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

                                   FORM 10-QSB

(Mark One)

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

                 For the quarterly period ended March 31, 2005.

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

             For the transition period from __________ to __________

                         Commission File Number 0-31152

                                 CRDENTIA CORP.
        (Exact name of small business issuer as specified in its charter)

           Delaware                                       76-0585701
(State or other jurisdiction of                (IRS Employer Identification No.)
incorporation or organization)


              14114 Dallas Parkway, Suite 600, Dallas, Texas 75254
                    (Address of principal executive offices)

                                 (972) 850-0780
                           (Issuer's telephone number)

26,537,879 shares of Common Stock, $.0001 par value, outstanding on May 10,
2005.

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

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<PAGE>

                                 CRDENTIA CORP.

                          Form 10-QSB Quarterly Report
                    For Quarterly Period Ended March 31, 2005

                                Table of Contents

                                                                            Page
                                                                            ----

PART I -- FINANCIAL INFORMATION                                               3

Item 1.  Condensed Consolidated Financial Statements                          3

         Condensed Consolidated Balance Sheets at March 31, 2005
         (unaudited) and December 31, 2004                                    3

         Condensed Consolidated Statements of Operations (unaudited)
         for the Three Months Ended March 31, 2005 and 2004                   4

         Condensed Consolidated Statements of Cash Flows (unaudited)
         for the Three Months Ended March 31, 2005 and 2004                   5

         Notes to Condensed Consolidated Financial Statements                 6

Item 2.  Management's Discussion and Analysis or Plan of Operation            23

Item 3.  Controls and Procedures                                              37


PART II -- OTHER INFORMATION                                                  38

Item 1.  Legal Proceedings                                                    38

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds          38

Item 3.  Defaults Upon Senior Securities                                      38

Item 4.  Submission of Matters to a Vote of Security Holders                  38

Item 5.  Other Information                                                    38

Item 6.  Exhibits                                                             39

SIGNATURES                                                                    42

<PAGE>


PART 1. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements

<TABLE>
<CAPTION>
                                 CRDENTIA CORP.
                      Condensed Consolidated Balance Sheets

                                                                    March 31, 2005       December 31,
                                                                      (Unaudited)            2004
                                                                   ----------------    ---------------
<S>                                                                   <C>                <C>
Current assets:
   Cash and cash equivalents                                          $    208,713       $    362,472
   Accounts receivable, net of allowance for doubtful
   accounts of $99,838 in 2005 and $114,957 in 2004                      3,943,127          2,908,403
   Unbilled receivables                                                    456,558            303,626
   Other current assets                                                    322,734            495,579
                                                                   ----------------    ---------------
Total current assets                                                     4,931,132          4,070,080

Property and equipment, net                                                373,230            293,600
Goodwill                                                                22,569,976         12,974,973
Intangible assets, net                                                   2,369,593          1,660,717
Other assets                                                               809,024            837,061
                                                                   ----------------    ---------------
Total assets                                                          $ 31,052,955       $ 19,836,431
                                                                   ================    ===============

Current liabilities:
   Accounts payable and accrued expenses                              $  2,552,865       $  2,523,069
   Accrued dividends on convertible preferred stock                             --          1,027,254
   Accrued employee compensation and benefits                              636,945            554,945
   Revolving lines of credit                                             2,613,055          2,521,598
   Current portion of note payable to lender, net of discount                   --          2,049,816
   Note payable to stockholder                                                  --            400,000
   Current portion of notes payable to sellers                             710,899            184,948
   Other current liabilities                                               243,319            100,017
   Subordinated convertible note, net of discount                           50,000             50,000
                                                                   ----------------    ---------------
Total current liabilities                                                6,807,083          9,411,647

Note payable to lender, less current portion                             2,117,315                 --
Long term bonus payable                                                    907,271            884,962
Notes payable to sellers, less current portion                           2,620,844                 --
Other long-term liabilities                                                 33,045             33,045
                                                                   ----------------    ---------------
Total liabilities                                                       12,485,558         10,329,654
                                                                   ----------------    ---------------

Commitments and contingencies

Convertible preferred stock, 10,000,000 shares authorized:
   Series B Convertible Preferred Stock
     $0.0001 par value, no shares outstanding at 2005 and
     3,750,000 shares outstanding at 2004 (liquidation
     preference of $750,000 in 2004)                                            --           750,000
   Series  B-1  Convertible   Preferred  Stock
     $0.0001  par  value,  no  shares outstanding at
     2005 and 93,043 shares outstanding at 2004
     (liquidation preference of $5,582,580 in 2004)                             --         30,123,400
   Series C Convertible Preferred Stock
     $0.0001 par value, 160,840 shares outstanding at 2005 and
     52,501 shares outstanding at 2004 (liquidation preference
     of $48,252,000 in 2005 and $15,750,300 in 2004)                     8,611,963          1,070,510
   Series C preferred stock warrants                                       974,144          2,079,910

Stockholders' equity (deficit):
   Common stock, par value $0.0001,  150,000,000  shares
     authorized in 2005 and 50,000,000  shares  authorized
     in  2004,   27,614,285  shares  issued  and
     26,537,879 shares outstanding in 2005 and 14,202,883
     shares issued and 13,126,477 shares outstanding in 2004                 2,761              1,420
   Additional paid in capital                                          105,272,888         68,447,288
   Treasury stock, 1,076,406 shares at cost                                     --                 --
   Deferred non-cash stock compensation                                   (569,900)          (648,746)
   Accumulated deficit                                                 (95,724,459)       (92,317,005)
                                                                   ----------------    ---------------
Total stockholders' equity (deficit)                                     8,981,290        (24,517,043)
                                                                   ----------------    ---------------
Total liabilities and stockholders' equity (deficit)                  $ 31,052,955       $ 19,836,431
                                                                   ================    ===============
</TABLE>


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


                                       3
<PAGE>

<TABLE>
<CAPTION>
                                CRDENTIA CORP.
                 Condensed Consolidated Statements of Operations


                                                      Three Months Ended March 31,
                                                    ------------------------------
                                                        2005             2004
                                                     (Unaudited)      (Unaudited)
                                                    ------------     ------------
<S>                                                 <C>              <C>
Revenue from services                               $  5,122,313     $  6,217,554
Direct operating expenses                              4,048,820        4,947,715
                                                    ------------     ------------
   Gross profit                                        1,073,493        1,269,839
                                                    ------------     ------------

Operating expenses:
   Selling, general, and administrative expenses       1,715,880        2,113,151
   Non-cash stock based compensation                      78,846           17,246
                                                    ------------     ------------
Total operating expenses                               1,794,726        2,130,397
                                                    ------------     ------------
Loss from operations                                    (721,233)        (860,558)

Interest expense, net                                   (524,034)        (402,241)
                                                    ------------     ------------
Loss before income taxes                              (1,245,267)      (1,262,799)

Income tax expense                                            --               --
                                                    ------------     ------------
Net loss                                            $ (1,245,267)    $ (1,262,799)
                                                    ============     ============

Deemed dividend related to beneficial
  conversion feature on Series A
  convertible preferred stock                                 --       (1,000,000)
Non-cash preferred stock dividends                    (2,162,187)              --
                                                    ------------     ------------

Net loss attributable to common stockholders        $ (3,407,454)    $ (2,262,799)
                                                    ============     ============
Basic and diluted loss per common share
  attributable to common stockholders               $      (0.25)    $      (0.36)
                                                    ============     ============
Weighted average number of common
 shares outstanding                                   13,634,963        6,279,352
                                                    ============     ============
</TABLE>


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


                                       4
<PAGE>

<TABLE>
<CAPTION>
                                 CRDENTIA CORP.
                 Condensed Consolidated Statements of Cash Flows


                                                          Three Months Ended March 31,
                                                         -----------------------------
                                                             2005              2004
                                                         (Unaudited)       (Unaudited)
                                                         -----------       -----------
<S>                                                      <C>               <C>
Operating activities
Net loss                                                 $(1,245,267)      $(1,262,799)
Adjustments to reconcile net loss to
  net cash used in operating activities:
  Amortization of subordinated convertible
   note discounts                                                 --           242,411
  Amortization of lender note discounts                       67,500                --
  Amortization of debt issue costs                            56,510                --
  Amortization of long-term bonus payable                     22,309                --
  Non-cash stock based expense related to
    short-term borrowings                                    162,500                --
  Depreciation and amortization                              173,218           245,348
  Bad debt expense                                                --          (120,085)
  Non-cash stock based compensation                           78,846            17,246
  Changes in operating assets and liabilities, net
   of effects of
     purchases of subsidiaries:
     Accounts receivable                                      10,123          (208,943)
     Unbilled receivables                                   (152,932)           23,604
     Other current assets and liabilities                    380,771          (327,665)
     Accounts payable and accrued expenses                  (120,204)           73,216
     Accrued employee compensation and benefits               82,000           179,919
     Long term bonus payable                                      --            20,194
                                                         -----------       -----------
Net cash used in operating activities                       (484,626)       (1,117,554)
                                                         -----------       -----------

Investing activities
Purchases of property and equipment                           (3,724)          (49,583)
Cash paid for acquisition of subsidiaries, net of
 cash received                                            (4,753,994)          (36,407)
Other                                                        (28,473)          (18,983)
                                                         -----------       -----------
Net cash used in investing activities                     (4,786,191)         (104,973)
                                                         -----------       -----------

Financing activities
Issuance of preferred stock                                       --         1,000,000
Exercise of warrants for Series C preferred stock,
  net of expenses                                          6,435,687                --
Net decrease in revolving lines of credit                   (849,934)         (192,836)
Proceeds from notes payable to majority stockholder        1,050,000                --
Repayment of notes payable to majority stockholder        (1,450,000)               --
Repayment of note payable to lender                               --           (66,667)
Repayment of notes payable to sellers                        (68,695)         (287,712)
Debt issuance costs                                               --           (31,411)
                                                         -----------       -----------
Net cash provided by financing activities                  5,117,058           421,374
                                                         -----------       -----------

Net decrease in cash and cash equivalents                   (153,759)         (801,153)
Cash and cash equivalents at beginning of year               362,472         1,469,076
                                                         -----------       -----------
Cash and cash equivalents at end of year                 $   208,713       $   667,923
                                                         ===========       ===========
</TABLE>

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


                                       5
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

Note 1.  Organization and Summary of Significant Accounting Policies

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

At the beginning of 2003,  the Company was a  development  stage company with no
commercial  operations.  During that year, the Company  pursued its  operational
plan of acquiring  companies in the healthcare  staffing field and completed the
acquisition of four operating companies. The companies acquired in 2003 -- Baker
Anderson  Christie,  Inc., New Age Nurses,  Inc., Nurses Network,  Inc., and PSR
Nurses, Ltd. (through the acquisition of PSR Nurses Holdings Corp. and PSR Nurse
Recruiting,  Inc., which hold the limited partner and general partner  interests
in PSR Nurses,  Ltd.) -- provide the foundation for future growth.  During 2004,
the Company completed the acquisitions of Arizona Home Health Care/Private Duty,
Inc.  and Care Pros  Staffing,  Inc. On March 29,  2005,  the  Company  acquired
TravMed USA, Inc. and Health Industry Professionals, LLC.

Organization

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

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

Basis  of  Presentation

The accompanying unaudited financial data as of and for the three months ended
March 31, 2005 and 2004 have been prepared by the Company pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited financial statements and the notes thereto included
in the Company's annual Report on Form 10-KSB for the year ended December 31,
2004.

In the  opinion of  management,  all  adjustments  (which  include  only  normal
recurring  adjustments)  necessary  to present  fairly the  financial  position,
results of operations, and cash flows as of and for the three months ended March
31, 2005 have been made.  The results of  operations  for the three months ended
March 31, 2005 are not necessarily  indicative of the operating  results for the
full year.


                                       6
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

Liquidity

The Company  generated a loss of $1,245,267 for the quarter ended March 31, 2005
and used cash in  operations  of  $484,626  during  the first  quarter  of 2005.
Additionally,  although  the  Company  ended  the first  quarter  of 2005 with a
working  capital  deficit  of $1.9  million,  the  Company  was  able to  secure
additional  funding  during  2004 and the first  quarter of 2005 to finance  its
operations  as it  continues  to execute its  business  plan to acquire and grow
companies involved in healthcare staffing. As discussed in Note 9, in March 2005
the Company's majority stockholder exercised warrants to purchase 108,333 shares
of Series C Convertible  Preferred  Stock providing $6.5 million to the Company.
Also,  as discussed in Note 13, in May 2005 the Company's  majority  stockholder
exercised  warrants to purchase 22,187 shares of Series C Convertible  Preferred
Stock  providing $1.3 million to the Company.  The infusion of $7.8 million into
the Company  enabled it to acquire  additional  companies and to retire  certain
liabilities and to fund operations for the next twelve months.  The Company will
also be able to borrow  on its  existing  line of  credit  to the  extent it has
availability under the line.

Trade Receivables

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

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

Long-Lived Assets

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


                                       7
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005

Goodwill and Intangible Assets

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

Revenue Recognition

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

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

Stock-Based Compensation

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

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

The table below shows net loss per share attributable to common stockholders for
March 31, 2005 and 2004 as if the  Company had elected the fair value  method of
accounting for stock options.


                                       8
<PAGE>

<TABLE>
<CAPTION>
                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


                                                          Three Months      Three Months
                                                             Ended             Ended
                                                           March 31,          March 31,
                                                             2005              2004
                                                          -----------       -----------
<S>                                                       <C>               <C>
Net loss attributable to common
  stockholders as reported                                $(3,407,454)      $(2,262,799)
Add:  stock-based employee compensation
  in reported net income, net of related tax effects           78,846            17,246
Deduct:  stock-based employee
  compensation determined under fair value
  method for all awards, net of related tax effects

                                                              (92,234)          (17,358)
                                                          -----------       -----------

Proforma net loss attributable to common
  stockholders, as adjusted                               $(3,420,842)      $(2,262,911)
                                                          ===========       ===========

Loss per share attributable to common stockholders:
    Basic and diluted, as reported                        $      (.25)      $     (0.36)
    Basic and diluted, as adjusted                        $      (.25)      $     (0.36)
</TABLE>


Earnings Per Share

The Company  adopted the  standards set by the  Financial  Accounting  Standards
Board and computes  earnings per share in accordance with SFAS No. 128 "Earnings
per Share." The basic per share data has been computed on the loss  attributable
to common  stockholders for the period divided by the weighted average number of
shares of common stock  outstanding for the period.  Diluted earnings per common
share include both the weighted  average  number of common shares and any common
share  equivalents  such as convertible  securities,  options or warrants in the
calculation. As the Company recorded losses for the three months ended March 31,
2005 and 2004, common share equivalents outstanding would be anti-dilutive,  and
as such, have not been included in weighted average shares  outstanding.  Common
share equivalents that were excluded in the March 31, 2005 calculation  amounted
to 36,522,301 shares.

New Accounting Pronouncements

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


                                       9
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


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

Note 2.  Acquisitions

TravMed USA, Inc.

On March 29,  2005,  the Company  acquired  TravMed  USA,  Inc.  ("TravMed")  in
exchange for $3,215,490 in cash,  $3,215,490 in notes  payable,  and $103,261 of
net acquisition  costs. The primary purpose of the acquisition was to enable the
Company to expand its market share in the nurse staffing industry. The following
table  summarizes the assets acquired and liabilities  assumed as of the closing
date:

                Tangible assets acquired              $1,189,471
                Customer related intangible assets
                                                         492,000
                Goodwill                               5,894,160
                                                      ----------
                  Total assets acquired                7,575,631
                Liabilities assumed                    1,041,390
                                                      ----------
                  Net assets acquired                 $6,534,241
                                                      ==========

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

Health Industry Professionals, LLC

On March 29, 2005, the Company acquired Health Industry Professionals, LLC (HIP)
in exchange for  $1,350,900 in cash,  1,283,684  shares of the Company's  Common
Stock valued at $2,601,600,  (determined by the average of $2.03 per share which
approximates the trading value as quoted on the OTC Bulletin Board 3 days before
and 3 days after the acquisition  date),  and $78,695 of net acquisition  costs.
The primary  purpose of the  acquisition was to enable the Company to expand its
market share in the nurse staffing  market.  The following table  summarizes the
assets acquired and liabilities assumed as of the closing date:


                                       10
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


                  Tangible assets acquired              $   44,000
                  Customer related intangible assets       342,000
                  Goodwill                               3,695,195
                                                        ----------
                    Total assets acquired                4,081,195
                  Liabilities assumed                       50,000
                                                        ----------
                    Net assets acquired                 $4,031,195
                                                        ==========

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

Unaudited Pro Forma Summary Information

The following unaudited pro forma summary  approximates the consolidated results
of operations as if all acquisitions  (including 2004 acquisitions) had occurred
as of the  beginning of each period  presented,  after giving  effect to certain
adjustments, including amortization of specifically identifiable intangibles and
interest  expense.  The pro forma financial  information  does not purport to be
indicative  of the  results  of  operations  that would  have  occurred  had the
transactions  taken place at the beginning of the periods presented or of future
results of operations.

                                                  Three Months    Three Months
                                                     Ended            Ended
                                                   March 31,        March 31,
                                                     2005             2004
                                                 ------------     ------------
Revenue from services                            $  8,992,940     $ 12,883,508

Net loss                                           (1,000,406)        (948,864)

Net loss attributable to common stockholders       (3,162,593)      (1,948,864)

Basic and diluted net loss per common share
  attributable to common stockholders                    (.21)            (.25)

Weighted-average shares of common stock
  outstanding                                      14,875,858        7,763,036


                                       11
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Note 3.  Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:


                                           March 31,   December 31,
                                             2005          2004
                                          ----------    ----------
           Accounts payable               $1,835,677    $1,815,778
           Accrued expenses                  717,188       707,291
                                          ----------    ----------
                                          $2,552,865    $2,523,069
                                          ==========    ==========

Note 4.  Revolving Lines of Credit

On June 16, 2004, the Company entered into a Loan and Security  Agreement with a
company  specializing  in  healthcare  finance,  pursuant  to which the  Company
obtained a revolving credit facility up to $15,000,000 (the "Loan").  During the
first  quarter of 2005,  the  revolving  line of credit  facility was reduced to
$10,000,000  permitting the Company to lower its effective interest rate through
lower unused line fees. The Loan has a term of three years and bears interest at
a rate  equal to the  greater of three  percent  (3.0%) per annum over the prime
rate or nine and  one-half  percent  (9.5%) per annum (9.5% at March 31,  2005).
Interest is payable monthly. Accounts receivable serves as security for the Loan
and the Loan is subject to certain financial and reporting  covenants.  Customer
payments are used to repay the advances on the credit  facility after  deducting
charges for  interest  expense,  unused line and account  management  fees.  The
financial  covenants are for the maintenance of minimum net worth,  minimum debt
service coverage ratios,  minimum EBITDA, maximum capital expenditure limits and
maximum operating lease  obligations.  At March 31, 2005, the Company was out of
compliance with certain financial  covenants of the Loan, for which a waiver was
received from the lender.  In May 2005,  the covenants  were  restructured  and,
based on the  Company's  projections,  management  believes that the Company can
comply with covenants in future periods.  The outstanding balance on the Loan is
$2,613,055 at March 31, 2005.

Note 5.  Notes Payable to Lender

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


                                       12
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


The Term Loan provides that the Company shall issue warrants to purchase  shares
of Common Stock to the lender up to 12% of the Company's overall  capitalization
on the date of borrowing.  On August 31, 2004,  the Company  issued  warrants to
purchase  905,758  shares  of  Common  Stock at a price of  $3.15  per  share in
connection with the first borrowing under the credit facility.  As a result, the
Term Loan has been recorded net of a discount of $810,000  which  represents the
estimated fair market value related to the warrants at the date of issuance. The
discount will be amortized to interest expense over the life of the Term Loan.

The Term Loan financial  covenants are for the maintenance of minimum net worth,
minimum  debt  service   coverage  ratios,   minimum  EBITDA,   maximum  capital
expenditure limits and maximum operating lease  obligations.  At March 31, 2005,
the Company was out of compliance with certain  financial  covenants of the Term
Loan,  for  which a waiver  was  received  from the  lender.  In May  2005,  the
covenants were restructured and, based on the Company's projections,  management
believes  that  the  Company  can  comply  with  covenants  in  future  periods.
Accordingly,  the outstanding  balance of the Term Loan as of March 31, 2005 has
been classified as a long-term liability on the accompanying Balance Sheet.

Note 6.  Notes Payable to Stockholders

On November 29, 2004, MedCap Partners L.P., the Company's majority  stockholder,
loaned the Company  $400,000  for  working  capital  purposes.  During the first
quarter of 2005, the Company borrowed an additional $1,050,000 from the majority
stockholder for working capital purposes.  The notes required interest at 5% and
were payable on demand.  These notes plus accrued  interest were repaid on March
29, 2005.  As an incentive  to the majority  stockholder  to provide the working
capital until  acquisitions  were  consummated in the first quarter of 2005, the
Company  issued 77,751 shares of common stock to the majority  stockholder at an
average  market  value of $2.09 per share.  The related  expense of $162,500 has
been recorded as interest  expense in the  accompanying  statement of operations
for the three months ended March 31, 2005.

Note 7.  Notes Payable to Sellers

As partial  consideration  for the acquisition of TravMed USA, Inc. on March 29,
2005,  the Company  issued  unsecured  subordinated  notes to the former TravMed
stockholders  in the total  amount  of  $3,215,490.  The  notes  are  three-year
convertible  notes bearing interest at Prime plus 2%. Monthly interest  payments
are  required  for the first six  months  followed  by  principal  and  interest
payments the next thirty months to fully repay the debt.

The  Company  also has notes  payable  to the former  stockholders  of Care Pros
Staffing, Inc. of $116,253 at March 31, 2005.


                                       13
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


At March 31, 2005 and December 31, 2004,  the long-term  debt discussed in Notes
5, 6, and 7 plus the subordinated convertible note consists of the following:

                                                March 31,      December 31,
                                                  2005             2004
                                              -----------      -----------

Term Loan, 15.25% interest, maturity date
  August 31, 2007                             $ 2,697,802      $ 2,697,802

Stockholder Note - Promissory Note,
  5% interest, due on demand                           --          400,000

Subordinated Convertible Note                      50,000           50,000

Seller Notes-TravMed USA, Inc.                  3,215,490               --
Seller Notes - Care Pros Staffing, Inc.           116,253          184,948
                                              -----------      -----------
  Total long-term debt                          6,079,545        3,332,750
  Less debt discount                             (580,487)        (647,986)

  Less current portion                           (760,899)      (2,684,764)
                                              -----------      -----------

  Long-term debt                              $ 4,738,159      $        --
                                              ===========      ===========

Amounts reconcile to the financial statements as follows:

                                               March 31,       December 31,
                                                 2005             2004
                                              ----------       ----------
Note payable to lender                        $2,117,315       $2,049,816
Note payable to stockholder                           --          400,000

Subordinated convertible notes,
  net of discount                                 50,000           50,000
Current portion of notes payable
  to sellers                                     710,899          184,948
Noncurrent portion of notes
  payable to sellers                           2,620,844
Discount on term loan                            580,487          647,986
                                              ----------       ----------

                                              $6,079,545       $3,332,750
                                              ==========       ==========


Note 8.  Long Term Bonus Payable

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


                                       14
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Note 9.  Convertible Preferred Stock

Convertible Preferred Stock Issued and Outstanding

The Company is authorized to issue 10,000,000 shares of preferred stock at a par
value of  $0.0001.  At March 31,  2005 and  December  31,  2004 there are shares
issued and outstanding consisting of the following:

<TABLE>
<CAPTION>
                                                 March 31, 2005              December 31, 2004
                                                 --------------              -----------------
                                              Shares         Shares         Shares           Shares
                                              Issued       Outstanding      Issued        Outstanding
                                              ------       -----------      ------        -----------
<S>                                         <C>             <C>              <C>             <C>
Series A Convertible Preferred Stock             --              --              --              --
Series B Convertible Preferred Stock             --              --       6,250,000       3,750,000
Series B-1 Convertible Preferred Stock           --              --          97,582          93,043
Series C Convertible Preferred Stock        160,840         160,840          52,501          52,501
</TABLE>


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

All  Convertible   Preferred  Shares  issued  and  outstanding  are  convertible
currently at the option of the holder.  The Company has  evaluated the potential
effect of any beneficial conversion terms related to convertible instruments. As
a result,  the  convertible  instruments may have a carrying amount that differs
significantly  from its redemption amount. In such cases, the difference between
the carrying  amount and the redemption  amount  (limited to the actual proceeds
received)  is  recorded as a  beneficial  conversion  feature and  deducted as a
deemed dividend in determining net loss attributable to common stockholders. The
table below summarizes the redemption  requirements and beneficial conversion of
the Convertible Preferred Shares outstanding as of March 31, 2005:

                                                    Common Shares    Beneficial
      Series of                                       Issuable       Conversion
     Convertible         Shares          Carrying      Upon          Recorded at
   Preferred Stock    Outstanding         Amount     Conversion       Issuance

          C               160,840    $  8,511,574    16,084,000    $  1,070,510


                                       15
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Series B Convertible Preferred Stock (Series B)

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

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

On  September  30,  2004  the  Board  of  Directors   declared  a  dividend  and
distribution to the Series B holder. The dividend and distribution  consisted of
quarterly  dividends  that were  payable on  September  30,  2004 for shares not
converted  and  quarterly  dividends  that were payable on  September  30, 2004,
December  31,  2004,  March 31,  2005 and June 30, 2005 for  2,500,000  Series B
shares converted into Common Stock. As a result,  114,583 shares of Common Stock
were issued on September 30, 2004 related to the dividend and  distribution.  On
March 22,  2005,  the Board of  Directors  declared a  dividend  to the Series B
holder.  The  dividend  consisted of  quarterly  dividends  that were payable on
December  31, 2004 which had an  estimated  fair value of $81,218 and  quarterly
dividends  that were payable on March 31, 2005 which had an estimated fair value
of $59,375.  The  dividends  were paid through the issuance of 62,488  shares of
common stock during March 2005.

On September 30, 2004,  the holder  voluntarily  converted  2,500,000  shares of
Series B into 833,333  shares of Common  Stock.  On March 29,  2005,  the holder
voluntarily  converted  3,750,000  shares of Series B into  1,250,000  shares of
Common Stock.

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

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


                                       16
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


On August 9, 2004,  the Company  issued 3,750  shares of Series B-1  Convertible
Preferred  Stock at a per share price of $60 to an investor for cash proceeds of
$225,000.  The  Company  recorded  a  deemed  dividend  due  to  the  beneficial
conversion  price of $225,000 which represents the lesser of the proceeds or the
beneficial conversion feature of $937,500.

Also on  August  9,  2004,  the  Company  issued  4,166  shares  of  Series  B-1
Convertible  Preferred  Stock  at a per  share  price  of $60  to the  Company's
Chairman and Chief Executive Officer for cash proceeds of $249,960.  The Company
recorded a deemed  dividend due to the beneficial  conversion  price of $249,960
which represents the lesser of the proceeds or the beneficial conversion feature
of $1.0 million.

On August 9, 2004,  the Company  issued 29,990 shares of Series B-1  Convertible
Preferred  Stock,  issued 40,822  shares of Common Stock and paid  approximately
$225,000  in  cash  in  exchange  for the  cancellation  of all the  outstanding
principal and accrued and unpaid interest under certain promissory notes (Seller
Notes)  that were  issued in 2003 in  connection  with the  purchase  of certain
subsidiaries.

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

On August  31,  2004,  the  Company  issued  MedCap  Partners  L.P. a warrant to
purchase  6,000  shares of Series B-1  Convertible  Preferred  Stock for $60 per
share for five years. These warrants have not been exercised at March 31, 2005.


                                       17
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


On  September  30,  2004,  the  Board  of  Directors  declared  a  dividend  and
distribution to the Series B-1 holders. The dividend and distribution  consisted
of quarterly  dividends  that were payable on September  30, 2004 for shares not
converted and a distribution equal to the dividends that would have been payable
on September  30, 2004,  December 31, 2004,  March 31, 2005 and June 30, 2005 to
those shareholders electing early conversion of their 4,112 shares of Series B-1
into Common Stock.  As a result,  157,203  shares of Common Stock were issued on
September 30, 2004 related to the dividend and distribution.  On March 22, 2005,
the Board of  Directors  declared a dividend  to the  Series  B-1  holders.  The
dividend consisted of quarterly dividends that were payable on December 31, 2004
which had an estimated fair value of $604,780, and quarterly dividends that were
payable on March 31, 2005 which had an  estimated  fair value of  $441,940.  The
dividends  were paid  through  the  issuance of 465,208  shares of common  stock
during March 2005.

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

On  November  10,  2004,  the  Company  entered  into an  agreement  to  convert
approximately  $2.7 million of Seller  Notes and accrued  interest to Series B-1
Convertible Preferred Stock.

On December 16, 2004, the Company issued 1,582 shares of Series B-1  Convertible
Preferred  Stock at a per share price of $60 to investors  for cash  proceeds of
$94,920. The Company recorded a deemed dividend due to the beneficial conversion
price of $94,920 which  represents  the lesser of the proceeds or the beneficial
conversion feature of $447,962.

On March 29,  2005,  holders  of all of the  Convertible  Preferred  Series  B-1
voluntarily converted their 93,043 shares of preferred Series B-1 into 9,304,300
shares of Common Stock.

Series C Convertible Preferred Stock (Series C)

The holders of Series C are entitled to receive,  when  declared by the Board of
Directors,  a dividend on each  quarter  end  beginning  September  30, 2004 and
ending  December  31, 2005 in an amount  equal to 2.5 shares of Common Stock for
each share of outstanding Series C held by them. In the event of any liquidation
or winding up of the  Company,  the  holders of the Series C will be entitled to
receive in  preference  to the holders of Common  Stock an amount  equal to five
times their initial  purchase  price plus any declared but unpaid  dividends and
any remaining  liquidation proceeds will thereafter be distributed on a pro rata
basis to the  holders  of the  Company's  Common  Stock and any other  series of
Preferred Stock expressly entitled to participate in such distribution. Assuming
exercise of all of the warrants to purchase shares of Series C Preferred  Stock,
upon a  liquidation  or  winding  up of the  Company,  the  holders  of Series C
Preferred Stock would be entitled to receive approximately  $92,000,000 prior to
the payment of any amounts to the holders of other equity securities. The Series
C is  convertible  at the option of the holder into common  shares at an initial
conversion  ratio of one hundred shares of Common Stock for each share of Series
C. The conversion ratio upon voluntary conversion is subject to adjustment under
certain  circumstances.  Unless previously  voluntarily  converted prior to such
time,  the Series C will be  automatically  converted  into  Common  Stock at an
initial conversion ratio of one hundred shares of Common Stock for each share of
Series C upon the earlier of (i) the closing of an underwritten  public offering
of our Common Stock  pursuant to a registration  statement  under the Securities
Act of 1933, as amended, with aggregate net proceeds of at least $25 million, or
(ii) the date  specified  by written  consent or  agreement  of the holders of a
majority  of the then  outstanding  shares of Series C. The  description  of the
foregoing rights, preferences and privileges of the Series C is qualified in its
entirety by the Certificate of Designations,  Preferences and Rights of Series C
filed with the Secretary of State of the State of Delaware on August 31, 2004.


                                       18
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


On August 31, 2004,  the Company  issued  35,840  shares of Series C Convertible
Preferred  Stock  (Series C) in exchange for cash  proceeds of  $2,150,400.  The
shares were issued to certain  accredited  investors as well as MedCap  Partners
L.P. and the Company's Chairman and Chief Executive Officer. The purchasers were
granted  Series  C  Warrants  to  purchase  an  aggregate  of  89,600  Series  C
Convertible Preferred Shares. The Series C Warrants are exercisable for a period
of five  years at a price per  Series C share of $60.  The  Company  valued  the
warrants  at $1.3  million  and has  accordingly  reduced  the face value of the
Series C by this  amount.  The  Company  recorded a deemed  dividend  due to the
beneficial conversion price of $876,000 which represents the lesser of the value
assigned to the Series C and the beneficial conversion feature of $11.7 million.

On September 30, 2004, the Board of Directors  declared a dividend to the Series
C holders.  The dividend  consisted of quarterly  dividends that were payable on
September  30, 2004.  As a result,  97,325 shares of Common Stock were issued on
September 30, 2004 related to the dividend and distribution.  On March 22, 2005,
the Board of Directors declared a dividend to the Series C holders. The dividend
consisted  of quarterly  dividends  that were payable on December 31, 2004 which
had an  estimated  fair value of $341,257,  and  quarterly  dividends  that were
payable on March 31, 2005 which had an  estimated  fair value of  $249,408.  The
dividends  were paid  through  the  issuance of 262,521  shares of common  stock
during March 2005.

Makewell Agreement

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

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


                                       19
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Pursuant to the Makewell Agreement,  the Company issued to MedCap Partners L.P.,
(i) 3,090 shares of Series C Convertible Preferred Stock (Series C) on September
23, 2004, (ii) 1,250 shares of Series C on October 12, 2004,  (iii) 5,000 shares
of Series C on October 18,  2004,  (iv) 1,417  shares of Series C on October 25,
2004 and (v) 5,910 shares of Series C on November 3, 2004. Such shares of Series
C were  issued  at a cash  price  per  share of $60.  Each  share of Series C is
convertible  into one hundred shares of the Company's Common Stock. The proceeds
were used to reduce the amount outstanding on the revolving line of credit Loan.

In connection  with the Company's  issuances of the shares of Series C described
above,  MedCap Partners L.P., was granted (i) a warrant to purchase 7,725 shares
of Series C on September  25, 2004 (ii) a warrant to purchase  65,685  shares of
Series C on October  18,  2004,  (iii) a warrant to  purchase  17,712  shares of
Series C on October  25, 2004 and (iv) a warrant to  purchase  73,875  shares of
Series C on November 3, 2004. Such warrants are exercisable for a period of five
years at a price per share of Series C of $60.  The Company  valued the warrants
at $805,000 and has accordingly reduced the face value of the Series C Preferred
Shares  by this  amount.  The  Company  recorded  a deemed  dividend  due to the
beneficial conversion price of $195,000 which represents the lesser of the value
assigned to the Series C and the beneficial conversion of $6.3 million.

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

Warrants to Purchase Convertible Preferred Stock

As of March 31,  2005,  warrants to  purchase  Convertible  Preferred  Stock are
outstanding as follows:

      Series of Convertible                                   Exercise Price
         Preferred Stock               Warrants                  Per share

               B-1                        6,000                     $60
                C                       146,264                     $60

On March 29, 2005,  108,333 of the Series C warrants  were  exercised  providing
proceeds,  net of issue  costs,  of  $6,435,687.  On May 2, 2005,  22,187 of the
Series C warrants were exercised  providing  proceeds of  $1,331,220.  Dividends
accrue on warrants but are payable only upon  exercise.  Accordingly,  dividends
declared for the quarters  September  30, 2004,  December 31, 2004 and March 31,
2005  became  payable  on the  warrants  exercised  at March 31,  2005,  with an
estimated  fair value of  $1,411,464.  These  dividends  were paid in March 2005
through the issuance of 705,732  shares of common stock.  Dividends  relative to
the 22,187 warrants exercised in May 2005 will be recorded in the second quarter
of 2005.


                                       20
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Note 10.  Common Stock

The Company is authorized to issue  150,000,000  shares of common stock at a par
value of $0.0001.  The  authorized  shares were  increased  in January 2005 from
50,000,000 shares.  Currently there are 27,614,285 shares issued with 26,537,879
shares outstanding. The difference of 1,076,406 shares is held by the Company in
treasury.

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

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

Note 11.  Commitments and Contingencies

Commitment to Issue Additional Common Stock Warrants

In accordance  with the terms of the Term Loan (see Note 5), the Company  agreed
to issue  warrants  to  purchase  Common  Shares to the  lender up to 12% of the
Company's  overall  capitalization  at a price of $3.15 per share. On August 31,
2004, the Company issued a warrant for 905,758 Common Shares in connection  with
the first borrowing on the credit facility.  If borrowing were to continue up to
the  maximum of  $10,000,000,  the  Company  would  have to issue an  additional
2,451,605 warrants to purchase Common Shares.


                                       21
<PAGE>

                                 CRDENTIA CORP.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2005


Note 12.  Supplemental Disclosure to the Cash Flow Statement

<TABLE>
<CAPTION>
                                                           March 31,      March 31,
                                                             2005           2004
                                                         -----------    -----------
<S>                                                      <C>            <C>
Supplemental cash flow disclosures:
  Cash paid for interest                                 $   157,913    $   159,830
  Cash paid for income taxes                                      --             --

Non-cash investing and financing activities:
  Conversion of preferred stock into common stock         30,873,400             --
  Issuance of the following in connection with
      a merger:
        Common stock issued                                2,601,600             --
        Revolving credit line assumed                        941,390             --
        Notes payable issued                               3,215,490             --
  Common stock issued as payment of  preferred stock
      dividends                                            3,189,441             --
  Common stock issued associated with working capital
      loans from majority stockholder                        162,500             --
</TABLE>

Note 13.  Subsequent Events

On May 2, 2005,  MedCap  Partners L. P.  exercised  22,187  warrants to purchase
Convertible Series C Preferred Stock at $60 per share. This provided the Company
with $1,331,220  which was used to finance the  acquisition  discussed below and
working capital needs.

On May 4, 2005, the Company  acquired Prime Staff, LP and Mint Medical  Staffing
Odessa, providers of per diem nursing services throughout Texas, in exchange for
$150,000 in cash and 165,042  shares of common  stock  valued at  $350,000.  The
primary  purpose of the  acquisition  was to enable the  Company to expand  it's
presence  in  the  nurse  staffing  industry.  The  acquired  entities  reported
unaudited  revenues of approximately  $8,386,000 for the year ended December 31,
2004.

As  discussed  in  Notes 4 and 5, in May  2005,  the  covenants  related  to the
Company's  Revolving Credit Facility and Term Loan were  restructured and, based
on the Company's  projections,  management  believes that the Company can comply
with covenants in future periods.


                                       22
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      This report contains forward-looking  statements.  These statements relate
to future events or our future  financial  performance.  In some 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  comparable
terminology. These statements are only predictions. Actual events or results may
differ materially.

      Although we believe that the expectations reflected in the forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity,  performance  or  achievements.  Moreover,  neither  we, nor any other
person,   assume  responsibility  for  the  accuracy  and  completeness  of  the
forward-looking  statements.  We are under no  obligation  to update  any of the
forward-looking  statements after the filing of this Quarterly Report to conform
such statements to actual results or to changes in our expectations.

      The  following  discussion  of our  financial  condition  and  results  of
operations  should  be read  in  conjunction  with  our  consolidated  financial
statements  and the  related  notes and other  financial  information  appearing
elsewhere in this Quarterly  Report.  Readers are also urged to carefully review
and  consider  the  various  disclosures  made by us  which  attempt  to  advise
interested  parties of the factors which affect our business,  including without
limitation the disclosures made under the caption  "Management's  Discussion and
Analysis  or Plan of  Operation,"  under the  caption  "Risk  Factors,"  and the
audited  consolidated  financial  statements  and related notes  included in our
Annual  Report on Form 10-KSB for the year ended  December 31, 2004,  previously
filed with the Securities and Exchange Commission.

OVERVIEW

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

      During 2003, we pursued our operational plan of acquiring companies in the
healthcare staffing field and completed acquisitions of four companies. In 2004,
we  purchased  two  additional  companies,  and in the  first  quarter  of  2005
purchased  two  additional  companies.  We have  contracted  with more than 1500
healthcare facilities across 49 U.S. states the District of Columbia.

      The companies we acquired in 2003 -- Baker  Anderson  Christie,  Inc., New
Age Nurses,  Inc.,  Nurses  Network,  Inc.,  and PSR Nurses,  Ltd.  (through our
acquisition of PSR Nurses Holdings Corp. and PSR Nurse  Recruiting,  Inc., which
hold the limited partner and general partner  interests in PSR Nurses,  Ltd.) --
provide the foundation for our continued growth.  During 2003 we began operating
the acquired companies, combining the various back offices and support staff and
began streamlining the operations.  We continued our acquisition program in 2004
and acquired Care Pros Staffing, Inc. and Arizona Home Health Care/Private Duty,
Inc. On March 29,  2005,  we acquired  TravMed  USA,  Inc.  and Health  Industry
Professionals, LLC. On May 4, 2005, the Company acquired PrimeStaff, LP and Mint
Medical Staffing Odessa. Following the May 4, 2005 acquisition, in the near term
we do not plan to  continue  to  pursue  additional  acquisitions  until we have
completely integrated the three 2005 acquisitions.


                                       23
<PAGE>

      We have achieved a number of significant  successes from inception through
the first quarter of 2005:

      o     We have  raised  over $14 million  through  issuance of  convertible
            preferred stock and over $3 million in debt  financing,  net of debt
            issuance costs.
      o     We have acquired four  companies in 2003, two companies in 2004, and
            two companies in the first quarter of 2005.
      o     We have  reorganized  our  travel  business  in  2004  to  eliminate
            redundancies  and to  eliminate  over  $1.5  million  in costs on an
            annual basis.
      o     We  have  converted  debt  to   convertible   preferred   stock  and
            convertible preferred stock to common stock with an ultimate benefit
            of   eliminating   certain   debt  service   costs  and   increasing
            stockholders' equity.

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


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

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

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

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


                                       24
<PAGE>

<TABLE>
<CAPTION>
<S>                                        <C>
We need to overcome corporate overhead     We have completed  three  acquisitions
costs that are disproportionately high     in  2005  to   enable   us  to  spread
relative  to our revenue  base.  Costs     corporate overhead costs over a larger
related   to   SEC    reporting    and     volume  of  business,  and  are in the
compliance  with   Sarbanes-Oxley  are     process of  integrating  these  recent
high,  and we expect costs to increase     acquisitions into our Company. We also
as we comply with new rules applicable     have undertaken an exhaustive  expense
in the future.                             cutting   program   to   ensure   that
                                           corporate costs are minimized.

We need to  continue to raise money to     We   are    forecasting    that    the
fund acquisitions.                         acquisitions  in the first  quarter of
                                           2005  will   permit   us  to   achieve
                                           positive  operating  cash  flow in the
                                           third  and  fourth  quarters  of 2005,
                                           which we anticipate will assist us in
                                           raising additional funding.

We  need  to   continue   to  identify     We  have  a   considerable   depth  of
quality acquisition targets.               management and considerable experience
                                           in locating and  qualifying  excellent
                                           acquisition  candidates.  We intend to
                                           continue our efforts in this area.

We  have  not   complied   with   loan     We have revised loan covenants to make
covenants  relative  to our  revolving     covenant compliance achievable.
line   of   credit   and   term   loan
facilities.

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

Our  Convertible  Series  C  Preferred     We have two  options to  address  this
Stock  has a  significant  liquidation     situation. This liquidation preference
preference  in excess  of $92  million     will  cease  to  exist  only if we can
(assuming  exercise  of all  Series  C     successfully   consummate   a   public
warrants).                                 offering  of at least $25  million  or
                                           obtain the  consent  of a majority  of
                                           our Series C Preferred stockholders to
                                           convert to common.
</TABLE>


LIQUIDITY AND CAPITAL RESOURCES

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

In June 2004, we obtained a $15 million  revolving line of credit  facility from
Bridge Healthcare Finance, LLC (reduced to $10 million in March 2005). In August
2004,  we  obtained  a  $10  million  term  loan  credit  facility  from  Bridge
Opportunity  Finance,  LLC. Bridge Opportunity  Finance,  LLC is an affiliate of
Bridge Healthcare Finance, LLC. We had $2,521,598 and $2,613,055  outstanding at
December 31, 2004 and March 31, 2005, respectively,  under our revolving line of
credit facility and $2,697,802 of principal  (after adding back the discount) of
term loan  outstanding  at December 31, 2004 and March 31, 2005.  Agreements for
both the revolving  line of credit  facility and the term loan facility  contain
financial  covenants for the  maintenance of minimum net worth,  minimum EBITDA,
maximum capital  expenditure limits and maximum operating lease obligations.  At
March 31,  2005,  we were out of  compliance  with  financial  covenants in both
agreements,  for which waivers were  received  from the lenders.  In May 2005 we
were successful in renegotiating covenants related to both the revolving line of
credit  facility  and the term  loan and  based  on the  Company's  projections,
management  believes  that the Company can comply with  covenants in the future.
Accordingly,  the term loan has been  classified  as a long-term  obligation  at
March 31, 2005.


                                       25
<PAGE>

      We generated a loss of $1,245,267 for the quarter  ended March 31, 2005
and used cash in  operations  of  $484,626  during  the first  quarter  of 2005.
Additionally, although we ended the first quarter of 2005 with a working capital
deficit of $1.9  million,  we have been able to secure  additional  funding.  In
March 2005 our  majority  stockholder  exercised  warrants to  purchase  108,333
shares of Series C Convertible  Preferred Stock providing $6.5 million to us. In
May 2005 the  Company's  majority  stockholder  exercised  warrants  to purchase
22,187 shares of Series C Convertible  Preferred Stock providing $1.3 million to
us. The infusion of $7.8 million enabled us to acquire additional  companies and
to retire  certain  liabilities  and,  based on our  projections,  we anticipate
generating  cash flow from operations in 2005 sufficient to service our debt and
to pursue a plan to reach cash flow break even in 2005.  If we are  unsuccessful
in executing  this plan, we would be compelled to raise  additional  funds or to
pursue other strategic options.

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

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

CRITICAL ACCOUNTING POLICIES AND MANAGEMENT JUDGEMENT

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

      Accounts Receivable

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


                                       26
<PAGE>

      Accounting for Stock Options

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

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

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

      Purchase Accounting, Goodwill and Intangible Assets

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

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


                                       27
<PAGE>

RESULTS OF  OPERATIONS--Three  Months  Ended  March 31,  2005  Compared to Three
Months Ended March 31, 2004


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


                                                 Three Months Ended March 31,
                                                 ----------------------------
                                                      2005        2004
                                                    -------     -------
                                                       (in thousands)

Revenue from services                               $ 5,122     $ 6,217
Direct operating expenses                             4,049       4,948
                                                    -------     -------
    Gross profit                                      1,073       1,269

Operating expenses:
    Selling, general and administrative expenses      1,715       2,113
    Non-cash stock based compensation                    79          17

Total operating expenses                              1,794       2,130

Loss from operations                                   (721)       (861)

Interest expense, net                                  (524)       (402)

Loss before income taxes                             (1,245)     (1,263)

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

Net loss                                             (1,245)     (1,263)

Deemed dividends                                         --      (1,000)

Non-cash preferred stock dividends                   (2,162)         --

Net loss attributable to common stockholders        $(3,407)    $(2,263)
                                                    =======     =======

      Revenues in the first quarter of 2005 were $5,122,000 compared to revenues
of  $6,217,000  in the  first  quarter  of 2004.  In the first  quarter  of 2005
approximately  27.0%  (75.4% in the first  quarter of 2004) of our  revenue  was
derived from the placement of travel nurses on assignment, typically 13 weeks in
length.  Such  assignments   generally  involve  temporary   relocation  to  the
geographic  area of the  assignment.  In the  first  quarter  of  2005,  we also
provided  per diem nurses to satisfy  the very  short-term  needs of  healthcare
facilities. Per diem services provided 62.9% of our revenue in the first quarter
of 2005 (14.6% in the first quarter of 2004).  The balance of our revenue in the
first  quarter  of 2005 and 2004 came from  providing  clinical  management  and
staffing to healthcare  facilities and private duty  homecare.  During the first
quarter  of 2005 and 2004,  most of our  customers  were  acute  care  hospitals
located throughout the continental United States. For the first quarter of 2004,
sales to one  customer  group,  Rhode  Island  Hospital  and  Newport  Hospital,
represented approximately 22.9% of our revenue. In the third quarter of 2004, we
experienced  a  decline  in  revenue  at  these   facilities  and  travel  nurse
assignments have not been renewed to date. Revenues in the first quarter of 2005
are down largely because of the loss of this customer group.  Additionally,  the
entire  travel  business  has been weak as evidenced by the industry in general.
These  decreases in revenue have been partially  offset by increases in revenues
derived from our August 2004 acquisitions.


                                       28
<PAGE>

      Our overall  gross profit in the first  quarter of 2005 was  $1,073,000 or
21.0% of  revenues  compared  to  $1,269,000  or 20.4% of  revenues in the first
quarter of 2004.  Our gross  profit is the  difference  between  the  revenue we
realize  when  we  bill  our  customers  for  the  services  of  our  healthcare
professionals  and our direct  operating  costs,  which  include the cost of the
healthcare  professionals  and the  related  housing and travel  costs,  certain
employment related taxes and workers compensation  insurance coverage. The gross
pofit  percentage  in the first quarter of 2005 has improved  reflecting  higher
gross profits reported by our August 2004 acquisitions relative to gross profits
reported by our 2003 acquisitions.

      Our selling,  general and administrative costs were $1,715,000 or 33.5% of
revenues  in the  first  quarter  of 2005  compared  to  $2,113,000  or 34.0% of
revenues  in the first  quarter of 2004.  Selling,  general  and  administrative
expenses  are  comprised  primarily  of  personnel  costs,  legal and audit fees
related to being a public  company and various  other office and  administrative
expenses.  Selling,  general and administrative costs as a percentage of revenue
are down somewhat in the first  quarter of 2005  following  the  elimination  of
redundant costs in our travel business in October 2004.

      Interest  costs  increased  from  $402,000 in the first quarter of 2004 to
$524,000  in the first  quarter of 2005  reflecting  a higher  level of non-cash
charges for  amortization of debt issuance costs,  amortization of debt discount
costs and fees related to  short-term  working  capital  loans from the majority
stockholder.

      Deemed  dividends were $1,000,000 in the first quarter of 2004. The deemed
dividend relates to a beneficial  conversion feature of our Series A convertible
preferred stock.

      The  non-cash  preferred  stock  dividends  in the first  quarter  of 2005
relates to common  stock  dividends  declared by the Board of  Directors  on our
Series  B,  Series  B-1 and  Series  C  convertible  preferred  stock as well as
cumulative common stock dividends  declared on September 30, 2004,  December 31,
2004 and March 31, 2005 related to the warrants  exercised on March 29, 2005 for
108,333  shares  of Series C  convertible  preferred  stock.  The  common  stock
dividends on the warrants are payable once the warrants are exercised.

Risk Factors

      We were formed in November  1997,  and  commenced  operations on August 7,
2003 following our acquisition of Baker Anderson  Christie,  Inc. Any investment
in our  Common  Stock  involves  a high  degree  of risk.  You  should  consider
carefully the following  information about these risks,  together with the other
information contained in this report, before you decide to buy our Common Stock.
The  risks  and  uncertainties  described  below  are not the only ones we face.
Additional  risks  and  uncertainties  not  presently  known  to us or  that  we
currently  deem  immaterial  may  also  impair  our  operations.  If  any of the
following risks actually occur, our business would likely suffer and our results
could differ materially from those expressed in any  forward-looking  statements
contained in this report  including  those  contained  in the section  captioned
"Management's  Discussion  and Analysis or Plan of  Operation"  under Item 2. In
such case, the trading price of our Common Stock could decline, and you may lose
all or part of the money you paid to buy our Common Stock.

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

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


                                       29
<PAGE>

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

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

      We  continually  evaluate  opportunities  to acquire  healthcare  staffing
companies  that   complement  or  enhance  our  business  and  frequently   have
preliminary  acquisition  discussions with some of these companies. In addition,
beginning in August 2003 and through March 2005 we acquired eight businesses.

      These acquisitions involve numerous risks, including:

      o     potential loss of revenues following the acquisition;

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

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

      o     diversion of management attention from existing operations; and

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

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

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

      As of May 2, 2005, we had (i) 183,027  shares of Series C Preferred  Stock
outstanding  and (ii) warrants (the  "Warrants")  to purchase  124,077 shares of
Series C Preferred Stock outstanding. We anticipate selling additional shares of
Series C Preferred Stock and issuing  additional  warrants to purchase shares of
Series C Preferred Stock.  Each share of Series C Preferred stock is convertible
into  one  hundred  (100)  shares  of our  common  Stock.  In the  event  of any
liquidation or winding up of our company,  the holders of the Series C Preferred
Stock will be  entitled to receive,  in  preference  to the holders of our other
equity securities, an amount equal to five times the original purchase price per
share,  or  $300  per  share,  plus  any  dividends  declared  on the  Series  C
Convertible  Preferred  Stock  but  not  paid.  Assuming  the  exercise  of  all
outstanding  Warrants,  upon a  liquidation  or  winding up of our  company  the
holders  of  our  Series  C  Preferred   Stock  would  be  entitled  to  receive
approximately  $92,000,000 prior to the payment of any amounts to the holders of
our other equity  securities.  As a result,  upon a liquidation or winding up of
the Company, there may not be sufficient proceeds,  following the payment of the
Series C liquidation preference described above, to make any distribution to the
holders of our other equity securities.


                                       30
<PAGE>

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

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

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

      o     Variations in our financial results;

      o     Announcements of innovations, new solutions,  strategic alliances or
            significant agreements by us or by our competitors;

      o     Recruitment or departure of key personnel;

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

      o     Market  conditions in our industry,  the industries of our customers
            and the economy as a whole; and

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

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

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

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


                                       31
<PAGE>

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

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

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

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

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

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

      MedCap Partners L.P. controls approximately 58% of our outstanding capital
stock, on a fully diluted  as-converted  basis.  As a result,  MedCap is able to
exercise  control  over  matters  requiring  stockholder  approval,  such as the
election of directors and the approval of  significant  corporate  transactions.
These  types  of  transactions  include  transactions  involving  an  actual  or
potential  change of  control  of our  company  or other  transactions  that the
non-controlling stockholders may deem to be in their best interests and in which
such  stockholders  could receive a premium for their shares.  C. Fred Toney,  a
member or our Board of Directors,  is the managing member of MedCap Management &
Research LLC, the general partner of MedCap Partners L.P.


                                       32
<PAGE>

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

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

We have had a short operating history.

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

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

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

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

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

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

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


                                       33
<PAGE>

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

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

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

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

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

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

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


                                       34
<PAGE>

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

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

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

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

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

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

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


                                       35
<PAGE>

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

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

Significant legal actions could subject us to substantial uninsured liabilities.

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

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

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

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

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

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

      As of  March  31,  2005,  we had  $24.9  million  of  goodwill  and  other
unamortized  intangible assets on our balance sheet, which represents the excess
of the total purchase price of our  acquisitions  over the fair value of the net
assets  acquired.  At March  31,  2005,  goodwill  and other  intangible  assets
represented 80% of our total assets.


                                       36
<PAGE>

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

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

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

ITEM 3.  CONTROLS AND PROCEDURES

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

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

      There has been no change in our internal controls over financial reporting
during our most  recent  fiscal  quarter  that has  materially  affected,  or is
reasonably  likely to materially  affect,  our internal  controls over financial
reporting.


                                       37
<PAGE>

PART II.   OTHER INFORMATION

Item 1.    Legal Proceedings

           There is no material litigation currently pending against us.

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

           None.

Item 3.    Defaults Upon Senior Securities

           None

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

            At a special  meeting of  stockholders  held on January 5, 2005 (the
"Special  Meeting"),  the  Company's  stockholders  approved  a  Certificate  of
Amendment  to the Amended  and  Restated  Certificate  of  Incorporation  of the
Company that increased the number of authorized  shares of the Company's  common
stock from 50,000,000 to 150,000,000.  No other matters were submitted to a vote
of the Company's stockholders at the Special Meeting.

            The  following  table  sets  forth the  number of votes cast for and
against,  and the number of  abstentions  and broker  non-votes as to the matter
submitted to a vote of the Company's  stockholders at the Special Meeting (on an
as-converted to common stock basis):

 Votes For             Votes Against          Abstentions       Broker Non-Votes

14,580,409                   0                     0                    0


Item 5.    Other Information

            In consideration for MedCap Partners L.P. extending the maturity of
certain  indebtedness  owed by us, on March 29,  2005 we issued  MedCap  77,751
shares of common  stock.


                                       38
<PAGE>

Item 6.    Exhibits


            (a) Exhibits

     Exhibit No.      Description
     -----------      -----------
         2.1(1)       Agreement and Plan of Reorganization,  dated as of March
                      28,  2005,  by and among  Crdentia  Corp.,  CRDE  Corp.,
                      Travmed Acquisition  Corporation,  Travmed USA, Inc. and
                      the shareholders of Travmed USA, Inc. Certain  schedules
                      and exhibits  referenced  in the  Agreement  and Plan of
                      Reorganization have been omitted in accordance with Item
                      601(b)(2)  of  Regulation  S-B.  A copy  of the  omitted
                      schedule and/or exhibit will be furnished supplementally
                      to the Securities and Exchange Commission upon request.

         2.2(1)       Agreement and Plan of Reorganization,  dated as of March
                      28, 2005, by and among Crdentia  Corp.,  HIP Acquisition
                      Corporation,  HIP Holding,  Inc. and the shareholders of
                      HIP  Holding,   Inc.  Certain   schedules  and  exhibits
                      referenced in the  Agreement and Plan of  Reorganization
                      have been omitted in accordance  with Item  601(b)(2) of
                      Regulation  S-B. A copy of the omitted  schedule  and/or
                      exhibit   will  be  furnished   supplementally   to  the
                      Securities and Exchange Commission upon request.

         3.1(2)       Restated Certificate of Incorporation.

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

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

         3.4(4)       Certificate of Correction of Certificate of Amendment to
                      Restated Certificate of Incorporation.

         3.5(4)       Certificate of Correction of Certificate of Amendment to
                      Restated Certificate of Incorporation.

         3.6(2)       Restated Bylaws.

         3.7(5)       Certificate of  Designations,  Preferences and Rights of
                      Series A Preferred Stock of Crdentia Corp.

         3.8(6)       Certificate of Amendment of Certificate of Designations,
                      Preferences  and Rights of Series A  Preferred  Stock of
                      Crdentia Corp.

         3.9(7)       Certificate of  Designations,  Preferences and Rights of
                      Series B Preferred Stock of Crdentia Corp.


         3.10(8)      Certificate   of   Correction   of   Certificate   of
                      Designations,  Preferences  and  Rights  of  Series B
                      Preferred Stock of Crdentia Corp.

         3.77(9)      Certificate of  Designations,  Preferences and Rights of
                      Series B-1 Preferred Stock of Crdentia Corp.

         3.12(10)     Certificate   of   Correction   of   Certificate   of
                      Designations,  Preferences  and  Rights of Series B-1
                      Preferred Stock of Crdentia Corp.

         3.13(11)     Certificate of  Designations,  Preferences and Rights of
                      Series C Preferred Stock of Crdentia Corp.


                                       39
<PAGE>

         3.14(10)     Certificate   of   Correction   of   Certificate   of
                      Designations,  Preferences  and  Rights  of  Series C
                      Preferred Stock of Crdentia Corp.

         3.15(12)     Certificate   of   Amendment  to  Amended  and  Restated
                      Certificate of Incorporation of Crdentia Corp.

         3.16(13)     Certificate of Amendment of Certificate of Designations,
                      Preferences  and Rights of Series C  Preferred  Stock of
                      Crdentia Corp.

         4.16(1)      Letter  Agreement  dated  March  29,  2005 by and  among
                      Crdentia Corp. and MedCap Partners L.P.

         4.17(1)      Registration  Rights  Agreement  by and  among  Crdentia
                      Corp. and the shareholders of Travmed USA, Inc.

         4.18(1)      Form of Convertible Subordinated Promissory Note

         4.19(1)      Amended  and  Restated  Revolving  Note,  in the maximum
                      principal  amount of $10,000,000,  dated March 29, 2005,
                      executed by Crdentia  Corp.,  Baker  Anderson  Christie,
                      Inc., Nurses Network, Inc., New Age Staffing,  Inc., PSR
                      Nurses,  Ltd.,  PSR Nurse  Recruiting,  Inc., PSR Nurses
                      Holdings   Corp.,   CRDE  Corp.,   Arizona  Home  Health
                      Care/Private  Duty, Inc., Care Pros Staffing,  Inc., HIP
                      Holding,  Inc., Health Industry  Professionals,  L.L.C.,
                      and  Travmed  USA,  Inc.  in favor of Bridge  Healthcare
                      Finance, LLC.

         4.20(1)      Amended and Restated Term Note, in the maximum principal
                      amount of $10,000,000, dated March 29, 2005, executed by
                      Crdentia Corp.,  Baker Anderson  Christie,  Inc., Nurses
                      Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
                      PSR Nurse  Recruiting,  Inc., PSR Nurses Holdings Corp.,
                      CRDE Corp., Arizona Home Health Care/Private Duty, Inc.,
                      Care Pros  Staffing,  Inc.,  HIP Holding,  Inc.,  Health
                      Industry Professionals, L.L.C., and Travmed USA, Inc. in
                      favor of Bridge Opportunity Finance, LLC.

         10.28(1)     Amendment  No. 1,  Joinder  and  Consent to Amended  and
                      Restated Loan and Security  Agreement - Revolving Loans,
                      dated March 29, 2005 by and among Crdentia Corp.,  Baker
                      Anderson Christie,  Inc., Nurses Network,  Inc., New Age
                      Staffing,  Inc., PSR Nurses, Ltd., PSR Nurse Recruiting,
                      Inc., PSR Nurses  Holdings  Corp.,  CRDE Corp.,  Arizona
                      Home Health Care/Private Duty, Inc., Care Pros Staffing,
                      Inc., HIP Holding, Inc., Health Industry  Professionals,
                      L.L.C., Travmed USA, Inc. and Bridge Healthcare Finance,
                      LLC.

         10.29(1)     Amendment  No.  2,  Joinder  and  Consent  to  Loan  and
                      Security  Agreement - Term Loan, dated March 29, 2005 by
                      and among Crdentia Corp., Baker Anderson Christie, Inc.,
                      Nurses  Network,  Inc.,  New  Age  Staffing,  Inc.,  PSR
                      Nurses,  Ltd.,  PSR Nurse  Recruiting,  Inc., PSR Nurses
                      Holdings   Corp.,   CRDE  Corp.,   Arizona  Home  Health
                      Care/Private  Duty, Inc., Care Pros Staffing,  Inc., HIP
                      Holding,  Inc., Health Industry  Professionals,  L.L.C.,
                      Travmed USA, Inc. and Bridge Opportunity Finance, LLC.

         10.30(14)    Secured  Promissory Note, dated March 1, 2005, issued by
                      Crdentia Corp.,  Baker Anderson  Christie,  Inc., Nurses
                      Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
                      PSR Nurse  Recruiting,  Inc., PSR Nurses Holdings Corp.,
                      CRDE Corp.,  Arizona Home Health Care/Private Duty, Inc.
                      and Care Pros Staffing to MedCap Partners L.P.

         10.31(14)    Amended and Restated Security Agreement,  dated March 1,
                      2005,  by  and  among  Crdentia  Corp.,  Baker  Anderson
                      Christie,  Inc., Nurses Network, Inc., New Age Staffing,
                      Inc., PSR Nurses, Ltd., PSR Nurse Recruiting,  Inc., PSR
                      Nurses Holdings Corp.,  CRDE Corp.,  Arizona Home Health
                      Care/Private  Duty,  Inc., Care Pros Staffing and MedCap
                      Partners L.P.


                                       40
<PAGE>

         10.32        Secured  Promissory Note, dated January 4, 2005,  issued
                      by Crdentia Corp., Baker Anderson Christie, Inc., Nurses
                      Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
                      PSR Nurse  Recruiting,  Inc., PSR Nurses Holdings Corp.,
                      CRDE Corp.,  Arizona Home Health Care/Private Duty, Inc.
                      and Care Pros Staffing to MedCap Partners L.P.

         10.33        Secured  Promissory Note, dated February 2, 2005, issued
                      by Crdentia Corp., Baker Anderson Christie, Inc., Nurses
                      Network, Inc., New Age Staffing, Inc., PSR Nurses, Ltd.,
                      PSR Nurse  Recruiting,  Inc., PSR Nurses Holdings Corp.,
                      CRDE Corp.,  Arizona Home Health Care/Private Duty, Inc.
                      and Care Pros Staffing to MedCap Partners L.P.

         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.

         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.


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

(1)   Filed with a Current Report on Form 8-K dated April 1, 2005.
(2)   Filed with a Current Report on Form 8-K dated August 22, 2002.
(3)   Filed with a Quarterly Report on Form 10-QSB dated August 12, 2003.
(4)   Filed with an amended Current Report on Form 8-K/A dated June 28, 2004.
(5)   Filed with a Current Report on Form 8-K dated December 30, 2003.
(6)   Filed with a Current Report on Form 8-K dated February 20, 2004.
(7)   Filed with a Current Report on Form 8-K dated June 22, 2004.
(8)   Filed with an amended Current Report on Form 8-K/A dated October 10, 2004.
(9)   Filed with a Current Report on Form 8-K dated August 24, 2004.
(10)  Filed with an amended Current Report on Form 8-K/A dated October 10, 2004.
(11)  Filed with a Current Report on Form 8-K dated September 7, 2004.
(12)  Filed with a Current Report on Form 8-K dated January 1, 2005.
(13)  Filed with a Current Report on Form 8-K dated March 21, 2005.
(14)  Filed with a Current Report on Form 8-K dated March 4, 2005.


                                       41
<PAGE>

SIGNATURES

In accordance  with the  requirements  of Section 13 of 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed in
its behalf by the undersigned, thereunto duly authorized.


Date:  May 16, 2005                By:   /S/  James D. Durham
                                        ----------------------------------------
                                              James D. Durham
                                              Chairman and Chief Executive
                                              Officer


Date:  May 16, 2005                By:   /S/  James J. TerBeest
                                        ----------------------------------------
                                              James J. TerBeest
                                              Chief Financial Officer


                                       42