**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION****Washington, D.C. 20549**

**FORM 10-Q**

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

**For thequarterly period ended June 30, 2007**

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

**Commissionfile number: 0-31152**

**CRDENTIACORP.******(Exact name of registrant as specified in its charter)
| **Delaware**                                                      | **76-0585701**                    |
|-------------------------------------------------------------------|-----------------------------------|
| (State or other  jurisdiction of incorporation or   organization) | (IRS Employer Identification No.) |

 

**5001 LBJFreeway, Suite 850, Dallas, Texas 75244**(Address of principal executive offices)

**(972)850-0780**(Registrant’s telephone number, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes  x    No  o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer.  Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act.  (Check one):

| Large accelerated filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|--------------------------------|--------|---------------------------|--------|-------------------------------|

 

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

Yes  o    No  x

Indicate thenumber of shares outstanding of each of the issuer’s classes of common equity,as of the latest practicable date.  AtAugust 10, 2007, 29,584,110 shares of common stock, $.0001 par value, wereoutstanding.

 

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**CRDENTIACORP.**

Form 10-QQuarterly ReportFor Quarterly Period Ended June 30, 2007

**Table ofContents**
|                                                                                                                       | **Page** | ** **                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------|----------|---------------------------------------------------------------------------------------------|
| **PART  I - FINANCIAL INFORMATION**                                                                                   | 3        |                                                                                        |
| Item  1.                                                                                                              |     | Financial  Statements                                                                       | 3 |   |
| Unaudited  Condensed Consolidated Balance Sheets at June 30, 2007 and December 31, 2006                               | 3        |                                                                                        |
| Unaudited  Condensed Consolidated Statements of Operations for the Three and Six Months  Ended June 30, 2007 and 2006 | 4        |                                                                                        |
| Unaudited  Condensed Consolidated Statements of Cash Flows for the Six Months Ended June  30, 2007 and 2006           | 5        |                                                                                        |
| Notes to  Unaudited Condensed Consolidated Financial Statements                                                       | 6        |                                                                                        |
| Item 2.                                                                                                               |     | Management’s Discussion and Analysis of Financial  Condition and Results of Operations | 19 |   |
| Item 3.                                                                                                               |     | Quantitative and Qualitative Disclosures About Market  Risk                                 | 27 |   |
| Item 4.                                                                                                               |     | Controls and Procedures                                                                     | 27 |   |
| **PART  II - OTHER INFORMATION**                                                                                      | 29       |                                                                                        |
| Item  1.                                                                                                              |     | Legal  Proceedings                                                                          | 29 |   |
| Item  1A.                                                                                                             |     | Risk  Factors                                                                               | 30 |   |
| Item 2.                                                                                                               |     | Unregistered Sales of Equity Securities and Use of  Proceeds                                | 36 |   |
| Item 3.                                                                                                               |     | Defaults Upon Senior Securities                                                             | 36 |   |
| Item 4.                                                                                                               |     | Submission of Matters to a Vote of Security Holders                                         | 36 |   |
| Item  5.                                                                                                              |     | Other  Information                                                                          | 36 |   |
| Item 6.                                                                                                               |     | Exhibits                                                                                    | 37 |   |
| **SIGNATURES**                                                                                                        | 39       |                                                                                        |

 

2

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**PART I —FINANCIAL INFORMATION**

**Item 1.    Financial Statements**

**Crdentia Corp.Unaudited Condensed Consolidated Balance Sheets**
| ** **                                                                                                                                                                                                         | ** ** | **June 30, ** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **2007**                | ** ** | ** 2006**        | ** ** |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Current assets:                                                                                                                                                                                                    |       |                    |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                         |       | $                       | 285,931    |                  | $          | 198,068 |   |
| Accounts receivable,  net of allowance for doubtful accounts of $125,000 at June 30, 2007 and  $450,000 at December 31, 2006                                                                                       |       | 4,777,278               |       | 5,776,473             |       |
| Other current  assets                                                                                                                                                                                              |       | 2,037,394               |       | 700,524               |       |
| Total current assets                                                                                                                                                                                               |       | 7,100,603               |       | 6,675,065             |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Property and equipment,  net                                                                                                                                                                                       |       | 367,228                 |       | 469,396               |       |
| Goodwill                                                                                                                                                                                                           |       | 11,432,917              |       | 14,532,917            |       |
| Intangible assets, net                                                                                                                                                                                             |       | 994,976                 |       | 1,581,954             |       |
| Other assets                                                                                                                                                                                                       |       | 184,461                 |       | 628,764               |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Total assets                                                                                                                                                                                                       |       | $                       | 20,080,185 |                  | $          | 23,888,096 |   |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Current liabilities:                                                                                                                                                                                               |       |                    |       |                  |       |
| Revolving lines  of credit                                                                                                                                                                                         |       | $                       | 3,288,206  |                  | $          | 6,412,029 |   |
| Accounts payable  and accrued expenses                                                                                                                                                                             |       | 2,862,383               |       | 3,807,253             |       |
| Due to iVOW                                                                                                                                                                                                        |       | —                  |       | 791,943               |       |
| Accrued employee  compensation and benefits                                                                                                                                                                        |       | 671,181                 |       | 896,260               |       |
| Current portion  of notes payable, including amounts due to significant shareholder of  $1,032,743 at June 30, 2007 and $1,234,078 at December 31, 2006                                                            |       | 1,410,000               |       | 1,234,078             |       |
| Notes payable to  lender, net of discount of $80,150 at December 31, 2006                                                                                                                                          |       | 2,275,000               |       | 701,717               |       |
| Debentures, net  of discount of $1,109,313 at December 31, 2006                                                                                                                                                    |       | —                  |       | 554,687               |       |
| Other current  liabilities                                                                                                                                                                                         |       | 487,100                 |       | 345,643               |       |
| Total current  liabilities                                                                                                                                                                                         |       | 10,993,870              |       | 14,743,610            |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Debentures, net of  discount of $382,500 at June 30, 2007                                                                                                                                                          |       | 382,500                 |       | —                |       |
| Long term bonus payable                                                                                                                                                                                            |       | 947,591                 |       | 903,455               |       |
| Other long-term  liabilities                                                                                                                                                                                       |       | 7,032                   |       | 757,954               |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Total liabilities                                                                                                                                                                                                  |       | 12,330,993              |       | 16,405,019            |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Commitments and  contingencies                                                                                                                                                                                     |       |                    |       |                  |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Stockholders’ equity:                                                                                                                                                                                         |       |                    |       |                  |       |
| Common stock, par value  $0.0001, 150,000,000 shares authorized;   28,667,443 shares issued and outstanding at June 30, 2007 and 14,538,313   shares issued and 14,430,672 shares outstanding at December 31, 2006 |       | 2,867                   |       | 1,454                 |       |
| Additional  paid-in capital                                                                                                                                                                                        |       | 138,078,824             |       | 126,768,011           |       |
| Treasury stock,  no shares at June 30, 2007 and 107,641 shares at cost at December 31, 2006                                                                                                                        |       | —                  |       | —                |       |
| Accumulated  deficit                                                                                                                                                                                               |       | (130,332,499            | )          | (119,286,388          | )          |
| Total stockholders’  equity                                                                                                                                                                                   |       | 7,749,192               |       | 7,483,077             |       |
|                                                                                                                                                                                                               |       |                    |       |                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                                    |       | $                       | 20,080,185 |                  | $          | 23,888,096 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

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**Crdentia Corp.Unaudited Condensed Consolidated Statements of Operations**
| ** **                                                                   | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                   | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Revenue from  services                                                       |       | $                                                   | 7,239,522  |                                              | $          | 10,129,723 |   | $ | 15,336,851 |   | $ | 18,073,480 |   |
| Direct operating  expenses                                                   |       | 5,787,963                                           |       | 8,006,878                                         |       | 12,173,143 |   | 14,395,012 |   |
| Gross profit                                                                 |       | 1,451,559                                           |       | 2,122,845                                         |       | 3,163,708 |   | 3,678,468 |   |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Operating  expenses:                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general, and administrative expenses                                |       | 2,761,054                                           |       | 2,953,294                                         |       | 5,660,705 |   | 5,405,457 |   |
| Loss on impairment of intangibles                                            |       | 3,100,000                                           |       | 123,000                                           |       | 3,100,000 |   | 123,000 |   |
| Gain from settlement of acquisition claim                                    |       | —                                              |       | —                                            |       | — |   | (1,064,693 | ) |
| Gain from settlement of litigation                                           |       | (623,028                                            | )          | —                                            |       | (623,028 | ) | — |   |
| Gain from extinguishment of debt                                             |       | —                                              |       | (3,215,490                                        | )          | — |   | (3,215,490 | ) |
| Non-cash stock based compensation                                            |       | 671,908                                             |       | 451,369                                           |       | 4,063,300 |   | 829,629 |   |
| Total operating  expenses                                                    |       | 5,909,934                                           |       | 312,173                                           |       | 12,200,977 |   | 2,077,903 |   |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Income (loss)  from continuing operations before interest and taxes          |       | (4,458,375                                          | )          | 1,810,672                                         |       | (9,037,269 | ) | 1,600,565 |   |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Interest  expense, net                                                       |       | (209,199                                            | )          | (450,415                                          | )          | (2,315,985 | ) | (1,643,954 | ) |
| Income (loss)  from continuing operations before income taxes                |       | (4,667,574                                          | )          | 1,360,257                                         |       | (11,353,254 | ) | (43,389 | ) |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Income tax  expense                                                          |       | —                                              |       | —                                            |       | — |   | — |   |
| Income (loss)  from continuing operations                                    |       | (4,667,574                                          | )          | 1,360,257                                         |       | (11,353,254 | ) | (43,389 | ) |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Income from  discontinued operations                                         |       | 84,099                                              |       | 87,671                                            |       | 180,697 |   | 132,730 |   |
| Gain from sale of  discontinued operations                                   |       | 126,446                                             |       | —                                            |       | 126,446 |   | — |   |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Net income  (loss)                                                           |       | $                                                   | (4,457,029 | )                                                 | $          | 1,447,928 |   | $ | (11,046,111 | ) | $ | 89,341 |   |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Deemed dividend  on preferred stock                                          |       | —                                              |       | (45,554,618                                       | )          | — |   | (45,554,618 | ) |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Net loss  attributable to common stockholders                                |       | $                                                   | (4,457,029 | )                                                 | $          | (44,106,690 | ) | $ | (11,046,111 | ) | $ | (45,465,277 | ) |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Net income  (loss) per share - basic and diluted:                            |       |                                                |       |                                              |       |   |   |   |   |
| Loss from  continuing operations                                             |       | $                                                   | (0.19      | )                                                 | $          | (3.27 | ) | $ | (0.54 | ) | $ | (5.43 | ) |
| Income from  discontinued operations                                         |       | 0.01                                                |       | 0.01                                              |       | 0.01 |   | 0.02 |   |
| Basic and  diluted loss per share  attributable to  common stockholders |       | $                                                   | (0.18      | )                                                 | $          | (3.26 | ) | $ | (0.53 | ) | $ | (5.41 | ) |
|                                                                         |       |                                                |       |                                              |       |   |   |   |   |
| Weighted average number  of common  shares outstanding                  |       | 24,701,058                                          |       | 13,520,008                                        |       | 20,696,923 |   | 8,396,203 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

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**Crdentia Corp.Unaudited Condensed Consolidated Statements of Cash Flows**
| ** **                                                                                | ** ** | **Six Months Ended June 30,** | ** **  |
|-------------------------------------------------------------------------------------------|------------|---------------------------------------------------|-------------|
| ** **                                                                                | ** ** | **2007**                                          | ** **  | **2006** | ** ** |
|                                                                                      |       |                                              |        |   |   |
| Operating  activities:                                                                    |       |                                              |        |   |   |
| Net income (loss)                                                                         |       | $                                                 | (11,046,111 | ) | $ | 89,341 |   |
| Adjustments to reconcile net income (loss) to net  cash used in operating activities:     |       |                                              |        |   |   |
| Non-cash interest expense                                                                 |       | 1,168,889                                         |        | 1,157,612 |   |
| Depreciation and amortization                                                             |       | 496,214                                           |        | 523,633 |   |
| Loss (gain) on disposal of fixed assets                                                   |       | 5,557                                             |        | (500 | ) |
| Loss on impairment of intangibles                                                         |       | 3,100,000                                         |        | 123,000 |   |
| Gain on disposal of operations                                                            |       | (126,446                                          | )           | — |   |
| Gain on settlement of litigation / acquisition claim                                      |       | (623,028                                          | )           | (1,064,693 | ) |
| Gain on extinguishment of debt                                                            |       | —                                            |        | (3,215,490 | ) |
| Bad debt expense                                                                          |       | 168,551                                           |        | — |   |
| Non-cash stock based compensation                                                         |       | 4,063,300                                         |        | 829,629 |   |
| Changes in operating assets and liabilities, net of  effects of disposal and acquisition: |       |                                              |        |   |   |
| Accounts receivable                                                                       |       | 830,644                                           |        | (1,177,869 | ) |
| Other current assets and liabilities                                                      |       | 89,717                                            |        | (333,224 | ) |
| Accounts payable and accrued expenses                                                     |       | (655,304                                          | )           | 162,876 |   |
| Accrued employee compensation and benefits                                                |       | (225,079                                          | )           | 79,184 |   |
| Long-term bonus payable                                                                   |       | 44,136                                            |        | 49,912 |   |
| Net cash used in  operating activities                                                    |       | (2,708,960                                        | )           | (2,776,589 | ) |
|                                                                                      |       |                                              |        |   |   |
| Investing  activities:                                                                    |       |                                              |        |   |   |
| Purchases of property and equipment                                                       |       | (39,855                                           | )           | (88,608 | ) |
| Proceeds from sale of Detroit operations                                                  |       | 300,000                                           |        | — |   |
| Net cash  provided by (used in) investing activities                                      |       | 260,145                                           |        | (88,608 | ) |
|                                                                                      |       |                                              |        |   |   |
| Financing  activities:                                                                    |       |                                              |        |   |   |
| Proceeds from issuance of common stock, net of costs                                      |       | 4,167,368                                         |        | 1,500,000 |   |
| Net increase (decrease) in revolving lines of credit                                      |       | (3,123,823                                        | )           | 459,227 |   |
| Proceeds from notes payable to lender                                                     |       | 2,400,000                                         |        | 245,075 |   |
| Proceeds from debentures                                                                  |       | —                                            |        | 2,000,000 |   |
| Repayment of subordinated convertible notes                                               |       | —                                            |        | (12,500 | ) |
| Repayment of notes payable to lender                                                      |       | (906,867                                          | )           | (1,650,000 | ) |
| Net cash  provided by financing activities                                                |       | 2,536,678                                         |        | 2,541,802 |   |
|                                                                                      |       |                                              |        |   |   |
| Net increase  (decrease) in cash and cash equivalents                                     |       | 87,863                                            |        | (323,395 | ) |
| Cash and cash  equivalents at beginning of period                                         |       | 198,068                                           |        | 434,921 |   |
| Cash and cash  equivalents at end of period                                               |       | $                                                 | 285,931     |   | $ | 111,526 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

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**Crdentia Corp.Notes to Unaudited Condensed Consolidated Financial StatementsJune 30, 2007**

**Note 1    Organization and Summary of SignificantAccounting Policies**

Organization

Crdentia Corp (the“Company”), a Delaware corporation, is a provider of healthcare staffingservices in the United States.  Suchservices include travel nursing, per diem staffing, contractual clinicalservices, locum tenens (physician staffing), allied services (diagnosticimaging, respiratory, laboratory, therapies and administrative modalities), andprivate duty home health care.  TheCompany considers these services to be one segment.  Each of these services relate solely toproviding healthcare staffing to customers and the Company utilizes commonsystems, databases, procedures, processes and similar methods of identifyingand serving these customers.

At the beginningof 2003, the Company was a development stage company with no commercialoperations. During that year, the Company pursued its operational plan ofacquiring companies in the healthcare staffing field and completed theacquisition of four operating companies. In 2003, the Company acquired Baker Anderson Christie, Inc., New AgeNurses, Inc., Nurses Network, Inc., and PSR Nurse Recruiting, Inc. and PSRNurses Holdings Corp., which holds the limited partner and general partnerinterests in PSR Nurses, Ltd. to provide the foundation for future growth.  During 2004, the Company completed theacquisitions of Arizona Home Health Care/Private Duty, Inc. and Care ProsStaffing, Inc.  On March 29, 2005, theCompany acquired TravMed USA, Inc. and Health Industry Professionals, LLC.  On May 4, 2005, the Company acquired PrimeStaff, LP and Mint Medical Staffing Odessa. In April 2006, the Company acquired the assets of Staff Search Ltd.

During 2006 theCompany terminated the operations it acquired in 2003 from Baker AndersonChristie, Inc. and Nurses Network, Inc. In addition, during 2006 the Company returned to the sellers the sharesof TravMed USA, Inc. that it had acquired from the sellers in March 2005 andthe notes payable to the sellers were cancelled.  On June 30, 2007 the Company sold certainassets of Health Industry Professionals, LLC back to the original sellers.

The accompanyingfinancial statements include the results of the wholly-owned subsidiariesdiscussed above from their respective dates of acquisition.  All intercompany transactions have beeneliminated in consolidation.

Basis ofPresentation

The accompanyingunaudited financial data as of June 30, 2007 and for the three and six monthsended June 30, 2007 and 2006 have been prepared by the Company pursuant to therules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America havebeen condensed or omitted pursuant to such rules and regulations.  These unaudited condensed consolidatedfinancial statements should be read in conjunction with the audited financialstatements and the notes thereto included in the Company’s annual report onForm 10-K for the year ended December 31, 2006.

In the opinion ofmanagement, all adjustments (which include normal recurring adjustments)necessary to present fairly the financial position, results of operations, andcash flows as of June 30, 2007 and for the three and six months ended June 30,2007 and 2006 have been made.  Theresults of operations for the three and six months ended June 30, 2007 are notnecessarily indicative of the expected operating results for the full year.

Certain reclassificationshave been made to conform prior year data to the current year presentation.

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Going Concern

The Companygenerated a net loss of $11,046,111 and used cash in operations of $2,708,960during the six months ended June 30, 2007. Additionally, although the Company ended June 30, 2007 with asignificant working capital deficit of $3,893,267, it was able to secureadditional funding during the six months ended June 30, 2007 to finance itsoperations as it continued to attempt to execute its business plan and toacquire and grow companies involved in healthcare staffing.  The Company will need to raise additionalfunds during the next twelve months to satisfy debt service requirements andworking capital needs.  There is noassurance that the Company will be able to raise the amount of debt or equitycapital required to meet its objectives. The Company’s challenging financial circumstances may make the terms,conditions and cost of any available capital unfavorable.  If additional debt or equity capital is notreadily available, the Company will be forced to scale back its acquisitionactivities and its operations.  Thiswould result in an overall slowdown of the Company’s development.  The Company’s short-term need for capital mayforce it to consider and potentially pursue other strategic options sooner thanit might otherwise have desired.  Theseconditions raise substantial doubt about the Company’s ability to continue as agoing concern.  The financial statementsdo not include any adjustments to reflect the possible future effects on therecoverability and classification of assets, or the amounts and classificationof liabilities that may result from the outcome of this uncertainty.

Management hastaken a number of steps to address the Company’s financial performance and toimprove cash flow.  Management hasrefinanced a majority of the Company’s debt with new debt that has a lowerinterest rate, restructured the operating management team, and implementedprograms to obtain expense savings which have provided the Company with accessto additional working capital.  TheCompany’s new Chief Executive Officer has strong operations experience and willdevote constant attention toward expense reduction and achieving growth bothorganically and through acquisitions so that the Company can spread itscorporate overhead over a larger base of business and achieve economies ofscale.  However, there can be noassurances that these programs will be successful.

Earnings Per Share

Basic per sharedata has been computed on the loss attributable to common stockholders for eachquarter divided by the weighted average number of shares of common stockoutstanding for each quarter (excluding restricted common stock issued tocertain directors, officers and consultants in 2005 and 2007).  Diluted earnings per common share includesboth the weighted average number of common shares and any dilutive common shareequivalents such as convertible securities, options or warrants in thecalculation.  As the Company recorded netlosses for the three and six months ended June 30, 2007 and 2006, common shareequivalents outstanding would be anti-dilutive, and as such, have not beenincluded in diluted weighted average shares outstanding.  Common share equivalents that were excludedin the three and six months ended June 30, 2007 calculations were 6,776,214 and5,493,892, respectively, and in the calculations for the three and six monthsended June 30, 2006 1,357,195 and 1,400,528 were excluded respectively.

Income Taxes

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

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**Note 2    Acquisitions**

Staff Search Ltd.

On April 18, 2006the Company acquired the assets of Staff Search Ltd. for $2,386,174, includingacquisition costs.  The Company issued apromissory note in the principal amount of $1,410,000 and issued 229,128 sharesof its common stock valued at $976,174 (determined by the average of $4.26 pershare which approximates the average trading value as quoted on the OTCBulletin Board for the three days before and three days after the acquisitiondate).  Subsequently, the promissory notewas purchased from the seller by the Company’s significant stockholder.  During 2006 and 2007, the significantstockholders distributed $377,257 of the promissory note to unrelated partiesto settle certain obligations of the significant stockholder.  The promissory note accrues interest at arate equal to 8.00% per annum.  Theprincipal amount of the note owed at June 30, 2007 ($546,597 owed to MedCapPartners, L.P. and $486,146 owed to MedCap Master Fund L.P.), plus all accruedinterest ($103,274 at June 30, 2007), is payable upon demand.  The principal amount of the note owed tounrelated parties at June 30, 2007 ($377,257), plus all accrued interest, ispayable upon demand after January 1, 2008. The note includes events of default (with grace periods, as applicable)and provides that, upon the occurrence of certain events of default, payment ofall amounts due under the notes shall become immediately payable.  The primary purpose of the acquisition was toenable the Company to expand its market share in the nurse staffing industry.  The following table summarizes the assetsacquired and liabilities assumed as of the closing date:
| Tangible assets  acquired           |   | $         | 345,075   |   |
|-------------------------------------|--------|-----------|-----------|--------|
| Customer related  intangible assets |   | 486,000   |      |
| Goodwill                            |   | 1,555,099 |      |
| Total assets acquired               |   | 2,386,174 |      |
| Liabilities  assumed                |   | —    |      |
| Net assets  acquired                |   | $         | 2,386,174 |   |

 

The acquisitionwas accounted for using the purchase method of accounting.  Customer related intangible assets will beamortized over their estimated useful life of five years.  The purchase price allocated to customerrelationships was determined by management’s estimate based on a consistentmodel for all acquisitions and was initially developed by a professionalvaluation group.  Goodwill represents theexcess of merger consideration over the fair value of assets acquired.  The results of operations for Staff SearchLtd. fell below performance standards established in the merger agreementrequiring the former stockholder of Staff Search Ltd. to return a portion ofthe Company’s common stock that was issued in connection with the acquisition.  The Company will record a reduction togoodwill when the common stock is received. The goodwill acquired will be amortized for federal income tax purposes.

Unaudited ProForma Summary Information

The followingunaudited pro forma summary approximates the consolidated results of operationsas if the acquisition disclosed above had occurred as of January 1, 2006, aftergiving effect to certain adjustments, including amortization of specificallyidentifiable intangibles and interest expense. The pro forma financial information does not purport to be indicative ofthe results of operations that would have occurred had the transactions takenplace at the beginning of the period presented or of future results ofoperations.

8

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| ** **                                                                       | ** ** | **Six Months**         | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **Ended**                   | ** ** |
| ** **                                                                       | ** ** | **June 30, 2006** | ** ** |
|                                                                             |       |                        |       |
| Revenue from  services                                                           |       | $                           | 21,124,665 |   |
| Income from  operations                                                          |       | 169,974                     |       |
| Net loss  attributable to common stockholders                                    |       | (45,273,914                 | )          |
| Basic and  diluted net loss per common share attributable to common stockholders |       | $                           | (5.30      | ) |
|                                                                             |       |                        |       |
| Weighted-average shares  of common stock outstanding                             |       | 8,536,226                   |       |

 

**Note 3    Disposal of Detroit Operations**

On June 30, 2007,the Company sold certain assets of its temporary nurse staffing business in theDetroit, Michigan metropolitan area to the original sellers (Crdentia purchasedHealth Industry Professionals, LLC on March 29, 2005).  The sale price was comprised of (1) $300,000in cash; (2) return and cancellation of 128,367 shares of the Company’s commonstock held by the original sellers with a fair value of $64,184 and (3) theassumption of certain lease obligations.

The Companyrecognized a gain of $126,446, which was calculated by subtracting the net bookvalue of the furniture and fixtures ($39,130) and the unamortized balance ofthe intangibles assets associated with the customer contracts ($198,608) fromthe proceeds of the transaction.  TheCompany has reported the historical results of operations from the DetroitOperations as income from discontinued operations in the accompanyingStatements of Operations which is comprised of the following:
| ** **                                     | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                     | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| Revenue                                        |       | $                                                   | 762,535    |                                              | $          | 1,182,956 |   | $ | 1,685,643 |   | $ | 2,224,022 |   |
| Direct operation  expenses                     |       | 598,575                                             |       | 957,617                                           |       | 1,316,901 |   | 1,805,002 |   |
| Gross profit                                   |       | 163,960                                             |       | 225,339                                           |       | 368,742 |   | 419,020 |   |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| Selling,  general, and administrative expenses |       | 79,861                                              |       | 137,668                                           |       | 188,045 |   | 286,290 |   |
|                                           |       |                                                |       |                                              |       |   |   |   |   |
| Income from  discontinued operations           |       | $                                                   | 84,099     |                                              | $          | 87,671 |   | $ | 180,697 |   | $ | 132,730 |   |

 

**Note 4    Goodwill Impairment**

In June 2001, theFinancial Accounting Standards Board (FASB) issued SFAS No. 141, “*Business Combinations*,” and SFAS No. 142, “*Goodwill and Other Intangible Assets*.”  Under these rules, goodwill and indefinitelived intangible assets are no longer amortized and are reviewed annually forimpairment or more frequently if events or circumstances indicate such assetsmay be impaired such as reductions in demand or significant economic slowdownsin the industry.  Intangible assets thatare not deemed to have an indefinite life will continue to be amortized overtheir estimated useful lives.

SFAS No. 142requires the use of a two-step process to measure potential impairment.  In the first step, the fair values of theCompany’s reporting units are compared to the units’ carrying amounts.  Reporting units with similar economic andoperating characteristics may be combined into a single segment levelevaluation.  If the fair value of areporting unit exceeds its carrying cost, goodwill is not consideredimpaired.  If the carrying cost exceedsfair value, a second step is used to determine the amount of impairment.  The second step determines the implied fairvalue of goodwill for a reporting unit by applying 

9

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the estimated fairvalue to the tangible and separately identifiable intangible assets of thereporting unit, with any remaining amount considered goodwill.

At June 30, 2007,with the disposal of the Detroit operations, the Company determined thatgoodwill should be measured for a potential impairment.  The Company utilized information from itsDecember 31, 2006 analysis to complete the first step of the analysis under therequirements of the standard.  TheCompany used an outside valuation firm to assist in the development of theprimary assumptions at December 31, 2006, such as projected cash flows andcapitalization rates and performed the valuation of the reporting unit.  The Company next evaluated its tangible andidentifiable intangible assets and liabilities to estimate their fairvalues.  Based on the reduction of the projectedfuture cash flow primarily because of the disposal of the Detroit operations,the Company recorded a $3,100,000 impairment charge in the quarter ended June30, 2007. The impairment charge was not included in the income fromdiscontinued operations as the Company is considered one segment.

**Note 5    iVOW, Inc.**

On September 20, 2006,the Company entered into an Agreement and Plan of Merger (“Merger Agreement”)with iVOW, Inc. (“iVOW”), a provider of services to employers, payors andunions to facilitate weight loss programs on a per patient direct basis.  In connection with Crdentia’s entry into theMerger Agreement, the Company also entered into an Interim Management Agreement(“IMA”), pursuant to which the Company had the sole and exclusiveresponsibility, authority and discretion to (a) conduct, manage, direct andcontrol all aspects of the business and operations of iVOW and (b) utilize iVOW’scash and working capital to defray Crdentia’s expenses and the expenses ofiVOW, prior to the closing of the merger. Pursuant to the original Merger Agreement, the termination date of theMerger Agreement and IMA was December 31, 2006. Crdentia and iVOW executed an amendment to the Merger Agreement onDecember 29, 2006, which extended the termination date for the merger and IMAto March 31, 2007.  In April 2007, theCompany negotiated a Settlement Agreement with iVOW pursuant to which Crdentiaand iVOW agreed to terminate the Merger Agreement and release the other partyfrom any and all claims arising under the Merger Agreement and relatedagreements, including the IMA.  Thesettlement agreement required the Company to issue iVOW 1,500,000 shares of theCompany’s common stock with a fair value of $660,000 in April 2007.  All negotiations with respect to a possiblemerger between Crdentia and iVOW have been terminated.

**Note6    Settlement of Acquisition Claim**

In 2005, theCompany asserted a claim against a seller of one of the Company’s 2003acquisitions.  In January 2006, theCompany and the seller settled with the seller returning 59,150 shares of theCompany’s common stock that had been issued in connection with theacquisition.  The Company reported a gainon settlement of acquisition claim of $1,064,693 representing the fair value ofthe stock returned on the date of the settlement.  The offset to the gain recorded was areduction in common stock and additional paid-in capital.  The returned shares were retired immediately.

**Note 7    Accounts Payable and Accrued Expenses**

Accounts payable and accrued expenses consist of the following:
| ** **                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
|                             |       |              |       |                  |       |
| Accounts payable                 |       | $                 | 1,292,958  |                  | $          | 1,968,731 |   |
| Accrued fee for  placement agent |       | —            |       | 864,589               |       |
| Other accrued  expenses          |       | 1,569,425         |       | 973,933               |       |
|                             |       |              |       |                  |       |
|                             |       | $                 | 2,862,383  |                  | $          | 3,807,253 |   |

 

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**Note 8    Revolving Line of Credit**

OnJune 16, 2004, the Company entered into a Loan and Security Agreement withBridge Healthcare Finance, LLC (“Bridge Healthcare”), pursuant to which theCompany obtained a revolving credit facility of up to $15,000,000 (the “Loan”).  During the first quarter of 2005, the Loanwas reduced to $10,000,000 permitting the Company to lower its effectiveinterest rate through lower unused line fees. The Loan had an original term of three years and bore interest at a rateequal to the greater of three percent (3.0%) per annum over the prime rate ornine and one-half percent (9.5%) per annum. In December 2006, Bridge Healthcare increased the rate charged to theCompany by 4% over the rate specified in the agreement to 15.25%.  Interest was payable monthly.  Accounts receivable served as security forthe Loan and the Loan was subject to certain financial and reportingcovenants.  Customer payments were usedto repay the advances on the Loan after deducting charges for interest expense,unused line and account management fees. Except in certain limited circumstances, the Loan could not be prepaidin full without incurring a significant prepayment penalty.  The financial covenants were for themaintenance of minimum tangible net worth, minimum debt service coverageratios, minimum EBITDA, maximum capital expenditure limits and maximumoperating lease obligations.

During2006, Bridge Healthcare made $2,425,000 available to the Company in the form ofover-advances on the Loan.  Theover-advances were used for working capital purposes.  The $2,425,000 of over-advances werepartially secured by a guaranty from MedCap Partners L.P. (“MedCap”), Crdentia’ssignificant stockholder, partially secured by a personal guarantee from C. FredToney, Crdentia’s current Chairman of the Board of Directors, and the managingmember of MedCap Management & Research LLC, the general partner of MedCap,and partially secured by a personal guarantee from James D. Durham, the Company’sformer Chief Executive Officer and former Chairman of the Board.  Bridge Healthcare charged the Company monthlyfees in excess of normal Loan interest charges for all over-advances.  As discussed in Note 11, over-advances of$2,400,000 were refinanced with bank debt in early 2007 and the remaining$25,000 was repaid in early 2007.

The Loan includedevents of default (with grace periods as applicable) and provided that, uponthe occurrence of certain events of default, payment of all amounts payableunder the Loan, including the principal amount of, and accrued interest on, theLoan could be accelerated.  There werealso cross default provisions between the Loan and the Term Loan discussedbelow.  Financial covenants were violatedin a number of instances including at December 31, 2006 which had no continuingsignificance since all debt with this lender has been refinanced with eitherbank debt as discussed in the preceding paragraph or a working capital facilityas discussed below.

On February 8,2007, the Second Amended and Restated Loan and Security Agreement - RevolvingLoans, dated May 16, 2005, as amended by and among Crdentia, its Subsidiariesand Bridge Healthcare Finance, LLC, and the Amended and Restated Loan and SecurityAgreement - Term Loan, dated May 16, 2005, as amended, by and among Crdentia,its Subsidiaries and Bridge Opportunity Finance, LLC, were terminated, alongwith all related loan documents (including, without limitation, promissorynotes and pledge agreements).  Inconnection with this termination, Crdentia and its subsidiaries paid to BridgeHealthcare Finance, LLC and Bridge Opportunity Finance, LLC all principaloutstanding under the Bridge Loan Agreements (approximately $3.9 million), allaccrued and unpaid interest under the Bridge Loan Agreements (approximately$14,000) and certain fees (including a Make-Whole Fee of $490,000).  The Company also wrote-off $84,012 ofdeferred financing fees and $60,150 of debt discount associated with warrantsissued to Bridge Healthcare Finance. Crdentia and its Subsidiaries released Bridge Healthcare Finance, LLCand Bridge Opportunity Finance, LLC from any claims relating to any matter,including the Bridge Loan Agreements.

**Note 9    Notes Payable to Lender**

Pursuant to a loanagreement dated August 31, 2004, the Company obtained a term loan creditfacility (“Term Loan”) in the amount up to $10,000,000 from Bridge OpportunityFinance, LLC, an affiliate of Bridge Healthcare.  The Company obtained certain loans under the agreementto fund permitted acquisitions.  Anyloans obtained under the Term Loan were due and payable in full on August 31,2007 

11

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and requiredinterest at the rate of fifteen and one-quarter percent (15.25%) perannum.  Interest was payablemonthly.  The Term Loan was secured byall of the Company’s assets.  On August31, 2004, the Company received proceeds from the Term Loan of $2,697,802 forthe acquisitions of Arizona Home Health Care/Private Duty, Inc. and Care ProsStaffing, Inc.

The Term Loanrequired that the Company issue warrants to purchase shares of common stock tothe lender up to 12% of the Company’s overall capitalization on the date ofborrowing.  On August 31, 2004, theCompany issued warrants to purchase 90,578 shares of common stock at a price of$31.50 per share in connection with the first borrowing under the creditfacility.  As a result, the Term Loan hasbeen recorded net of a discount of $810,000 which represents the estimated fairmarket value related to the warrants at the date of issuance.  The discount was amortized to interestexpense over the life of the Term Loan. During the first quarter of 2006, the Company used proceeds from aprivate offering as discussed in Note 13 to repay $1,350,000 of the TermLoan.  As a result of this repayment, theCompany recorded $200,168 of additional interest relating to the proportionateamount of unamortized discount associated with the repayment.  During the second quarter of 2006, BridgeHealthcare demanded further repayments of the Term Loan amounting to $300,000and future monthly principal payments of $45,742 until the Term Loan was paidin full.  The Term Loan was paid off infull in early 2007 as discussed in Note 8.

The Term Loancontained certain financial covenants, including the maintenance of minimumtangible net worth, minimum debt service coverage ratios, minimum EBITDA,maximum capital expenditure limits and maximum operating leaseobligations.  Financial covenants wereviolated in a number of instances including at December 31, 2006 which have nocontinuing significance since all debt with this lender has beenrefinanced.  The Term Loan was classifiedas a current liability on the accompanying balance sheet as of December 31,2006 because of the covenant violations. The Company was charged fees by Bridge for the various complianceviolations and related waivers granted during 2005, 2006 and 2007.  The Term Loan included events of default(with grace periods as applicable) and provided that, upon the occurrence ofcertain events of default, payment of all amounts payable under the Term Loan,including the principal amount of, and accrued interest on, the Term Loan couldbe accelerated.  There were also crossdefault provisions between the Term Loan and the Loan.

**Note 10  Working Capital Facility**

On February 8,2007, the Company entered into a $10 million working capital facility withSystran Financial Services Corporation (“Systran”), a subsidiary of TextronFinancial Corporation.  Pursuant to theagreements, Systran agreed, at its sole discretion, to purchase certainreceivables from the Company on a recourse basis.  The agreements anticipate a minimum volume ofpurchases and also contemplate the payment of certain service fees, including aminimum fee.  To secure the payment andperformance of Crdentia’s obligations to Systran under the agreements, Crdentiagranted Systran a security interest in all of its assets.  Crdentia also agreed to indemnify Systranagainst any liabilities arising out of claims relating to the receivablespurchased by Systran under the agreements. The agreements have an initial term of 48 months, and Crdentia isobligated to pay Systran an early termination premium in the event theagreements are terminated under certain circumstances prior to the end of theterm.  Proceeds from this facility wereused to refinance the Loan and Term Loan with Bridge Healthcare Finance, LLC asdiscussed in Notes 8 and 9.  The balancedue under this facility at June 30, 2007 was $3,288,206.  At June 30, 2007, the fees and discountsequate to annual percentage of approximately 13.0%.

The agreementsinclude events of default (with grace periods, as applicable) and provide that,upon the occurrence of certain events of default, Systran may immediatelycollect any obligation owing to Systran under the agreements.  The Company is currently in compliance withall provisions of the agreements.

**Note 11  Master Revolving Note**

On January 19,2007, Crdentia delivered a Master Revolving Note (the “Note”) in the amount of$2.4 million to Comerica Bank.  Proceedsfrom the borrowing were used to refinance the over-advance amount outstandingunder the revolving line of credit with Bridge Healthcare Finance, LLC.  The Note requires principal payments of$125,000 on March 31, 2007, $100,000 on June 30, 2007, September 30, 2007 and 

12

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December 31, 2007and has a final maturity date of January 31, 2008.  The Note bears interest at a per annum rateequal to Comerica’s base rate from time to time in effect minus one-half of one(1/2%) percent (7.75% at June 30, 2007). The Note includes events of default and provides that, upon theoccurrence of certain events of default, Comerica may, at its option andwithout prior notice to Crdentia, declare any or all of the indebtednessevidenced by the Note immediately due and payable.  The Company is currently in compliance withall provisions of the agreement.  Thebalance due under this facility at June 30, 2007 was $2,275,000.

As security forCrdentia’s prompt and complete payment of its obligations under the Note, (i)James D. Durham, Crdentia’s former Chairman and Chief Executive Officer,pledged and granted to Comerica a security interest in all of his right, titleand interest in and to a $600,000 certificate of deposit with Comerica, (ii)MedCap Partners LP (“MedCap”) pledged and granted to Comerica a securityinterest in all of its right, title and interest in and to a $250,000certificate of deposit with Comerica, and (iii) C. Fred Toney, Crdentia’sChairman of the Board of Directors and the managing member of MedCap Managementand Research LLC, the general partner of MedCap, pledged and granted toComerica a security interest in all of his right, title and interest in and toa $1,125,000 certificate of deposit with Comerica.  In addition, MedCap delivered a Guaranty toComerica pursuant to which it agreed to unconditionally and absolutelyguarantee to Comerica payment when due of all existing and future indebtednessof Crdentia to Comerica up to a maximum of $400,000.

**Note 12  Notes Payable**

As discussed in Note 2, the Company has demand notes totaling $546,597at June 30, 2007 due to MedCap Partners L.P. and $486,146 at June 30, 2007 dueto MedCap Master Fund L.P.  Related partyinterest expense of $103,274 has been included in interest expense in theaccompanying consolidated statement of operations for the six months ended June30, 2007.  The remaining principal amounttotaling $377,257 at June 30, 2007 is due to unrelated parties.

**Note 13  Subordinated Debentures**

In January 2006,the Company completed a private placement totaling $4 million.  The first phase was completed on December 30,2005 and consisted of $2 million, or 333,333 shares of common stock and thesecond phase consisted of $2 million of 8% convertible debentures.  The convertible debentures have a term ofthree years and bear interest at a rate of 8% per year, payable semi-annuallyin cash or registered stock at the Company’s option.  At June 30, 2007, $765,000 of debenturesbefore discount was outstanding.

The debentureswere initially convertible into common stock at a price of $6.00 per share(currently $0.60 as discussed below). The sale of convertible debentures included common stock warrantcoverage granting warrants to purchase 500,000 common shares.  Warrants to purchase 166,667 common shares havea five year term and an exercise price of $7.50 per share.  Warrants to purchase 333,333 common shares atan exercise price of $6.00 per share expired on June 14, 2006 with none beingexercised.  The Company computed therelative fair value of the warrants at $1,443,265 and the beneficial conversionfeature related to the debentures at $556,735, and recorded these amounts as adiscount to the debentures which is being amortized over the term of thedebentures.

Terms of anagreement with the placement agent representing the Company required placementfees upon a private placement of at least $5 million.  Although the minimum was not achieved, feeswere accrued and warrants recorded based on the lower amount of funding.  $589,722 was recorded as deferred financingcosts associated with the debentures and $294,867 was recorded as an offset toproceeds from the equity portion of the funding.  The $589,722 was being amortized over thethree year term of the debentures.  Aportion of the placement fees were warrants to purchase 50,000 shares of commonstock at $6.00 per share.  The warrantshad a five year life and were valued at $629,589 ($419,722 recorded as deferredfinancing costs and $209,867 recorded as an offset to proceeds from the equityoffering).  Since the placement agent wasnot successful in raising the minimum $5.0 million, there has been an on-goingdispute concerning the amount of fees owed. As discussed in Note 17, in April 2007 the Company settled the liabilitywith the placement agent for 400,000 shares of the Company’s common stockvalued at $160,000 based on the 

13

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closing price ofthe Company’s common stock on the date of settlement which resulted in a gainon settlement of litigation of $356,144. The Company also reduced costsoriginally charged to equity by $223,987 and reduced unamortized deferredfinancing fees by $124,458 because of the reduction in actual costs of the transactionsbased on this settlement.

During 2006,holders of the debentures converted $336,000 of the debentures into 56,000shares of the Company’s common stock.  InMarch 2007, three of the five remaining debenture holders exchanged $899,000 oftheir debentures for 1,498,333 shares of the Company’s common stock.  The Company issued 44,311 shares of itscommon stock as payment of $14,948 of accrued interest due to the debentureholders through the date of the exchange. The Company recognized expense in the amount of $161,654 relating to thedeferred financing fees associated with the converted debentures and expense inthe amount of $595,720 related to the proportionate share of the unamortizeddiscount on the converted debentures. During the second quarter of 2007, the Company issued 85,000 shares ofits common stock as payment of $30,600 of accrued interest due to the debentureholders.  Under terms of the debentureagreements, all debenture holders are now permitted to exchange theirdebentures for shares of the Company’s common stock at $.60 per share, theprice at which the Company sold its stock in the private placement offeringmentioned below.  At December 31, 2006,due to cross default provisions in the debenture agreement and the violation ofcovenants with the Bridge Revolving Line of Credit and Term Loan (as discussedin Notes 8 and 9), the Company classified the debentures as a currentliability.  At June 30, 2007, with therefinancing of all Bridge facilities with the Working Capital Facility fromSystran and the Master Revolving Note from Comerica (as discussed in Notes 10and 11) and the Company’s compliance with all provision of these agreements,Bridge covenant violations were no longer relevant and the Company hasclassified the debentures as a long-term liability.

**Note 14  Common Stock and Stock Options**

During the six monthsended June 30, 2007, the Company completed nine closings of a private placementpursuant to a Securities Purchase Agreement and Registration Rights Agreementfor 7,083,328 shares of common stock at a price of $0.60 per share, withaggregate gross proceeds of $4,250,000. The Board of Directors of the Company has authorized the sale of up to$5,500,000 in common stock in all closings of the private placement.  Pursuant to the terms of the RegistrationRights Agreement, the Company has agreed to cause a resale registrationstatement covering the shares to be filed within 30 days of the final close,which is currently projected to be August 17, 2007.

MedCap PartnersL.P. invested $1,885,000 in the private placement for 3,141,664 shares ofcommon stock, MedCap Master Fund L.P. invested $165,000 in the privateplacement for 274,999 shares and C. Fred Toney, Chairman of the Board ofDirectors, individually invested $1,800,000 in the private placement for3,000,000 shares of common stock.  Mr.Toney abstained from the Board of Directors’ vote in favor of the privateplacement.

In June 2007, theCompany entered into a services agreement with AudioStocks, Inc. wherebyAudioStocks will provide investment services, web based shareholdercommunications and public relations services for the Company in exchange for(i) $80,000 (ii) 1,247,500 restricted shares of the Company’s common stock ofwhich 975,000 were issued in June 2007 and 272,500 are to be issued in thethird quarter of 2007 and (iii) a common stock purchase warrant to purchase upto 1,000,000 shares of the Company’s common stock at a purchase price of $0.60per share.  The term of the servicesagreement runs through June 24, 2008. The value of the consideration for the services agreement totaling$1,213,262, includes $636,225 for the 1,247,500 restricted shares (based on theclosing price of the Company’s common stock on the effective date of theagreement), $497,037 for the common stock purchase warrant (based on fair valueusing the Black-Scholes option pricing model) and the $80,000 of cash wasrecorded as a prepaid asset and will be amortized over the term of the servicesagreement (1 year).  At June 30, 2007,the Company has recorded a liability of $138,975 related to the shares to beissued in the third quarter of 2007.

During the quarterended March 31, 2007, the Company cancelled 107,641 shares of treasury stockwhich are now available for reissuance.

Employee StockOptions and Restricted Stock Grants

During the sixmonths ended June 30, 2007, the Board of Directors granted options to purchase1,611,531 shares of the Company’s Common Stock to employees and Directors and2,400,000 shares of restricted 

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stock to threeDirectors which were valued using the trading price on the grant date.  The exercise price for these options rangedfrom $0.42 to $0.60.  There were no stockoptions exercised in the six months ended June 30, 2007.

See Note 15 belowfor a discussion of the Stock Options and Restricted Stock Grants associatedwith the severance agreement with the Company’s former Chairman of the Boardand Chief Executive Officer as well as a Restricted Stock Grant awarded to theCompany’s new Director and Chief Executive Officer.

ValuationAssumptions

The Companycalculated the fair value of each option award on the date of grant using theBlack-Scholes option pricing model.
| ** **               | ** ** | **Six Months Ended** | ** ** |
|--------------------------|------------|--------------------------------|------------|
| ** **               | ** ** | **June 30, 2007**    | ** ** |
|                     |       |                           |       |
| Risk-free  interest rate |       | 5.25                           | %          |
| Expected lives           |       | 4 years                        |       |
| Dividend Yield           |       | 0.00                           | %          |
| Expected volatility      |       | 201% - 204                     | %          |

 

Stock optionactivity is summarized as follows:
| ** **                                                  | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **June 30, 2007**    | ** ** |
|                                                        |       |                           |       |
| Outstanding,  January 1                                     |       | 809,894                        |       |
| Granted                                                     |       | 1,611,531                      |       |
| Exercised                                                   |       | —                         |       |
| Forfeited                                                   |       | (208,738                       | )          |
| Outstanding,  June 30                                       |       | 2,212,687                      |       |
| Exercisable at  June 30                                     |       | 1,531,808                      |       |
| Non-vested, June  30                                        |       | 680,879                        |       |
| Average exercise  price per share:                          |       |                           |       |
| Outstanding,  January 1                                     |       | $                              | 6.99       |   |
| Granted                                                     |       | $                              | 0.55       |   |
| Exercised                                                   |       | —                         |       |
| Forfeited                                                   |       | $                              | 5.25       |   |
| Outstanding,  June 30                                       |       | $                              | 2.46       |   |
| Exercisable                                                 |       | $                              | 2.60       |   |
| Non-vested,  January 1                                      |       | $                              | 4.81       |   |
| Non-vested, June  30                                        |       | $                              | 0.96       |   |
|                                                        |       |                           |       |
| Weighted-average  remaining term of outstanding options     |       | 8.93 years                     |       |
| Weighted-average  remaining term of exercisable options     |       | 8.71 years                     |       |
|                                                        |       |                           |       |
| Weighted-average  grant date fair value                     |       | $                              | 0.44       |   |
| Total estimated  future expense related to unvested options |       | $                              | 676,897    |   |
| Weighted-average vesting  period of unvested options        |       | 2.93 years                     |       |
| Weighted-average remaining  term of unvested options        |       | 9.24 years                     |       |

 

**Note 15  Retirement of Chairman of the Board ofDirectors and Chief Executive Officer**

On March 6, 2007, JamesD. Durham, the Company’s Chief Executive Officer, announced his retirement, andthe Company accepted his resignation and retirement, effective March 1,2007.  Mr. Durham also 

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stepped down as Chairmanof the Board and as a member of the Company’s Board of Directors, effectiveMarch 1, 2007.  Mr. Durham will serve asa consultant to the Company through October 2007.  Inconnection with Mr. Durham’s resignation, Mr. Durham and the Company executed aSeverance Agreement and Mutual Release of Claims, effective March 14,2007.  The Severance Agreement providesfor, among other things: (a) payment of an additional $60,161 within three daysof the effective date of the Severance Agreement; (b) payment of $31,667 permonth during the eight month consulting period; (c) payment of a lump sumseverance amount of $250,000 within seven business days of November 1, 2007;(d) an additional grant of an option to purchase 1,000,000 shares of theCompany’s common stock at an exercise price of $0.60 per share; (e)continuation of health insurance coverage for a 24 month period following theeffective date; and (f) vesting in the****restricted stock awards granted toMr. Durham on March 24, 2006 and May 31, 2005 will continue during the periodMr. Durham provides consulting services and shall cease as of October 31,2007.  At June, 2007 the Company hasaccrued liabilities of $376,667 related to the future cash payments associatedwith the Severance Agreement and has recorded compensation expense of $1,715,177associated with the option and vesting of the restricted stock.

The Company andMr. Durham had previously entered into an employment agreement effective August1, 2002, as amended by the Amendment to Employment Agreement effective August1, 2004 and the Second Amendment to Employment Agreement effective as ofNovember 8, 2005.  Mr. Durham’semployment agreement, as amended, has been terminated in connection with hisresignation and entry into the Severance Agreement.

The Severance Agreement did not affect the two cash bonuses in the amountof $540,000 each that were granted to Mr. Durham in 2003 and are due onDecember 31, 2008 and January 4, 2009. The carrying amount of this liability is $947,591 at June 30, 2007.

The Board ofDirectors of the Company elected C. Fred Toney, a current director, as Chairmanof the Board of Directors effective March 1, 2007, replacing Mr. Durham and theBoard of Directors appointed John Kaiser to be the Chief Executive Officereffective March 26, 2007.  The Company enteredinto an Executive Employment Agreement with John Kaiser pursuant to which theCompany has issued Mr. Kaiser 2,000,000 shares of restricted common stockvalued at $900,000 which will be recorded as compensation expense over thevesting period.  Twenty-five percent(25%) of the shares will vest after twelve months and one-thirty-sixth (1/36th)of the remaining unvested shares shall vest at the end of the 13th month andeach month thereafter, such that the shares will be one hundred percent (100%)vested after 48 months of continuous services. In the event of a Corporate Transaction, all outstanding Shares shallautomatically become fully vested and be released from any repurchase orforfeiture rights on the six (6) month anniversary of the effective date ofsuch Corporate Transaction (the “Transition Period”), subject to Mr. Kaiserremaining in Continuous Service with the Company or its successor for thepurpose of providing acquisition and transition support to the Company or itssuccessor throughout the Transition Period; provided, however, that if theCompany or its successor terminates Mr. Kaiser’s Continuous Service withoutCause prior to the end of the Transition Period, all outstanding Shares shallbecome fully vested and be released from any repurchase or forfeiture rights onsuch termination date.

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**Note 16  Supplemental Disclosure to the Statements ofCash Flows**
| ** **                                                                                                | ** ** | **June 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|-------------------|------------|
| ** **                                                                                                | ** ** | **2007**          | ** ** | **2006** | ** ** |
|                                                                                                      |       |              |       |   |   |
| Supplemental cash flow  disclosures:                                                                      |       |              |       |   |   |
| Cash paid for  interest                                                                                   |       | $                 | 1,103,850  |   | $ | 469,307 |   |
| Cash paid for  income taxes                                                                               |       | —            |       | — |   |
|                                                                                                      |       |              |       |   |   |
| Non-cash investing and  financing activities:                                                             |       |              |       |   |   |
| Conversion of  debentures into common stock                                                               |       | 899,000           |       | 260,000 |   |
| Debenture  interest paid in common stock                                                                  |       | 45,549            |       | 69,600 |   |
| Common stock  issued in connection with an acquisition                                                    |       | —            |       | 976,084 |   |
| Notes payable  issued in connection with an acquisition                                                   |       | —            |       | 1,410,000 |   |
| Common stock  issued in exchange for Series C preferred stock, Series B-1 warrants and  Series C warrants |       | —            |       | 10,859,603 |   |
| Common stock  issued as payment of preferred stock dividends                                              |       | —            |       | 800,748 |   |
| Placement fees  payable related to sale of common stock                                                   |       | —            |       | 65,000 |   |
| Costs associated  with registration statement                                                             |       | —            |       | 100,037 |   |
| Value of  debentures allocated to attached common stock warrants and beneficial  conversion features      |       | —            |       | 2,000,000 |   |
| Prepaid  consulting fees paid with issuance of restricted stock and warrants                              |       | 994,287           |       | — |   |
| Common stock  received as consideration for sale of Detroit operation                                     |       | 64,184            |       | — |   |
| Common stock  issued for payment of iVOW liability                                                        |       | 660,000           |       | — |   |
| Common stock  issued for litigation settlements                                                           |       | 319,375           |       | — |   |
| Fair value of warrants  accrued as placement fee related to debentures                                    |       | —            |       | 419,722 |   |
|                                                                                                           |            |                   |            |  |  |  |  |

 

**Note 17  Litigation**

The following is alist of claims that were in settlement discussions or were settled during thesix months ended June 30, 2007:

*CrdentiaCorp. and CRDE Corp. v. Robert Litton and Steve Williams*; *CauseNo. 3-06-CV-1182-R; Pending in the United States District Court for theNorthern District of Texas-Dallas Division.*

On January 27,2006, Crdentia Corp. and CRDE Corp. filed suit against Robert Litton and SteveWilliams, the former owners of TravMed, asserting claims for breach ofnon-competition/solicitation agreements, breach of fiduciary duty, tortiousinterference with existing and prospective contracts and business relations,and declaratory relief arising out of an Agreement and Plan of Reorganizationdated as of March 28, 2005.  Among otherthings, the Company alleged that the defendants violated their non-competitionagreements that they executed in connection with the Agreement and Plan ofReorganization by diverting business opportunities to a competingbusiness.  The Company sought anundisclosed amount of damages.  Thedefendants filed counterclaims against Crdentia alleging breach of theAgreement and Plan of Reorganization and conversion.  The Company began negotiating a settlement inMarch 2007 and anticipates it will pay between $250,000 and $300,000 in cash inexchange for the defendants agreeing to pay certain payables on Crdentia’sbehalf.  The Company reduced its existingliability to $300,000 which is included in accounts payable and accruedexpenses at June 30, 2007 and resulted in a $248,276 gain during the secondquarter of 2007.

*CrdentiaCorp., CRDE Corp., and Arizona Home Health Care/Private Duty, Inc. v. William W.Crocker and William C. Crocker*

On January 31,2006, Crdentia Corp., CRDE Corp., and Arizona Home Health Care/Private Duty,Inc. filed suit against William W. Crocker and William C. Crocker, the formerowners of Arizona Home Health Care/Private Duty, Inc., asserting claims forfraud, indemnity, and declaratory relief arising out of an Agreement and Planof Reorganization dated August 6, 2004 and a Receivable Allocation Agreement 

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entered into inconnection therewith.  Among otherthings, the Company alleged that, prior to entering the Agreement and Plan ofReorganization, the defendants failed to disclose that certain key employeeshad planned to leave the company and that the defendants requested and/orinstructed such employees not to leave prior to the closing of the merger.  The Company also alleged that the defendantsfailed to disclose that their company did not possess certain state licensesnecessary to conduct a portion of its business. The Company sought an undisclosed amount of damages.  This case was settled in April 2007 asdiscussed below under “*William W. Crocker v.Crdentia Corp.”*

*William W. Crocker, an individual, v. Crdentia Corp., a DelawareCorporation, and Arizona Home Health Care/Private Duty, Inc., an ArizonaCorporation*

On February 23, 2006, William W. Crocker filed suit against CrdentiaCorp. and Arizona Home Health Care/Private Duty, Inc. asserting claims fordeclaratory judgment, breach of contract, and conversion arising from aReceivable Allocation Agreement executed incident to an Agreement and Plan ofReorganization dated August 6, 2006.  Mr.Crocker sought damages in the principal sum of $251,150, which was comprised of$114,019 for collected accounts receivable and eighty percent (80%) of $171,414of uncollected accounts receivable, plus attorneys’ fees.  The Company settled this case in April2007.  The Company issued 312,500 sharesof common stock (valued at $159,375 based on the trading value of stock onApril 9, 2007) in exchange for Crdentia retaining the proceeds from thecollection of certain receivables that it collected on behalf of Mr. Crocker.

*Dawson James Securities, Inc. v. Crdentia Corp*

On March 22, 2006,Dawson James filed suit against Crdentia Corp. seeking fees in connection withraising investment capital for Crdentia. Dawson James contended that under terms of a contract they were owedcash of $235,000 and 50,000 warrants to purchase Crdentia stock.  The Company settled this case in April2007.  In April 2007, the Company settledthe liability with Dawson James for 400,000 shares of the Company’s commonstock valued at $160,000 based on the closing price of the Company’s commonstock on the date of settlement which was less than the recorded liability and resultedin a gain of $356,144.

**Note 18  Subsequent Events**

Private Placement

Subsequent to June30, 2007, the Company completed one closing of a private placement pursuant toa Securities Purchase Agreement and Registration Rights Agreement for 1,083,334shares at a price of $0.60 per share, with aggregate proceeds of $650,000.  The Board of Directors of the Company hasauthorized the sale of up to $5,500,000 in common stock in all closings of theprivate placement.  Pursuant to the termsof the Registration Rights Agreement, the Company agreed to cause a resaleregistration statement covering the shares to be filed within 30 days of thefinal closing which is currently projected to be August 17, 2007.

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

*This report contains forward-lookingstatements.  These statements relate to future events orour future financial performance.  Insome cases, you can identify forward-looking statements by terminology such as “may,”“will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”“potential,” or “continue,” the negative of such terms or other comparableterminology.  These statements are onlypredictions.  Actual events or results maydiffer materially.*

*Althoughwe believe that the expectations reflected in the forward-looking statementsare reasonable, we cannot guarantee future results, levels of activity,performance or achievements and we have failed to achieve projected results inthe past.  Moreover, neither we, nor anyother person, assume responsibility for the accuracy and completeness of theforward-looking statements.  We are underno obligation to update any of the forward-looking statements after the filingof this Quarterly Report to conform such statements to actual results or tochanges in our expectations.*

*Thefollowing discussion of our financial condition and results of operationsshould be read in conjunction with our consolidated financial statements andthe related notes and other financial information appearing elsewhere in thisQuarterly Report.  Readers are also urgedto carefully review and consider the various disclosures made by us whichattempt to advise interested parties of the factors which affect our business,including without limitation the disclosures made in Item 1A of Part II of thisQuarterly Report under the  Caption “RiskFactors” and under the captions “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations,” and “Risk Factors”  and in our audited consolidated financialstatements and related notes included in our Annual Report on Form 10-K for theyear ended December 31, 2006, previously filed with the U.S. Securities andExchange Commission (SEC).*

*Riskfactors that could cause actual results to differ from those contained in theforward-looking statements include but are not limited to: our ability tocontinue as a going concern; we have a history of losses; we face difficultiesidentifying and integrating acquisitions; our need to raise additional capitalin the future; our credit facility and revolving note impose significant expenseson us; our convertible debentures contain covenants and restrictions; MedCapcontrols a significant amount of our outstanding capital stock; we need tocontinue to attract and retain key employees; we need to attract qualifiednurses; the temporary nurse staffing industry is highly competitive; our needto secure and fill new orders from hospitals and healthcare facilities;fluctuations in patient occupancy; we have anti-takeover provisions in ourcharter and bylaws; we operate in a regulated industry; government regulationand regulatory reform could negatively impact our business; and legal actionscould subject us to uninsured liabilities.*

Introduction

Management’sdiscussion and analysis of financial condition and results of operations isprovided as a supplement to our consolidated financial statements andaccompanying notes to help provide an understanding of our financial condition,changes in financial condition and results of operations.

Overview

We are a providerof healthcare staffing services, focusing on the areas of travel nursing, perdiem staffing, contractual clinical services, locum tenens (physicianstaffing), allied services and private duty home care.  Our travel nurses are recruited domesticallyas well as internationally, and placed on temporary assignments at healthcarefacilities across the United States.  Ourper diem nurses are local nurses placed at healthcare facilities on short-termassignments.  Our contractual clinicalservices group provides complete clinical management and staffing forhealthcare facilities.  Under our locumtenens program, physicians contract with us to perform medical services forhealthcare organizations for a specified length of time.  Our allied services primarily consist ofdiagnostic imaging, respiratory, laboratory, therapies and administrativemodalities and our private duty home care group provides nursing casemanagement and staffing for skilled and non-skilled care in the home.  We consider the different services describedabove to 

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be one segment aseach of these services relate solely to providing healthcare staffing tocustomers that are healthcare providers and utilize similar distributionmethods, common systems, databases, procedures, processes and similar methodsof identifying and serving these customers.

We did not haveany revenue in 2003 until we completed our first acquisition in August2003.  During 2003 we began operatingfour newly acquired companies, combining the various back offices and supportstaff into a central location and began streamlining the operations.  We have continued to pursue our operationalplan of acquiring companies in the healthcare staffing field and purchased twocompanies in 2004, three companies in 2005 and one company in 2006.

During 2006 weterminated the operations we had acquired in 2003 from Baker Anderson Christie,Inc. and Nurses Network, Inc.  Inaddition, in May 2006 we returned to the sellers the shares of TravMed USA,Inc. that we had acquired from the sellers in March 2005 in connection with ouracquisition of that company, and our notes payable to the sellers werecancelled.  On June 30, 2007 we soldcertain assets of Health Industry Professionals, LLC to the original sellers.

Some key factorswe are focusing on to improve performance are as follows:

·                  Wecontinue to identify innovative ways to attract and retain nurses.

·                  Weare vigorously managing the amounts billed to healthcare facilities in relationto the payroll cost of our nurses in an effort to improve gross margins.

·                  Weare managing selling, general and administrative costs at our field officelocations with a goal of limiting these expenses to no more than 10% of therevenue at each location.

·                  Weare aggressively expanding our locum tenens business, our allied services andour home health business in an effort to improve gross margins through a bettermix of the services provided.

·                  Weare devoting constant attention toward achieving growth both organically andthrough acquisitions so that we can spread our corporate overhead over a largerbase of business and achieve economies of scale.

·                  We are seeking to raise equitycapital to provide for working capital needs and to continue to pursueacquisitions.

During the sixmonths ended June 30, 2007, we recorded several transactions which are of anon-recurring nature, including the following:

·                  Futurecash severance costs associated with our former Chief Executive Officer in theamount of $503,333 recorded as selling, general and administrative costs.

·                  Stockcompensation costs associated with our former Chief Executive Officer’sseverance and the accelerated vesting of restricted stock in the amount of$3,024,177.

·                  Prepaymentpenalty and the write-off of deferred financing costs associated withrefinancing our term note and revolving credit facility and costs associatedwith the conversion of a portion of our debentures for a total of $1,391,538recorded as interest costs.

·                  Gainon settlement of litigation in the amount of $623,028.

·                  Gainon sale of discontinued operations of $126,446 which was more than offset byimpairment write-off of goodwill of $3,100,000.

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**RESULTSOF OPERATIONS**
| ** **                                                          | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                          | ** ** | **2007**                                            | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Revenue from  services                                              |       | $                                                   | 7,239,522  |                                              | $          | 10,129,723 |   | $ | 15,336,851 |   | $ | 18,073,480 |   |
| Direct operating  expenses                                          |       | 5,787,963                                           |       | 8,006,878                                         |       | 12,173,143 |   | 14,395,012 |   |
| Gross profit                                                        |       | 1,451,559                                           |       | 2,122,845                                         |       | 3,163,708 |   | 3,678,468 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Operating  expenses:                                                |       |                                                |       |                                              |       |   |   |   |   |
| Selling, general, and administrative expenses                       |       | 2,761,054                                           |       | 2,953,294                                         |       | 5,660,705 |   | 5,405,457 |   |
| Loss on impairment of intangibles                                   |       | 3,100,000                                           |       | 123,000                                           |       | 3,100,000 |   | 123,000 |   |
| Gain from settlement of acquisition claim                           |       | —                                              |       | —                                            |       | — |   | (1,064,693 | ) |
| Gain from settlement of litigation                                  |       | (623,028                                            | )          | —                                            |       | (623,028 | ) | — |   |
| Gain from extinguishment of debt                                    |       | —                                              |       | (3,215,490                                        | )          | — |   | (3,215,490 | ) |
| Non-cash stock based compensation                                   |       | 671,908                                             |       | 451,369                                           |       | 4,063,300 |   | 829,629 |   |
| Total operating  expenses                                           |       | 5,909,934                                           |       | 312,173                                           |       | 12,200,977 |   | 2,077,903 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Income (loss)  from continuing operations before interest and taxes |       | (4,458,375                                          | )          | 1,810,672                                         |       | (9,037,269 | ) | 1,600,565 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Interest  expense, net                                              |       | (209,199                                            | )          | (450,415                                          | )          | (2,315,985 | ) | (1,643,954 | ) |
| Income (loss)  from continuing operations before income taxes       |       | (4,667,574                                          | )          | 1,360,257                                         |       | (11,353,254 | ) | (43,389 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Income tax  expense                                                 |       | —                                              |       | —                                            |       | — |   | — |   |
| Income (loss)  from continuing operations                           |       | (4,667,574                                          | )          | 1,360,257                                         |       | (11,353,254 | ) | (43,389 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Income from  discontinued operations                                |       | 84,099                                              |       | 87,671                                            |       | 180,697 |   | 132,730 |   |
| Gain from sale  of discontinued operations                          |       | 126,446                                             |       | —                                            |       | 126,446 |   | — |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Net income  (loss)                                                  |       | $                                                   | (4,457,029 | )                                                 | $          | 1,447,928 |   | $ | (11,046,111 | ) | $ | 89,341 |   |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Deemed dividend  on preferred stock                                 |       | —                                              |       | (45,554,618                                       | )          | — |   | (45,554,618 | ) |
|                                                                |       |                                                |       |                                              |       |   |   |   |   |
| Net loss attributable  to common stockholders                       |       | $                                                   | (4,457,029 | )                                                 | $          | (44,106,690 | ) | $ | (11,046,111 | ) | $ | (45,465,277 | ) |

 

***Threemonths ended June 30, 2007 compared to the three months ended June 30, 2006***

Revenues fromcontinuing operations in the three months ended June 30, 2007 were $7,239,522compared to revenues of $10,129,723 in the three months ended June 30,2006.  Revenues have decreased in 2007compared to 2006 due principally to decreases in revenue related to closingportions of our operations in California and to the loss of customers relatedto litigation surrounding the TravMed acquisition.  In 2007 approximately 12.9% (29.5% in 2006)of our revenue was derived from the placement of travel nurses on assignment,typically 13 weeks in length.  Suchassignments generally involve temporary relocation to the geographic area ofthe assignment.  We also provide per diemnurses to satisfy the very short-term needs of healthcare facilities.  Per diem services provided 72.4% of ourrevenue in 2007 (56.3% in 2006).  Theremaining amount of our revenue in 2007 came from providing staffing tohealthcare facilities, private duty homecare, locum tenens revenue and alliedservices.  In 2006 the remaining revenuecame from providing clinical management and staffing to healthcare facilitiesand private duty homecare.  During 2007and 2006, most of our customers were acute care hospitals located throughoutthe continental United States.

Our overall grossprofit in the three months ended June 30, 2007 was $1,451,559 or 20.0% ofrevenues compared to $2,122,845 or 21.0% of revenues in the three months endedJune 30, 2006.  Our gross profit is 

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the differencebetween the revenue we realize when we bill our customers for the services ofour healthcare professionals and our direct operating costs, which include thecost of the healthcare professionals and the related housing and travel costs,certain employment related taxes, professional liability insurance, healthinsurance for professionals and workers compensation insurance coverage.  The decrease in gross profit percentage isattributable to a portion of our insurance costs which are fixed and did notdecline with the decline in revenue.

Our selling,general and administrative costs were $2,761,054 or 38.1% of revenues in thethree months ended June 30, 2007 compared to $2,953,294 or 29.2%******of revenues in the three monthsended June 30, 2006.  Selling, generaland administrative expenses are comprised primarily of certain personnel costs,legal and accounting fees related to being a public company and various otheroffice and administrative expenses.  Theincrease in selling, general and administrative costs as a percentage ofrevenue is attributable to increased legal costs associated with settlementsand an increase in health care claims as well as the fixed nature of some ofthe corporate overhead costs which did not decline with the decline in revenue.

Primarily as aresult of the sale of certain assets of Health Industry Professionals, LLC atJune 30, 2007, our impairment analysis of goodwill required a charge forimpairment of goodwill of $3.1 million. We lost certain customer relationships that were obtained with theTravMed acquisition.  We recorded awrite-down of $123,000 in the three months ended June 30, 2006 related tointangibles assigned to these customer relationships.

During the threemonths ended June 30, 2007 we settled and continued negotiating severallitigation cases resulting in a gain of $623,028.  In April 2007 we settled litigation withDawson James Securities, Inc. by issuing 400,000 shares of our common stock.  These shares were valued at $160,000 and whenmeasured against previous amounts accrued resulted in a gain from settlement oflitigation of $356,144.  Also during thequarter our negotiations with TravMed have resulted in our estimated liabilitybeing reduced to approximately $300,000 resulting in a gain of $248,275.

During the threemonths ended June 30, 2006, in connection with claims asserted against thesellers of TravMed, we returned to the sellers shares in TravMed that we hadacquired on March 29, 2005.  Upon returnof the shares to the sellers, $3,215,490 of seller notes payable wereextinguished in accordance with terms of the acquisition agreements.  This resulted in a gain from extinguishmentof debt of $3,215,490 in 2006.

Non-cash stockbased compensation costs were $671,908 in the three months ended June 30, 2007compared to $451,369 in the three months ended June 30, 2006.  In 2006, the volume of trading in the Company’sstock triggered accelerated vesting of some of the restricted shares and causedthe Company to begin amortizing the cost of the restricted grants over ashorter period of time beginning in the fourth quarter of 2006.

Interest costswere $209,199 in the three months ended June 30, 2007 compared to $450,415 inthe three months ended June 30, 2006. This decrease in interest expense is the result of lower interest ratesassociated with the new working capital facility and master revolving note aswell as reduced levels of debt.

On June 30, 2007we sold certain assets of Health Industry Professionals, LLC back to theoriginal sellers for $300,000 cash, the return of 128,367 shares of our commonstock held by the original sellers, and their assumption of certainliabilities.  This transaction resultedin a gain on sale of discontinued operations of $126,446 for the three monthsended June 30, 2007.  Operating incomerelated to this business, in the amount of $84,099 for the three months endedJune 30, 2007 and $87,671 for the three months ended June 30, 2006 has beenreclassified to income from discontinued operations.

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***Sixmonths ended June 30, 2007 compared to the six months ended June 30, 2006***

Revenues fromcontinuing operations in the six months ended June 30, 2007 were $15,336,851compared to revenues of $18,073,480 in the six months ended June 30, 2006.  Revenues have decreased in 2007 compared to2006 due principally to decreases in revenue related to closing portions of ouroperations in California and to the loss of customers related to litigationsurrounding the TravMed acquisition.  Thedecrease in revenue has been partially offset by revenue associated with theStaff Search acquisition completed in April 2006.  In 2007 approximately 15.3% (34.2% in 2006)of our revenue was derived from the placement of travel nurses on assignment,typically 13 weeks in length.  Suchassignments generally involve temporary relocation to the geographic area ofthe assignment.  We also provide per diemnurses to satisfy the very short-term needs of healthcare facilities.  Per diem services provided 70.3% of ourrevenue in 2007 (54.0% in 2006).  Theremaining amount of our revenue in 2007 came from providing staffing tohealthcare facilities, private duty homecare, locum tenens revenue and alliedservices.  In 2006 the remaining revenuecame from providing clinical management and staffing to healthcare facilitiesand private duty homecare.  During 2007and 2006, most of our customers were acute care hospitals located throughoutthe continental United States.

Our overall grossprofit in the six months ended June 30, 2007 was $3,163,708 or 20.6% ofrevenues compared to $3,678,468 or 20.4% of revenues in the six months endedJune 30, 2006.  Our gross profit is thedifference between the revenue we realize when we bill our customers for theservices of our healthcare professionals and our direct operating costs, whichinclude the cost of the healthcare professionals and the related housing andtravel costs, certain employment related taxes, professional liabilityinsurance, health insurance for professionals and workers compensationinsurance coverage.

Our selling,general and administrative costs were $5,660,705 or 36.9% of revenues in thesix months ended June 30, 2007 compared to $5,405,457 or 29.9%******of revenues in the six months endedJune 30, 2006.  Selling, general andadministrative expenses are comprised primarily of certain personnel costs,legal and accounting fees related to being a public company and various otheroffice and administrative expenses.  Theincrease in selling, general and administrative costs is attributable toincreased legal costs associated with settlements, an increase in health careclaims and $503,333 of accrued expenses related to a severance agreement withour former Chief Executive Officer as well as the fixed nature of some of thecorporate overhead costs which did not decline with the decline in revenue.

Primarily as aresult of the sale of certain assets of Health Industry Professionals, LLC atJune 30, 2007, our impairment analysis of goodwill required a charge for impairmentof goodwill of $3.1 million.  We lostcertain customer relationships that were obtained with the TravMedacquisition.  We recorded a write-down of$123,000 in the six months ended June 30, 2006 related to intangibles assignedto these customer relationships.

In 2005, weasserted a claim against a seller of one of our 2003 acquisitions.  In January 2006, we and the seller settledwith the seller returning 59,150 shares of our stock that had been issued inconnection with the acquisition.  Wereported a gain on this settlement of $1,064,693 representing the fair value ofthe stock returned on the date of the settlement.

During the sixmonths ended June 30, 2007 we settled and continued negotiating severallitigation cases resulting in a gain of $623,028.  In April 2007 we settled litigation withDawson James Securities, Inc. by issuing 400,000 shares of our commonstock.  These shares were valued at$160,000 and when measured against previous amounts accrued resulted in a gainfrom settlement of litigation of $356,144. Also during the second quarter our negotiations with TravMed haveresulted in our estimated liability being reduced to approximately $300,000resulting in a gain of $248,275.

During the sixmonths ended June 30, 2006, in connection with claims asserted against thesellers of TravMed, we returned to the sellers shares in TravMed that we hadacquired on March 29, 2005.  Upon returnof the shares to the sellers, $3,215,490 of seller notes payable were extinguishedin accordance with terms of the acquisition agreements.  This resulted in a gain from extinguishmentof debt of $3,215,490 in 2006.

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Non-cash stockbased compensation costs were $4,063,300 in the six months ended June 30, 2007compared to $829,629 in the six months ended June 30, 2006.  In 2006, the volume of trading in the Company’sstock triggered accelerated vesting of some of the restricted shares and causedthe Company to begin amortizing the cost of the restricted grants over ashorter period of time beginning in the fourth quarter of 2006.  In addition, the severance agreement for ourformer Chief Executive Officer included the granting of an option to purchase1,000,000 shares of the Company’s stock vesting immediately and acceleratedvesting of restricted grants.  Expense of$3,024,177 associated with the accelerated vesting of the restricted stock wasrecorded in 2007.

Interest costswere $2,315,985 in the six months ended June 30, 2007 compared to $1,643,954 inthe six months ended June 30, 2006.  Thisincrease in interest cost is due to a prepayment penalty and the write-off ofdeferred financing costs associated with the refinancing of our term note andrevolving credit facility with Bridge Finance and costs associated with theconversion of a portion of our debentures for a total of $1,391,538.  These amounts were partially offset by lowerinterest rates associated with the new working capital facility and masterrevolving note as well as reduced levels of debt.

On June 30, 2007we sold certain assets of Health Industry Professionals, LLC back to theoriginal sellers for $300,000 cash, the return of 128,367 shares of our commonstock held by the original sellers, and their assumption of certainliabilities.  This transaction resultedin a gain on sale of discontinued operations of $126,446 for the six monthsended June 30, 2007.  Operating incomerelated to this business, in the amount of $180,697 for the six months endedJune 30, 2007 and $132,730 for the six months ended June 30, 2006 has beenreclassified to income from discontinued operations.

During the sixmonths ended June 30, 2006 a special committee of the Board of Directorsrecommended, the Board of Directors approved and holders of the Preferred Stockand Warrants agreed to the exchange of all outstanding Series C ConvertiblePreferred Stock, Series C warrants and Series B-1 warrants into common stock.  The exchange as approved by the Board ofDirectors varied from existing Preferred Stock conversion ratios and was basedon recommendations from the special committee of the Board of Directors afterthey sought guidance from an outside firm. The effect of this exchange transferred the carrying value of theConvertible Preferred Stock and the Series C preferred stock warrants on ourbalance sheet to stockholders’ equity resulting in an increase in stockholders’equity of $10,859,603.  This exchangealso resulted in the recognition of a deemed dividend of $45,554,618.  This deemed dividend was calculated byvaluing the 10,257,131 shares of common stock issued in the exchange at theclosing price of the stock on the date of the exchange ($5.50) less therecorded value of the Convertible Preferred Stock and Warrants of $10,859,603.

**LIQUIDITYAND CAPITAL RESOURCES**

Since inception,we have incurred losses from operations and have reported negative cashflows.  As of June 30, 2007, we had anaccumulated deficit of $130,332,499 and cash and cash equivalents of$285,931.  We have financed ouroperations primarily through private placements of equity and debt securitiesand through credit facilities, including our current facility with Systran FinancialServices Corporation, a subsidiary of Textron Financial Corporation and a termloan with Comerica Bank.

During the sixmonths ended June 30, 2007, we completed nine closings of a private placementpursuant to a Securities Purchase Agreement and Registration Rights Agreementfor 7,083,327 shares at a price of $0.60 per share, with aggregate proceeds of$4,250,000.  Subsequent to June 2007 wecompleted one additional closing for 1,083,334 shares at a price of $0.60 pershare, with aggregate proceeds of $650,000. Our Board of Directors has authorized the sale of up to $5,500,000 incommon stock in all closings of the private placement.  Pursuant to the terms of the RegistrationRights Agreement, we have agreed to cause a resale registration statementcovering the shares to be filed within 30 days of the final close which wecurrently project to be August 17, 2007.

On February 8,2007, we entered into a $10 million working capital facility with SystranFinancial Services Corporation, a subsidiary of Textron Financial Corporation.  Pursuant to the agreements, Systran agreed,at its sole discretion, to purchase certain receivables from us on a recoursebasis.  The agreements anticipate a 

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minimum volume ofpurchases and also contemplate the payment of certain service fees, including aminimum fee.  To secure the payment andperformance of our obligations to Systran under the agreements, we grantedSystran a security interest in all of our assets.  We also agreed to indemnify Systran againstany liabilities arising out of claims relating to the receivables purchased bySystran under the agreements.  Theagreements have an initial term of 48 months, and we are obligated to paySystran an early termination premium in the event the agreements are terminatedunder certain circumstances prior to the end of the term.

On January 19,2007, we delivered a Master Revolving Note in the amount of $2.4 million toComerica Bank.  Proceeds from theborrowing were used to refinance the over-advance amount outstanding under therevolving line of credit with Bridge Healthcare Finance, LLC.  The Note has principal payments of $125,000on March 31, 2007, $100,000 on June 30, 2007, September 30, 2007 and December31, 2007 and has a final maturity date of January 31, 2008 and bears interestat a per annum rate equal to Comerica’s base rate from time to time in effectminus one-half of one (1/2%) percent (7.75% at June 30, 2007).  The Note includes events of default andprovides that, upon the occurrence of certain events of default, Comerica may,at its option and without prior notice to us, declare any or all of theindebtedness evidenced by the Note immediately due and payable.  We are currently in compliance with allprovisions of the agreement.

We are currentlynegotiating a $10 million working capital facility with Calliope CapitalCorporation.  We anticipate the workingcapital facility will contain a revolving credit facility of up to $7,500,000at an interest rate of prime plus 2% subject to a floor of 9% and a term notefacility of $2,500,000 at an interest rate of prime plus 3% subject to a floorof 10%.  It is anticipated that there willbe no amortization of the term note for the first nine months with monthlyamortization of the note amount thereafter to fully amortize the note in theremaining 27 months.  Expected feesassociated with this working capital facility will amount to $350,000.  We also expect to issue seven-yearwarrants to the lender to purchase up to 4,166,667 shares of the Company’scommon stock at an exercise price of $0.60. This facility will have three year term. Proceeds from this facility will be used to payoff all outstandingamounts under the Systran working capital facility including a $300,000 earlytermination fee and for working capital purposes.

We do not expectto reach cash flow positive operations in 2007, and we expect to continue togenerate losses from operations for the foreseeable future.  Based on current cash flow projections whichcontain revenue growth from current operations as well as new acquisitions andexpected proceeds from a $2.5 million term loan, we anticipate needing to raiseat least an additional $2,000,000 by June 30, 2008 (of which a significantamount will need to be raised by December 31, 2007) in order to satisfy ourworking capital needs.  If we are notable to raise these funds we may be unable to meet our payroll costs.  In addition, we will need to raise additionalfunds in the future in order to finance our future capital needs.  There is no assurance that we will be able toraise the amount of debt or equity capital required to meet ourobjectives.  Our challenging financialcircumstances have made and will likely make the terms, conditions and cost ofany available capital relatively unfavorable. If additional debt or equity capital is not readily available, we maynot be able to operate our business, and we will be forced to scale back ouracquisition activities and our operations. Our short-term need for capital may force us to consider and potentiallypursue other strategic options sooner than we might otherwise havedesired.  These conditions raisesubstantial doubt about our ability to continue as a going concern.

Management hastaken a number of steps to address our financial performance and improve cashflow.  In the six months ended June 30,2007, we raised an additional $4,250,000 in equity through nine closings of aprivate placement and refinanced the Loan, the Term Loan and the over-advanceson the Loan.  Proceeds of the equityraised in 2007 were used for working capital purposes, debt reduction and costsrelated to debt refinancing.  Managementis devoting constant attention toward achieving growth both organically andthrough acquisitions so that we can spread our corporate overhead over a largerbase of business and achieve economies of scale.  However, there can be no assurance that theseprograms will be successful.  Ifunsuccessful, we could be unable to fund payroll costs and could ultimatelyfail.

Cash Flows

For the six monthsended June 30, 2007, we used cash in operations of $2,708,960, compared to$2,776,589 for the six months ended June 30, 2006.  Although we ended June 30, 2007 with asignificant 

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working capitaldeficit of $3,893,267 we were able to secure additional funding during thisperiod to finance our operations.

Net cash providedby investing activities was $260,145 for the six months ended June 30, 2007 andnet cash used in investing activities was $88,608 for the six months ended June30, 2006.  On June 30, 2007 we soldcertain assets of Health Industry Professionals, LLC back to the originalsellers for $300,000 cash, the return of 128,367 shares of our common stockheld by the original sellers, and the assumption of certain liabilities.

During the sixmonths ended June 30, 2007 and 2006, we financed our working capitalrequirements primarily through the sale of common stock, convertible debenturesand through loans and credit facilities. Net cash provided by financing activities was $2,536,678 for the sixmonths ended June 30, 2007 and $2,541,802 for the six months ended June 30,2006.  In 2007, we received $2,400,000from a note payable to lender and $4,167,368 from the issuance of common stockin private placements.  These funds wereused to fund operations and pay-off an over-advance of $2,425,000 and $906,867of note payable to lenders.  In 2006, wereceived $2,000,000 in the private placement of 8% convertible debentures andshort- and long-term warrants as well as $1,500,000 through the issuance ofcommon stock in private placements. These funds were used to repay $1,650,000 of note payable to lender andfund $2,776,589 cash used in operations.

**CRITICALACCOUNTING POLICIES AND MANAGEMENT JUDGEMENT**

The preparation ofthe financial statements in accordance with accounting principles generallyaccepted in the United States of America requires us to make judgments,estimates, and assumptions regarding uncertainties that affect the reportedamounts of assets and liabilities, disclosure of contingent assets andliabilities, and the reported amounts of revenues and expenses.  Areas that require significant judgments,estimates, and assumptions include the assignment of fair values upon acquisitionof goodwill and other intangible assets, testing for impairment of long-livedassets and valuation of the stock used to consummate our acquisitions.  We use historical experience, qualifiedindependent consultants and all available information to make these judgmentsand estimates, and actual results will inevitably differ from those estimatesand assumptions that are used to prepare our financial statements at any giventime.

**AccountsReceivable**

Accountsreceivable are reduced by an allowance for doubtful accounts that provides areserve with respect to those accounts for which revenue was recognized butwith respect to which management subsequently determines that payment is notexpected to be received.  We analyze thebalances of accounts receivable to ensure that the recorded amounts properlyreflect the amounts expected to be collected. This analysis involves the application of varying percentages to eachaccounts receivable category based on the age of the uncollectible accountsreceivable.  The amount ultimatelyrecorded as the reserve is determined after management also analyzes thecollectibility of specific large or problematic accounts on an individualbasis, as well as the overall business climate and other factors.  Our estimate of the percentage ofuncollectible accounts may change from time to time and any such change couldhave a material impact on our financial condition and results of operations.

**PurchaseAccounting, Goodwill and Intangible Assets**

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

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Goodwill arisingfrom the acquisitions of businesses is recorded as the excess of the purchaseprice over the estimated fair value of the net assets of the businessesacquired.  Statement of FinancialAccounting Standards No. 142 (“Goodwill and Other Intangible Assets”) providesthat goodwill is to be tested for impairment annually or more frequently ifcircumstances indicate potential impairment. Consistent with this standard, we will review goodwill, as well as otherintangible assets and long-term assets, for impairment annually or morefrequently as warranted, and if circumstances indicate that the recorded valueof any such other asset is impaired, such asset is written down to its new,lower fair value.  If any item ofgoodwill or such other asset is determined to be impaired, an impairment losswould be recognized equal to the amount by which the recorded value exceeds theestimated fair market value.

**Stock-Based Compensation**

We have used stockgrants and stock options to attract and retain directors and key executives andintend to use stock options in the future to attract, retain and rewardemployees for long-term service.

We account for thesestock options under the modified prospective method of SFAS No. 123R, “Share-BasedPayment”.  In the modified prospectivemethod, compensation cost is recognized for all share-based paymentsgranted.  We have used the Black-Scholesvaluation model to estimate fair value of our stock-based awards which requiresvarious judgmental assumptions including estimating stock price volatility,forfeiture rates and expected life.  Ourcomputation of expected volatility is based on a combination of historical andmarket-based implied volatility.  If anyof the assumptions used in the Black-Scholes model change significantly,stock-based compensation expense may differ materially in the future from thatrecorded in the current period.

**Item 3.    Quantitative and Qualitative Disclosures About Market Risk**

Interest Rate Risk

Our exposure tointerest rate risk arises principally from the variable rates associated withour credit facilities with Systran and Comerica Bank.  On June 30, 2007, we had borrowings ofapproximately $5.6 million under these facilities that were subject to variablerates, with a rate at June 30, 2007 of 13.0% and 7.75% respectively.  As of June 30, 2007, an adverse change of 10%in the interest rate of all such borrowings outstanding (for example, from 8.0%to 8.8%) would have caused us to incur an increase in interest expense ofapproximately $60,378 on an annual basis.

Inflation

We do not believethat inflation has had a material effect on our results of operations in recentyears and periods.  There can be noassurance, however, that we will not be adversely affected by inflation in thefuture.

**Item 4.    Controls and Procedures**

We maintaindisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in our Exchange Act reports is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms and that such information is accumulated and communicated to ourmanagement including our Chief Executive Officer and Chief Financial Officer toallow for timely decisions regarding required disclosure.  In designing and evaluating the disclosurecontrols and procedures, management recognizes that any controls andprocedures, no matter how well designed and operated can provide onlyreasonable assurance of achieving the desired control objectives and managementis required to apply its judgment in evaluating the cost-benefit relationshipof possible controls and procedures.

As required byRule 13a-15(b) under the Exchange Act, we conducted an evaluation under thesupervision and with the participation of our management, including our ChiefExecutive Officer and our Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures 

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as of the end ofthe period covered by this report.  Basedupon the foregoing evaluation, our principal executive officer and ourprincipal financial officer concluded that our disclosure controls andprocedures were effective at the reasonable assurance level as of the end ofthe fiscal period covered by this report.

There were nochanges in our internal controls over financial reporting during our mostrecent fiscal quarter that have materially affected, or are reasonably likelyto materially affect our internal controls over financial reporting.

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**PART II —OTHER INFORMATION**

**Item 1.    Legal Proceedings**

From time to time,we may become involved in various lawsuits and legal proceedings which arise inthe ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverseresult in these or other matters may arise from time to time that may harm ourbusiness.  We are not currently aware ofany such legal proceedings or claims that we believe will have, individually orin the aggregate, a material adverse affect on our business, financial conditionor operating results.  The following is alist of claims that are in settlement discussions or were settled in the sixmonths ended June 30, 2007.  Any lossesrelated to these anticipated settlements or actual settlements have beendisclosed in the financial statements and recorded as of June 30, 2007.

*CrdentiaCorp. and CRDE Corp. v. Robert Litton and Steve Williams*; *CauseNo. 3-06-CV-1182-R; Pending in the United States District Court for theNorthern District of Texas-Dallas Division.*

On January 27,2006, Crdentia Corp. and CRDE Corp. filed suit against Robert Litton and SteveWilliams, the former owners of TravMed, asserting claims for breach ofnon-competition/solicitation agreements, breach of fiduciary duty, tortiousinterference with existing and prospective contracts and business relations,and declaratory relief arising out of an Agreement and Plan of Reorganizationdated as of March 28, 2005.  Among otherthings, the Company alleged that the defendants violated their non-competitionagreements that they executed in connection with the Agreement and Plan ofReorganization by diverting business opportunities to a competingbusiness.  The Company sought anundisclosed amount of damages.  Thedefendants filed counterclaims against Crdentia alleging breach of theAgreement and Plan of Reorganization and conversion.  The Company began negotiating a settlement inMarch 2007 and anticipates it will pay between $250,000 and $300,000 in cash inexchange for the defendants agreeing to pay certain payables on Crdentia’sbehalf.  This liability is included inaccounts payable and accrued expenses at June 30, 2007.

*CrdentiaCorp., CRDE Corp., and Arizona Home Health Care/Private Duty, Inc. v. WilliamW. Crocker and William C. Crocker*

On January 31,2006, Crdentia Corp., CRDE Corp., and Arizona Home Health Care/Private Duty,Inc. filed suit against William W. Crocker and William C. Crocker, the formerowners of Arizona Home Health Care/Private Duty, Inc., asserting claims forfraud, indemnity, and declaratory relief arising out of an Agreement and Planof Reorganization dated August 6, 2004 and a Receivable Allocation Agreemententered into in connection therewith. Among other things, the Company alleged that, prior to entering theAgreement and Plan of Reorganization, the defendants failed to disclose thatcertain key employees had planned to leave the company and that the defendantsrequested and/or instructed such employees not to leave prior to the closing ofthe merger.  The Company also allegedthat the defendants failed to disclose that their company did not possesscertain state licenses necessary to conduct a portion of its business.  The Company sought an undisclosed amount ofdamages.  This case was settled in April2007 as discussed below under “*William W. Crocker v.Crdentia Corp.”*

*William W. Crocker, an individual, v. Crdentia Corp., a DelawareCorporation, and Arizona Home Health Care/Private Duty, Inc., an ArizonaCorporation*

On February 23, 2006, William W. Crocker filed suit against Crdentia Corp.and Arizona Home Health Care/Private Duty, Inc. asserting claims fordeclaratory judgment, breach of contract, and conversion arising from aReceivable Allocation Agreement executed incident to an Agreement and Plan ofReorganization dated August 6, 2006.  Mr.Crocker sought damages in the principal sum of $251,150, which was comprised of$114,019 for collected accounts receivable and eighty percent (80%) of $171,414of uncollected accounts receivable, plus attorneys’ fees.  The Company settled this case in April2007.  The Company issued 312,500 sharesof common stock (valued at $159,375 based on the trading value of stock onApril 9, 2007) in exchange for Crdentia retaining the proceeds from thecollection of certain receivables that it collected on behalf of Mr. Crocker.

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*Dawson James Securities, Inc. v. Crdentia Corp.*

On March 22, 2006,Dawson James filed suit against Crdentia Corp. seeking fees in connection withraising investment capital for Crdentia. Dawson James contended that under terms of a contract they were owedcash of $235,000 and 50,000 warrants to purchase Crdentia stock.  The Company settled this case in April2007.  The Company agreed to issue400,000 shares of common stock (valued at $160,000 based on the trading valueof stock on April 13, 2007) in full payment of the obligation which is anamount that is less than what was previously accrued on the Company’s financialstatements.

**Item 1A.   RiskFactors**

*Anyinvestment in our common stock involves a high degree of risk.  You should consider carefully the followinginformation about the risks described below, together with the otherinformation contained in this Form 10-Q before you decide whether to buy ourcommon stock.  If any of the followingrisks actually occur, our business, financial condition, results of operationsand cash flows could be materially and adversely affected.  In those circumstances, the market price ofour common stock could decline, and you may lose all or part of the money youpaid to buy our common stock.*

***Our independentregistered public accounting firm issued a going concern opinion on ourfinancial statements, questioning our ability to continue as a going concern.***

Our independentregistered public accounting firm’s opinion on our 2006 financial statementsincludes an explanatory paragraph indicating substantial doubt about ourability to continue as a going concern. Since our inception, we have operated with limited operating capital,and we continue to face immediate and substantial cash needs.  We have limited cash resources and will needto raise additional capital through public or private financings or otherarrangements in order to meet current commitments and continue development ofour business.  Based on current cash flowprojections which contain revenue growth from current operations as well as newacquisitions and expected proceeds from a $2.5 million term loan, we anticipateneeding to raise at least an additional $2,000,000 by June 30, 2008 (of which asignificant amount will need to be raised by December 31, 2007) in order tocontinue to operate our business.  Wecannot 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.  If we are not successful in raising capitalin the short-term we could be unable to meet payroll costs.  Failure to raise additional capital whenneeded could cause us to cease our operations.

We have financedour operations since inception primarily through the private placement ofequity and debt securities and loan facilities. Although we will need to raise funds in the near future, there can be noassurance that we will be successful in consummating any fundraising transaction,or if we do consummate such a transaction, that its terms and conditions willnot require us to give investors warrants or other valuable rights to purchaseadditional interest in our company, or be otherwise unfavorable to us.  Among other things, the agreements underwhich we issued some of our existing securities include, and any securitiesthat we may issue in the future may also include, terms that could impede ourability to raise additional funding.  Ourprojected cash needs are based on management’s current assumptions regarding ourbusiness, including some degree of organic growth.  This growth may not materialize and ourassumptions could prove to be inaccurate. We have been inaccurate in projecting our cash needs in the past.  The issuance of additional securities couldimpose additional restrictions on how we operate and finance our business.  In addition, our current debt financingarrangements involve significant interest expense and restrictive covenantsthat limit our operations.

***We have a historyof losses, and we may not achieve or maintain profitability.***

We haveexperienced operating and net losses in each fiscal quarter since ourinception, and as of June 30, 2007, we had an accumulated deficit of $130.3million.  We incurred a net loss of $4.5million for the quarter ended June 30, 2007. We will need to increase revenues and reduce operating expenses toachieve profitability, and we may not be able to do so.  Even if we do achieve profitability, we maynot be able to sustain or increase profitability on a quarterly or annual basisin the future.  Our management may not beable to accurately project or give any assurance with respect to our ability tocontrol development and 

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operating costsand/or expenses in the future. Consequently, as we expand our commercial operations, management may notbe able to control costs and expenses adequately, and such operations maygenerate losses.  If our operatingexpenses exceed our expectations, our financial performance will be adverselyaffected.  Our failure to achieve andsustain profitability would negatively impact the market price of our commonstock.

***We may facedifficulties identifying acquisitions and integrating these acquisitions intoour operations.  These acquisitions maybe unsuccessful, involve significant cash expenditures or expose us tounforeseen liabilities.***

We continuallyevaluate opportunities to acquire healthcare staffing companies that complementor enhance our business and frequently have preliminary acquisition discussionswith such companies.  Since 2003, we haveacquired ten businesses.  Theseacquisitions involve numerous risks, including:

·                  potential lossof revenues following the acquisition;

·                  difficultiesintegrating acquired personnel and distinct cultures into our business;

·                  difficultiesintegrating acquired companies into our operating, financial planning andfinancial reporting systems;

·                  diversion ofmanagement attention from existing operations; and

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

These acquisitionsmay also involve significant cash expenditures, debt incurrence and integrationexpenses that could seriously harm our financial condition and results ofoperations.  We may fail to achieveexpected efficiencies and synergies.  Anyacquisition may ultimately have a negative impact on our business and financialcondition.   We may have difficulty insuccessfully completing planned acquisitions, which could result in significantcash expenditures for legal and accounting services and take up significanttime and attention of management.

***There is a limitedpublic market for our common stock, and the trading price of our common stockis subject to volatility.***

The quotation ofshares of our common stock on the OTC Bulletin Board began in 2003.  There can be no assurances that an activepublic market will develop or continue for our common stock.  The trading price of our common stock issubject to significant fluctuations.  Factorsaffecting the trading price of our common stock may include:

·                  variations inour financial results;

·                  announcements ofinnovations, new solutions, strategic alliances or significant agreements by usor by our competitors;

·                  recruitment ordeparture of key personnel;

·                  changes inestimates of our financial results or changes in the recommendations of anysecurities analysts that elect to follow our common stock;

·                  marketconditions in our industry, the industries of our customers and the economy asa whole; and

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·                  sales ofsubstantial amounts of our common stock, or the perception that substantialamounts of our common stock will be sold, by our existing stockholders in thepublic market.

***Our need to raiseadditional capital in the future could have a dilutive effect on yourinvestment.***

Based on currentcash flow projections which contain revenue growth from current operations aswell as new acquisitions and expected proceeds from a $2.5 million term loan,we anticipate needing to raise additional capital in the future, including atleast an additional $2,000,000 by June 30, 2008 (of which a significant amountwill need to be raised by December 31, 2007) in order for us to continue tooperate our business.  Since thebeginning of 2007, we have raised $4.7 million through the sale of common stockat $0.60 per share in ten closings of a private placement.  Our board of directors has authorized thesale of an additional $.8 million in common stock in subsequent closings of theprivate placement.  In addition toraising money through subsequent closings of the private placement, we mayraise additional capital through the public or private sale of common stock orsecurities convertible into or exercisable for our common stock.  Such sales could be consummated at asignificant discount to the trading price of our stock.

If we selladditional shares of our common stock, such sales will further dilute thepercentage of our equity that our existing stockholders own.  In addition, private placement financingscould involve the issuance of securities at a price per share that represents adiscount to the trading prices listed for our common stock on the OTC BulletinBoard.  Depending upon the price pershare of securities that we sell in the future, a stockholder’s interest in uswill be further diluted by any adjustments to the number of shares and theapplicable exercise price required pursuant to the terms of the agreementsunder which we previously issued securities. No assurance can be given that previous or future investors, finders orplacement agents will not claim that they are entitled to additionalanti-dilution adjustments or dispute the calculation of any suchadjustments.  Any such claim or disputecould require us to incur material costs and expenses regardless of theresolution and, if resolved unfavorably to us, to affect dilutive securitiesissuances or adjustments to previously issued securities.  In addition, future financings may includeprovisions requiring us to make additional payments to the investors if we failto obtain or maintain the effectiveness of SEC registration statements byspecified dates or take other specified action. Our ability to meet these requirements may depend on actions byregulators and other third parties, over which we will have no control.  These provisions may require us to makepayments or issue additional dilutive securities, or could lead to costly anddisruptive disputes.  In addition, theseprovisions could require us to record additional non-cash expenses.

***Our creditfacility and revolving note impose significant expenses on us and we couldincur significant additional expenses in the event of default.***

In January 2007,we delivered a Master Revolving Note in the amount of $2.4 million to ComericaBank (the “Comerica Revolving Note”).  InFebruary 2007, we entered into a $10 million working capital facility withSystran Financial Services Corporation (the “Working Capital Facility”).  In connection with our entry into thesecredit arrangements with Comerica and Systran, we terminated our existingrevolving credit facility with Bridge Healthcare Finance, LLC and term loancredit facility with Bridge Opportunity Finance, LLC.  The new Working Capital Facility and ComericaRevolving Note involve significant interest expenses.  The Working Capital Facility has an initialterm of 48 months, and we are obligated to pay Systran certain fees upon earlytermination in the event the arrangement is terminated prior to the end of theterm.  Upon the occurrence of certainevents of default, Systran may immediately collect any obligation owing toSystran under the Working Capital Facility. The Comerica Revolving Note provides that, upon the occurrence ofcertain events of default, Comerica may, without prior notice to us, declareany or all of the indebtedness payable under the note immediately due andpayable.  Our failure to pay requiredinterest expenses and other fees or to otherwise satisfy the terms of thesecredit arrangements would have a material adverse affect on us.

***The agreementsgoverning the convertible debentures contain covenants and restrictions thatmay limit our ability to operate our business.***

The terms of our2006 convertible debentures limit our ability to, among other things, declareor pay dividends or distributions on any equity securities, create or incuradditional indebtedness, create additional 

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liens on ourassets and repurchase common stock. These restrictions could adversely affect our ability to borrowadditional funds or raise additional equity to fund our future operations.  In addition, if we fail to comply with any ofthe covenants contained in the agreements or otherwise default on theconvertible debentures, the holders may accelerate the indebtedness, and we maynot have sufficient funds available to make the required payments.

***MedCap PartnersL.P. controls a significant amount of our outstanding capital stock, and thismay delay or prevent a change of control of the company or adversely affect ourstock price.***

MedCap PartnersL.P. and MedCap Master Fund L.P. (the “MedCap Funds”) control a significantportion of our outstanding capital stock. In addition, C. Fred Toney, Chairman of our board of directors, is themanaging member of MedCap Management & Research LLC, the general partner ofthe MedCap Funds.  MedCap is able toexercise control over matters requiring stockholder approval, such as theelection of directors and the approval of significant corporate transactions,including transactions involving an actual or potential change of control ofthe company or other transactions that the non-controlling stockholders maydeem to be in their best interests and in which such stockholders could receivea premium for their shares.

***If we do not continue to*attract and retain**key employees ourbusiness could suffer.

We are dependentupon the personal efforts of our management team.  The loss of any of our officers or directorscould have a material adverse effect upon our business and future prospects.  In particular, we depend on our Chief ExecutiveOffice, John Kaiser.  We do not presentlyhave key-person life insurance upon the life of any of our officers ordirectors.  Additionally, as we continueour planned expansion of commercial operations, we will require the services ofadditional skilled personnel.  There canbe no assurance that we can attract persons with the requisite skills andtraining to meet our future needs or, even if such persons are available, thatthey can be hired on terms favorable to us.

Our success alsodepends on our ability to attract and retain qualified and skilled salespersonnel who engage in selling and business development for our services.  The available pool of qualified salespersonnel candidates is limited.  Wecommit substantial resources to the recruitment, training, development andoperational support of our sales personnel. There can be no assurance that we will be able to recruit, develop andretain qualified sales personnel in sufficient numbers or that our salespersonnel will achieve productivity levels sufficient to enable growth of ourbusiness.  Failure to attract and retainproductive sales personnel could adversely affect our business, financialcondition and results of operations.

***If we are unableto attract qualified nurses and healthcare professionals for our healthcarestaffing business, our business could be negatively impacted.***

We relysignificantly on our ability to attract and retain nurses and healthcareprofessionals who possess the skills, experience and licenses necessary to meetthe requirements of our hospital and healthcare facility clients.  We compete for healthcare staffing personnelwith other temporary healthcare staffing companies and with hospitals andhealthcare facilities.  We mustcontinually evaluate and expand our temporary healthcare professional networkto keep pace with our hospital and healthcare facility clients’ needs.  Currently, there is a shortage of qualifiednurses in most areas of the United States, competition for nursing personnel isincreasing, and salaries and benefits have risen.  We may be unable to continue to increase thenumber of temporary healthcare professionals that we recruit, decreasing thepotential for growth of our business. Our ability to attract and retain temporary healthcare professionalsdepends on several factors, including our ability to provide temporaryhealthcare professionals with assignments that they view as attractive and toprovide them with competitive benefits and wages.  We cannot assure you that we will besuccessful in any of these areas.  Thecost of attracting temporary healthcare professionals and providing them withattractive 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 facilityclients, our losses could increase. Moreover, if we are unable to attract and retain temporary healthcareprofessionals, the quality of our services to our hospital and healthcarefacility clients may decline and, as a result, we could lose clients.

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***The temporarystaffing industry is highly competitive and the success and future growth ofour business depends upon our ability to remain competitive in obtaining andretaining temporary staffing clients.***

The temporarystaffing industry is highly competitive and fragmented, with limited barriersto entry.  We compete in national,regional and local markets with full-service agencies and in regional and localmarkets with specialized temporary staffing agencies.  Some of our competitors include AMN HealthcareServices, Inc., Cross Country, Inc., Medical Staffing Network Holdings, Inc.and On Assignment, Inc.  All of thesecompanies have significantly greater marketing and financial resources than wedo.  Our ability to attract and retainclients is based on the value of the service we deliver, which in turn dependsprincipally on the speed with which we fill assignments and the appropriatenessof the match based on clients’ requirements and the skills and experience ofour temporary employees.  Our ability toattract skilled, experienced temporary professionals is based on our ability topay competitive wages, to provide competitive benefits, to provide multiple,continuous assignments and thereby increase the retention rate of theseemployees.  To the extent thatcompetitors seek to gain or retain market share by reducing prices orincreasing marketing expenditures, we could lose revenues and our margins coulddecline, which could seriously harm our operating results and cause the tradingprice of our stock to decline.  As weexpand into new geographic markets, our success will depend in part on ourability to gain market share from competitors. We expect competition for clients to increase in the future, and thesuccess and growth of our business depends on our ability to remaincompetitive.

***Our businessdepends upon our continued ability to secure and fill new orders from ourhospital and healthcare facility clients, because we do not have long-termagreements or exclusive contracts with them.***

We generally donot have long-term agreements or exclusive guaranteed order contracts with ourhospital and healthcare facility clients. The success of our business depends upon our ability to continuallysecure new orders from hospitals and other healthcare facilities and to fillthose orders with our temporary healthcare professionals.  Our hospital and healthcare facility clientsare free to place orders with our competitors and may choose to use temporaryhealthcare professionals that our competitors offer them.  Therefore, we must maintain positiverelationships with our hospital and healthcare facility clients.  If we fail to maintain positive relationshipswith our hospital and healthcare facility clients, we may be unable to generatenew temporary healthcare professional orders and our business may be adverselyaffected.

***Fluctuations inpatient occupancy at our clients’ hospitals and healthcare facilities and/ornurse turnover rates may adversely affect the demand for our services andtherefore the profitability of our business.***

Demand for ourtemporary healthcare staffing services is significantly affected by the generallevel of patient occupancy at our hospital and healthcare clients’facilities.  When occupancy increases,hospitals and other healthcare facilities often add temporary employees beforefull-time employees are hired.  Asoccupancy decreases, hospitals and other healthcare facilities typically reducetheir use of temporary employees before undertaking layoffs of their regularemployees.  In addition, we mayexperience more competitive pricing pressure during periods of occupancydownturn.  Occupancy at our clients’hospitals and healthcare facilities also fluctuates due to the seasonality ofsome elective procedures.  We are unableto predict the level of patient occupancy at any particular time and the effecton our revenues and earnings.

***We could bedifficult to acquire due to anti-takeover provisions in our charter documentsand Delaware law.***

Provisions of ourcertificate of incorporation and bylaws may have the effect of making it moredifficult for a third party to acquire, or of discouraging a third party fromattempting to acquire control of us. These provisions may make it more difficult for stockholders to takecorporate actions and may have the effect of delaying or preventing a change incontrol.  We are subject to theanti-takeover provisions of Section 203 of the Delaware General CorporationLaw.  Subject to specified exceptions,including the approval of the transaction by the board of directors or thecorporation’s stockholders, this section provides that a corporation may notengage in any business combination with any interested stockholder during thethree-year period following the time that such stockholder becomes aninterested stockholder.  This provision 

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could have theeffect of delaying or preventing a change of control of us.  These factors could limit the price thatinvestors or an acquirer may be willing to pay in the future for shares of ourcommon stock.

***We operate in aregulated industry and changes in regulations or violations of regulations mayresult in increased costs or sanctions that could reduce our revenues andprofitability.***

The healthcareindustry is subject to extensive and complex federal and state laws and regulationsrelated to professional licensure, conduct of operations, payment for servicesand payment for referrals.  If we fail tocomply with the laws and regulations that are directly applicable to ourbusiness, we could suffer civil and/or criminal penalties or be subject toinjunctions or cease and desist orders.

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

In addition,improper actions by our employees and other service providers may subject us toregulatory and litigation risk.

***Further governmentregulations or healthcare reform could negatively impact our businessopportunities, revenues and margins.***

Although ouroperations are not currently subject to any significant government regulations,it is possible that, in the future, such regulations may be created.  Although we cannot predict the likelihood orextent of such future regulations, the possibility exists that futureunforeseen changes may have an adverse impact on our ability to continue orexpand our operations as presently planned.

The United Statesgovernment has undertaken efforts to control increasing healthcare coststhrough legislation, regulation and voluntary agreements with medical careproviders and drug companies.  In therecent past, the United States Congress has considered several comprehensivehealthcare reform proposals.  Theproposals were generally intended to expand healthcare coverage for theuninsured and reduce the growth of total healthcare expenditures.  While Congress did not adopt anycomprehensive reform proposals, members of Congress may raise similar proposalsin the future.  If any of these proposalsare approved, hospitals and other healthcare facilities may react by spendingless on healthcare staffing, including nurses. If this were to occur, we would have fewer business opportunities, whichcould seriously harm our business.

State governmentshave also attempted to control increasing healthcare costs.  For example, the State of Massachusetts hasrecently implemented a regulation that limits the hourly rate payable totemporary nursing agencies for registered nurses, licensed practical nurses andcertified nurses’ aides.  The State ofMinnesota has also implemented a statute that limits the amount that nursingagencies may charge nursing homes.  Otherstates have also proposed legislation that would limit the amounts thattemporary staffing companies may charge. Any such current or proposed laws could seriously harm our business,revenues and margins.

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

***Significant legalactions could subject us to substantial uninsured liabilities.***

In recent years,healthcare providers have become subject to an increasing number of legalactions alleging malpractice, product liability or related legal theories.  Many of these actions involve large claimsand significant defense costs.  Inaddition, we may be subject to claims related to torts or crimes committed by 

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our employees ortemporary healthcare professionals.  Insome instances, we are required to indemnify our clients against some or all ofthese risks.  A failure of any of ouremployees or healthcare professionals to observe our policies and guidelinesintended to reduce these risks; relevant client policies and guidelines orapplicable federal, state or local laws, rules and regulations could result innegative publicity, payment of fines or other damages.  Our professional malpractice liabilityinsurance and general liability insurance coverage may not cover all claimsagainst us or continue to be available to us at a reasonable cost.  If we are unable to maintain adequateinsurance coverage or if our insurers deny coverage we may be exposed tosubstantial liabilities.

***We may be legallyliable for damages resulting from our hospital and healthcare facility clients’mistreatment of our healthcare personnel.***

Because we are inthe business of placing our temporary healthcare professionals in theworkplaces of other companies, we are subject to possible claims by ourtemporary healthcare professionals alleging discrimination, sexual harassment,negligence and other similar activities by our hospital and healthcare facilityclients.  The cost of defending suchclaims, even if groundless, could be substantial and the associated negativepublicity could adversely affect our ability to attract and retain qualifiedhealthcare professionals in the future.

***We have asubstantial amount of goodwill and other intangible assets on our balancesheet.  Our level of goodwill and otherintangible assets may have the effect of decreasing our earnings or increasingour losses.***

As of June 30,2007, we had $12.4 million of goodwill and other unamortized intangible assetson our balance sheet, which represents the excess of the total purchase priceof our acquisitions over the fair value of the net assets acquired.  At June 30, 2007, goodwill and otherintangible assets represented 62% of our total assets.  An impairment charge of goodwill to earningswould have the effect of decreasing our earnings or increasing our losses, asthe case may be.  If we are required towrite down a substantial amount of goodwill, our stock price could be adverselyaffected.  As a result of the loss ofcustomer base in some operations, the closure or sale certain operations, ourimpairment analysis of goodwill required a charge for impairment of goodwill of$10.0 million in 2006 and $3.1 million in 2007. We also lost certain customer relationships that were obtained with theTravMed acquisition which necessitated a write-down of $123,000 in 2006 relatedto intangibles assigned to these customer relationships.

***Demand for medicalstaffing services is significantly affected by the general level of economicactivity and unemployment in the United States.***

When economicactivity increases, temporary employees are often added before full-time employeesare hired.  However, as economic activityslows, 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 competitivepricing pressure during periods of economic downturn.  Therefore, any significant economic downturncould have a material adverse impact on our financial position and results ofoperations.

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

None

**Item 3.    Defaults Upon Senior Securities**

None

**Item 4.    Submission of Matters to a Vote of SecurityHolders**

None

**Item 5.    Other Information**

None

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**Item 6.    Exhibits**
| Exhibit  No. | ** ** | **Description**                                                                                                                                                  |
|--------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                             |
| 3.1(2)       |       | Restated Certificate of Incorporation.                                                                                                                           |
|         |       |                                                                                                                                                             |
| 3.2(2)       |       | Restated Bylaws.                                                                                                                                                 |
|         |       |                                                                                                                                                             |
| 3.3(1)       |       | Certificate of Amendment to Restated Certificate of  Incorporation.                                                                                              |
|         |       |                                                                                                                                                             |
| 3.4(3)       |       | Certificate of Amendment to Restated Certificate of  Incorporation.                                                                                              |
|         |       |                                                                                                                                                             |
| 3.5(3)       |       | Certificate of Correction of Certificate of  Amendment to Restated Certificate of Incorporation.                                                                 |
|         |       |                                                                                                                                                             |
| 3.6(3)       |       | Certificate of Correction of Certificate of  Amendment to Restated Certificate of Incorporation.                                                                 |
|         |       |                                                                                                                                                             |
| 3.7(4)       |       | Certificate of Amendment to Restated Certificate of  Incorporation.                                                                                              |
|         |       |                                                                                                                                                             |
| 10.79(5)     |       | Securities Purchase Agreement, dated  January 25, 2007, by and among Crdentia Corp. and the investors  identified on the signature pages thereto. |
|         |       |                                                                                                                                                             |
| 10.80(5)     |       | Registration Rights Agreement, dated January 25,  2007, by and among Crdentia Corp and the investors identified on the  signature pages thereto.                 |
|         |       |                                                                                                                                                             |
| 10.92(6)     |       | Settlement Agreement by and between Crdentia Corp.  and iVOW, Inc., dated as of April 4, 2007.                                                                   |
|         |       |                                                                                                                                                             |
| 10.93(6)     |       | Registration Rights Agreement by and between  Crdentia Corp. and iVOW, Inc., dated as of April 4, 2007.                                                          |
|         |       |                                                                                                                                                             |
| 10.94(7)     |       | Settlement Agreement by and between Crdentia Corp.  and Dawson James Securities, Inc., dated April 13, 2007.                                                     |
|         |       |                                                                                                                                                             |
| 10.95(8)     |       | Registration Rights Agreement dated April 13, 2007  by and between Crdentia Corp. and Dawson James Securities, Inc.                                              |
|         |       |                                                                                                                                                             |
| 10.97(9)     |       | Services Agreement by and between Crdentia Corp. and  AudioStocks, Inc., dated as of June 25, 2007.                                                              |
|         |       |                                                                                                                                                             |
| 10.98(9)     |       | Warrant to Purchase Common Stock of Crdentia Corp.  as issued to AudioStocks, Inc., dated as of June 25, 2007.                                                   |
|         |       |                                                                                                                                                             |
| 10.100(10)   |       | Asset Purchase Agreement by and between Crdentia  Corp., Matthew J. Cahillane and C. Michael Emery, dated as of June 30, 2007.                                   |
|         |       |                                                                                                                                                             |
| 31.1         |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                        |
|         |       |                                                                                                                                                             |
| 31.2         |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                             |
|         |       |                                                                                                                                                             |

 

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| 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. |

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(1)                                  Previouslyfiled on Form 10-QSB with the Securities and Exchange Commission on August 12, 2003and incorporated herein by reference.

(2)                                  Previouslyfiled on Form 8-K with the Securities and Exchange Commission on August 22,2002 and incorporated herein by reference.

(3)                                  Previouslyfiled on Form 8-K/A with the Securities and Exchange Commission on June 28,2004 and incorporated herein by reference.

(4)                                  Previouslyfiled on Form 8-K with the Securities and Exchange Commission on January 7,2005 and incorporated herein by reference.

(5)                                  Previouslyfiled with a Current Report on Form 8-K dated January 29, 2007 and incorporatedherein by reference.

(6)                                  Previouslyfiled with a Current Report on Form 8-K dated April 4, 2007 and incorporatedherein by reference.

(7)                                  Previouslyfiled with a Current Report on Form 8-K dated April 12, 2007 and incorporatedherein by reference.

(8)                                  Previouslyfiled on Form 10-Q with the Securities and Exchange Commission on May 15, 2007and incorporated herein by reference.

(9)                                  Previouslyfiled with a Current Report on Form 8-K dated June 25, 2007 and incorporatedherein by reference.

(10)                            Previouslyfiled with a Current Report on Form 8-K dated June 30, 2007 and incorporatedherein by reference.

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**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the SecuritiesExchange Act of 1934, the Registrant has duly caused this Report to be signedon its behalf by the undersigned, thereunto duly authorized.
|                         |   | CRDENTIA CORP.                       |
|-------------------------|--------|--------------------------------------|
|                    |   |                                 |
|                    |   |                                 |
| Dated: August 14,  2007 | By:    | /s/ John Kaiser                      |
|                    |   | John Kaiser                          |
|                    |   | Chief Executive Officer and Director |
|                    |   | (Principal Executive Officer)        |
|                    |   |                                 |
|                    |   |                                 |
| Dated: August 14,  2007 | By:    | /s/ James J. TerBeest                |
|                    |   | James J. TerBeest                    |
|                    |   | Chief Financial Officer              |
|                    |   | (Principal Financial and Accounting  |
|                    |   | Officer)                             |

 

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