject to Lender's duly
perfected first priority security interest; or

                                   Annex I - 5
<PAGE>


            (xvii) the representations and warranties with respect to such
Account set forth in Section 11(w) of this Agreement have been breached or are
no longer true and correct.

         "Environmental Laws" shall mean all federal, state, district, local and
foreign laws, rules, regulations, ordinances, and consent decrees relating to
health, safety, hazardous substances, pollution and environmental matters, as
now or at any time hereafter in effect, applicable to Borrower's business or
facilities owned or operated by Borrower, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contamination,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes into
the environment (including, without limitation, ambient air, surface water,
ground water, land surface or subsurface strata) or otherwise relating to the
generation, manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, modified or restated from time to time.

         "Event of Default" shall have the meaning specified in Section 15
hereof.

         "Excess Availability" shall mean, as of any date of determination by
Lender, the excess, if any, of the lesser of (i) the Maximum Revolving Loan
Limit less the sum of the outstanding Revolving Loans and (ii) the Revolving
Borrowing Base Amount less the sum of the outstanding Revolving Loans, in each
case as of the close of business on such date and assuming, for purposes of
calculation, that all accounts payable of the Borrower which remain unpaid more
than thirty (30) days after the due dates thereof (except for professional fees
and amounts contested in good faith) as of the close of business on such date
are treated as additional Revolving Loans outstanding on such date.

         "Fiscal Year" shall mean each twelve (12) month accounting period of
Borrower, which ends on December 31st of each year.

         "GAAP" shall mean generally accepted accounting principles, using the
accrual basis of accounting and consistently applied with prior periods to the
extent required under Section 1(b); provided, however, that GAAP with respect to
any interim financial statements or reports shall be deemed subject to fiscal
year-end adjustments and footnotes made in accordance with GAAP.

         "Governmental Authorization" means any permit, license, registration,
authorization, certificate, accreditation, plan, directive, consent order or
consent decree of or from, or notice to, any Government Authority.

         "Government Authority" means any federal, state, District of Columbia,
municipal, national or other government, governmental department, commission,
board, bureau, court, agency or instrumentality or political subdivision thereof
or any entity or officer exercising executive, legislative, judicial, regulatory
or administrative functions of or pertaining to any government or any court, in
each case whether associated with a state of the United States, the United
States, or a foreign entity or government.

                                   Annex I - 6

<PAGE>

         "Government Reimbursement Program" shall mean (i) the Medicare program
established under the Title XVIII of the Federal Social Security Act, the
Federal Employees Health Benefit Program under 5 U.S.C. ss.ss. 8902 et seq., the
TRICARE program established by the Department of Defense under 10 U.S.C. ss.ss.
1071 et seq. or the Civilian Health and Medical Program of the Uniformed
Services under 10 U.S.C. ss.ss. 1079 and 1086, (ii) the Medicaid program of any
state or the District of Columbia acting pursuant to a health plan adopted
pursuant to Title XIX of the Federal Social Security Act or (iii) any agent,
administrator, intermediary or carrier for any of the foregoing.

         "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substance, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are, or become, regulated under any Environmental Law (including, without
limitation any that are, or become, classified as hazardous or toxic under any
Environmental Law).

         "Healthcare Regulations" means any and all current or future Laws
relating to HMOs, healthcare service providers, Government Reimbursement
Programs, Persons engaged in the Healthcare Service Business, healthcare-related
insurance companies, or any other similar Person and any rule, regulation,
directive, order or decision promulgated or issued pursuant thereto. Healthcare
Regulations shall include the Food, Drug and Cosmetic Act (21 U.S.C. ss. 301 et
seq.), federal anti-kickback statute (42 U.S.C. ss. 1320a-7b), the False Claims
Act (31 U.S.C. ss.ss. 3729 et seq.), the Health Insurance Portability and
Accountability Act of 1996 (Pub. L. No. 104-191, 110 Stat. 1936 (1996)) and the
federal physician self-referral laws (42 U.S.C. ss. 1395nn).

          "Indebtedness" of any Person shall mean, without duplication, (a) all
indebtedness of such Person for borrowed money, whether or not evidenced by
bonds, debentures, notes or similar instruments, (b) all Capital Lease
Obligations of such Person, (c) all obligations of such Person to pay the
deferred purchase price of property or services (excluding trade accounts
payable in the ordinary course of business), (d) all indebtedness secured by a
Lien on the property of such Person, whether or not such indebtedness shall have
been assumed by such Person, (e) all obligations, contingent or otherwise, with
respect to the face amount of all letters of credit (whether or not drawn) and
banker's acceptances issued for the account of such Person, (f) all Derivative
Obligations of such Person, (g) all Contingent Obligations, and (h) all
liabilities of any partnership or joint venture of which such Person is a
general partner or joint venturer.

         "Information Certificate" means the document attached hereto as Exhibit
D.

         "Intellectual Property" shall mean all past, present and future: trade
secrets (including, without limitation, customer lists), know-how and other
proprietary information; trademarks, Internet domain names, service marks, trade
dress, trade names, business names, designs, logos, slogans (and all
translations, adaptations, derivations and combinations of the foregoing),
indicia and other source and/or business identifiers, and the goodwill of the

                                   Annex I - 7

<PAGE>

business relating thereto and all registrations or applications for
registrations which have heretofore been or may hereafter be issued thereon
throughout the world; copyrights (including copyrights for computer programs)
and copyright registrations or applications for registrations which have
heretofore been or may hereafter be issued throughout the world and all tangible
property embodying the copyrights; unpatented inventions (whether or not
patentable); patent applications and patents; industrial designs, industrial
design applications and registered industrial designs; license agreements
related to any of the foregoing and income therefrom; books, records, writings,
computer tapes or disks, flow diagrams, specification sheets, computer software,
source codes, object codes, executable code, data, databases and other physical
manifestations, embodiments or incorporations of any of the foregoing; the right
to sue for all past, present and future infringements of any of the foregoing;
all other intellectual property; and all common law and other rights throughout
the world in and to all of the foregoing.

         "Lender Affiliate" shall mean Lender's directors, officers, employees,
agents, attorneys or any other Person or entity affiliated with or representing
Lender.

         "Lien" shall mean any mortgage, pledge, claim, hypothecation, judgment
lien or similar legal process, title retention lien, or other lien or security
interest, including, without limitation, the interest of a vendor under any
conditional sale or other title retention agreement and the interest of a lessor
under a lease of any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible, that is, or should be, accounted
for as a Capital Lease.

         "Loan Documents" shall mean this Agreement and the Other Agreements.

         "Loans" shall mean all loans and advances made by Lender to or on
behalf of Borrower hereunder.

         "Lockbox" shall have the meaning specified in Subsection 8(a) hereof.

         "Lockbox Bank" shall have the meaning specified in Subsection 8(a)
hereof.

         "Material Adverse Effect" shall mean a material adverse effect on the
business, property, assets, prospects, operations or condition, financial or
otherwise, of a Person.

         "Makewell Agreement" means that certain Makewell Agreement executed by
MedCap Partners L.P., a Delaware limited partnership, dated as of August 31,
2004, in favor of BOF, as the same may be amended, restated, supplemented or
otherwise modified from time to time.

         "Maximum Loan Limit" shall mean Fifteen Million and No/100 Dollars
($15,000,000).

         "Maximum Revolving Loan Limit" shall have the meaning specified in
Subsection 2(a) hereof.

         "Notice of Borrowing" shall mean a written notice that is accompanied
by a Borrowing Base Certificate, in the form of that attached hereto as Exhibit
E, and appropriately completed by Borrowing Agent.

                                   Annex I - 8

<PAGE>

         "Obligations" shall mean any and all obligations, liabilities and
Indebtedness of Borrower to Lender (other than Term Loan Obligations), or to any
parent, affiliate or subsidiary of Lender, of any and every kind and nature,
howsoever created, arising or evidenced and howsoever owned, held or acquired,
whether now or hereafter existing, whether now due or to become due, whether
primary, secondary, direct, indirect, absolute, contingent or otherwise
(including, without limitation, obligations of performance), whether several,
joint or joint and several, and whether arising or existing under written or
oral agreement or by operation of law.

         "Obligor" shall mean Borrower and each other Person who is or shall
become primarily or secondarily liable for any of the Obligations.

         "Operating Cash Flow" means, for any period, Borrower's net income or
loss (excluding the effect of any extraordinary gains or losses), determined in
accordance with GAAP, plus or minus each of the following items, to the extent
deducted from or added to the revenues of Borrower in the calculation of net
income or loss: (i) depreciation; (ii) amortization and other non-cash charges;
(iii) interest and fee expenses paid or accrued; (iv) total federal and state
income tax expense determined as the accrued liability of Borrower in respect of
such period, regardless of what portion of such expense has actually been paid
by Borrower during such period; and (v) gain or loss on the sale of property,
plant or equipment of Borrower; and (vi) management fees and other fees paid to
subordinating creditors to the extent permitted hereunder, and under the
applicable subordination agreement(s), but only to the extent any such item was
expensed in the calculation of net income and after deduction for each of (a)
federal and state income taxes, to the extent actually paid during such period;
(b) any non-cash income and gains from the sale of property; and (c) all actual
Capital Expenditures made during such period and not financed.

         "Original Closing Date" shall mean June 16, 2004.

         "Other Agreements" shall mean all agreements, instruments and
documents, other than this Agreement and the Term Loan Agreement, including,
without limitation, guaranties, mortgages, trust deeds, pledges, powers of
attorney, consents, assignments, contracts, notices, security agreements,
leases, financing statements, subordination agreements, and all other writings
heretofore, now or from time to time hereafter executed by or on behalf of
Borrower or any other Person and delivered to Lender in connection with the
Obligations or the transactions contemplated hereby, as each of the same may be
amended, modified or supplemented from time to time.

         "Parent" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding equity of Borrower and, if Borrower is a partnership,
the general partner of Borrower.

         "PBGC" shall have the meaning specified in Subsection 12(b)(v) hereof.

         "Permitted Acquisition" shall have the meaning specified in Section
13(c)(iii) hereof.

         "Permitted Liens" shall mean (i) statutory Liens of landlords,
carriers, warehousemen, processors, mechanics, materialmen or suppliers incurred
in the ordinary course of business and securing amounts not yet due or declared

                                   Annex I - 9

<PAGE>

to be due by the claimant thereunder in excess of fifteen (15) days or amounts
which are being contested in good faith and by appropriate proceedings and for
which Borrower has maintained adequate reserves; (ii) Liens in favor of Lender;
(iii) zoning restrictions and easements, licenses, covenants and other
restrictions affecting the use of real property that do not individually or in
the aggregate have a material adverse effect on Borrower's ability to use such
real property for its intended purpose in connection with Borrower's business;
(iv) Liens in connection with purchase money indebtedness and Capital Leases
otherwise permitted pursuant to this Agreement, provided, that such Liens attach
only to the assets the purchase of which was financed by such purchase money
indebtedness or which is the subject of such Capital Leases; (v) Liens set forth
on Schedule 1; (vi) Liens specifically permitted by Lender in writing; (vii)
involuntary Liens securing amounts less than $50,000 and which are released or
for which a bond acceptable to Lender in its reasonable credit judgment,
determined in good faith, has been posted within ten (10) days of its creation;
(viii) Liens for taxes not yet due and payable or for taxes being contested in
good faith by appropriate proceedings and as to which the Borrower has deposited
with the Lender an amount sufficient in the Lender's sole discretion to pay such
taxes, together with all estimated interest and penalties in connection
therewith; and (ix) Liens in favor of BOF, including the pledge by Crdentia of
all of the stock and other equity interests in each of the Subsidiaries of
Crdentia under the Pledge Agreement.

         "Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, entity, party or foreign or United
States government (whether federal, state, county, city, municipal or
otherwise), including, without limitation, any instrumentality, division,
agency, body or department thereof.

         "Plan" shall have the meaning specified in Subsection 12(b)(v) hereof.
         "Pledge Agreement" shall mean that certain Pledge Agreement dated as of
August 31 2004 between Crdentia and BOF, as amended, restated, supplemented or
otherwise modified from time to time.

         "Prime Rate" shall mean the prime rate publicly announced by LaSalle
Bank, N.A., in effect from time to time.

         "Property" shall mean, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, including capital stock in, and other securities of, any
other Person.

         "Revolving Borrowing Base Amount" shall have the meaning specified in
Subsection 2(a) hereof.

         "Revolving Loans" shall have the meaning specified in Subsection 2(a)
hereof.

         "Seller Notes" shall mean, collectively, the notes listed on Schedule
11(n) hereto and any other notes representing Subordinated Debt incurred as a
part of the purchase price of a Permitted Acquisition subject to a Subordination
Agreement acceptable to the Lender.

                                   Annex I - 10

<PAGE>

         "Senior Debt Service" means, for any period with respect to the
Crdentia Proper Borrowers, the sum of payments made or required to be made by
Borrower during such period for (i) interest only payments due on the Revolving
Loans facility, and (ii) interest and scheduled principal payments due on any
and all other Indebtedness for Borrowed Money excluding the Subordinated Debt.

         "Staffing Services" means arranging to provide healthcare-related
staffing services, long-term care or any business or activity that is reasonably
similar thereto or a reasonable extension, development or expansion thereof or
ancillary thereto.

         "Subordinated Debt" shall mean Indebtedness of Borrower or any
Subsidiary of Borrower that is subordinated to the Obligations in a manner
satisfactory to Lender, and contains terms, including, without limitation,
payment terms, satisfactory to Lender.

         "Subordination Agreements" shall mean, individually and collectively,
all subordination agreements, intercreditor agreements, consent and similar
agreements among either Borrower, Lender and any holder of Indebtedness, whether
entered into on or prior to the date hereof or from time to time hereafter,
together with all modifications, amendments and restatements of any of the
foregoing, including, without limitation, the Subordination Agreements listed on
Schedule 11(n) hereto in respect of the Seller Notes existing on the Original
Closing Date.

         "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether, at the time, stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by Borrower, or any partnership, joint
venture or limited liability company of which more than fifty percent (50%) of
the outstanding equity interests are at the time, directly or indirectly, owned
by Borrower or any partnership of which Borrower is a general partner.

         "Tangible Net Worth" shall have the meaning specified in Subsection
14(a) hereof.

         "Target" shall mean, the entity which is the subject of an Acquisition.

         "Target Pro Forma Debt Service" means, for any period, the sum of
payments that will be made or required to be made by the Acquisition Subsidiary
during such period for (i) interest, fees and scheduled principal payments due
on the Term Loans that will be made to the Acquisition Subsidiary in connection
with the Permitted Acquisition of such Target, and (ii) interest only payments
due on the Revolving Loans that will be made to the Acquisition Subsidiary
during such period (assuming that the maximum principal amount of Revolving
Loans will be made to the Acquisition Subsidiary during such 12-month period,
based on the Acquisition Subsidiary's anticipated borrowing base of Eligible
Accounts), and (iii) interest and schedule principal payments due on any and all
other Indebtedness for Borrowed Money of the Acquisition Subsidiary anticipated
during such period, excluding the Subordinated Debt of the Acquisition
Subsidiary.

                                   Annex I - 11

<PAGE>

         "Target Pro Forma EBITDA" shall mean, with respect to any period, the
Acquisition Subsidiary's net income after taxes for such period (excluding any
after-tax gains or losses and excluding other after-tax extraordinary gains or
losses) plus interest expense, income tax expense, depreciation and amortization
for such period, plus or minus any other non-cash charges or gains which have
been subtracted or added in calculating net income after taxes for such period.

         "Target Pro Forma Senior Debt" means (a) the maximum amount of
Revolving Loans that will be made to the Acquisition Subsidiary under this
Agreement (based on the Acquisition Subsidiary's anticipated borrowing base of
Eligible Accounts), plus (b) the aggregate principal amount of the Term Loans
that will be made to the Acquisition Subsidiary in connection with the Permitted
Acquisition of Target, plus (c) all Capitalized Lease Obligations of the
Acquisition Subsidiary that are anticipated during such 12-month period, plus
(d) all other Indebtedness for Borrowed Money of the Acquisition Subsidiary,
excluding the Subordinated Debt of the Acquisition Subsidiary.

         "Target Pro Forma Term Loan Debt" means for the projected period from
the closing date of a Permitted Acquisition to the date that is 12 months from
such closing date, the aggregate principal amount of the Term Loan that will be
made to the Acquisition Subsidiary in connection with the Permitted Acquisition
of Target.

         "Term" shall have the meaning specified in Section 10 hereof.

         "Term Loan " shall mean that certain Term Loan of BOF to the Borrowers
pursuant to the Term Loan Agreement.

         "Term Loan Agreement" shall mean that certain Loan and Security
Agreement - Term Loan, dated as of the date hereof between Borrowers and BOF.

         "Term Loan Obligations" shall mean all indebtedness and obligations of
every kind and nature of Borrowers to BOF in respect of the Term Loan Agreement.

         "Total Debt Service" means, for any period, the sum of payments made
(or, as to clause (i) of this sentence, required to be made) by Borrower during
such period for (i) Senior Debt Service, (ii) interest, fees and scheduled
principal payments due on the Term Loans, (iii) pursuant to the scheduled
Subordinated Debt payments permitted by this Agreement and the applicable
subordination agreement, and (iv) interest and scheduled principal payments due
on any and all other Indebtedness for Borrowed Money of Borrower.

         "UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of Illinois.


                                   Annex I - 12

<PAGE>

                         INDEX OF EXHIBITS AND SCHEDULES

Exhibits
--------

Exhibit A                 Borrowing Base Certificate
Exhibit B                 Compliance Certificate
Exhibit C                 Closing Checklist
Exhibit D                 Information Certificate
Exhibit E                 Notice of Borrowing

Schedules
Schedule 1                Permitted Liens
Schedule 11(b)            Business and Collateral Locations
Schedule 11(b)            Certain Collateral
Schedule 11(g)            Litigation
Schedule 11(i)            Affiliate Transactions
Schedule 11(j)            Names & Trade Names
Schedule 11(n)            Indebtedness
Schedule 11(p)            Parent, Subsidiaries and Affiliates
Schedule 11(q)            Defaults
Schedule 11(x)            Government Reimbursement Program Matters
Schedule 11(t)            Environmental Matters
Schedule 11(x)            Healthcare Compliance
Schedule 11(y)            Healthcare Regulatory Matters
Schedule 11(z)            Licenses and Permits
Schedule 11(aa)           Healthcare Authorizations

                                   Annex I - 1

<PAGE>

                     EXHIBIT A - BORROWING BASE CERTIFICATE

                       FORM OF BORROWING BASE CERTIFICATE

To:      Bridge Healthcare Finance, LLC
         __________________________ , Agent
         233 South Wacker Drive, Suite 5350
         Chicago, Illinois  60606

Ladies and Gentlemen:

         Please refer to the Amended and Restated Loan and Security Agreement
dated as of August 31, 2004, 2004 (as further amended or otherwise modified from
time to time, the "Loan Agreement") between Crdentia Corp., a Delaware
corporation and its Subsidiaries (collectively, "Borrower"), and BRIDGE
HEALTHCARE FINANCE, LLC. This certificate (this "Certificate"), together with
supporting calculations attached hereto, is delivered to you pursuant to the
terms of the Loan Agreement. Capitalized terms used but not otherwise defined
herein shall have the same meanings herein as in the Loan Agreement.

         The Borrower hereby certifies and warrants to the Bank that at the
close of business on ______________, 200__ (the "Calculation Date"), the
Revolving Borrowing Base Amount was $_____________, computed as set forth on the
schedule attached hereto.

         IN WITNESS WHEREOF, the Borrower has caused this Certificate to be
executed and delivered by its officer thereunto duly authorized on ___________,
______.

                                              [-------------------]
                                              a _______________________

                                              By:
                                                 -------------------------------
                                              Its:
                                                 -------------------------------

                                  EXHIBIT A - 1

<PAGE>

                       EXHIBIT B - COMPLIANCE CERTIFICATE

Date:

TO:      Bridge Healthcare Finance, LLC, Agent
         233 South Wacker Drive, Suite 5350
         Chicago, Illinois 60606

Gentlemen and Ladies:

The undersigned Borrower hereby certifies to you the following pursuant to
Section 9(c) of the Amended and Restated Loan and Security Agreement-Revolving
Loans (the "Agreement") dated as of August 31, 2004, among Crdentia Corp., Baker
Anderson Christie, Inc., Nurses Network, Inc., New Age Staffing, Inc., PSR
Nurses, Ltd., PSR Nurse Recruiting, Inc., PSR Nurses Holdings Corp., CRDE Corp.,
Arizona Home Health Care/Private Duty, Inc. and Care Pros Staffing, Inc.
(collectively, the "Borrower"), and Bridge Healthcare Finance, LLC (the
"Lender").

1.    As of , no event of default or event which with the lapse of time or the
      giving of notice, or both, would become an event of default (an "unmatured
      event of default") has occurred or, if such a change has occurred, a
      writing attached hereto specifies the nature thereof and the action that
      Borrower has taken or proposes to take with respect thereto.

2.    No material adverse change in the condition, financial or otherwise,
      business, property, or results of operations of Borrower has occurred
      since [date of last Compliance Certificate/last financial statements
      delivered prior to closing], or, if such a change has occurred, a writing
      attached hereto specifies the nature thereof and the action that Borrower
      has taken or proposes to take with respect thereto.

3.    Borrower is in compliance with the representations, warranties and
      covenants in the Agreement or, if Borrower is not in compliance with any
      representations, warranties or covenants in the Agreement, a writing
      attached hereto specifies the nature thereof and the action that Borrower
      has taken or proposes to take with respect thereto.

4.    As of , Borrower maintains the following financial covenants pursuant to
      Section 14 of the Agreement.

      a.    Borrower shall maintain a Minimum Tangible Net Worth, on a Crdentia
            Proper Consolidated Basis, of (i) $(1,500,000) at all times from the
            Closing Date through September 30, 2004, (ii) $0 at all time from
            October 1, 2004 through October 31, 2004, and (iii) thereafter, from
            the last day of each fiscal quarter of the Crdentia Proper Borrowers
            through the day prior to the last day of each immediately succeeding
            fiscal quarter of the Crdentia Proper Borrowers, the Minimum
            Tangible Net Worth during the immediately preceding period plus
            seventy-five percent (75%) of the Crdentia Proper Borrowers' net
            income (but without reduction for any net loss) for the Fiscal Year
            ending on the first day of such period as reflected on the Crdentia
            Proper Borrowers' audited year end financial statement. (See
            attached Schedule A for calculation of Tangible Net Worth)
<PAGE>

                           Compliance Yes:|_| No:|_|

b.    As of the last day of each applicable period, the ratio of Borrower's
      Operating Cash Flow, on a Crdentia Proper Consolidated Basis, to
      Borrower's Senior Debt Service, on a Crdentia Proper Consolidated Basis,
      for each period set forth below (which ratio shall be tested as of the
      last day of each such period) must be at least the following: (See
      attached Schedule B for calculation)

<TABLE>
<CAPTION>
---------------------------- ------------------------- --------------------------- --------------------------
                                                        Senior Debt Service
        Time Frame                 Date Tested           Coverage Ratio                 Based on
        ----------                 -----------           --------------                 --------
---------------------------- ------------------------- --------------------------- --------------------------
<S>                          <C>                         <C>                        <C>
Monthly                      1/31/05                   1.00 to 1.00                Monthly
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      2/28/05                   1.00 to 1.00                Monthly
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      3/31/05                   1.00 to 1.00                Trailing 3 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      4/30/05                   1.00 to 1.00                Trailing 4 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      5/31/05                   1.00 to 1.00                Trailing 5 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      6/30/05                   1.25 to 1.00                Trailing 6 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      7/31/05                   1.25 to 1.00                Trailing 7 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      8/31/05                   1.25 to 1.00                Trailing 8 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      9/30/05                   1.25 to 1.00                Trailing 9 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      10/31/05                  1.25 to 1.00                Trailing 10 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      11/30/05                  1.25 to 1.00                Trailing 11 months
---------------------------- ------------------------- --------------------------- --------------------------
Monthly                      12/31/05                  1.25 to 1.00                Trailing 12 months
---------------------------- ------------------------- --------------------------- --------------------------
Quarterly                    3/31/06 and each          1.25 to 1.00                Trailing 12 months
                             quarter thereafter
---------------------------- ------------------------- --------------------------- --------------------------

      Actual Debt Service Coverage Ratio:  |_| Compliance:      Yes: |_|        No:|_|
</TABLE>

<PAGE>

c.    Minimum EBITDA. Borrower shall not permit EBITDA (which calculation shall
      include for the months ended 8/31/04 through 12/31/04 any payment made by
      MedCap Partners L.P. pursuant to the terms of Makewell Agreement), on a
      Crdentia Proper Consolidated Basis, to be less than the amount set forth
      below for the corresponding period set forth below (See attached Schedule
      C for calculation):

<TABLE>
<CAPTION>
---------------------------- -------------------------- --------------------------- -------------------------
        Time Frame                  Date Tested               Minimum EBITDA                Based on
---------------------------- -------------------------- --------------------------- -------------------------
<S>                          <C>                        <C>                        <C>
Monthly                      8/31/04                    $(151,662)                  Monthly
---------------------------- -------------------------- --------------------------- -------------------------
Monthly                      9/30/04                    $(83,271)                   Monthly
---------------------------- -------------------------- --------------------------- -------------------------
Monthly                      10/31/04                   $(28,059)                   Monthly
---------------------------- -------------------------- --------------------------- -------------------------
Monthly                      11/30/04                   $1,875                      Monthly
---------------------------- -------------------------- --------------------------- -------------------------
Monthly                      12/31/04                   $39,212                     Monthly
---------------------------- -------------------------- --------------------------- -------------------------
Quarterly                    3/31/05                    $82,501                     Trailing 3 months
---------------------------- -------------------------- --------------------------- -------------------------
Quarterly                    6/30/05                    $99,393                     Trailing 6 months
---------------------------- -------------------------- --------------------------- -------------------------
Quarterly                    9/30/05                    $158,708                    Trailing  months
---------------------------- -------------------------- --------------------------- -------------------------
Quarterly                    12/31/05                   $219,897                    Trailing 12 months
---------------------------- -------------------------- --------------------------- -------------------------
</TABLE>

      Notwithstanding the foregoing, to the extent the Crdentia Proper Borrowers
maintain a Senior Debt Service Coverage Ratio of 1.50 to 1.00 or greater as
determined at the end of any measuring period as set forth in Section 4(b)
above, the Crdentia Proper Borrowers shall not be required to maintain minimum
EBITDA as set forth in this Section for such corresponding month and during the
continuance of such compliance.

<TABLE>
<CAPTION>

<S>                                           <C>              <C>              <C>
      Actual Debt Service Coverage Ratio:  |_| Compliance:      Yes: |_|        No:|_|
</TABLE>

     d. Acquisition Subsidiary Debt Service Coverage Ratio. Commencing on the
     last day of the first fiscal quarter following the first Permitted
     Acquisition, and continuing quarterly thereafter, Borrower shall not permit
     the ratio of (i) Acquisition Subsidiary EBITDA to (ii) scheduled payments
     of interest and fees, to the extent carried as interest expense on
     Acquisition Subsidiary's consolidated financial statements, with respect to
     Acquisition Subsidiary Debt (and, if the period of measurement is less than
     12 months, determined on an annualized basis), to be less than the amount
     set forth below for the corresponding period set forth below (See Schedule
     D for calculation) :
<PAGE>

<TABLE>
<CAPTION>
---------------------------- --------------------------- -------------------------- -------------------------
                                                           Acquisition Subsidiary
                                                          Debt Service Coverage
        Time Frame                  Date Tested                  Ratio                     Based on
---------------------------- --------------------------- -------------------------- -------------------------
<S>                                <C>                        <C>                         <C>
Quarterly                    Last day of the  first          1.50 to 1.00               Trailing 3 months
                             Fiscal Quarter following
                             the first Permitted
                             Acquisition
---------------------------- --------------------------- -------------------------- -------------------------
Quarterly                    Next Fiscal Quarter             1.50 to 1.00               Trailing 6 months
                             Thereafter
---------------------------- --------------------------- -------------------------- -------------------------
Quarterly                    Next Fiscal Quarter             1.50 to 1.00               Trailing 9 months
                             Thereafter
---------------------------- --------------------------- -------------------------- -------------------------
Quarterly                    Each Fiscal Quarter             1.50 to 1.00               Trailing 12 months
                             Thereafter
---------------------------- --------------------------- -------------------------- -------------------------

         Actual Acquisition Subsidiary Debt             Compliance:      Yes:           No:
         Service Coverage Ratio:                |_|                             |_|            |_|
</TABLE>

     e. Acquisition Subsidiary Debt Leverage Ratio. Commencing on the last day
     of the first fiscal quarter following the first Permitted Acquisition, and
     continuing quarterly thereafter, Borrower shall not permit the ratio of
     Acquisition Subsidiary Debt to Acquisition Subsidiary EBITDA to be more
     than the following (See Schedule E for calculation):

<TABLE>
<CAPTION>
            Period                         Date Tested                    Coverage                 Based on:
-----------------------         -------------------------------          ----------           --------------------
<S>                                <C>                                   <C>                     <C>
Quarterly                       Last day of the first fiscal             4.0 to 1.0            Trailing 3 Months
                                quarter following the first
                                Permitted Acquisition
Quarterly                       Next Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 6 months
Quarterly                       Next Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 9 months
Quarterly Thereafter            Each Fiscal Quarter Thereafter           4.0 to 1.0            Trailing 12 months


         Actual Acquisition Subsidiary Debt            Compliance:      Yes:           No:
         Leverage Ratio:                       |_|                             |_|            |_|
</TABLE>

     f. Acquisition Subsidiary Term Loan Debt Leverage Ratio. Commencing on the
     last day of the first fiscal quarter following the first Permitted
     Acquisition, and continuing quarterly thereafter, Borrower shall not permit
     the ratio of Acquisition Subsidiary Term Loan Debt to Acquisition
     Subsidiary EBITDA to be more than the following:

<PAGE>


<TABLE>
<CAPTION>
            Time Frame                     Date Tested                    Coverage                 Based on:
-----------------------         -------------------------------          ----------           --------------------
<S>                                <C>                                   <C>                     <C>
Quarterly                       Last day of the first fiscal             2.50 to 1             Trailing 3 Months
                                quarter following the first
                                Permitted Acquisition
Quarterly                       Next Fiscal Quarter Thereafter           2.50 to 1             Trailing 6 months
Quarterly                       Next Fiscal Quarter Thereafter           2.50 to 1             Trailing 9 months
Quarterly Thereafter            Each Fiscal Quarter Thereafter           2.50 to 1            Trailing 12 months

         Actual Acquisition Subsidiary Term              Compliance:      Yes:           No:
         Loan Debt Leverage Ratio:               |_|                             |_|            |_|


     g. Capital Expenditure Limitation: the aggregate cost of all fixed assets
     purchased or otherwise acquired shall not exceed $200,000 during any Fiscal
     Year.

                                                       Compliance:      Yes:           No:
       Total Capital Expenditures (YTD):         |_|                             |_|            |_|


     h. Operating Lease Obligations: payments made pursuant to operating lease
     obligations shall not exceed $100,000 during any Fiscal Year.

                                                      Compliance:      Yes:           No:
       Operating Lease Payments (YTD):           |_|                             |_|            |_|

</TABLE>

The financial statements, reports and information submitted concurrently
herewith have been prepared in accordance with generally accepted accounting
principles consistently applied (where applicable) and there have been no
material changes in accounting policies or financial reporting practices of
Borrower since ___________[date of last Compliance Certificate/last financial
statements delivered prior to closing], or, if such a change has occurred, a
writing attached hereto specifies the nature thereof and the action that
Borrower has taken or proposes to take with respect thereto.

<PAGE>

Any and all initially capitalized terms set forth in this certificate without
definition shall have the respective meanings ascribed thereto in the Agreement.

                                                      Crdentia Corp.

                                             By:
                                                      --------------------------
                                             Its:
                                                      --------------------------

<PAGE>

                                   Schedule A

                               Tangible Net Worth

<TABLE>
<CAPTION>
<S>                                                                   <C>
Tangible Net Worth

Shareholders' equity (including retained earnings and preferred
stock) of Crdentia Proper Borrowers
                                                                       -------------------------

Less:    Book value of all intangible assets
                                                                       -------------------------

Add:     Amount of debt of Crdentia Proper Borrowers subordinated to
Lender
                                                                       -------------------------

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

Tangible Net Worth
                                                                       -------------------------
</TABLE>

<PAGE>

                                   Schedule B

                       Senior Debt Service Coverage Ratio

<TABLE>
<CAPTION>
<S>                                                                   <C>
Operating Cash Flow

Net income (Loss) of the Crdentia Proper Borrowers excluding
extraordinary gains or losses
                                                                       -------------------------

Add:    Depreciation
                                                                       -------------------------
            Amortization and other non-cash charges
                                                                       -------------------------
            Interest and fee expenses paid or accrued
                                                                       -------------------------
            Total federal and state income tax expenses accrued regardless of
            whether paid during such period
                                                                       -------------------------
            Management fees and other fees paid to
            subordinated creditors
                                                                       -------------------------

Add/Less:
            Gain or loss on the sale of property, plant or
            Equipment

             Subtotal
                                                                       -------------------------

Less:     Cash Capital Expenditures made during such period of the
Crdentia Proper Borrowers
                                                                       -------------------------
              All taxes paid or required to be paid during
              such period and all non-cash income of the Crdentia
Proper Borrowers
                                                                       -------------------------

Total Operating Cash Flow
                                                                       -------------------------

Senior Debt Service

Add:     Interest due on Revolving Loans of the Crdentia
             Proper Borrowers
                                                                       -------------------------

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

            Scheduled principal and interest payments made
            or required to be made on all other indebtedness
            of the Crdentia Proper Borrowers
            (excluding Subordinated Debt)
                                                                       -------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S>                                                                   <C>
Total Senior Debt Service
                                                                       -------------------------

Total Operating Cash Flow:                      =            to 1.0
                                                  ----------
Total Senior Debt Service
</TABLE>

<PAGE>

                                   Schedule C

                                     EBITDA

<TABLE>
<CAPTION>
<S>                                                                   <C>
EBITDA

Net income (Loss) of the Crdentia Proper Borrowers (excluding any
after-tax gains or losses and excluding other after-tax
extraordinary gains or losses)
                                                                       -------------------------

Add:     Interest expense
                                                                       -------------------------
             Income tax expense
                                                                       -------------------------
             Depreciation
                                                                       -------------------------
             Amortization
                                                                       -------------------------

Add/Less:
            Other non-cash charges or gains
                                                                       -------------------------

Add:  (for months ending 8/31/04 through 12/31/04 only)
          Payments from MedCap Partners L.P.

Total EBITDA
                                                                       -------------------------

Minimum EBITDA               $____________         Total EBITDA          $______________
</TABLE>

<PAGE>

                                   Schedule D

               Acquisition Subsidiary Debt Service Coverage Ratio

<TABLE>
<CAPTION>
<S>                                                                   <C>
Acquisition Subsidiary EBITDA

Net income (Loss)of the Acquisition Subsidiary (excluding any
after-tax gains or losses and excluding other after-tax
extraordinary gains or losses)
                                                                       -------------------------

Add:     Interest expense
                                                                       -------------------------
             Income tax expense
                                                                       -------------------------
             Depreciation
                                                                       -------------------------
             Amortization
                                                                       -------------------------

Add/Less:
            Other non-cash charges or gains
                                                                       -------------------------

Total EBITDA
                                                                       -------------------------

Acquisition Subsidiary Debt Service

Add:     Scheduled payments of interest and fees (carried as
             an interest expense on Acquisition Subsidiary's
             consolidated financials) with respect to:
                                                                       -------------------------

            Revolving Loans to Acquisition Subsidiary
            Aggregate principal amount of Term Loan
            Capitalized Lease Obligations of Acquisition
            Subsidiary
            Indebtedness for Borrowed Money of Acquisition
            Subsidiary (excluding Subordinated Debt)
                                                                       -------------------------

Total Acquisition Subsidiary Debt Service
                                                                       -------------------------

Total Acquisition Subsidiary EBITDA to          =            to 1.0
                                                  ----------
Acquisition Subsidiary Debt Service:
</TABLE>

<PAGE>

                                   Schedule E

                   Acquisition Subsidiary Debt Leverage Ratio

<TABLE>
<CAPTION>
<S>                                                                   <C>
Acquisition Subsidiary Debt
                                                                       -------------------------
            Outstanding Revolving Loans to Acquisition Subsidiary
                                                                       -------------------------
            Aggregate principal amount of Term Loan outstanding
                                                                       -------------------------
            Capitalized Lease Obligations of Acquisition Subsidiary

                                                                       -------------------------
            Indebtedness for Borrowed Money of Acquisition
            Subsidiary (excluding the Subordinated Debt)
                                                                       -------------------------

Acquisition Subsidiary Debt to:                 =            to 1.0
                                                  ----------
     Acquisition Subsidiary EBITDA
</TABLE>

<PAGE>

                                   Schedule F

              Acquisition Subsidiary Term Loan Debt Leverage Ratio

<TABLE>
<CAPTION>
<S>                                                                   <C>
Acquisition Subsidiary Term Loan Debt

Aggregate principal amount of Term Loan outstanding
                                                                       -------------------------

Acquisition Subsidiary EBITDA (from Schedule D)
                                                                       -------------------------

Acquisition Subsidiary Term Loan Debt to        =            to 1.0
                                                  ----------
Acquisition Subsidiary EBITDA
</TABLE>

                                  EXHIBIT B - 1

<PAGE>

                          SCHEDULE 1 - PERMITTED LIENS



                                 SCHEDULE 1 - 1

<PAGE>

               SCHEDULE 11(B) - BUSINESS AND COLLATERAL LOCATIONS;
                               CERTAIN COLLATERAL

         Attached to and made a part of that certain Loan and Security Agreement
of even date herewith between CRDENTIA CORP., a ____ corporation and its
Subsidiaries (collectively, "Borrower") and BRIDGE HEALTHCARE FINANCE, LLC
("Lender").

A.       Borrower's business locations (please indicate which location is the
         principal place of business and at which locations originals and all
         copies of Borrower's books, records and accounts are kept).

         1.

         2.

B.       Other locations of Collateral (including, without limitation, warehouse
         locations, processing locations, consignment locations) and all post
         office boxes of Borrower. Please indicate the relationship of such
         location to Borrower (i.e., public warehouse, processor, etc.).

         1.

         2.

C. Bank Accounts of Borrower:

               Bank (with address)     Account Number        Type of Account
        1.
        2.

D.       Certain Collateral

                                    a. Intellectual Property

                                    b. Instruments

                                    c. Deposit Accounts

                                    d. Investment Property

                                    e. Letter-of-Credit Rights

                                    f. Chattel Paper

                                    g. Documents



                               SCHEDULE 11(B) - 2

<PAGE>

                           SCHEDULE 11(G) - LITIGATION


                                    h. Commercial Tort Claims

                                    i. Certificate of Title Goods

                                    j. Collateral with Third Parties


                               SCHEDULE 11(G) - 1

<PAGE>


                     SCHEDULE 11(I) - AFFILIATE TRANSACTIONS


                               SCHEDULE 11(I) - 1

<PAGE>


                      SCHEDULE 11(J) - NAMES & TRADE NAMES


                               SCHEDULE 11(J) - 1

<PAGE>

                          SCHEDULE 11(N) - INDEBTEDNESS


                               SCHEDULE 11(N) - 1

<PAGE>


              SCHEDULE 11(P) - PARENT, SUBSIDIARIES AND AFFILIATES


                               SCHEDULE 11(P) - 1

<PAGE>

            SCHEDULE 11(X) - GOVERNMENT REIMBURSEMENT PROGRAM MATTERS



                               SCHEDULE 11(X) - 1
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.16
<SEQUENCE>6
<FILENAME>v014915_ex10-16.txt
<TEXT>
                                                                   EXHIBIT 10.16

                 FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT

      THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT - TERM LOAN (this
"Amendment") is entered into as of the 30th day of November, 2004, (the
"Amendment Date") by and between BRIDGE OPPORTUNITY FINANCE, LLC ("Lender"), and
Crdentia Corp. ("Crdentia"), Baker Anderson Christie, Inc. ("Baker"), Nurses
Network, Inc. ("Nurses Network"), New Age Staffing, Inc. ("New Age"), PSR
Nurses, Ltd. ("PSR Ltd."), PSR Nurse Recruiting, Inc. ("PSR Recruiting"), PSR
Nurses Holdings Corp. ("PSR Holding"; and together with Crdentia, Baker, Nurses
Network, New Age, PSR Ltd., and PSR Recruiting, each a "Crdentia Proper
Borrower"), CRDE Corp. ("Acquisition Subsidiary"), Arizona Home Health
Care/Private Duty, Inc. ("AHHC"), Care Pros Staffing, Inc. ("Care Pros"; and
together with Acquisition Subsidiary and AHHC, each a "New Borrower") (Crdentia
Proper Borrowers and New Borrowers are referred to individually and collectively
as "Borrower").

                              W I T N E S S E T H:

      WHEREAS, Lender and Borrower are parties to that certain Loan and Security
Agreement - Term Loan dated as of August 31, 2004 (as amended, restated,
supplemented or otherwise modified from time to time, the "Agreement");

      WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
dated as of August 31, 2004 by and among Crdentia, Acquisition Subsidiary, AHHC
Acquisition Corporation ("AHHC Acquisition", a wholly owned subsidiary of
Acquisition Subsidiary), AHHC, and the former shareholders of AHHC, AHHC
Acquisition merged with and into AHHC with AHHC being the surviving entity;

      WHEREAS, pursuant to that certain Agreement and Plan of Reorganization
dated as of August 31, 2004, by and among Crdentia, Acquisition Subsidiary, CPS
Acquisition Corporation ("CPS Acquisition", a wholly owned subsidiary of
Acquisition Subsidiary), Care Pros and the former shareholders of Care Pros,
Care Pros merged with and into CPS Acquisition with CPS Acquisition being the
surviving entity and immediately upon such merger changed its name to "Care Pros
Staffing, Inc."; and

      WHEREAS, Lender and Borrower desire to amend certain provisions of the
Agreement in accordance with this Amendment.

      NOW, THEREFORE, for and in consideration of the premises and mutual
agreements herein contained and for the purposes of setting forth the terms and
conditions of this Amendment, the parties, intending to be bound, hereby agree
as follows:

      Section 1. Incorporation of the Agreement. All capitalized terms which are
not defined herein shall have the same meanings as set forth in the Agreement,
and the Agreement, to the extent not inconsistent with this Amendment, is
incorporated herein by this reference as though the same were set forth in its
entirety. To the extent any terms and provisions of the Agreement are
inconsistent with the amendments set forth in Section 2 below, such terms and
provisions shall be deemed superseded hereby. Except as specifically set forth
herein, the Agreement shall remain in full force and effect and its provisions
shall be binding on the parties hereto.
<PAGE>

      Section 2. Amendment of the Agreement. Borrower and Lender hereby agree to
amend the Agreement as of the Amendment Date as follows:

      (a) Section 2(b)(A) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(A) the Acquisition Subsidiary shall have, on a pro forma basis,
      independent and separate from the Crdentia Proper Borrowers hereunder: (x)
      a coverage ratio of Target Pro Forma EBITDA to Target Pro Forma Debt
      Service of at least 1.5 to 1.0, (y) a ratio of Target Pro Forma Senior
      Debt to Target Pro Forma EBITDA of not more than 4.0 to 1.0, and (z) a
      ratio of Target Pro Forma Term Loan Debt to Target Pro Forma EBITDA of not
      more than 2.5 to 1.0;"

      (b) Section 2(b)(E) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(E) Excess Availability of the Crdentia Proper Borrowers under the
      Revolving Loan Agreement or any Replacement Revolving Loan Agreement shall
      be an amount mutually agreed upon between Lender and Borrower but in no
      event less than $250,000 after giving effect to the proposed Acquisition;"

      (c) Section 2(b)(F) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(F) the amount of (i) the revolving borrowing base attributable to the
      Acquisition Subsidiary, as determined by the Lender in its good faith
      credit judgment, less (ii) the sum of the outstanding Revolving Loans
      attributable to Acquisition Subsidiary, shall be an amount mutually agreed
      upon between Lender and Borrower;"

      (d) Section 5(c) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(c) Possessory Collateral. Immediately upon Borrower's receipt of any
      portion of the Collateral evidenced by an agreement, Instrument or
      Document, including, without limitation, any Tangible Chattel Paper and
      any Investment Property consisting of Certificated Securities, Borrower
      shall deliver the original thereof (i) to BHF, to hold pursuant to the
      terms of the Revolving Loan Agreement or any Replacement Revolving Loan
      Agreement (other than equity interests of any Borrower pledged by Crdentia
      to Lender under the Pledge Agreement, which shall be delivered to Lender
      pursuant to the terms of the Pledge Agreement), or (ii) to the extent both
      the Revolving Loan Agreement and Replacement Revolving Loan Agreement have
      been terminated, to Lender together with an appropriate endorsement or
      other specific evidence of assignment thereof to Lender (in form and
      substance acceptable to Lender). If an endorsement or assignment of any
      such items shall not be made for any reason, Lender is hereby irrevocably
      authorized, as Borrower's attorney and agent-in-fact, to endorse or assign
      the same on Borrower's behalf."

                                      -2-
<PAGE>

      (e) Section 9(c) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(c) Financial Statements. Borrower shall deliver to Lender the following
      financial information, all of which shall be prepared in accordance with
      GAAP consistently applied (except where such calculations otherwise
      require), and shall be accompanied by a certificate in the form of Exhibit
      A hereto, which compliance certificate shall include a calculation of all
      financial covenants contained in this Agreement, including the financial
      tests set forth in Section 13(j)(iii): (i) no later than fifteen (15) days
      after each calendar month, copies of internally prepared financial
      statements, including, without limitation, balance sheets and statements
      of income, retained earnings and cash flow of the Crdentia Proper
      Borrowers on a Crdentia Proper Consolidated Basis and of the Acquisition
      Subsidiary and its Subsidiaries on an Acquisition Subsidiary Consolidated
      Basis, certified by the Chief Financial Officer of Borrower; (ii) no later
      than forty-five (45) days after the end of each of the first three
      quarters of Borrower's Fiscal Year, copies of internally prepared
      financial statements, including, without limitation, balance sheets,
      statements of income, retained earnings, cash flows and reconciliation of
      surplus for the Crdentia Proper Borrowers on a Crdentia Proper
      Consolidated Basis and of the Acquisition Subsidiary and its Subsidiaries
      on an Acquisition Subsidiary Consolidated Basis, certified by the Chief
      Financial Officer of Borrower; and (iii) no later than ninety (90) days
      after the end of each of Borrower's Fiscal Years, audited annual financial
      statements of the Borrowers on a consolidated basis, and unaudited
      financial statements of the Crdentia Proper Borrowers on a Crdentia Proper
      Consolidated Basis and of the Acquisition Subsidiary and its Subsidiaries
      on an Acquisition Subsidiary Consolidated Basis, with an unqualified
      opinion as to the audited financial statements by independent certified
      public accountants selected by Borrower and reasonably satisfactory to
      Lender. The report of such accounts shall be accompanied by copies of any
      management letters sent to the Borrower by such accountants."

      (f) Section 12(m) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(m) Subordination Agreement. On or before November 30, 2004, Borrower
      shall use its commercially reasonable efforts to deliver to Lender a
      Subordination Agreement executed by Cindy Permenter, in form and substance
      acceptable to Lender, with respect to the Indebtedness (i) under that
      certain convertible subordinated promissory note dated December 2, 2003 in
      the original principal amount of $2,525,000 made payable to Professional
      Staffing Services, Inc. and (ii) under that certain convertible
      subordinated promissory note dated December 2, 2003 in the original
      principal amount of $200,000 made payable to Professional Staffing
      Services, Inc. and Nursing Services Registry of Savannah, Inc."

                                      -3-
<PAGE>

      (g) Section 14(a) of the Agreement shall be amended and restated in its
entirety to read as follows:

      "(a) Tangible Net Worth. Borrower's Tangible Net Worth, on a Crdentia
      Proper Consolidated Basis, shall not at any time be less than the Minimum
      Tangible Net Worth; "Minimum Tangible Net Worth" being defined for
      purposes of this Subsection as (i) $(1,500,000) at all times from the
      Closing Date through September 30, 2004, (ii) $0 at all times from October
      1, 2004 through October 31, 2004, and (iii) thereafter, from the last day
      of each fiscal quarter of the Crdentia Proper Borrowers through the day
      prior to the last day of each immediately succeeding fiscal quarter of the
      Crdentia Proper Borrowers, the Minimum Tangible Net Worth during the
      immediately preceding period plus seventy-five percent (75%) of the
      Crdentia Proper Borrowers' net income (but without reduction for any net
      loss) for the Fiscal Year ending on the first day of such period as
      reflected on the Crdentia Proper Borrowers' audited year end financial
      statement; and "Tangible Net Worth" being defined for purposes of this
      Subsection as the Crdentia Proper Borrowers' shareholders' equity
      (including retained earnings) less the book value of all intangible assets
      of the Crdentia Proper Borrowers as determined solely by Lender on a
      consistent basis plus the amount of any Subordinated Debt of the Crdentia
      Proper Borrowers, all as determined under GAAP applied on a basis
      consistent with the financial statement dated March 31, 2004 except as set
      forth herein."

      (h) Section 14(h) of the Agreement shall be amended by deleting the amount
"$100,000" and inserting in place thereof the amount "$300,000"."

      (i) Annex I of the Agreement shall be amended by inserting the following
      new definitions in the appropriate alphabetical order to read as follows:

      "Acquisition Subsidiary Consolidated Basis" shall mean the financial
reporting by Acquisition Subsidiary and all of its direct or indirect
subsidiaries, on a consolidated basis.

      "Pledge Agreement" shall mean that certain Pledge Agreement dated as of
August 31 2004 between Crdentia and Lender, as amended, restated, supplemented
or otherwise modified from time to time.

      (j) Annex I of the Agreement shall be amended by amending and restating in
their entirety the following definitions:

      "Acquisition Subsidiary EBITDA" shall mean, with respect to any period,
Acquisition Subsidiary's, on an Acquisition Subsidiary Consolidated Basis, net
income after taxes for such period (excluding any after-tax gains or losses and
excluding other after-tax extraordinary gains or losses) plus interest expense,
income tax expense, depreciation and amortization for such period, plus or minus
any other non-cash charges or gains which have been subtracted or added in
calculating net income after taxes for such period. In the event that the period

                                      -5-
<PAGE>

of measurement is less than 12 months, the Acquisition Subsidiary EBITDA shall
be determined on an annualized basis. Upon each Permitted Acquisition and the
addition of a Target to the consolidated financial reporting of the Acquisition
Subsidiary, the portion of the Acquisition Subsidiary EBITDA attributable to the
Target shall be calculated on an annualized basis, until such Target has been a
part of the Acquisition Subsidiary for 12 months.

      "Capital Expenditures" shall mean with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including Capital Lease Obligations) by Borrowers during such period that
are required by GAAP, consistently applied, to be included in or reflected by
the property, plant and equipment or similar fixed asset accounts (or intangible
accounts subject to amortization) on the balance sheet of Borrowers, excluding
expenditures for any assets or equity interests acquired pursuant to a Permitted
Acquisition.

      "Crdentia Proper Borrowers" shall mean Crdentia and all of its
Subsidiaries, except for Acquisition Subsidiary and its Subsidiaries.

      "Crdentia Proper Consolidated Basis" shall mean the financial reporting by
the Borrowers of Crdentia all of their Subsidiaries, except for Acquisition
Subsidiary and its Subsidiaries, on a consolidated basis.

      "EBITDA" shall mean, with respect to any period, Crdentia Proper
Borrowers', on a Crdentia Proper Consolidated Basis, net income after taxes for
such period (excluding any after-tax gains or losses and excluding other
after-tax extraordinary gains or losses) plus interest expense, income tax
expense, depreciation and amortization for such period, plus or minus any other
non-cash charges or gains which have been subtracted or added in calculating net
income after taxes for such period.

      (k) Annex I of the Agreement shall be amended by deleting in its entirety
the definition "Revolving Pledge Agreement", and also deleting the reference to
"Revolving Pledge Agreement" from the definition of "Revolving Loan Documents".

      (l) Exhibit A of the Agreement shall be amended by amending and restating
paragraph 4a in its entirety to read as follows:

                  "a. Borrower shall maintain a Minimum Tangible Net Worth, on a
                  Crdentia Proper Consolidated Basis, of (i) $(1,500,000) at all
                  times from the Closing Date through September 30, 2004, (ii)
                  $0 at all time from October 1, 2004 through October 31, 2004,
                  and (iii) thereafter, from the last day of each fiscal quarter
                  of the Crdentia Proper Borrowers through the day prior to the
                  last day of each immediately succeeding fiscal quarter of the
                  Crdentia Proper Borrowers, the Minimum Tangible Net Worth

                                      -6-
<PAGE>

                  during the immediately preceding period plus seventy-five
                  percent (75%) of the Crdentia Proper Borrowers' net income
                  (but without reduction for any net loss) for the Fiscal Year
                  ending on the first day of such period as reflected on the
                  Crdentia Proper Borrowers' audited year end financial
                  statement. (See attached Schedule A for calculation of
                  Tangible Net Worth)"

      Section 3. Amendment Conditions. As a condition precedent to the
effectiveness of this Amendment, Borrower shall:

      (a) Execute and deliver to Lender this Amendment; and

      (b) Deliver to Lender such other documents as Lender shall request.

      Section 4. No Default. Borrower represents and warrants to Lender that no
Event of Default has occurred and is continuing (other than that certain Events
of Default specifically waived by Lender pursuant to the terms of that certain
Specific Waiver of Default to Loan and Security Agreement dated as of November
4, 2004), and no event has occurred and is continuing which, with the lapse of
time, the giving of notice, or both, would constitute such an Event of Default
under the Agreement as amended by this Amendment.

      Section 5. Fees and Expenses. Borrower agrees to pay on demand all
reasonable costs and expenses of or incurred by Lender, including but not
limited to, legal expenses and reasonable attorneys' fees and expenses, in
connection with the evaluation, negotiation, preparation, execution and delivery
of this Amendment.

      Section 6. Security. Borrower expressly acknowledges and agrees that all
collateral, security interests, liens, pledges and mortgages heretofore, under
this Amendment, or hereafter granted to Lender, including, without limitation,
such collateral, security interests, liens, pledges and mortgages granted under
the Agreement, and all other supplements to the Agreement, extend to and cover
all of the obligations of Borrower to Lenders, now existing or hereafter arising
including, without limitation, those arising in connection with the Agreement,
as amended by this Amendment, upon the terms set forth in such agreements, all
of which security interests, liens, pledges, and mortgages are hereby ratified,
reaffirmed, confirmed and approved.

      Section 7. Representations. Borrower represents and warrants to Lender
that (a) it has all necessary power and authority to execute and deliver this
Amendment and perform its obligations hereunder, (b) this Amendment and the
Agreement, as amended hereby, constitute the legal, valid and binding
obligations of Borrower and are enforceable against Borrower in accordance with
their terms, and (c) all representations, warranties and covenants of Borrower
contained in the Agreement, as amended, and all other agreements, instruments
and other writings relating thereto, are true, correct and complete as of the
date hereof.

      Section 8. Incorporation. The parties hereto acknowledge and agree that
the terms and provisions of this Amendment amend, add to and constitute a part
of the Agreement. Except as expressly modified and amended by the terms of this
Amendment, all of the other terms and conditions of the Agreement and all
documents executed in connection therewith or referred to or incorporated
therein remain in full force and effect and are hereby ratified, reaffirmed,
confirmed and approved.

                                      -7-
<PAGE>

      Section 9. Conflict. If there is an express conflict between the terms of
this Amendment and the terms of the Agreement, or any of the other agreements or
documents executed in connection therewith or referred to or incorporated
therein, the terms of this Amendment shall govern and control.

      Section 10. Governing Law. This Amendment was executed and delivered in
Chicago, Illinois and shall be governed by and construed in accordance with the
internal laws (as opposed to conflicts of law provisions) of the State of
Illinois.

      Section 11. Effectuation. The amendments to the Agreement contemplated by
this Amendment shall be deemed effective immediately upon the full execution of
this Amendment and without any further action required by the parties hereto.

      Section 12. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

                            [SIGNATURE PAGE FOLLOWS]


                                      -8-
<PAGE>


       (Signature Page to First Amendment to Loan and Security Agreement)

         IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment to Loan and Security Agreement as of the date first above written.

                                             CRDENTIA CORP.,
                                             a Delaware corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             BAKER ANDERSON CHRISTIE, INC.,
                                             a California corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             NURSES NETWORK, INC.,
                                             a California corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                             NEW AGE STAFFING, INC.,
                                             a Delaware corporation


                                             By: /s/ James D. Durham
                                                --------------------------------
                                                James D. Durham
                                                Chief Executive Officer

                                      -9-
<PAGE>

       (Signature Page to First Amendment to Loan and Security Agreement)

                                             PSR NURSES, LTD.,
                                             a Texas limited partnership

                                             By:  PSR NURSE RECRUITING, INC.
                                             Its: General Partner

                                             By:  /s/ James D. Durham
                                                  James D. Durham
                                                --------------------------------
                                                  Chief Executive Officer


                                             PSR NURSE RECRUITING, INC.,
                                             a Texas corporation

                                             By:  /s/ James D. Durham
                                                --------------------------------
                                                  James D. Durham
                                                  Chief Executive Officer

                                             PSR NURSES HOLDINGS CORP.,
                                             a Texas corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                                  James D. Durham
                                                  Chief Executive Officer

                                             CRDE CORP.,
                                             a Delaware corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

                                             ARIZONA HOME HEALTH CARE/PRIVATE
                                             DUTY, INC., an Arizona corporation


                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

                                      -10-
<PAGE>

                  Signature Page to Loan and Security Agreement

                                             CARE PROS STAFFING, INC.,
                                             a Texas corporation

                                             By:  /s/ James D. Durham
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------


                                      -11-
<PAGE>

       (Signature Page to First Amendment to Loan and Security Agreement)

                                             BRIDGE OPPORTUNITY FINANCE, LLC, a
                                             Delaware limited
                                             liability company, as Lender


                                             By:/s/ Randy Abrahams
                                                --------------------------------
                                             Name:
                                                --------------------------------
                                             Title:
                                                --------------------------------

                                      -12-
<
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>7
<FILENAME>v014915_ex21-1.txt
<TEXT>
                                                                    Exhibit 21.1

                         Subsidiaries of Crdentia Corp.

Name                                           State of Incorporation/Formation
----                                           --------------------------------

Baker Anderson Christie, Inc.                  California

Nurses Network, Inc.                           California

New Age Staffing, Inc.                         Delaware

PSR Nurse Recruiting, Inc.                     Delaware

PSR Nurses Holdings Corp.                      Delaware

CRDE Corp.                                     Delaware

Arizona Home Health Care/Private Duty, Inc.    Arizona

Care Pros Staffing, Inc.                       Texas

PSR Nurses, Ltd.                               Texas

HIP Holding, Inc.                              Delaware

Health Industry Professionals, L.L.C.          Michigan

Travmed USA, Inc.                              North Carolina

PSR Nurses, Ltd.                               Texas
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.1
<SEQUENCE>8
<FILENAME>v014915_ex31-1.txt
<TEXT>
                                                                    EXHIBIT 31.1

                CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
              UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

      I, James D.  Durham,  Chief  Executive  Officer  and  Chairman of Board of
Crdentia Corp., certify that:

1.    I have reviewed this annual report on Form 10-KSB of Crdentia Corp.;

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

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

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


      (a)   designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            registrant,  including its consolidated subsidiaries,  is made known
            to us by others  within  those  entities,  particularly  during  the
            period in which this annual report is being prepared;

      (b)   evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      (c)   disclosed  in this  report any change in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            fiscal  quarter in the case of an annual report) that has materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      to the  registrant's  auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent function):

      (a)   all significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      (b)   any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls over financial reporting.

Dated: March 31, 2005                        By: /s/ James D. Durham
                                                --------------------------------
                                                     James D. Durham
                                                     Chief Executive Officer and
                                                     Chairman of the Board
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-31.2
<SEQUENCE>9
<FILENAME>v014915_ex31-2.txt
<TEXT>
                                                                    EXHIBIT 31.2

                CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14
              UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, James J. TerBeest, Chief Financial Officer of Crdentia Corp., certify that:

1.    I have reviewed this annual report on Form 10-KSB of Crdentia Corp.;

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

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

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

      (a)   designed such  disclosure  controls and  procedures,  or caused such
            disclosure   controls  and  procedures  to  be  designed  under  our
            supervision,  to ensure that  material  information  relating to the
            registrant,  including its consolidated subsidiaries,  is made known
            to us by others  within  those  entities,  particularly  during  the
            period in which this annual report is being prepared;

      (b)   evaluated the effectiveness of the registrant's  disclosure controls
            and  procedures and presented in this report our  conclusions  about
            the effectiveness of the disclosure  controls and procedures,  as of
            the  end  of the  period  covered  by  this  report  based  on  such
            evaluation; and

      (c)   disclosed  in this  report any change in the  registrant's  internal
            control  over   financial   reporting   that  occurred   during  the
            registrant's  most recent fiscal  quarter (the  registrant's  fourth
            fiscal  quarter in the case of an annual report) that has materially
            affected,   or  is  reasonably  likely  to  materially  affect,  the
            registrant's internal control over financial reporting; and;

5.    The registrant's other certifying  officer and I have disclosed,  based on
      our most recent  evaluation of internal control over financial  reporting,
      to the  registrant's  auditors and the audit committee of the registrant's
      board of directors (or persons performing the equivalent function):

      (a)   all significant  deficiencies and material  weaknesses in the design
            or operation of internal control over financial  reporting which are
            reasonably  likely to adversely affect the  registrant's  ability to
            record, process, summarize and report financial information; and

      (b)   any fraud,  whether or not  material,  that  involves  management or
            other  employees  who have a  significant  role in the  registrant's
            internal controls over financial reporting.

Dated:  March 31, 2005                          By: /s/ James J. TerBeest
                                                   ----------------------------
                                                        James J. TerBeest
                                                        Chief Financial Officer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-32
<SEQUENCE>10
<FILENAME>v014915_ex32.txt
<TEXT>
                                                          EXHIBITS 32.1 and 32.2

                             CERTIFICATE PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

      In connection  with the Annual Report of Crdentia Corp. (the "Company") on
Form 10-KSB for the year ended  December 31, 2004, as filed with the  Securities
and  Exchange  Commission  (the  "Report"),  each  of  the  undersigned,  in the
capacities and on the dates indicated  below,  hereby  certifies  pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002, that to his knowledge:

1.    the Report fully complies with the requirements of Section 13(a) or 15(d),
      as applicable, of the Securities Exchange Act of 1934; and

2.    the information  contained in the Report fairly presents,  in all material
      respects,  the financial condition and result of operations of the Company
      at the dates and for the period indicated.

This  Certificate  has not  been,  and  shall not be  deemed,  "filed"  with the
Securities and Exchange Commission.


Dated:  March 31, 2005                      By:  /s/ James D. Durham
                                               ---------------------------------
                                                     James D. Durham
                                                     Chief Executive Officer and
                                                     Chairman of the Board


Dated:  March 31, 2005                      By:  /s/ James J. TerBeest
                                               ---------------------------------
                                                     James J. TerBeest
                                                     Chief Financial Officer

</TEXT>
</DOCUMENT>
</SUBMISSION>
