Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10Q

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x   Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934

For the quarterly period ended
September 30, 2004

OR

o   Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934

For the Transition period from _________ to
_________

Commission file number 00031249

CRITICAL HOME CARE, INC.(Exact name of registrant as specified in its charter)

|NEVADA                                                           |  | 880331369                   
|---------------------------------------------------------------- |  | -----------------------------
|(State or other jurisdiction of
  incorporation or organization) |  | (I.R.S. Employer I.D. Number)
|                                                                 |  |                              
|26777 CENTRAL PARK BLVD., SUITE 200
  SOUTHFIELD, MI             |  | 48076                        
|(Address of principal executive
  offices)                       |  | Zip Code                     

Registrants telephone no.: 2483527530

Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.o Yes     x  No

Indicate by
check mark whether the registrant is an accelerated filer (as defined in Rule
12b2 of the Exchange
Act).o Yesx No

As of November 12, 2004,  80,448,761 shares of common stock, $0.001 par
value, of the Registrant  were outstanding.

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Table of Contents

|            |                                                                                            | Page No.
|----------- | ------------------------------------------------------------------------------------------ | --------
|            |                                                                                            |         
|            | Part I: 
  Financial Information                                                           |         
|            |                                                                                            |         
|Item 1.     | Financial Statements.                                                                      | 3       
|            |                                                                                            |         
|Item 2.     | Management's Discussion and  Analysis of Financial Condition
   and Results of Operations. | 17      
|            |                                                                                            |         
|Item 3.     | Quantitative
  and Qualitative Disclosures About Market Risk.                              | 19      
|            |                                                                                            |         
|Item 4.     | Controls and Procedures.                                                                   | 19      
|            |                                                                                            |         
|            | Part II: 
  Other Information                                                              |         
|            |                                                                                            |         
|Item 1.     | Legal Proceedings.                                                                         | 20      
|            |                                                                                            |         
|Item 2.     | Unregistered
  Sales of Equity Securities and Use of Proceeds.                             | 20      
|            |                                                                                            |         
|Item 3.     | Defaults Upon Senior Securities.                                                           | 21      
|            |                                                                                            |         
|Item 4.     | Submission of Matters to a Vote of Security Holders.                                       | 21      
|            |                                                                                            |         
|Item 5.     | Other Information.                                                                         | 21      
|            |                                                                                            |         
|Item 6.     | Exhibits                                                                                   | 22      
|            |                                                                                            |         
|Signatures. | 23                                                                                        



2

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PART I:  Financial Information

Item 1.           
Financial Statements

The financial statements of the Registrant included herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission.  Although certain information normally included in financial statements
prepared in accordance with accounting principles generally accepted in the United States of America has been condensed or omitted,
the Registrant believes that the disclosures are adequate to make the information presented not misleading.  Readers are urged
to carefully review and consider the various disclosures made by us in this quarterly report on Form 10Q, the quarterly report on
Form 10Q for the period ended June 30, 2004, our Current Report on Form 8K filed on July 23, 2004, our annual report on Form
10KSB filed on February 18, 2004, and our other filings with the Securities and Exchange Commission.  These reports and
filings attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results
of operation and prospects.

The consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring items, which,
in the opinion of management, are necessary to present a fair statement of the results for the interim periods presented.

The results for interim periods are not necessarily indicative of trends or results to be expected for a full year.

3

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Critical Home Care, Inc.
Consolidated Balance Sheet
(Unaudited)

Successor
 September  30,
 2004

Predecessor
 March 31,
 2004AssetsCurrent AssetsCash

$
457,443

$
—Accounts receivable, net of allowance of $1,565,000 and

19,855,388

13,478,381$848,000, respectivelyInventory, net

564,580

—Prepaid expenses and other current assets

642,973

133,547Prepaid workers compensation insurance

1,267,067

Deferred income tax

683,000

—Total Current Assets

23,470,451

13,611,928Fixed AssetsEquipment

492,554

—Software

659,777

61,619Furniture and Fixture

250,390

6,251Leasehold improvements

144,195

7,2081,546,916

75,078Accumulated depreciation and amortization

(446,766)

(73,067)Net Fixed Assets

1,100,150

2,011Other AssetsGoodwill

27,828,763

3,589,191Deferred income tax

90,000

—Deferred financing costs, net of accumulated amortization of $7,000

63,640

—Total Other Assets

27, 982,403

3,589,191$
52, 553,004

$
17,203,130


4

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Successor
 September 30,
 2004

Predecessor
 March 31,
 2004Liabilities and Stockholders’ EquityCurrent LiabilitiesChecks issued against future deposits

$
—

$
1,116,143Accounts payable

1,237,679

—Accrued expenses:Compensation and related taxes

2,206,915

1,573,267Commissions

515,659

470,326Other

775,354

239,489Accrued Interest

62,205

—Payable to affiliatecurrent portion

1,341,970

1,143,804Note payable  Officer

554,000

—Loans  current portion

7,699,935

—Line of credit – current portion

1,466,667

Total Current Liabilities

15,860,384

4,543,029Long Term Debt, Less Current Portion

545,879

—Line of credit, Less Current Portion

12,470,430

—Payable to affiliate, less current portion

603,693

429,829Total Liabilities

29,480,386

4,972,858Commitments and ContingenciesStockholders’ EquityCommon stock $.001 par value, 150,000,000 shares authorized,

80,449

94880,448,761 shares issued and outstanding (Successor)Additional paidin capital

23,269,127

7,627,047Retained earnings

(276,958)

4,602,277Total Stockholders' Equity

23,072,618

12,230,272$  52, 553,004

$
17,203,130


5

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Critical Home Care, Inc.
Consolidated  Statements of Operations
(Unaudited)

Three Months
 Ended
 September 30, 2004

Three Months
 Ended
 September 30, 2003Net Sales

$
25,512,001

$
19,556,160Cost of Sales


21,647,683


16,616,190Gross Profit


3,864,318


2,939,970General and Administrative Expenses


3,629,197


1,975,273Depreciation and Amortization


53,701


5,655Operating Income


181,420


959,042Other ExpensesInterest Expense, Net


152,730


Amortization of Debt Discount


122,217


Total Other Expenses


274,947


Net Income (Loss) Before Income Tax Benefit


(93,527)


959,042Income Tax Expense


67,139


Net Income (Loss)

$
(160,666)

$
959,042Unaudited pro forma amounts to reflect pro formaIncome Taxes fromtax status change





326,000Pro Forma Income After Income Taxfrom tax status change





633,042Income (Loss) Per Share:Basic


(0.00)


1.01Diluted


(0.00)


1.01Proforma Income Per Share:Basic





0.67Diluted





0.67Weighted average number of shares (in thousands):Basic


68,449


948Diluted


68,449


948


6

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Critical Home Care, Inc.
Consolidated  Statements of Operations
(Unaudited)

Successor

PredecessorPeriod from
 May 10, 2004
 To
 September 30, 2004

Period From
 April 1, 2004
 To
 May 9, 2004

Six Months
 Ended
 September 30, 2003Net Sales

$
39,133,058

$
9,486,601

$
37,763,822Cost of Sales


33,147,670


8,120,463


32,086,451Gross Profit


5,985,388


1,366,138


5,677,371General and Administrative Expenses


5,613,299


886,916


3,886,774Depreciation and Amortization


87,445





5,655Operating Income


284,644


479,222


1,784,942Other ExpensesImpairment of Goodwill





16,055


Interest Expense, Net


397,012





Amortization of Debt Discount


157,451





Total Other Expenses


554,463


16,055


Net Income (Loss) Before Income Tax Expense (Benefit)


(269,819)


463,167


1,784,942Income Tax Expense


7,139





Net Income (Loss)

$
(276,958)

$
463,167

$
1,784,942Unaudited pro forma amounts to reflect pro formaIncome Taxes fromtax status change





158,000


608,000Pro Forma Income After Income Taxfrom tax status change





305,167


1,176,942Income (Loss) Per Share:Basic


(0.00)


0.49


1.88Diluted


(0.00)


0.49


1.88Proforma Income Per Share:Basic





0.32


1.24Diluted





0.32


1.24Weighted average number of shares (in thousands):Basic


68,449


948


948Diluted


68,449


948


948


7

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Critical Home Care, Inc.
Consolidated  Statements of Cash Flows
(Unaudited)

Successor


PredecessorPeriod
From
 May 10, 2004
 To
 September 30, 2004

Period from
 April 1, 2004
 To
 May 9, 2004
Predecessor
 Six Months
 Ended
 September 30, 2003CASH FLOWS FROM OPERATING ACTIVITIESNet Income (Loss)
$
(276,958)

$
463,167
$
1,784,942Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activitiesProvision for bad debts

204,393


42,192

209,500Loss on disposition of asset

89,810Depreciation and amortization

87,445


77

11,446Amortization of debt discount and deferred financing costs

157,451


—

—Investments write off

—


16,055

—Changes in operating assets and liabilitiesAccounts receivable

(2,730,806)


(692,193)

(1,482,673)Inventory

(157,227)


—

—Prepaid expenses and other current assets

(1,531,743)


27,903

37,026Checks issued against future deposits

(850,125)


(314,025)

432,180Accounts payable

144,005


42,823

(129,934)Accrued expenses and other current liabilities

(204,166)


(301,999)

2,777,128Due to related parties

(266,885)


170,915

158,251NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(5,334,806)


(545,085)

3,797,866CASH FLOWS FROM INVESTING ACTIVITIESPurchase of businesses

(3,352,634)


—

—Purchases of affiliates

—


(157,500)

(395,082)Purchases of property and equipment

(15,728)


—

(2,785)Proceeds from sale of asset

1,779


—

—NET CASH  USED IN INVESTING ACTIVITIES

(3,366,583)


(157,500)

(397,867)CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock

6,420,360


—

—Net drawings on line of credit

2,493,280Payment of longterm debt

(613,243)


—

—Advances (dividends) from stockholder

—


702,585

(3,399,999)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

8,300,397


702,585

(3,399,999)NET  DECREASE IN CASH AND EQUIVALENTS

(400,992)


—

—CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

858,435


—

—CASH AND CASH EQUIVALENTS, END OF PERIOD

457,443


—

—Supplementary information:Cash paid during the period for Interest

397,012


—

—Non cash investing activities Issuance of common stock for the purchase
     of
Trinity Healthcare, Inc. and American Oxygen,
Inc.

1,143,000


—

—Non cash financing activities Debt issue discount

1,507,600


—

—


8

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1  BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements as of
September 30, 2004, and for the periods ended September 30, 2004 and 2003, have been prepared by the Company in accordance with
accounting principles generally accepted in the United States of America. These interim financial statements include all
adjustments which management considers necessary to make the financial statements not misleading. The results of operations for the
three months ended September 30, 2004, are not necessarily indicative of results that may be expected for any other interim period
or for the remainder of the year.

The consolidated financial statements as of September 30, 2004 and
for the three months ended September 30, 2004 and for the period from May 10, 2004 to September 30, 2004, include the accounts of
Critical Home Care, Inc. and its wholly owned subsidiaries (collectively referred to as “Critical” or the
“Company”).  The balance sheet as of March 31, 2004 and the statements of income for the period from April 1, 2004
to May 9, 2004, and for the three months ended September 30, 2003 and the six months ended September 30, 2003, include the accounts
of Arcadia Services, Inc. (predecessor) and subsidiaries prior to the effect of the acquisition and merger described in Note 4. All significant
intercompany balances and transactions have been eliminated in consolidation.

MERGER AND RECAPITALIZATION

Effective May 10, 2004, CHC Sub, Inc., a wholly owned subsidiary of
the Company, merged with and into RKDA, Inc., a recently formed Michigan Corporation, (the “RKDA Merger”). 
RKDA’s assets consist of all of the capital stock of Arcadia Services, Inc. and the membership interest of SSAC, LLC d/b/a
Arcadia Rx.  RKDA acquired Arcadia Services, Inc. on May 7, 2004 pursuant to a Stock Purchase Agreement by and among RKDA,
Inc., Arcadia Services, Inc., Addus HealthCare, Inc., and the principal stockholder of Addus HealthCare, Inc. (the “Arcadia
Acquisition”).  For descriptions of the terms of the RKDA Merger and the Arcadia Acquisition, please refer to the Form
8K filed with the Securities and Exchange Commission (the “Commission”) on May 24, 2004, as amended by the
accompanying Form 8K/A filed with the Commission on July 23, 2004.

For accounting purposes, the transaction between RKDA and Critical
was considered a reverse merger, and RKDA, Inc. will be considered the acquirer of the Company for accounting purposes.

This report should be read in conjunction with Consolidated
Financial Statements of Arcadia Services, Inc. and Subsidiaries for the Years Ended March 31, 2004 and 2003, included in the Form
8K/A filed with the Commission on July 23, 2004.

NOTE 2 – DESCRIPTION OF BUSINESS

Critical is incorporated in Nevada and based in Southfield,
Michigan. The Company is a national provider of staffing and homecare services, durable medical equipment and mail order
pharmaceuticals. The Company’s medical staffing service includes registered nurses, travel nurses, licensed practical nurses,
certified nursing assistants, respiratory therapists and medical assistants. The nonmedical staffing service includes light
industrial, clerical, and technical personnel. The homecare services include personal care aides, home care aides, homemakers,
companions, physical therapists, occupational therapists, speech pathologists and medical social workers.  The Company markets
and sells surgical supplies, orthotic and prosthetic products and durable medical equipment, such as wheelchairs and hospital beds
and also provides oxygen and other respiratory therapy services and equipment. Clients and patients are facilities and individuals
residing at home. These services are generally paid for by the clients themselves, insurance companies, medicare and state medicaid
waiver programs.

9

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NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany balances and
transactions have been eliminated in consolidation.

Use of Estimates – The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as
of the date of the financial statements, and revenue and expenses during the reporting period. Actual results could differ from
those estimates.

Revenue Recognition – Revenues for services are recorded in
the period the services were rendered at established rates and for products at the time of shipment.

Allowance for Doubtful Accounts – The Company reviews all
accounts receivable balances, and provides for an allowance for uncollectible accounts, and estimates for its bad debt expense
based on historical analysis of its records. The basis of this analysis is from the aging of the receivable files, and the patient,
payer provider records, and additionally their payment history. Items that are greater than one year old are fully reserved. The
balance of any reserve, which is established, is estimated based on the collection history from Company records.  If actual
collection experience changes, revisions to the allowance may be required.  Any unanticipated change in customers’
credit worthiness or other matters affecting the collectibility of amounts due from such customers, could have a material effect on
the results of operations in the period in which such changes or events occur.  After all attempts to collect a receivable
have failed, the receivable is written off against the allowance.

Inventories – Inventories are valued at cost. Cost is
determined by first in, first out (FIFO) method.

Fixed Assets and Depreciation – The Company’s policy is
to depreciate or amortize fixed assets over the estimated useful lives of the assets (315 years) by use of the straightline
method.

Impairment of LongLived Assets  The Company reviews its longlived
assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. To
determine if impairment exists, the Company compares the estimated future undiscounted cash flows from the related longlived
assets to the net carrying amount of such assets. Once it has been determined that an impairment exists, the carrying value of the
asset is adjusted to fair value. Factors considered in the determination of fair value include current operating results, trends
and the present value of estimated expected discounted future cash flows.

Goodwill  Goodwill represents the excess of purchase price over net
assets of businesses acquired.  The Company follows Statement of Financial Accounting Standards (“SFAS)
No. 142, Goodwill and Other Intangible Assets.  Accordingly, goodwill is
not amortized but is tested for impairment annually, and between annual tests in
certain circumstances.  The test for impairment requires the company to
make several estimates about fair value, most of which are based on projected
discounted future cash flows.  The estimates associated with the goodwill impairment
test are considered critical due to judgment required in determining fair value
amounts, including projected discounted future cash flows.  Changes in these estimates
may result in the recognition of an impairment loss.

Earnings (Loss) Per Share  Basic earnings
per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted earnings
per share reflects the potential dilution that could occur if securities, or other contracts to issue common stock, were
exercised or converted into common stock. Outstanding stock options to acquire common shares, and outstanding warrants to acquire
common shares,  have not been considered in the computation of dilutive loss per share
since their effect would be antidilutive.

Income Taxes  Income taxes are accounted for under the asset and
liability method. Accordingly, deferred tax assets and liabilities are recognized currently for the future tax consequences
attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which
those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying
amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

The Company considers all available evidence, both positive and
negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a
net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these
judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it
can be objectively verified. The Company records a valuation allowance to reduce our deferred tax assets and review the amount of
such allowance annually. When the Company determines certain deferred tax assets are more likely than not to be utilized, the
Company will reduce the valuation allowance accordingly.

Prior to May 10, 2004, Arcadia Services, Inc. elected to be taxed as
a Subchapter Scorporation with the individual shareholders reporting their respective share of income on their income tax return.
Accordingly, the Company has no deferred tax assets or liabilities arising in prior periods.

10

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The Company has provided a valuation allowance for the deferred tax
assets related to the approximate $2,300,000 operating carryovers of Critical expiring through 2024. Internal Revenue Code Section 382 rules
limit the utilization of NOLs upon a change in control of a company. It has been determined that a change in control has taken
place. Since the change in control has taken place, utilization of the Company’s NOLs will be subject to limitations in future periods, which could have an effect of
eliminating substantially all the future income tax benefits of the NOL’s.

Tax benefits from the utilization of net operating loss
carryforwards will be recorded at such time and to such extent, they are more likely than not to be realized.

Stock Based Compensation –

The Company accounts for its stock option plan under SFAS No. 148,
“Accounting for Stock Based Compensation – Transition and Disclosure – an amendment of SFAS No. 123”. As
permitted under SFAS No. 123, the Company continues to apply the Accounting Principles Board Opinion No. 25, “Accounting for
Stock Issued to Employees.” As required under SFAS No. 148, the following table presents pro forma net loss and basic and
diluted loss per share as if the fair valuebased method had been applied to all awards.

For the Three
 Months Ended
 September 30, 2004

For the Three
 Months Ended
 September 30, 2003Net income (loss) as reported


$
(160,666
)


$
959,042Less: Total stockbased employee compensation
           expense determined under the fair value
           method, net of related tax effects



(3,000
)



Pro Forma net income (loss)


$
(163,666
)


$
959,042Net income (loss) per share:Basic and diluted income per share as reported


$
0.00



$
1.01Pro Forma basic and diluted income per share


$
0.00



$
1.01




Successor
 For the Period
 Ended
 September 30, 2004

Predecessor
 For the Six
 Months Ended
 September 30, 2003Net income (loss) as reported


$
(276,958
)


$
1,784,942Less: Total stockbased employee compensation
           expense determined under the fair value
           method, net of related tax effects



(6,000
)



Pro Forma net income (loss)


$
(282,958
)


$
1,784,942Net income (loss) per share:Basic and diluted income per share as reported


$
0.00



$
1.88Pro Forma basic and diluted income per share


$
0.00



$
1.88


NOTE 4 – MERGER TRANSACTION

Effective May 10, 2004 CHC Sub, Inc., a wholly owned subsidiary of
Critical Homecare, Inc. merged with and into RKDA, Inc., a recently formed Michigan Corporation,  RKDA's assets consist of all
of the capital stock of Arcadia Services, Inc. and the membership interest of SSAC, LLC d/b/a Arcadia Rx.  RKDA acquired
Arcadia Services, Inc. on May 7, 2004 pursuant to a Stock Purchase Agreement by and among RKDA, Inc., Arcadia Services, Inc., Addus
Healthcare, Inc. and Addus Healthcare's principal shareholder. The purchase price of Arcadia Services, Inc. is $16.8 million and
assumption of certain related liabilities.

The following unaudited pro forma statement of income has been prepared
to give effect to the reverse merger. RKDA, Inc. will be considered the acquirer of the Company for accounting purposes. This pro
forma statement of income has been prepared as if the merger had been completed as of April 1, 2004.

11

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The unaudited pro forma statement of income is presented for illustrative
purposes only and is not necessarily indicative of the results of operations that would have actually been reported had the merger
occurred on April 1, 2004, nor is it necessarily indicative of the future results of operation. The pro forma statement of
operations has been prepared based upon the Company's financial information.

Six Months Ended
 September 30, 2004Pro forma revenue


$
49,092,409Pro forma net loss


$
(93,727)Pro forma earnings per shareBasic


$
0.00Diluted


$
0.00Pro forma weighted averagecommon shares (in thousands)Basic



68,449Diluted



68,449


NOTE 5 – NOTE PAYABLE  OFFICER

Notes payable, officer, issued from May 2003 through December 2003 pursuant to working capital loans from an officer of the
Company bearing interest at 8% per annum and due in December 2004.

$
554,000


12

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NOTE 6 – LONGTERM DEBT

Long term debt at September 30, 2004 is summarized as
follows:

Note payable dated September 10, 2004 bearing interest at the rate of 6% per year.
The note is payable in full with interest by
June 21, 2005. The Company can extend
the payment date to September 21, 2005 and the interest rate will be increased to
12 % during
the extension period. The lender also received the option to purchase
up to 3,150,000 warrants at a purchase price of $0.95 per
share. The option to purchase
warrants expires on September 21, 2009.  The note payable of $5,000,000 is
shown
net of debt discount of $1,046,341

$
3,953,659Subordinated convertible Note  payable, dated June 12, 2004, and bearing interest of 
12%. The Note shall be due and
payable in three installments of
$250,000 on
 December 31, 2004, March 31, 2005 and July 15, 2005 with the balance of $750,000
due on October 15, 2005. If the
note is repaid before the maturity date the Company
shall pay a 2.5% prepayment fee to the lender. The  lender also received conversion
rights to convert all of the
outstanding principal under this note into shares of common
stock at a rate of one share per $0.50.  The note payable of $1,500,000 is
shown net of
debt discount of $303,808


1,196,192Notes payable to the selling shareholders of Trinity

dated September 23, 2004
and bearing simple interest of
8% per year due January 15, 2005.


975,510Note
payable to the selling shareholders of Trinity
dated September 23, 2004 and
bearing simple interest of
8% per year payable in quarterly payments of principal
and interest beginning January 15, 2005, due October 15, 2006.


660,740Note payable to seller dated May 7, 2004 for the Arcadia acquisition with interest
at 12% payable in one year, accrued interest
will be waived if note is paid by the
maturity date


500,000Note payable to the selling shareholders of Trinity  dated September 23, 2004,
to be paid in the
company’s common stock based on approximate fair value at
the transaction date, on January 15, 2005 ($86,875) and January 15,
2006 ($260,625).


347,500Note payable due by July 1, 2005 with interest rates of 12%


275,000Revolving Line of Credit US Bank dated February 17, 2004 with a Credit limit of
$250,000, bearing interest at prime +1% effectively 5.75% at September 30, 2004,
and maturing on February
17, 2005.


155,526Other


181,6878,245,814Less  Current portion of long term debt


7,699,935$
545,879


13

---



NOTE 7   LINE OF CREDIT  ARCADIA

On May 7, 2004, Arcadia Services, Inc. and three of its wholly
ownedsubsidiaries entered into a Credit Agreement with Comerica Bank. The agreement provides the borrowers with a revolving credit
facility of up to $14,400,000 due May 7, 2006. The formula base is 85% of the eligible accounts receivable and an overformula
advance of $1,467,000. The term on the overformula is one year. The overformula advance shall be paid as follows:
$300,000 due November 15, 2004, $83,333 per month from October 7, 2004 through May 7, 2005 and an additional $125,000 per month from February 7, 2005 through May
7, 2005. The initial advance of $11 million was
used to fund a portion of the
purchase price of the
common stock of Arcadia by RKDA from the seller.  RKDA granted Comerica Bank a first priority security interest in all of the issued and outstanding
stock of Arcadia. The Arcadia subsidiaries and Arcadia granted the bank security interests in all of their assets and the seller
subordinated $500,000 of indebtedness of Arcadia to Arcadia’s indebtedness to Comerica Bank. RKDA and its former principals,
Messrs. Elliott and Kuhnert, each executed a personal guaranty to Comerica Bank over all indebtedness of Arcadia and its
subsidiaries.

Advances under the credit facility bear interest at the primebased
rate (as defined) or the Eurodollarbased rate (as defined), at the election of borrowers. Arcadia agreed to various financial
covenant ratios; to have any person who acquires Arcadia common stock pledge such stock to Comerica Bank, and along with Messrs. Elliott and Kuhnert, to customary
negative covenants. Amounts outstanding under this agreement totaled approximately $13,937,000 at September 30, 2004, of which
$1,467,000 is classified as current
and $12,470,000 classified as longterm.

NOTE 8   ACQUISITIONS

On July 30, 2004 the Company purchased selected assets of the
Staffing Source of St. Petersburg, Florida. The Staffing Source, Inc. with offices in Bradenton, Clearwater and St. Petersburg
provides temporary personnel for health care facilities and other business. It reported 2003 sales of $3.3 million. The purchase
price is computed per a specified formula based on the annualized revenue, with a minimum total payment of $480,000 and a maximum
total payment of $600,000.

On August 20, 2004 the Company purchased American Oxygen,
Inc. of Peoria, Illinois. The purchase price was 200,000 shares of the Company valued at $186,000. American Oxygen operates from
two locations in Illinois and sells durable medical equipment, including respiratory/oxygen.

On August 30, 2004 the Company purchased selected assets of
Merit Staffing Resources, Inc (Merit). Merit provides temporary personnel for healthcare facilities and other businesses.  It
has offices in Danvers, Dedham, Lakeville, Sandwich, and Weymouth, Massachusetts and reported 2003 sales of $4.7 million. The
purchase price is (a) cash equal to a specified percentage of the seller’s accounts receivable under 120 days outstanding as
of closing, plus $200,000, subject to a total maximum cash payment at closing of $1.6 million plus (b) forty eight monthly payments
computed per a specified formula based on gross margin with a minimum total payment of $864,000 and a maximum total payment of $1.6
million.

On September 23,
2004 the Company purchased Trinity Healthcare of WinstonSalem, Inc (Trinity). The acquisition was a stock purchase and the price
was $5.4 million. Trinity provides oxygen and other respiratory services, as well as home intravenous therapy services. Trinity has locations in WinstonSalem and
Huntersville, North Carolina, and Marietta and Demorest, Georgia. Two of Trinity’s selling shareholders were paid the
following portions of the purchase price at closing on September 23, 2004:  (a) payment of $2.5 million in cash; (b) issuance
of 1,075,410 shares of the Company’s common stock with an aggregate value of $916,250; and (c) delivery of a promissory note
in the aggregate principal amount of $660,740, secured by a wholly owned subsidiary under a security agreement subordinated to
their primary lender. The promissory note’s term is 21 months beginning January 15, 2005 and maturing
October 15, 2006.  The promissory note bears simple interest at 8% per annum commencing January 15, 2005 and
provides for equal quarterly payments of principal and interest.  Payment of the promissory note is subject to SSAC’s
rights of recoupment/offset and is guaranteed by the Company per an unsecured guaranty. Trinity’s two other selling
shareholders will be paid the following portions of the purchase price by January 15, 2005:  (a) $975,510 payable in
cash, subject to SSAC’s rights of recoupment/offset and the Company’s unsecured guaranty; and (b) 407,864 shares of the
Company’s common stock with an aggregate value of $347,500, of which 305,898 shares with an aggregate value of $260,625 will
be escrowed for one year.  The escrowed shares will be subject to SSAC’s rights of recoupment/offset.  Subject to
recoupment/offset, the escrowed shares will be released to the two shareholders by January 15, 2006.

14

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NOTE 9 – AFFILIATE PAYABLE

Arcadia Services, Inc (Arcadia) a wholly owned subsidiary of the Company  operates primarily through a network of
affiliated agencies throughout the United States.  These affiliated agencies are ownermanaged businesses, which have been
contracted by the Company to sell services under the Arcadia name.  The arrangements with affiliated agencies are formalized
through a standard contractual agreement. The affiliates operate in particular regions and are responsible for recruiting and
training field service employees and marketing their services to potential customers within the region.  The field service
employees are employees of  Arcadia. Arcadia provides sales and marketing support to the affiliates and develops and maintains
operating manuals that provide suggested standard operating procedures for the affiliates.

Each affiliate receives a weekly commission amount based on a percentage of the gross margin of the business generated by the
affiliate.  Gross margin is computed by taking the gross amounts billed to Arcadia’s customers in any given week and
deducting the total weekly wages, payrollrelated taxes and insurance costs (workers’ compensation and disability, as
required by law) for field service personnel.

The affiliate agreement also provides an affiliate reserve for bad debts that are charged against the affiliate’s weekly
commission amount.  The affiliate reserve is computed based on 1% of gross sales (billings).  The total amount that can
be held by Arcadia is limited to 10% of the current outstanding balance of accounts receivable related to the affiliate. In
addition, affiliates are required to reimburse the Company for 50% of any loss  resulting from bad debt experience on accounts
receivable.  When a write off happens it is taken against the reserve as opposed to the weekly commission. The total reserve
held as of September 30, 2004 is $968,297.

When Arcadia purchases the
customers and hires the employees of an affiliate they will pay additional consideration of up to 10% of firstyear revenues generated by the
affiliate for affiliating with Arcadia. The estimated payments are accrued on
the transaction date. Payments are
made in monthly installments over a threeyear period. The amounts in excess of one year
are considered long term. The short term consideration is $466,000 and the long term consideration amount
is $670,059.

In addition to the consideration,
Arcadia may provide cash advances to affiliates to assist the affiliates in beginning their operations or starting up new
offices.  These loans are typically $5,000 to $20,000 and are repaid through a reduction of commissions on a mutually agreed
upon repayment schedule. The short term portion of the loans is $92,327 and the long term portion is $66,366.

NOTE 10 – STOCKHOLDERS’ EQUITY

On May 10, 2004, CHC Sub, Inc., a whollyowned subsidiary of
Critical, consummated an Agreement and Plan of Merger under which CHC Sub, Inc., merged with and into RKDA, Inc. The purchase price
paid was 21,300,000 shares of Critical common stock and 1,000,000 sevenyear class A warrants exercisable at $0.50 per share. The
Company retired 1,300,000 shares of the Company’s common stock as part of this transaction. RKDA’s assets consist of
all of the capital stock of Arcadia Services, Inc. and the membership interests of SSAC, LLC d/b/a Arcadia Rx. (collectively
“Arcadia”). RKDA had acquired Arcadia Services, Inc. through a stock purchase on May 7, 2004.  The Company raised
$8,245,000 through a Regulation D private placement of 32,980,000 common shares at a price of $0.25 per share which was completed
and terminated on May 27, 2004.  The offering also included 3,298,000 Class A Warrants to purchase 3,298,000 common shares of
stock over seven years at an exercise price of $0.50 per share.  The Placement Agent received a 10% sales commission,
reimbursement for outofpocket expenses and seven year warrants to purchase 2,298,000 shares of the Company’s common stock
exercisable on a cashless basis at $0.50 per share.

Three officers of the Company escrowed 6 million, 4 million and 2
million shares of the Company’s common stock, respectively, pursuant to Escrow Agreements dated as of May 7, 2004
(collectively, the “Escrow Shares”). Fifty (50%) percent of the Escrow Shares will be released from escrow in fiscal
2007 and fiscal 2008, if RKDA, in the case of Messrs. Elliott and Kuhnert, and the Company, in the case of Mr. Bensol, meets the
following milestones: for the 12 month period ending March 31, 2006, an Adjusted EBITDA (as defined) of $9.7 million and for the 12
month period ending March 31, 2007, an Adjusted EBITDA of $12.5 million. Alternatively, the Escrow Shares shall be released in
fiscal 2008 if RKDA, in the case of Messrs. Elliott and Kuhnert, and the Company, in the case of Mr. Bensol, obtains an Adjusted
EBITDA for the 24 month period ending March 31, 2007 of at least $22.2 million. In addition, for any of the Escrow Shares to be
released pursuant to the foregoing thresholds, the Company’s, in the case of Mr. Bensol, and RKDA’s, in the case of
Messrs. Elliott and Kuhnert, Debt to Adjusted EBITDA ratio must be 2.0 or less. Nevertheless, twenty (20%) percent of the Escrow
Shares (2.4 million shares) will be released if the Company’s Common Stock remains at least $1.00 per share for 30
consecutive trading days or the average closing price for any consecutive 45 day period is at least at $1.00 per share, even if the
EBITDA thresholds are not met.

Upon release of any Escrow Shares, the Company will
recognize expense equal to the fair value of the shares at the release date.

On May 25, 2004, the Company entered into separate agreements with
certain managerial employees of Arcadia Services, Inc., that entitled the employees to each purchase 200,000 and 240,000 shares, of
the Company's common stock at $0.25 per share.

NOTE 11  INCOME TAXES

Although the Company experienced a loss for the
quarter ended September 30, 2004 and the period May 10, 2004 through September
30, 2004, the Company recognized income tax expense of $67,139 and $7,139 for
these periods, respectively.  Income tax expense relates to state income
taxes as a result of the Company's multistate locations.

15

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NOTE 12 – COMMITMENTS

EMPLOYMENT AGREEMENTS

Three officers of the Company entered into substantially similar
employment agreements on May 7, 2004, as Chief Executive Officer, Chief Financial Officer, President and Chief Operating Officer,
and Executive Vice President, respectively. Each agreement is for three years, automatically renewable for successive oneyear
periods unless terminated on three months’ prior written notice. Each officer is being paid $150,000 per annum in salary and
is eligible to receive a discretionary annual bonus determined by the Board of Directors. If either Messrs. Elliott, Kuhnert, or
Bensol’s employment is terminated by the Company other than for cause (as defined) or by the executive for good reason (as
defined), then such executive shall receive twice his base salary. Upon a change in control, other than the RKDA Merger, if the
executive’s employment is terminated by the Company other than for cause or by the executive for good reason, the executive
shall receive three times his total compensation for the past year.  Each executive agreed not to compete with the Company
within North America for the oneyearperiod following termination of his employment.

Messrs. Elliott and Kuhnert were each granted stock options to
purchase 4 million shares of Common Stock exercisable at $0.25 per share. The options shall vest in six tranches provided certain
adjusted EBITDA milestones are met through fiscal 2008, subject to acceleration upon certain events occurring. The options may be
exercised by Messrs. Elliott and Kuhnert as long as they are employed by the Company and for one year from termination for any
reason provided they have achieved the EBITDA milestones. The expense, if any, related to these options will be recognized in the
period the milestones are achieved or are likely to be achieved.

SETTLEMENT OF CERTAIN LIABILITIES

On May 13, 2004, David S. Bensol converted $150,000 of his debt into
600,000 shares of the Company’s common stock at $0.25 per share, plus 60,000 Class A warrants identical to those issued in
connection with the Company’s May 7, 2004 Offering (See Note 6), pursuant to a resolution of the Board of Directors dated May
4, 2004.

16

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

General

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Form 10QSB.

Statements contained in this report include forwardlooking statements within
the meaning of such term in Section 27A of the Securities Act of 1933, Section
21E of the Securities Exchange Act of 1934 and as construed by court opinions.
Forwardlooking statements involve known and unknown risks, uncertainties and
other factors, which could cause actual financial or operating results,
performances or achievements expressed or implied by such forwardlooking
statements not to occur or be realized. Such forwardlooking statements
generally are based on our best estimates of future results, performances or
achievements, predicated upon current conditions and the most recent results of
the companies involved and their respective industries. Forwardlooking
statements may be identified by the use of forwardlooking terminology such as
may, can, will, could, should, project, expect, plan, predict,
believe, estimate, aim, anticipate, intend, continue, potential,
opportunity or similar terms, variations of those terms or the negative of
those terms or other variations of those terms or comparable words or
expressions.

Readers are urged to carefully review and consider the various disclosures made by us in this Quarterly Report on Form 10Q, our
Quarterly Report on Form 10Q for the period ended June 30, 2004, our current report on Form 8K filed on July 23, 2004, our Annual
Report on Form 10KSB filed on February 18, 2004 and our other filings with the Securities and Exchange Commission. These reports
and filings attempt to advise interested parties of the risks and factors that may affect our business, financial condition and
results of operations and prospects. The forwardlooking statements made in this Form 10Q speak only as of the date hereof and we
disclaim any obligation to provide updates, revisions or amendments to any forwardlooking statements to reflect changes in our
expectations or future events.

Critical Accounting Policies

The
Company has identified the following accounting policies that require
significant judgment. The Company believes its judgments relating to allowance
for doubtful accounts and goodwill are appropriate.

Allowance for doubtful accounts – The Company reviews all
accounts receivable balances, and provides for an allowance for uncollectable accounts, and estimates for its bad debt expense
based on historical analysis of its records. The basis of this analysis is from the aging of the receivable files, and the patient,
payer provider records, and additionally their payment history. Items that are greater than one year old are fully reserved. The
balance of any reserve, which is established, is estimated based on the collection history from Company records.

Goodwill –
Goodwill represents the excess of purchase price over net assets of businesses acquired. Goodwill was
previously amortized on the straightline method over periods ranging from seven to fifteen years. The Company follows Statement of
Financial Accounting Standards (“SFAS) No. 142, Goodwill and Other
Intangible Assets.  Accordingly, goodwill is not amortized but is tested
for impairment annually, and between annual tests in certain circumstances. 
The test for impairment requires the company to make several estimates about
fair value, most of which are based on projected discounted future cash flows.  The
estimates associated with the goodwill impairment test are considered critical
due to judgment required in determining fair value amounts, including projected
discounted future cash flows.  Changes in these estimates may result in the
recognition of an impairment loss.

Results of Operations

The Three Months Ended September 30, 2004 Compared to the Three
Months Ended September 30,2003.

Sales for the three months ended September 30, 2004 increased by
$5,955,841, or 30%, to $25,512,001 as compared to $19,556,160 for the three months ended September 30, 2003.
The increase in the amount of $1,016,182 is attributable to the operations of
the entities that merged into the company effective May 10, 2004, $3,146,562 is
attributable to the three acquisitions done  to the affiliate network prior
to the quarter ended September 30, 2004, and $919,921 is attributable to the
four acquisitions done during the quarter ended September 30, 2004.  See notes to consolidated financial statements for discussion of various acquisitions
made during the three months ended September 2004. In addition, the Company had internal growth of $ 873,176 during the three
months ended September 2004.  There were no significant changes in sales
prices during the quarter ended September 30, 2004.

Gross profit for the quarter ended September 30, 2004 remained
consistent

with the quarter ended September 30, 2003 at 15.1%.

General and administrative expenses for the quarter ended September
30, 2004 were $3,629,197 compared to $1,975,273 for the three months ended September 30, 2003. The increase of $1,653,924, or
84%,
consists  of additional general and administrative expenses of the merged entities as discussed in Notes to the
consolidated financial statements.

Depreciation  expense was $53,701 for the three months
ended September 30, 2004 compared to $5,655 for the three months ended September 30, 2003. The increase of $48,046 consists
primarily of additional depreciation expenses of the merged entities as discussed in Notes to the consolidated financial
statements.

Interest expense was $152,730 for the three months ended September
30, 2004. There was no interest expense for the three months ended September 30, 2003. Interest expense incurred in the three
months ended September 30, 2004 is interest paid as a result of borrowings related to the acquisitions discussed in the notes to
the consolidated financial statements.

17

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Amortization of deferred debt discount was $122,217 for the three
months ended September 30, 2004  of which $116,458 represents the amount related to the bridge loan and the remaining $5,759
represents amount related to the note payable. The deferred debt discount is the fair value of stock options and warrants granted
to certain noteholders as explained in Note 5 to the consolidated financial statements. The deferred debt discount is being
amortized over the life of the promissory note.

The Six Months Ended September 30, 2004 Compared to the Six Months
Ended September 30,2003.

Sales for the six months ended September 30, 2004 are split between
the Predecessor and Successor companies. The sales from May 10, 2004 to September 30, 2004 were $39,133,058
and from April 1, 2004 to May 9, 2004 were $9,486,601. The combined sales for the six months ended September 30, 2004 increased by
$10,855,837, or 29%, to $48,619,659 as
compared to $37,763,822 for the six months ended September 30, 2003. The
increase in the amount of $1,727,438 is attributable to the operations of the
entities which merged into the Company effective May 10, 2004, $5,857,949 is
attributable to the acquisitions done prior to the quarter ended September 30,
2004 and $919,921 is attributable to the four acquisitions that were done during
this quarter. See notes to consolidated
financial statements for discussion of various acquisitions made during the six months ended September 2004. In addition, the
Company had internal growth of $2,350,529 during the six months ended September 2004. There
were no significant changes in sales prices during the period May 10, 2004
through September 30, 2004.

Gross profit for the period from May 10, 2004 to September 30, 2004
is 15.3% and for the period from April 1, 2004 to May 9, 2004 is 14.4%.  The combined gross profit for the six months ended
September 30, 2004 was consistent with the six months ended September 30, 2003 at 15.1%.

General and administrative expenses for the period from May 10, 2004
to September 30, 2004 were $5,613,299 and for the period from April 1, 2004 to May 9, 2004 were $886,916. Combined general and
administrative expenses totaled $6,500,215 for the six months ended September 30, 2004 compared to $3,886,774 for the six months ended
September 30, 2003. The net increase of $2,613,441, or 67%,
consists  of additional the general and administrative expenses related to the merged entities as discussed in the notes
to the consolidated financial statements.

Depreciation  expense was $87,445 for the six months ended September 30, 2004 compared to $5,655 for the six months ended September
30, 2003. The increase of $81,790 consists primarily of additional depreciation expenses of the merged entities as discussed in Notes
to the consolidated financial statements

Interest expense was $397,012 for the six months ended September 30,
2004. There was no interest expense for the six months ended June 30, 2003. Interest expense incurred in the six months ended
September 30, 2004 included $220,913 of interest to the bank, $45,000 of interest on the bridge loan, $90,000 of interest for the
conversion rights for the note, and $41,099 of interest to the various note payables. The increase in interest expense is a result
of borrowings resulting from the acquisitions of the various merged entities as discussed in the notes to the consolidated
financial statements.

Amortization of deferred debt discount was $157,451 for the six
months ended September 30, 2004 of which $151,692 represents the amount related to the bridge loan and the remaining $5,759
represents the amount related to other notes payable. The deferred debt discount is the fair value of stock
options and warrants granted to certain noteholders as explained in Notes to
the consolidated financial statements. The deferred debt discount is being amortized over the life of the promissory note.

Liquidity and Capital Resources

The Company’s primary needs for liquidity and capital
resources are the funding of operating and administrative expenses related to the management of the Company and its
subsidiaries.

Prior to September 30, 2004, the Company consummated the merger with
and into RKDA. This transaction was preceded by the Company obtaining a bridge loan in the amount of $1.5 million. Simultaneous
with the RKDA Merger the Company completed the minimum amount of $8 million of a Regulation D Private Placement (the
“Offering”). The Company subsequently sold an additional $245,000 of securities and terminated the Offering. The
Company sold an aggregate of 32,980,000  shares at $0.25 per share together with 3,298,000 Class A Warrants exercisable for 7
years at $0.50 per share. The Placement agent received warrants to purchase 2,298,000 shares, exercisable on a cashless basis for 7
years at $0.50 per share. The Placement Agent also received a 10% commission and reimbursement of outofpocket expenses. The
Company used $5 million of the net proceeds to complete the RKDA Merger as described in Note 2, and used the balance for working
capital.

On May 7, 2004, Arcadia Services, Inc. and three of its whollyowned
subsidiaries entered into a Loan Agreement with Comerica Bank. The agreement provides the borrowers with a revolving credit
facility of up to $12 million through May 7, 2006. The initial advance on May 7, 2004, was in the amount of $11 million. The
initial advance was immediately distributed up to RKDA, Inc., to fund a portion of the purchase price of the capital stock of
Arcadia by RKDA from the seller and to pay expenses associated with the transaction. All other advances under the credit facility
shall be used solely for working capital purposes. RKDA granted Comerica Bank a first priority security interest in all of the
issued and outstanding capital stock of Arcadia. The Arcadia subsidiaries and Arcadia granted the bank a security interest in all
of their assets and the seller subordinated $500,000 indebtedness of Arcadia to Arcadia’s indebtedness to Comerica Bank. RKDA
and its former principals, Messrs. Elliott and Kuhnert, each executed a personal guaranty to Comerica over all indebtedness of
Arcadia and its subsidiaries. On July 29, 2004 the credit limit was increased to $14.4 million

Advances under the credit facility bear interest at the primerate
(as defined) or the Eurodollarbased rate (as defined), at the election of borrowers. Arcadia agreed to various financial covenant
ratios; to have any person who acquires Arcadia capital stock pledge such stock to Comerica Bank, and along with Messrs. Elliott
and Kuhnert, to customary negative covenants.

18

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On September 21, 2004 the company obtained promissory note in the amount of $5
million to fund acquisitions. The promissory note bears an interest rate of 6% per annum. The note is due on or before June 21,
2004. The note may be extended at the company’s discretion  for three months bearing a 12% interest rate per annum. The
lender also received a warrant to purchase 3,150,000 shares of common stock of the company at $0.95 per share.  The value of these
options is being expensed over the life of the note.

Contractual Commitments

As of  September 30, 2004 the Company had contractual obligations in
the form of nonCancelable operating leases and employment agreements as follows:

Payments due by March 31,Total
2005
2006
2007
2008
2009Operating Leases


$
1,938,336

$
464,149

$
533,234

$
496,299

$
375,604

$
69,050Employment Agreements



900,000


487,500


412,500








Total


$
2,838,336

$
951,649

$
945,734

$
496,299

$
375,604

$
69,050




Item 3.           
Quantitative and Qualitative Disclosures About
Market Risk.

Not applicable.

Item 4.           
Controls and Procedures.

Disclosure Controls and Procedures.Our chief executive officer and our chief financial officer, after evaluating
our “disclosure controls and procedures” (as defined in Rules 13a15(e) and 15d15(e) under the Securities Exchange Act
of 1934 (the “Exchange Act”)) have concluded that as of September 30, 2004, our disclosure controls and procedures are
effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and
forms, and that information is accumulated and communicated to our management, including our chief executive officer and our chief
financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Controls.During our fiscal quarter ended September 30, 2004, there was no change in our
internal control over financial reporting (as defined in Rule 13a15(f) under the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.

19

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Part II:  Other Information





Item 1.           
Legal Proceedings.

During our fiscal quarter ended September 30, 2004,
there were no material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the
Company or any of its subsidiaries was a party or of which any of their property was the subject.

Item 2.           
Unregistered Sales of Equity Securities and Use of
Proceeds.

Sandgrain Securities, Inc.



On August 10, 2004, the Company engaged Sandgrain Securities, Inc. (“Sandgrain”) as a strategic and investment
advisor for a period of six months.  In connection with such engagement, the Company granted Sandgrain and certain of its key
employees with 375,000 Class A Warrants to purchase 375,000 shares of Common Stock of the Company.  Such Class A Warrants have
an exercise price of $0.25 per share and are exercisable for a period of five years.  The shares issuable upon exercise of the
Class A Warrants carry certain registration rights.



The Sandgrain transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 because the
transaction did not involve any public offering.  The sale of these securities were made without general solicitation or
advertising and the transaction did not involve an underwriter.  All of the securities certificates issued in the transaction
bear appropriate legends providing, in substance, that the securities have been acquired for investment only and may not be sold,
transferred or assigned in the absence of an effective registration statement or opinion of the Company’s counsel that
registration is not required.



American Oxygen, Inc.



As reported in the Current Report on Form 8K filed on
September 2, 2004, on August 20, 2004, SSAC, LLC, a secondtier, whollyowned subsidiary of the Company, purchased all the issued
and outstanding shares of stock of American Oxygen, Inc. of Peoria, Illinois (“American Oxygen”) in exchange for
200,000 shares of common stock and certain registration rights relative to such shares.  American Oxygen, operating from two
locations in Illinois, sells and rents durable medical equipment, including respiratory/oxygen equipment.



The
American Oxygen transaction was exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 because the transaction did not involve any
public offering.  The sale of these securities were made without general
solicitation or advertising.  There was no underwriter.  All of the
securities certificates issued in the transaction bear appropriate legends
providing, in substance, that the securities have been acquired for investment
only and may not be sold, transferred or assigned in the absence of an effective
registration statement or opinion of the Companys counsel that registration is
not required.



BayStar Capital, II, L.P.



As reported in the Current Report on Form 8K filed on
September 27, 2004, the Company, on September 21, 2004, entered into a Promissory Note and Warrant Purchase Agreement with BayStar
Capital, II, L.P. (“BayStar”), a shareholder of the Company.  BayStar contemporaneously purchased from the Company
a Promissory Note and a Warrant to purchase shares of the Company’s common stock.



The Promissory Note is in the principal amount of $5 million
and bears interest at 6% per annum, compounded quarterly.  The Promissory Note is payable on or before June 21, 2005. 
The Company may extend the term of the Promissory Note for an additional three months, in which case the interest rate increases to
12% per annum during the threemonth extension period.  The Warrant permits BayStar to purchase up to 3,150,000 shares of the
Company’s common stock at $0.95 per share.  The Warrant expires on September 21, 2009.  The shares issuable upon
exercise of the Warrant carry certain registration and other rights.



The Promissory Note and Warrant sold to BayStar were issued
in a transaction exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation
D.  The transaction is exempt under Section 4(2) of the Securities Act of 1933 because it does not involve a public
offering.  The sales of these securities were made without general solicitation or advertising.  There was no
underwriter.  The transaction is exempt under Rule 506 of Regulation D on the basis that BayStar, an existing shareholder of
the Company, is an accredited investor as defined in Rule 501(a) of Regulation D.

20

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All of the securities certificates issued in the BayStar
transaction bear appropriate legends providing, in substance, that the securities have been acquired for investment only and may
not be sold, transferred or assigned in the absence of an effective registration statement or opinion of the Company’s
counsel that registration is not required.



Trinity Healthcare of WinstonSalem, Inc.

As reported in the Current Report on Form 8K filed on September 27, 2004, the Company’s secondtier, whollyowned
subsidiary, SSAC, LLC (“SSAC”), entered into an agreement on September 23, 2004 to acquire all of the outstanding
common stock of Trinity Healthcare of WinstonSalem, Inc. (“Trinity”) for a purchase price of $5.4 million, payable to
Trinity’s four shareholders.  The purchase price is subject to a downward adjustment based on the collections of
accounts receivables over the ninemonth period beginning August 31, 2004.

Two of Trinity’s selling shareholders were paid the following portions of the purchase price at closing on September 23,
2004:  (a) payment of $2.5 million in cash; (b) issuance of 1,075,410 shares of the Company’s common stock with an
aggregate value of $916,250; and (c) delivery of a promissory note in the aggregate principal amount of $660,740, secured by SSAC
under a security agreement subordinated to SSAC’s primary lender.



Trinity’s two other selling shareholders will be paid the following portions of the purchase price by January 15,
2005:  (a) $975,510 payable in cash, subject to SSAC’s rights of recoupment/offset and the Company’s unsecured
guaranty; and (b) 407,864 shares of the Company’s common stock with an aggregate value of $347,500, of which 305,898 shares
with an aggregate value of $260,625 will be escrowed for one year.  The escrowed shares will be subject to SSAC’s rights
of recoupment/offset.  Subject to recoupment/offset, the escrowed shares will be released to the two shareholders by January
15, 2006.



All shares of the Company’s common stock acquired by Trinity’s selling shareholders are subject to certain
registration rights.



In the Stock Purchase Agreement, SSAC agreed to cause the Company to issue 150,000 shares of its common stock to certain Trinity
employees (other than Trinity’s shareholders), in satisfaction of certain liabilities Trinity owed to such employees as of
the closing date.  On September 23, 2004, the Company issued 150,000 shares of its common stock, with an aggregate value of
$127,800, to the Trinity employees.



The shares of the Company’s common stock delivered to Trinity’s selling shareholders and Trinity’s employees
were issued in transactions exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.  These
transactions are exempt under Section 4(2) of the Securities Act of 1933 because they do not involve a public offering.  These
securities were issued without general solicitation or advertising.  There was no underwriter.  The Company did not
receive any proceeds from Trinity’s shareholders or employees in connection with the issuance of the shares of the
Company’s common stock.  Trinity’s selling shareholders were (or will be) issued shares of the Company’s
common stock as partial payment of the purchase and sale of Trinity’s common stock.  Trinity’s employees were
issued shares of the Company’s common stock in satisfaction of certain liabilities Trinity owed such employees as of the
closing date.



All of the securities certificates issued in the Trinity transaction bear appropriate legends providing, in substance, that the
securities have been acquired for investment only and may not be sold, transferred or assigned in the absence of an effective
registration statement or opinion of the Company’s counsel that registration is not required.

Item 3.           
Defaults Upon Senior Securities.



None.

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



No matter has been submitted to a vote of security
holders during the period covered by this report.

Item 5.           
Other Information.



There is no information required to be disclosed in a
report on Form 8K during the period covered by this report, but not reported.





21

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Item 6.           
Exhibits.

|Exhibit No | Exhibit Description                                                                                                                                                                                                                                                                                                                                                               
|---------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1       | Promissory Note and Warrant Purchase Agreement by and among Critical Home
    Care, Inc. and BayStar Capital II, L.P. dated September 21, 2004 (filed as
    an exhibit to the Companys Current Report on Form 8K filed on September
    27, 2004 and incorporated herein by this reference).                                                                                   
|          
|10.2       | Critical
    Home Care, Inc. Promissory Note in the principal amount of $5,000,000
    bearing interest at 6%, compounded quarterly, dated September 21, 2004
    (filed as an exhibit to the Companys Current Report on Form 8K filed on
    September 27, 2004 and incorporated herein by this reference).                                                                    
|          
|10.3       | Critical
    Home Care, Inc. Common Stock Purchase Warrant to Purchase up to 3,150,000
    Shares of the Common Stock of Critical Home Care, Inc., dated September 21,
    2004 (filed as an exhibit to the Companys Current Report on Form 8K filed
    on September 27, 2004 and incorporated herein by this reference).                                                      
|          
|10.4       | Investor
    Rights Agreement by and among Critical Home Care, Inc. and BayStar Capital
    II, L.P. dated September 21, 2004 (filed as an exhibit to the Companys
    Current Report on Form 8K filed on September 27, 2004 and incorporated
    herein by this reference).                                                                                                    
|          
|10.5       | Stock
    Purchase Agreement by and among SSAC, LLC (Buyer), Trinity Healthcare of
    WinstonSalem, Inc. (Company), and Roy Hathcock, Dale Benzine, Chris
    Norman and Marc Leonard (Sellers), dated September 23, 2004 (filed as an
    exhibit to the Companys Current Report on Form 8K filed on September 27,
    2004 and incorporated herein by this reference).
|10.6       | SSAC,
    LLC Promissory Note in the principal amount of $660,774 bearing interest at
    6%, compounded quarterly, dated September 23, 2004 (filed as an exhibit to
    the Companys Current Report on Form 8K filed on September 27, 2004 and
    incorporated herein by this reference).                                                                                     
|          
|10.7       | Subordinated
    Security Agreement by and between Roy Hathcock and Dale Benzine (the
    Secured Party) and SSAC, LLC (the Debtor), dated September 23, 2004
    (filed as an exhibit to the Companys Current Report on Form 8K filed on
    September 27, 2004 and incorporated herein by this reference).                                                                 
|10.8       | Guaranty
    dated September 23, 2004, given by Critical Home Care, Inc. in favor of Roy
    Hathcock, Dale Benzine, Chris Norman and Marc Leonard (filed as an exhibit
    to the Companys Current Report on Form 8K filed on September 27, 2004 and
    incorporated herein by this reference).                                                                               
|          
|10.9       | Escrow
    Agreement made on September 23, 2004, by and among SSAC, LLC (the Buyer),
    Chris Norman and Marc Leonard, and Kerr, Russell and Weber, PLC (the Escrow
    Agent) (filed as an exhibit to the Companys Current Report on Form 8K
    filed on September 27, 2004 and incorporated herein by this reference).                                                  
|          
|10.10      | Asset
    Purchase Agreement dated August 30, 2004 by and between Arcadia Health
    Services, Inc., Second Solutions, Inc., Merit Staffing Resources, Inc. and
    Harriette Hunter (filed as an exhibit to the Companys Current Report on
    Form 8K filed on September 2, 2004 and incorporated herein by this
    reference).                                              
|          
|31.1       | Certification of the Chief Executive Officer required by rule 13a14(a) or
    rule 15d14(a).                                                                                                                                                                                                                                                                                    
|          
|31.2       | Certification of the Principal Accounting and Financial Officer required by
    rule 13a14(a) or rule 15d14(a).                                                                                                                                                                                                                                                                 
|          
|32.1       | Chief
    Executive Officer Certification Pursuant to 18 U.S.C. §1350, as Adopted
    Pursuant to §206 of the SarbanesOxley Act of 2002.                                                                                                                                                                                                                                         
|          
|32.2       | Principal Accounting and Financial Officer Certification Pursuant to 18
    U.S.C. §1350, as Adopted Pursuant to §206 of the SarbanesOxley Act of 2002.                                                                                                                                                                                                                          
|          
|99.1       | Press
    Release dated September 24, 2004, relating to acquisition of Trinity
    Healthcare of WinstonSalem, Inc. (filed as an exhibit to the Companys
    Current Report on Form 8K filed on September 27, 2004 and incorporated
    herein by this reference).                                                                                                             
|99.2       | Press
    Release dated September 1, 2004 issued by Critical Home Care, Inc. relating
    to acquisition of assets of Merit Staffing Resources, Inc. (filed as an
    exhibit to the Companys Current Report on Form 8K filed on September 2,
    2004 and incorporated herein by this reference).                                                                              
|          
|99.3       | Press
    Release dated August 25, 2004 issued by Critical Home Care, Inc. relating to
    financial results for the period ended June 30, 2004 (filed as an exhibit to
    the Companys Current Report on Form 8K filed on September 1, 2004 and
    incorporated herein by this reference).                                                                                   
|          
|99.4       | Press
    Release dated July 30, 2004 announcing purchase of substantially all of the
    assets of the Staffing Source, Inc. by the Companys whollyowned subsidiary
    Arcadia Health Services, Inc. (filed as an exhibit to the Companys Current
    Report on Form 8K filed on July 30, 2004 and incorporated herein by this
    reference).                              
|          
|99.5       | Press
    Release announcing John T. Thorntons appointment to Board of Directors
    (filed as an exhibit to the Companys Current Report on Form 8K/A filed on
    July 28, 2004 and incorporated herein by this reference).                                                                                                                                                   



22

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SIGNATURES

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

|Critical Home Care, Inc.      |  |                                                                             
|----------------------------- |  | ----------------------------------------------------------------------------
|                              |  |                                                                             
|By:  /s/ John E. Elliott II   |  | By:  /s/ Lawrence R. Kuhnert                                                
|                              |  |                                                                             
|John E.
  Elliott II          |  | Lawrence
  R. Kuhnert                                                       
|                              |  |                                                                             
|Its:
  Chairman of the Board  |  | Its: Vice
  Chairman of Finance                                             
|and
  Chief Executive Officer |  | (Principal
  Financial and                                                  
|                              |  | Accounting
  Officer),
        President and Chief
        Operating Officer
|                              |  |                                                                             
|Dated:  November 12, 2004     |  |                                                                             

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