##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-KSB
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-19031
 NATIONAL QUALITY CARE, INC.
  Delaware
    
    84-1215959(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification Number.)
 9454 Wilshire Boulevard, Penthouse 6, Beverly Hills, CA 90212
  (310) 860-9936
  (Former name, former address and former fiscal year, if changed since last report)
 Securities registered under Section 12(b) of the Exchange Act:   Securities registered under Section 12(g) of the Exchange Act:
 o þ
 þ o
 þ
 o þ
    Class
    
    
    Outstanding at March 17, 2008Common Stock, $0.01 per share
    
    
    59,191,252
 o þ




---



##### 



PageForward-Looking Statements
    
    
    2Part IItem 1.
    
    Description of Business
    
    
    2Item 2.
    
    Description of Property
    
    
    15Item 3.
    
    Legal Proceedings
    
    
    15Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    16Item 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and
Small Business Issuer Purchase of Equity Securities
    
    
    17Item 6.
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    18Item 7.
    
    Financial Statements
    
    
    23Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
    
    
    23Item 8A(T)
    
    Controls and Procedures
    
    
    23Item 8B
    
    Other Information
    
    
    24Item 9.
    
    Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act
    
    
    24Item 10.
    
    Executive Compensation
    
    
    26Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    29Item 12.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    30Item 13.
    
    Exhibits
    
    
    32Item 14.
    
    Principal Accountant Fees and Services
    
    
    33EXHIBI 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  ii




---



##### Table of Contents



FORWARD-LOOKING STATEMENTS
  
 PART I
 
 Item 1.
    
    Description of Business
 Nature of Business
   Current Developments
  2




---



##### Table of Contents



Pending resolution of the arbitration with Xcorporeal, Peizer and Gura, we suspended our
research and development efforts with respect to the wearable artificial kidney and have no active
business operations. However, we believe we will ultimately prevail on the merits of the
arbitration and are continuing to prosecute our patents and are taking other steps to perfect our
intellectual property rights.
 3




---



##### Table of Contents



Our Wearable Artificial Kidney
 End-Stage Renal Disease (ESRD) and Dialysis
     The Wearable Kidney Solution
   
    
    an efficient blood and dialysate circulation circuit that minimizes the amount of
power consumption, allowing the use of batteries to power the system;
 4




---



##### Table of Contents




    
    a lightweight dialysate regeneration system that minimizes the amount of dialysate
required to cleanse the blood efficiently; and
    
    an ergonomic design of components that should enable patients to wear the device
continuously without discomfort.
 Background of the Wearable Kidney
       5




---



##### Table of Contents



Market and Marketing
   
    
    a relationship with a dialysis center represents the most cost-effective and rapid
path to introducing the Wearable Kidney to prospective patients since the majority of
dialysis patients receive their treatment through a clinic. Only clinics with proper
licensing are eligible to receive Medicare reimbursement;
    
    many nephrologists (responsible for a patients primary care) also hold ownership
stakes in one or more dialysis clinics;
    
    leasing the Wearable Kidney minimizes the initial cost of adopting the device;
    
    patients using the Wearable Kidney will require ongoing physician care and product
support and dialysis clinics are well equipped to provide such services; and
    
    worldwide, there are 5,500 dialysis centers. Significant consolidation has occurred
in the last decade, as industry leaders attempt to achieve economies of scale and
leverage operation expertise.
  Research and Development; Manufacturing
   
    
    Improving the chemicals used in the dialysis process; the current chemicals have
been used for decades. We believe that new chemicals that last longer and can be used
in small quantities would further reduce the cost and weight of the Wearable Kidney.
    
    Developing software that allows physicians to customize the function of the Wearable
Kidney to meet the specific dialysis needs of each patient.
    
    Adapting the technology underlying the Wearable Kidney to other medical uses.
 6




---



##### Table of Contents



Competition
  Patents and Proprietary Technology
   7




---



##### Table of Contents



Government Regulation
    U.S. Regulation of Products i.e
 Clearance Procedure.
 Human Clinical Trials.
  8




---



##### Table of Contents



Ongoing Regulation
   International Product Regulation
   Employees
  Available Information
  RISK FACTORS
 Each of the following risks could adversely affect our business and the accuracy of the
forward-looking statements contained in this Annual Report. Persons who may own or intend to
purchase shares of common
 9




---



##### Table of Contents



stock in any market where the common stock may trade should consider the
following risk factors, together with other information contained elsewhere in our reports, proxy
statements and other available public information, as filed with the Commission, prior to
purchasing shares of our common stock.
 Risks related to our business
 We are a party to pending arbitration proceedings relating to the Wearable Kidney technology
and, if the arbitration is decided adversely to us, we may no longer have rights to develop that
technology, which could require us to cease operations altogether.
 Pending resolution of the arbitration proceedings, we are not actively pursuing research and
development of the Wearable Kidney.
 We have discontinued our sole revenue-generating operation and have shifted our business focus
to unproven product development.
 10




---



##### Table of Contents



Our historic operating results are not a meaningful indicator of future performance, and you
have limited information with which to evaluate our business and our prospects.
 We are not profitable and will have to raise additional capital to finance our operations .
 The audited financial statements included as part of this Annual Report contain a going
concern opinion from our independent auditor.
 We will need to hire key personnel to complete the development and eventual marketing of the
Wearable Kidney.
 We must clear a number of hurdles, including human clinical trials, before our Wearable Kidney
is approved
 Our success is dependent on intellectual property rights held by us, and our business will be
adversely affected if we are unable to protect these rights.
 11




---



##### Table of Contents



Defending against intellectual property infringement claims could be time-consuming and
expensive, and if we are not successful, could cause substantial expenses and disrupt our business .
 
    
    requiring us, or our collaborators, to obtain a license to continue to use,
manufacture or market the affected products, methods or processes, and such a license
may not be available on commercially reasonable terms, if at all;
    
    preventing us from making, using or selling the subject matter claimed in patents
held by others and subject us to potential liability for damages;
    
    consuming a substantial portion of our managerial and financial resources; or
    
    resulting in litigation or administrative proceedings that may be costly, whether we
win or lose.
 We may not be able to protect our intellectual property rights outside the U.S.
 We face competition from existing products, and new products may be developed that compete
with the Wearable Kidney or render it obsolete.
 Our business plan for the Wearable Kidney involves marketing through unrelated businesses,
which are also our natural competitors and who may not choose to market our Wearable Kidney when it
is available to be marketed.
 12




---



##### Table of Contents



We expect to be dependent on Medicare, Medi-Cal and other sources of reimbursement for our
revenues when the Wearable Kidney is developed and in use.
 Our business will always be strictly regulated by the federal and other governments, and we
cannot assure you that we will remain in compliance with all of that regulation.
     13




---



##### Table of Contents



Risks related to owning our common stock
 The issuance of new shares of common stock or preferred stock, as well as resales of our
outstanding common stock, could cause dilution and depress the market price of our common stock.
 There is a limited public market for our common stock, and our stock price has been and
continues to be volatile.
 
    
    announcements related to the pending arbitration;
    
    announcements related to our efforts to develop the Wearable Kidney;
    
    changes in government regulations;
    
    fluctuations in our quarterly and annual operating results; and
    
    general market conditions.
  We are not required to meet or maintain any listing standards for our common stock to be
quoted on the OTC Bulletin Board or in the Pink Sheets, which could affect our stockholders
ability to access trading information about our common stock.
  14




---



##### Table of Contents



Our common stock is subject to penny stock rules, which may make it more difficult for
investors to sell their common stock.
 Our directors, executive officers and principal stockholders have voting control
 Certain provisions of our charter documents may have potential anti-takeover effects.
 We do not intend to pay dividends on our common stock.
 
 Item 2.
    
    Description of Property
  
 Item 3.
    
    Legal Proceedings
  15




---



##### Table of Contents



Item 4.
    
    Submission of Matters to a Vote of Security Holders
  16




---



##### Table of Contents



PART II
 
 Item 5.
    
    Market for Registrants Common Equity and Related Stockholder Matters and Small Business
Issuer Purchase of Equity Securities
   High
    
    LowYear Ended December 31, 2007First Quarter
    
    $
    0.36
    
    
    $
    0.22Second Quarter
    
    $
    0.36
    
    
    $
    0.15Third Quarter
    
    $
    0.22
    
    
    $
    0.08Fourth Quarter
    
    $
    0.17
    
    
    $
    0.07Year Ended December 31, 2006First Quarter
    
    $
    0.82
    
    
    $
    0.43Second Quarter
    
    $
    0.72
    
    
    $
    0.45Third Quarter
    
    $
    0.70
    
    
    $
    0.25Fourth Quarter
    
    $
    0.61
    
    
    $
    0.28
  Equity Compensation Plan Information
  (C)Number of Securities(A)
    
    (B)
    
    Remaining Available forNumber of Securities
    
    Weighted-Average
    
    Future Issuance Underto be Issued Upon
    
    Exercise Price of
    
    Equity CompensationExercise of
    
    Outstanding
    
    Plans (excludingOutstanding Options,
    
    Options, Warrants
    
    securities reflected inWarrants and Rights
    
    and Rights
    
    column (A))Equity compensation
plans approved by
security holders
    
    
    990,000
    
    
    $
    0.24
    
    
    
    10,000
    (1)Equity compensation
plans not approved
by security holders
    
    
    3,980,000
    
    
    $
    0.59
    
    
    
    N/ATotals
    
    
    4,970,000
    
    
    $
    0.52
    
    
    
    10,000
    (1)
 
 (1)
    
    Represents shares available under the Companys 1998 Stock Option Plan. 17




---



##### Table of Contents



Dividend Policy
   Recent Sales of Unregistered Securities
  
 Item 6. Managements Discussion and Analysis or Plan of Operation
 Pending resolution of the arbitration with Xcorporeal, Peizer and Gura, we suspended our
research and development efforts with respect to the wearable artificial kidney and have no active
business operations. However, we believe we will ultimately prevail on the merits of the
arbitration and are continuing to prosecute our patents and are taking other steps to perfect our
intellectual property rights.
    
    
    achieve a favorable outcome in the arbitration with Xcorporeal.
    
    continue to pursue financing opportunities, including from our existing directors
and shareholders.
    
    continue the research and development of the Wearable Kidney.
  
    
    recapitalize our company by selling equity securities.
    
    introduce the first generation of the Wearable Kidney to the marketplace.
 Results of Operations for the Years Ended December 31, 2007 and December 31, 2006.
   18




---



##### Table of Contents



Liquidity and Capital Resources
  19




---



##### Table of Contents



20




---



##### Table of Contents



Significant Accounting Policies
  Derivative liabilities 
 Convertible debt with stock purchase warrants 
 Revenue recognition
  21




---



##### Table of Contents



Income taxes
 Contingencies 
 Share-based compensation 
 Recently Issued Accounting Pronouncements
   22




---



##### Table of Contents



Item 7.
    
    Financial Statements
  
 Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 8A
    
    (T) Controls and Procedures
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
   23




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting
  
 Item 8B
    
    Other Information
  PART III
 
 Item 9.
    
    Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
 Executive Officers and Directors
   Name
    
    Age
    
    PositionLeonardo Berezovsky, M.D.
    
    
    64
    
    
    Chairman of the Board of Directors, Chief Financial OfficerRobert M. Snukal
    
    
    65
    
    
    Chief Executive Officer, President and DirectorRonald P. Lang, M.D.
    
    
    58
    
    
    Executive Vice-President, Secretary and DirectorJose Spiwak, M.D.
    
    
    63
    
    
    Director
 Leonardo Berezovsky, M.D. ,
 24




---



##### Table of Contents



Robert M. Snukal
 Ronald P. Lang, M.D.
 Jose Spiwak M.D
 Audit Committee
  Code of Ethics
  Compliance with Section 16(a) of the Securities Exchange Act of 1934 .
  25




---



##### Table of Contents



Item 10. Executive Compensation
 Summary Compensation Table
  NonqualifiedNon-Equity
    
    Deferred
    
    AllStock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    OtherSalary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalName
    
    Year
    
    ($)
    
    ($)
    
    ($)
    
    ($)*
    
    ($)
    
    ($)
    
    ($)
    
    ($)Leonardo Berezovsky
(Chairman of the
Board, CFO)(2)
    
    
    2007
    
    
    
    0
    (12)
    
    
    0
    
    
    
    0
    
    
    
    40,139
    (9)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    40,1392006
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    437,450
    (1)(8)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    437,450Robert M. Snukal
(CEO, President,
Director)(2)
    
    
    2007
    
    
    
    0
    (12)
    
    
    0
    
    
    
    0
    
    
    
    86,528
    (10)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    86,5282006
    
    
    
    0
    
    
    
    175,000
    (3)
    
    
    221,563
    (4)
    
    
    873,700
    (5)(8)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,270,263
    (6)Ronald Lang, M.D.
(Executive V.P.,
Secretary,
Director)
    
    
    2007
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    8,028
    (11)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    8,0282006
    
    
    
    10,431
    
    
    
    0
    
    
    
    0
    
    
    
    114,950
    (7)(8)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    125,381
 
 *
    
    Represents dollar amount recognized for financial statement reporting purposes in accordance with
FAS 123(R). See the 2007 Consolidated Financial Statements for a discussion of valuation
assumptions.(1)
    
    Includes options to purchase 1,000,000 shares of common stock at an exercise price of $0.65 per
share. These options are currently underwater.(2)
    
    Mr. Snukal was appointed as Chief Executive Officer and President in December 2005. Mr.
Berezovsky was appointed as Chief Financial Officer in March 2007.(3)
    
    At his election, in August 2006, Mr. Snukal accepted 530,303 shares of the Companys common
stock in exchange for a cash payment of this bonus.(4)
    
    Represents 443,126 shares of common stock issued to Mr. Snukal in exchange for his successfully
negotiating settlements with creditors that resulted in extinguishment of over $370,000 of
long-term debt and over $21,000 of trade payables.(5)
    
    Includes ten-year options to purchase 2,000,000 and 50,000 shares of common stock at exercise
prices of $0.65 and $0.07 per share, respectively. Of these options, 2,000,000 are currently
underwater and the other 50,000 (which vested in 2006) were issued in connection with Mr. Snukals
joining our Board of Directors in 2003.(6)
    
    Represents all non-cash compensation. See footnotes 2-4 above.(7)
    
    Includes 10-year options to purchase 250,000 shares of common stock at an exercise price of
$0.65 per share. These options are currently underwater.(8)
    
    Includes $7,450 relating to options to purchase 20,000 shares of common stock at an exercise
price of $0.62, which were granted to each director in exchange for services in that capacity.
These options are currently underwater.(9)
    
    Includes options to purchase 250,000 shares of common stock at an exercise price of $0.25 per
share. These options are currently underwater.(10)
    
    Includes options to purchase 500,000 shares of common stock at an exercise price of $0.25 per
share. These options are currently underwater. 26




---



##### Table of Contents



(11)
    
    Includes options to purchase 50,000 shares of common stock at an exercise price of $0.25 per
share. These options are currently underwater.(12)
    
    Effective August 9, 2007, we established the National Quality Care, Inc. Deferred Compensation
Plan (the Plan) in recognition of services currently being performed without cash compensation by
Robert Snukal in his capacity as Chief Executive Officer, and Leonardo Berezovsky in his capacity
as Chief Financial Officer (the Participants), and to encourage their continued performance of
services. In accordance with the Plan, each
Participant shall become entitled to payment of a benefit upon the occurrence of a change in
control or a qualified financing. A change in control is defined in the Plan as any of the
following: (a)
    
    The direct or indirect transfer of the legal or equitable ownership of more than
50% of the Companys outstanding common stock or any other class of stock representing
more than 50% of the aggregate voting power of all classes of stock to an individual or
entity;
 (b)
    
    A merger or consolidation of the Company with any other company (other than a
subsidiary of the Company) pursuant to which the resulting aggregate ownership of the
Company (or of the parent or surviving company resulting from such merger or
consolidation) held by or attributable to those persons who were stockholders of the
Company immediately prior to such merger or consolidation is less than 50% of the common
stock or any other class of stock representing less than 50% of the aggregate voting
power of all classes of stock of the Company (or of the parent or surviving corporation
resulting from such merger or consolidation) outstanding as a result of such merger or
consolidation;
 (c)
    
    The sale, transfer or other disposition, in one or a series of related
transactions, of all or substantially all of the Companys assets; or
 (d)
    
    The grant of an exclusive long-term license of the intellectual property of the
Company.
   27




---



##### Table of Contents



Outstanding Equity Awards at 2007 Fiscal Year-End
 Option Awards
    
    
    Stock AwardsEquityEquity
    
    IncentiveIncentive
    
    PlanPlan
    
    Awards:Equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Awards:
    
    Market orIncentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    Number of
    
    Payout valuePlan Awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    value of
    
    Unearned
    
    of UnearnedNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    Shares or
    
    shares,
    
    Shares,Securities
    
    Securities
    
    Securities
    
    
    
    
    
    
    
    
    
    Shares or
    
    Units of
    
    Units or
    
    Units orUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    
    
    
    
    Units of
    
    Stock That
    
    Other Rights
    
    Other RightsUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    Option
    
    Stock That
    
    Have Not
    
    That Have
    
    That HaveOptions (#)
    
    Options (#)
    
    Unearned
    
    Exercise
    
    Expiration
    
    have Not
    
    Vested
    
    Not Vested
    
    Not VestedName
    
    Exercisable(1)
    
    Unexercisable
    
    options (#)
    
    Price ($)
    
    date
    
    Vested (#)
    
    ($)
    
    (#)
    
    ($)Leonardo Berezovsky
    
    
    200,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.52
    
    
    
    3/4/16
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    01,000,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.65
    
    
    
    4/19/16
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    1/2/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    4/3/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    7/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    10/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0250,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.25
    
    
    
    5/3/2017
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Robert Snukal
    
    
    200,000
    
    
    
    50,000
    (2)
    
    
    0
    
    
    
    0.07
    
    
    
    2/12/09
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0400,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.52
    
    
    
    3/4/16
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02,000,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.65
    
    
    
    4/19/16
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    1/2/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    4/3/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    7/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    10/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0500,000
    
    
    
    0
    
    
    
    0
    
    
    
    .0.25
    
    
    
    5/3/2017
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Ronald Lang
    
    
    250,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.65
    
    
    
    4/19/16
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    1/2/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    4/3/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    7/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    05,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.62
    
    
    
    10/1/2016
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    050,000
    
    
    
    0
    
    
    
    0
    
    
    
    0.25
    
    
    
    5/3/2017
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 
 (1)
    
    All of these options are currently underwater, except for 200,000 of those held by Mr.
Snukal.(2)
    
    These options became exercisable on February 12, 2008. 28




---



##### Table of Contents



2007 Director Compensation
 Fees Earned orpaid inCash
    
    
    
    
    
    Option
    
    All Other
    
    TotalName
    
    ($)
    
    Stock Awards
    
    Awards(2)
    
    Compensation
    
    ($)Leonard Berezovsky (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Robert Snukal (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Ronald Lang (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Jose Spiwak
    
    
    0
    
    
    
    0
    
    
    
    8,028
    (3)
    
    
    0
    
    
    
    8,028
 
 (1)
    
    See Summary Compensation Table for compensation paid to these executive officers
named therein.(2)
    
    At December 31, 2007, the number of outstanding option awards held by the directors
were as follows: L. Berezovsky  1,470,000, R. Snukal  3,170,000, R. Lang  320,000,
J. Spiwak  70,000.(3)
    
    Represents options to purchase 50,000 shares of common stock at an exercise price of
$0.25 per share. 
 Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  Number of
    
    Percentage ofShares
    
    SharesBeneficially
    
    BeneficiallyName and Address of Beneficial Owner
    
    Owned(1)
    
    OwnedRobert M. Snukal
    
    
    28,651,776
    (2)
    
    
    44.0
    %Victor Gura
    
    
    15,497,250
    (3)
    
    
    26.1
    %Leonard Berezovsky
    
    
    4,499,973
    (4)
    
    
    7.4
    %Ronald P. Lang
    
    
    3,658,449
    (5)
    
    
    6.1
    %Jose Spiwak
    
    
    1,376,250
    (6)
    
    
    2.3
    %Executive officers and directors as a group (4 persons)
    
    
    38,186,448
    (7)
    
    
    56.9
    %
 
 (1)
    
    Such persons have sole voting and investment power with respect to all shares of
Common Stock shown as being beneficially owned by them, subject to community property
laws, where applicable, and the information contained in the footnotes to this table.(2)
    
    Includes 5,982,500 shares subject to options and warrants held by Mr. Snukal
which are exercisable or become exercisable within 60 days after March 17, 2008.(3)
    
    Includes 800,000 shares held by Medipace Medical Group, Inc., an affiliate of Dr.
Gura. Also includes 250,000 shares subject to warrants held by Dr. Gura which are
currently exercisable.(4)
    
    Includes 1,319,556 shares held by the Leonardo Berezovsky Revocable Family
Trust of which 1,219,556 shares are common stock and 100,000 shares are subject to
warrants which are currently exercisable. Dr. Berezovsky is a trustee of the Family
Trust and he has voting and investment power with respect to the shares held by the
Family Trust. Also includes 1,470,000 shares subject to options held by Dr. Berezovsky
which are exercisable or become exercisable within 60 days after March 17, 2008. 29




---



##### Table of Contents



(5)
    
    Includes 800,000 shares held by Medipace Medical Group, Inc., an affiliate of Dr.
Lang. Also includes 320,000 shares subject to options held by Dr. Lang which are
exercisable or become exercisable within 60 days after March 17, 2008.(6)
    
    Includes 88,750 shares subject to options and warrants held by Dr. Spiwak which
are exercisable or become exercisable within 60 days after March 17, 2008.(7)
    
    Includes 7,961,250 shares subject to options and warrants held by current
officers and directors as a group which are exercisable or become exercisable within 60
days after March 17, 2008. 
 Item 12. Certain Relationships and Related Transactions and Director Independence
 2007 Convertible Note with Warrants.
 2006 Convertible Notes.
  2007 Equity Issuances.
  2006 Equity Issuances.
     30




---



##### Table of Contents



Due to Stockholder.
 Receivables from Stockholders.
 Note
Receivable 
 Receivable 
 Subscription Receivables 
 Sale of Dialysis Center.
  Laboratory services .
 Office space.
 Director Independence
  31




---



##### Table of Contents



Item 13.
    
    Exhibits
 Exhibit No.
    
    Description2.1
    
    Agreement for Exchange of Stock dated May 11, 1996, by and among the Company, Los
Angeles Community Dialysis, Inc., Victor Gura, M.D., Avraham H. Uncyk, M.D. and Ronald
P. Lang, M.D. (1)3.1
    
    Restated Certificate of Incorporation (2)3.2
    
    Bylaws (2)10.1
    
    Employment Agreement between the Company and Victor Gura, M.D., April 12, 1996 (3)10.2
    
    1996 Employee Compensation Stock Option Plan (4)10.3
    
    1996 Stock Option Plan (5)10.4
    
    1998 Stock Option Plan (6)10.5
    
    Technology Purchase Agreement, dated as of December 18, 2001, between the Company
and Victor Gura, M.D. (7)10.6
    
    Non-Qualified Stock Option Agreement, dated as of December 18, 2001, between the
Company and Victor Gura, M.D. (7)10.7
    
    Non-Qualified Stock Option Agreement, dated as of December 18, 2001, between the
Company and Ronald P. Lang, M.D. (7)10.8
    
    Employment Agreement, dated as of January 1, 2005, between the Company and Victor
Gura.10.9
    
    Purchase and Sale Agreement, dated May 31, 2006, between Los Angeles Community
Dialysis, Inc., a California corporation, Ronald Lang, M.D. and Victor Gura, M.D., on
the one hand, and Los Angeles Kidney Dialysis Center, LLC. on the other hand. (8)10.10
    
    License Agreement, dated as of September 1, 2006, between the Company and
Xcorporeal, Inc. (9)10.11
    
    Merger Agreement, dated as of September 1, 2006, among the Company, NQCI
Acquisition Corporation and Xcorporeal, Inc. (9)10.12
    
    Form of Subscription Agreement (10)10.13
    
    Form of Promissory Note (10)10.14
    
    Form of Warrant (10)10.15
    
    Deferred Compensation Plan (11)10.16
    
    Convertible Promissory Note dated December 26, 2007 issued to Robert Snukal (12)10.17
    
    Warrant dated December 26, 2007 issued to Robert Snukal (12)14.1
    
    Code of Ethics. (13)23.1
    
    Consent of PMB Helin Donovan, LLP.31.1
    
    Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and
15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and
15d-15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of CEO and CFO pursuant to 18 U.S.C. section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley act of 2002.
 
 1.
    
    Incorporated by reference herein to its Current Report on Form 8-K dated May 24,
1996.2.
    
    Incorporated by reference herein to its Quarterly Report on Form 10-QSB for the
quarterly period ended April 30, 1996.3.
    
    Incorporated by reference herein to its Annual Report on Form 10-KSB for the year
ended December 31, 1996.4.
    
    Incorporated by reference herein to its Registration Statement on Form S-8 dated
April 6, 1996.5.
    
    Incorporated by reference herein to its Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 1996.6.
    
    Incorporated by reference herein to its Registration Statement on Form S-8 dated
March 5, 1999.7.
    
    Incorporated by reference herein to its Annual Report on Form 10-KSB for the year
ended December 31, 2001.8.
    
    Incorporated by reference herein to its Current Report on Form 8-K dated June 5,
2006.9.
    
    Incorporated by reference herein to its Annual Report on Form 10-KSB for the year
ended December 31, 2006.10.
    
    Incorporated by reference herein to its Current Report on Form 8-K dated June 22,
2007.11.
    
    Incorporated by reference herein to its Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 2007. 32




---



##### Table of Contents



12.
    
    Incorporated by reference herein to its Current Report on Form 8-K dated December
26, 2007.13.
    
    Incorporated by reference herein to its Annual Report on Form 10-KSB for the year
ended December 31, 2003. 
 Item 14.
    
    Principal Accountant Fees and Services
  For the Year Ended December 31,2007
    
    2006Audit fees
    
    $
    32,500
    
    
    $
    60,112Audit-related fees
    
    $
    25,170
    
    
    $
    19,500Tax fees
    
    $
    6,500
    
    
    $
    8,000All other fees
    
    $
    0
    
    
    $
    0Total fees
    
    $
    64,170
    
    
    $
    87,612
    
    
    First, once a year when the base audit engagement is reviewed and approved,
management will identify all other services (including fee ranges) for which management
knows it will engage PMB for the next 12 months. Those services typically include
quarterly reviews, specified tax matters, certifications to the lenders as required by
financing documents, consultation on new accounting and disclosure standards and, in
future years, reporting on managements internal controls assessment.
    
    Second, if any new unlisted proposed engagement comes up during the year,
engagement will require specific approval of the Audit Committee.
 33




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Financial Statements  December 31, 2007
 CONTENTS
 
 Report of Independent Registered Public Accounting Firm
    
    F1Consolidated Balance Sheet
    
    F2Consolidated Statements of Operations
    
    F3Consolidated Statements of Stockholders Equity (Deficit)
    
    F4Consolidated Statements of Cash Flows
    
    F5  8Notes to Consolidated Financial Statements
    
    F9  37




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 F-1




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Balance Sheet  December 31, 2007
 ASSETSCURRENT ASSETSCash
    
    $
    709,579Prepaid expenses and other assets
    
    
    45,038Prepaid expenses and other assets  discontinued operations
    
    
    31,330TOTAL CURRENT ASSETS
    
    
    785,947OTHER ASSETSTechnology rights, net of accumulated amortization of $30,442
    
    
    69,558TOTAL ASSETS
    
    $
    855,505LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    1,210,865Accounts payable and accrued expenses discontinued operations
    
    
    74,230Due to stockholders  discontinued operations
    
    
    4,854Debt, net of discount of $176,273
    
    
    523,727Derivative liability
    
    
    43,750TOTAL CURRENT LIABILITIES
    
    
    1,857,426CONTINGENCIESSTOCKHOLDERS DEFICITPreferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding
    
    
    Common stock, $.01 par value; 125,000,000 shares authorized;
54,191,252 issued and outstanding
    
    
    541,913Additional paid-in capital
    
    
    11,343,306Receivables from stockholders, net
    
    
    (49,815
    )Accumulated deficit
    
    
    (12,837,325
    )TOTAL STOCKHOLDERS DEFICIT
    
    
    (1,001,921
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    855,505
  F-2




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements of Operations  For the Years Ended December 31, 2007 and 2006
 2007
    
    
    2006OPERATING EXPENSESGeneral and administrative, including share-based compensation of
$150,994 and $2,449,500 for the years ended December 31, 2007 and
2006, respectively, and net of $115,958 reimbursed under the license
agreement for the year ended December 31, 2006
    
    $
    3,111,631
    
    
    $
    3,981,962Research and development, including share-based compensation of
$112,000 for the year ended December 31, 2006, and net of $1,066,401
reimbursed under the license agreement for the year ended December 31,
2006
    
    
    59,860
    
    
    
    690,703TOTAL OPERATING EXPENSES
    
    
    3,171,491
    
    
    
    4,672,665LOSS FROM OPERATIONS
    
    
    (3,171,491
    )
    
    
    (4,672,665
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (220,874
    )
    
    
    (798,957
    )Interest income
    
    
    26,955
    
    
    
    45,840Gain from change in derivative liability
    
    
    
    
    
    
    785,999Other income
    
    
    148,751
    
    
    
    8,386TOTAL OTHER INCOME (EXPENSE)
    
    
    (45,168
    )
    
    
    41,268LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES ON
INCOME
    
    
    (3,216,659
    )
    
    
    (4,631,397
    )TAXES ON INCOME
    
    
    
    
    
    
    LOSS FROM CONTINUING OPERATIONS
    
    
    (3,216,659
    )
    
    
    (4,631,397
    )DISCONTINUED OPERATIONSIncome (loss) from operations of the discontinued component, including
gain on disposal of $3,013,469 in 2006
    
    
    (58,664
    )
    
    
    3,093,010Taxes on income
    
    
    
    
    
    
    Net gain (loss) on discontinued operations
    
    
    (58,664
    )
    
    
    3,093,010NET LOSS
    
    $
    (3,275,323
    )
    
    $
    (1,538,387
    )Earnings (Loss) per weighted average share of common stock outstanding  basic
and dilutedFrom continuing operations
    
    $
    (0.06
    )
    
    $
    (0.10
    )From discontinued operations
    
    
    
    
    
    
    0.07TOTAL BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.06
    )
    
    $
    (0.03
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  Basic and Diluted
    
    
    51,734,816
    
    
    
    43,500,435
  F-3




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements of Stockholders Equity (Deficit)  For the Years Ended December 31, 2007 and 2006
 Receivables
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    From
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    Stockholders
    
    
    Deficit
    
    
    Equity (Deficit)Balance at December 31, 2005
    
    
    37,909,072
    
    
    $
    379,091
    
    
    $
    4,268,275
    
    
    $
    (63,557
    )
    
    $
    (8,023,615
    )
    
    $
    (3,439,806
    )Sale of common stock
    
    
    4,613,220
    
    
    
    46,132
    
    
    
    1,375,118
    
    
    
    
    
    
    
    
    
    
    
    1,421,250Offering costs
    
    
    
    
    
    
    
    
    
    
    (65,725
    )
    
    
    
    
    
    
    
    
    
    
    (65,725
    )Stock issued for consulting services
    
    
    2,020,000
    
    
    
    20,200
    
    
    
    988,800
    
    
    
    
    
    
    
    
    
    
    
    1,009,000Stock issued for a director successfully
negotiating reductions of liabilities
    
    
    443,126
    
    
    
    4,431
    
    
    
    217,132
    
    
    
    
    
    
    
    
    
    
    
    221,563Stock issued for CFO bonus
    
    
    200,000
    
    
    
    2,000
    
    
    
    110,000
    
    
    
    
    
    
    
    
    
    
    
    112,000Stock issued for director purchase
of convertible debt
    
    
    364,584
    
    
    
    3,646
    
    
    
    87,500
    
    
    
    
    
    
    
    
    
    
    
    91,146Reclassification of derivative liability
    
    
    
    
    
    
    
    
    
    
    (43,750
    )
    
    
    
    
    
    
    
    
    
    
    (43,750
    )Payments from stockholders, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,362
    
    
    
    
    
    
    
    21,362Receivables from stockholder
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,200
    )
    
    
    
    
    
    
    (4,200
    )Stock issued for exercise of options
    
    
    1,869,220
    
    
    
    18,692
    
    
    
    144,680
    
    
    
    
    
    
    
    
    
    
    
    163,372Options issued with convertible debt
    
    
    
    
    
    
    
    
    
    
    204,000
    
    
    
    
    
    
    
    
    
    
    
    204,000Options issued for director services
    
    
    
    
    
    
    
    
    
    
    1,441,000
    
    
    
    
    
    
    
    
    
    
    
    1,441,000Stock issued for exercise of warrants
    
    
    1,500,000
    
    
    
    15,000
    
    
    
    285,000
    
    
    
    
    
    
    
    
    
    
    
    300,000Warrants issued for consulting services
    
    
    
    
    
    
    
    
    
    
    57,500
    
    
    
    
    
    
    
    
    
    
    
    57,500Convertible debt beneficial conversion
Feature
    
    
    
    
    
    
    
    
    
    
    581,250
    
    
    
    
    
    
    
    
    
    
    
    581,250Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,538,387
    )
    
    
    (1,538,387
    )Balance at December 31, 2006
    
    
    48,919,222
    
    
    $
    489,192
    
    
    $
    9,650,780
    
    
    $
    (46,395
    )
    
    $
    (9,562,002
    )
    
    $
    531,575Sale of common stock
    
    
    5,756,250
    
    
    
    57,563
    
    
    
    863,437
    
    
    
    
    
    
    
    
    
    
    
    921,000Reclassification of derivative liability
    
    
    
    
    
    
    
    
    
    
    581,250
    
    
    
    
    
    
    
    
    
    
    
    581,250Receivables from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (626,321
    )
    
    
    
    
    
    
    (626,321
    )Payments from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    622,901
    
    
    
    
    
    
    
    622,901Options issued for director services
    
    
    
    
    
    
    
    
    
    
    142,724
    
    
    
    
    
    
    
    
    
    
    
    142,724Options issued for consulting services
    
    
    
    
    
    
    
    
    
    
    8,270
    
    
    
    
    
    
    
    
    
    
    
    8,270Return of share settlement
    
    
    (484,220
    )
    
    
    (4,842
    )
    
    
    (82,318
    )
    
    
    
    
    
    
    
    
    
    
    (87,160
    )Relative fair value of warrants issued
with debt
    
    
    
    
    
    
    
    
    
    
    179,163
    
    
    
    
    
    
    
    
    
    
    
    179,163Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,275,323
    )
    
    
    (3,275,323
    )Balance at December 31, 2007
    
    
    54,191,252
    
    
    $
    541,913
    
    
    $
    11,343,306
    
    
    $
    (49,815
    )
    
    $
    (12,837,325
    )
    
    $
    (1,001,921
    )
  F-4




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements of Cash Flows  For the years ended December 31, 2007 and 2006
 2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Continuing operationsLoss from continuing operations
    
    $
    (3,216,659
    )
    
    $
    (4,631,397
    )Adjustments to reconcile loss from continuing operations to net cash used in continuing operating activities:Amortization of guarantee fee
    
    
    
    
    
    
    66,535Amortization of technology rights
    
    
    4,860
    
    
    
    5,737Amortization of loan discount
    
    
    184,431
    
    
    
    399,709Interest from options grant
    
    
    
    
    
    
    204,000Stock-based compensation  consultant
    
    
    8,270
    
    
    
    1,007,000Stock-based compensation  directors and employees
    
    
    142,724
    
    
    
    1,548,250Amortization of deferred director compensation from options grant
    
    
    
    
    
    
    6,250Amortization of prepaid interest
    
    
    13,050
    
    
    
    78,096Gain from change in derivative liability
    
    
    
    
    
    
    (785,999
    )Extinguished liabilities net of costs
    
    
    
    
    
    
    (9,877
    )Legal settlement satisfied by return of common stock
    
    
    (87,160
    )
    
    
    Changes in operating assets and liabilities:Prepaid expenses and other assets
    
    
    378
    
    
    
    (45,416
    )Accounts payable and accrued expenses
    
    
    823,231
    
    
    
    (105,975
    )Net cash used in continuing operations
    
    
    (2,126,875
    )
    
    
    (2,263,087
    )Discontinued operationsNet (loss) gain on discontinued operations
    
    
    (58,664
    )
    
    
    3,093,010Adjustments to reconcile net (loss) gain from discontinued operations to net cash provided by (used in)
discontinued operating activities:Depreciation and amortization
    
    
    
    
    
    
    34,071Provision for doubtful accounts
    
    
    
    
    
    
    93,000Gain on disposal of assets
    
    
    
    
    
    
    (3,013,469
    )Extinguished liabilities net of costs
    
    
    
    
    
    
    (162,913
    )Changes in discontinued operations operating assets and liabilities:Accounts receivable
    
    
    14,715
    
    
    
    620,607Supplies inventory
    
    
    
    
    
    
    2,842Prepaid expenses and other assets
    
    
    107,189
    
    
    
    (110,578
    )Accounts payable and accrued expenses
    
    
    (26,528
    )
    
    
    (1,298,723
    )Net cash provided by (used in) discontinued operations
    
    
    36,712
    
    
    
    (742,153
    )Net cash used in operating activities
    
    
    (2,090,163
    )
    
    
    (3,005,240
    )
   F-5




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements Of Cash Flows (Continued)  For the years ended December 31, 2007 and 2006
 2007
    
    
    2006CASH FLOWS FROM INVESTING ACTIVITIES:Payment on note receivable
    
    
    
    
    
    
    2,000,000Receivables from stockholders  $832 for discontinued operations
    
    
    (12,321
    )
    
    
    Payments on notes receivable from stockholders
    
    
    622,901
    
    
    
    21,361Cash received from the disposal of assets  discontinued operations
    
    
    
    
    
    
    1,286,767Net cash provided by investing activities
    
    
    610,580
    
    
    
    3,308,128CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of common stock
    
    
    307,000
    
    
    
    46,750Payment of offering costs
    
    
    
    
    
    
    (8,225
    )Exercise of stock options
    
    
    
    
    
    
    159,172Exercise of stock warrants
    
    
    
    
    
    
    300,000Advances from stockholders  discontinued operations
    
    
    
    
    
    
    100,000Repayment of advances from stockholders  discontinued operations
    
    
    (1,112
    )
    
    
    (100,000
    )Proceeds from convertible notes payable  related parties  $1,000,000 for
discontinued operations for the year ended December 31, 2006
    
    
    700,000
    
    
    
    1,650,000Proceeds from notes payable  related parties
    
    
    
    
    
    
    1,200,000Repayment of long-term borrowings
    
    
    (547,633
    )
    
    
    (102,367
    )Repayment of long-term borrowings  discontinued operations
    
    
    
    
    
    
    (1,852,316
    )Net cash provided by financing activities
    
    
    458,255
    
    
    
    1,393,014NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    (1,021,328
    )
    
    
    1,695,902CASH AND CASH EQUIVALENTS  BEGINNING OF YEAR
    
    
    1,730,907
    
    
    
    35,005CASH AND CASH EQUIVALENTS  END OF YEAR
    
    $
    709,579
    
    
    $
    1,730,907SUPPLEMENTAL CASH FLOW INFORMATION:Cash Paid during the year for:Interest
    
    $
    69,442
    
    
    $
    51,435Income taxes
    
    $
    4,800
    
    
    $
    2,400
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
  
    
    The Company reclassified $43,750 of additional paid-in capital as a derivative liability.
    
    The Company converted $100,000 of amounts due to an officer and director at December 31,
2005 to convertible notes payable on March 27, 2006.
    
    The Company converted $300,000 of accounts payable at December 31, 2005 to a note payable
on February 3, 2006.
   F-6




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements Of Cash Flows (Continued)  For the years ended December 31, 2007 and 2006
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
(CONTINUED):
 
    
    The Company issued 600,000 options on March 4, 2006 to 2 directors, one of which is an
officer. The options vested immediately and were issued in conjunction with advances made
to the Company by the directors during 2005 and the first quarter of 2006. These advances
were due on demand. The fair value of these options on the date of grant amounted to
$204,000 and was recorded to interest expense.
    
    The Company issued 150,000 warrants on January 15, 2006 to a consultant for private
placement offering costs. The fair value of these warrants on the date of grant amounted to
$57,500 and was recorded as offering costs in the equity section of the balance sheet.
    
    On May 31, 2006, the Company completed the sale of substantially all of its assets used
in the chronic care dialysis clinic. On June 15, 2006, the Company completed the sale of
the acute care dialysis unit. Property and equipment with a net book value of $357,138 and
inventory amounting to $47,165 were sold for $3,417,772 resulting in a gain on disposal of
$3,013,469. A summary of cash received from the disposal of assets is as follows:
 $
    3,417,772
    
    
    Gross sale proceeds(2,000,000
    )
    
    Less amount representing note receivable(131,005
    )
    
    Less amount satisfied by existing loan payable to purchaser including unpaid accrued interest$
    1,286,767
    
    
    Cash received from the disposal of assets
 
    
    On April 25, 2006, the Company entered into a $600,000 uncollateralized convertible
promissory note with an officer and director and recorded a discount for a beneficial
conversion feature of $581,250.
    
    During the second quarter 2006, one of the Companys officers and director successfully
negotiated settlements with various creditors that resulted in the extinguishment of $372,413
of long-term debt, and $21,940 of accounts payable. The officer and director was issued
443,126 shares of common stock at a market price of $0.50 per share on May 31, 2006 as
compensation totaling $221,563. The extinguished debt and accounts payable totaled $172,790
net of the compensation cost and is included in other income on the statement of operations.
Of the net amount, $9,877 is from continuing operations, and $162,913 is from discontinued
operations.
    
    During July 2006, the Company issued 200,000 shares of common stock to the former CFO and
Chief Scientific Officer as a bonus. The fair market value of the common stock on the date
of issuance amounted to $112,000 and was recorded to compensation expense.
    
    During July 2006, the Company issued 4,000,000 shares of common stock to directors, one of
whom is an officer, at a fair market value of $0.30 per share, or $1,200,000. The directors
purchased the shares using debt of the same amount owed them by the Company.
   F-7




---



##### Table of Contents



National Quality Care, Inc.  Consolidated Statements Of Cash Flows (Continued)  For the years ended December 31, 2007 and 2006
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED):
 
    
    During July 2006, the Company issued 364,584 shares of common stock to two directors, one
of which is an officer, for purchasing convertible debt. The fair market value of the common
stock on the date of issuance amounted to $91,146 and was recorded as prepaid interest which
is being amortized to interest expense over the life of the related convertible debt.
    
    During July 2006, the Company issued 10,000 shares of common stock to an employee at $0.10
per share, or $1,000, in exchange for services. The fair market value of the common stock on
the date of issuance amounted to $2,500. The difference between the amount paid and the fair
market value of the common stock amounted to $1,500 and was recorded to compensation expense.
    
    During August 2006, the Company issued 530,303 shares of common stock to an officer and
director at $0.33 per share, or $175,000. The director purchased the shares using a bonus
payable of the same amount owed the director by the Company.
    
    During November 2006, the Company issued 60,000 shares of common stock to a consultant
upon the exercise of stock options at an exercise price of $0.07 per share. The Company
incurred a receivable of $4,200 in relation to this exercise, which was paid during March
2007.
    
    During November 2006, the Company issued 20,000 shares of its common stock with a fair
market value of $9,000 to a consultant at $0.10 per share, or $2,000, in exchange for
consulting services. The difference between the amount paid and the fair market value of the
common stock amounted to $7,000 and was recorded to outside service compensation expense.
  
    
    The Company reclassified $581,250 of derivative liability as additional paid-in capital.
    
    On June 22, 2007, the Company completed a private placement of an aggregate of 5,756,250
Units (the Units) at a purchase price of $0.16 per Unit for a total purchase price of
$921,000. Of the purchase price, $307,000 was paid in cash, and $614,000 was recorded as
notes receivable from stockholders. Each Unit consists of one share of common stock of the
Company and one warrant to purchase one-half of a share of common stock of the Company at an
exercise price of $0.16 per share.
    
    On December 26, 2007, the Company entered into a $700,000 uncollateralized convertible
promissory note with an officer and director and recorded a discount of $179,163 for the
issuance of warrants in connection with this note.
  F-8




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 1
ORGANIZATION
 Nature of business
   Pending resolution of the arbitration with Xcorporeal, Peizer and Gura (See Note 9, litigation
caption), we suspended our research and development efforts with respect to the wearable artificial
kidney and have no active business operations. However, we believe we will ultimately prevail on
the merits of the arbitration and are continuing to prosecute our patents and are taking other
steps to protect and perfect our intellectual property rights.
  F-9




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Going concern and liquidity
   Cash and cash equivalents
  Derivative liabilities
   F-10




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Convertible debt with stock purchase warrants
  Revenue recognition
   Income taxes
   F-11




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Contingencies
  Concentration of credit risk
  Research and development
  Impairment of long-lived assets and long-lived assets to be disposed of
  Use of estimates
   F-12




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Share- based compensation
  Reclassifications
  Fair Value of Financial Instruments
  Earnings (loss) per share
   F-13




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Guarantee fee
  Technology rights
  Recent accounting pronouncements
    F-14




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 2SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Recent accounting pronouncements (Continued)
   NOTE 3DEBT
  F-15




---



##### Table of Contents



National Quality Care, Inc.  Notes to Consolidated Financial Statements  December 31, 2007
 NOTE 4INCOME TAXES
  Deferred tax assets (liabilities)Net operating loss carryforwards
    
    $
    5,923,000Share-based compensation
    
    
    634,000Other
    
    
    73,0006,630,000Less valuation allowance
    
    
    (6,630,000
    )Net deferred tax assets
    
    $
    
   Percent of
    
    
    
    
    
    
    Percent ofPre-tax
    
    
    
    
    
    
    Pre-tax2007
    
    
    Income
    
    
    2006
    
    
    IncomeExpected tax at 34%
    
    $
    (1,112,000
    )
    
    
    (34.00
    )%
    
    $
    (522,000
    )
    
    
    (34.00
    )%State income tax, net of
federal tax
    
    
    (190,000
    )
    
    
    (5.80
    )%
    
    
    (89,000
    )
    
    
    (5.80
    )%Change in valuation allowance
    
    
    1,621,000
    
    
    
    49.60
    %
    
    
    569,000
    
    
    
    37.00
    %Non deductible expenses and
other
    
    
    (319,000
    )
    
    
    (9.80
    )%
    
    
    42,000
    
    
    
    2.80
    %$
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
  F-16




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5  STOCKHOLDERS EQUITY
 Common stock  2006 activity
          F-17




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5  STOCKHOLDERS EQUITY (CONTINUED)
 Common stock  2006 activity (Continued)
     Common stock  2007 activity
     F-18




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5  STOCKHOLDERS EQUITY (CONTINUED)
 Common stock  2007 activity (Continued)
  Derivative Liability
    F-19




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5  STOCKHOLDERS EQUITY (CONTINUED)
 Derivative Liability (Continued)
  December 31, 2007
    
    
    December 31, 2006Derivative LiabilityIssuance of common
stock under private
placement during
2005
    
    $
    
    
    
    $
    581,248Issuance of common
stock under private
placement during
three months ending
March 31, 2006 at
date of issuance
    
    
    18,750
    
    
    
    18,750Issuance of common
stock under similar
terms as the
private placement
during three months
ending June 30,
2006 at date of
issuance
    
    
    25,000
    
    
    
    25,000Total Derivative Liability
    
    $
    43,750
    
    
    $
    624,998
 Receivables from Stockholders
 Notes Receivable
    F-20




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5  STOCKHOLDERS EQUITY (CONTINUED)
 Stock options activity
  2007
    
    
    2006Wt Average
    
    
    
    
    
    
    Wt AverageExercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding  beginning
of year
    
    
    5,150,000
    
    
    $
    0.56
    
    
    
    10,671,720
    
    
    $
    0.84Granted
    
    
    990,000
    
    
    $
    0.24
    
    
    
    4,130,000
    
    
    $
    0.63Exercised
    
    
    
    
    
    $
    
    
    
    
    (1,869,220
    )
    
    $
    0.09Forfeited
    
    
    (470,000
    )
    
    $
    0.08
    
    
    
    (680,000
    )
    
    $
    0.20Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Expired
    
    
    (250,000
    )
    
    $
    1.25
    
    
    
    (7,102,500
    )
    
    $
    1.17Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Outstanding  end of year
    
    
    5,420,000
    
    
    $
    0.51
    
    
    
    5,150,000
    
    
    $
    0.56
  Total Outstanding
    
    
    Total Exercisable# of
    
    
    Wt Average
    
    
    
    
    
    
    # of
    
    
    Wt AveragePrice Range
    
    Shares
    
    
    Exercise Price
    
    
    Life
    
    
    Shares
    
    
    Exercise Price
    
    
    Life$0.07 - $0.35
    
    
    1,440,000
    
    
    $
    0.20
    
    
    
    6.66
    
    
    
    1,130,000
    
    
    $
    0.21
    
    
    
    7.57$0.36 - $0.99
    
    
    3,980,000
    
    
    $
    0.63
    
    
    
    8.30
    
    
    
    3,942,500
    
    
    $
    0.63
    
    
    
    8.295,420,000
    
    
    $
    0.51
    
    
    
    7.86
    
    
    
    5,072,500
    
    
    $
    0.54
    
    
    
    8.13
 Stock warrant activity
     F-21




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 5
STOCKHOLDERS EQUITY (CONTINUED)
 Stock warrant activity (Continued)
    2007
    
    
    2006Wt Average
    
    
    
    
    
    
    Wt AverageWarrant
    
    
    Exercise Price
    
    
    Warrant
    
    
    Exercise PriceOutstanding  beginning of year
    
    
    1,420,834
    
    
    $
    0.65
    
    
    
    2,734,375
    
    
    $
    0.39Granted
    
    
    7,878,125
    
    
    $
    0.10
    
    
    
    186,459
    
    
    $
    0.90Exercised
    
    
    
    
    
    $
    
    
    
    
    (1,500,000
    )
    
    $
    0.20Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Expired
    
    
    (520,834
    )
    
    $
    1.25
    
    
    
    
    
    
    $
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Outstanding  end of year
    
    
    8,778,125
    
    
    $
    0.12
    
    
    
    1,420,834
    
    
    $
    0.65
  Total Outstanding
    
    
    Total Exercisable# of
    
    
    Wt Average
    
    
    
    
    
    
    # of
    
    
    Wt AveragePrice Range
    
    Shares
    
    
    Exercise Price
    
    
    Life
    
    
    Shares
    
    
    Exercise Price
    
    
    Life$0.07 - $0.35
    
    
    8,628,125
    
    
    $
    0.11
    
    
    
    6.55
    
    
    
    8,628,125
    
    
    $
    0.11
    
    
    
    6.55$0.36 - $0.99
    
    
    100,000
    
    
    $
    0.60
    
    
    
    3.04
    
    
    
    100,000
    
    
    $
    0.60
    
    
    
    3.04$1.00 - $1.25
    
    
    50,000
    
    
    $
    1.25
    
    
    
    3.04
    
    
    
    50,000
    
    
    $
    1.25
    
    
    
    3.048,778,125
    
    
    $
    0.12
    
    
    
    6.49
    
    
    
    8,778,125
    
    
    $
    0.12
    
    
    
    6.49
 F-22




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION
  1998 Stock Option Plan
  1996 Stock Option Plan
  1996 Employee Compensatory Stock Option Plan
  The Companys share-based compensation to officers, directors, employees, independent
contractors and consultants of the Company primarily consists of the following:
    F-23




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION (CONTINUED)
   2007Expected dividend yield
    
    
    0.00
    %Expected volatility
    
    72% to 74
    %Average risk-free interest rate
    
    4.58% to 4.8%Expected life (in years)
    
    
    5.3 to 5.8
  
    
    $1,441,000 of employee and director compensation cost has been charged against income
from the grant of options,
    
    $204,000 of interest expense has been charged against income from the grant of options
to two directors in conjunction with advances made to the Company,
    
    $112,000 of CFO bonus compensation cost has been charged against income from the grant
of common stock,
    
    $1,000,000 of compensation to a consultant has been charged against income from the
grant of common stock,
    
    $221,563 of other expense has been charged against other income from the grant of common
stock to a director for successfully negotiating reductions of liabilities,
    
    $78,096 of interest expense has been charged against income from the grant of common
stock to two directors for purchasing convertible debt,
  F-24




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION (CONTINUED)
 
    
    $7,000 of compensation to a consultant has been charged against income from the sale of
common stock at a discount,
    
    $1,500 of employee compensation cost has been charged against income from the sale of
common stock at a discount, and
    
    $57,500 of compensation to a consultant has been charged against equity from the grant
of stock warrants.
  
    
    $142,724 of director compensation cost has been charged against income from the grant of
options,
    
    $8,270 of compensation to consultants has been charged against income from the grant of
options,
    
    $13,050 of interest expense has been charged against income from the grant of common
stock to two directors for purchasing convertible debt during 2006.
   Stock Options and Warrants Issued to Third Parties for Services
   F-25




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION (CONTINUED)
       F-26




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION (CONTINUED)
  Weighted-AverageOptions relating to third
    
    
    
    
    
    Weighted-Average
    
    
    Remaining
    
    
    Aggregate Intrinsicparty compensation
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    700,000
    
    
    $
    0.11
    
    
    
    
    
    
    $
    279,500Granted
    
    
    140,000
    
    
    $
    0.21
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (450,000
    )
    
    $
    0.06
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2007
    
    
    390,000
    
    
    $
    0.20
    
    
    
    4.67
    
    
    $
    Exercisable at December 31,
2007
    
    
    92,500
    
    
    $
    0.20
    
    
    
    5.43
    
    
    $
    
   Nonvested options relating to
    
    
    
    
    
    Weighted-Average Grant-Datethird party compensation
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    500,000
    
    
    $
    0.17Granted
    
    
    140,000
    
    
    $
    0.14Vested
    
    
    (42,500
    )
    
    $
    0.24Forfeited
    
    
    (300,000
    )
    
    $
    0.16Expired
    
    
    
    
    
    $
    Nonvested at December 31, 2007
    
    
    297,500
    
    
    $
    0.17
   F-27




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6
 SHARE-BASED COMPENSATION (CONTINUED)
  Weighted-AverageWarrants relating to
    
    
    
    
    
    Weighted-Average
    
    
    Remaining
    
    
    Aggregate Intrinsicthird party compensation
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    150,000
    
    
    $
    0.82
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2007
    
    
    150,000
    
    
    $
    0.82
    
    
    
    3.04
    
    
    $
    Exercisable at December 31, 2007
    
    
    150,000
    
    
    $
    0.82
    
    
    
    3.04
    
    
    $
    
  Stock Options Issued to Employees and Directors for Compensation
    F-28




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6SHARE-BASED COMPENSATION (CONTINUED)
         F-29




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6SHARE-BASED COMPENSATION (CONTINUED)
    Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateOptions relating to employee and
    
    
    
    
    
    Average
    
    
    Contractual
    
    
    Intrinsicdirector compensation
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    3,850,000
    
    
    $
    0.65
    
    
    
    
    
    
    $
    110,000Granted
    
    
    850,000
    
    
    $
    0.25
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (20,000
    )
    
    $
    0.62
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    (250,000
    )
    
    $
    1.25
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2007
    
    
    4,430,000
    
    
    $
    0.54
    
    
    
    8.10
    
    
    $
    7,500Exercisable at December 31,
2007
    
    
    4,380,000
    
    
    $
    0.55
    
    
    
    8.18
    
    
    $
    6,000
   F-30




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 6SHARE-BASED COMPENSATION (CONTINUED)
  Weighted-Average Grant-Nonvested options relating to employee
    
    
    
    
    
    Dateand director compensation
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    100,000
    
    
    $
    0.13Granted
    
    
    850,000
    
    
    $
    0.16Vested
    
    
    (900,000
    )
    
    $
    0.16Forfeited
    
    
    
    
    
    $
    Expired
    
    
    
    
    
    $
    Nonvested at December 31, 2007
    
    
    50,000
    
    
    $
    0.13
   Weighted-AverageOptions relating to
    
    
    
    
    
    Weighted-Average
    
    
    Remaining
    
    
    Aggregate Intrinsicinterest expense to directors
    
    Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    600,000
    
    
    $
    0.52
    
    
    
    
    
    
    $
    Granted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2007
    
    
    600,000
    
    
    $
    0.52
    
    
    
    8.18
    
    
    $
    Exercisable at December 31,
2007
    
    
    600,000
    
    
    $
    .52
    
    
    
    8.18
    
    
    $
    
  F-31




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 7RELATED PARTY TRANSACTIONS
 Receivables from Stockholders
 Note Receivable
  Receivable
  Subscription Receivables
  Office space
  Technology Purchase Agreement
   F-32




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 7RELATED PARTY TRANSACTIONS (CONTINUED)
 Laboratory services
  Due to stockholders  discontinued operations
  Interest
  Sale of assets
  NOTE 8DISCONTINUED OPERATIONS  DIALYSIS CLINIC
   F-33




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 8DISCONTINUED OPERATIONS  DIALYSIS CLINIC (CONTINUED)
  NOTE 9CONTINGENCIES
 Litigation
    F-34




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 9COMMITMENTS AND CONTINGENCIES (CONTINUED)
 Litigation (Continued)
     Deferred compensation plan
  (1)
    
    The direct or indirect transfer of the legal or equitable ownership of more than
50% of the Companys outstanding common stock or any other class of stock representing
more than 50% of the aggregate voting power of all classes of stock to an individual or
entity;
  F-35




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 9COMMITMENTS AND CONTINGENCIES (CONTINUED)
 Deferred compensation plan (Continued)
 (2)
    
    A merger or consolidation of the Company with any other company (other than a
subsidiary of the Company) pursuant to which the resulting aggregate ownership of the
Company (or of the parent or surviving company resulting from such merger or
consolidation) held by or attributable to those persons who were stockholders of the
Company immediately prior to such merger or consolidation is less than 50% of the common
stock or any other class of stock representing less than 50% of the aggregate voting
power of all classes of stock of the Company (or of the parent or surviving corporation
resulting from such merger or consolidation) outstanding as a result of such merger or
consolidation;(3)
    
    The sale, transfer or other disposition, in one or a series of related
transactions, of all or substantially all of the Companys assets; or(4)
    
    The grant of an exclusive long-term license of the intellectual property of the
Company.
   NOTE 10EMPLOYEE BENEFIT PLAN
  F-36




---



##### Table of Contents



National Quality Care, Inc.  Notes To Consolidated Financial Statements  December 31, 2007
 NOTE 11SEGMENT INFORMATION
   NOTE 12SUBSEQUENT EVENT
  F-37




---



##### Table of Contents



SIGNATURES
  NATIONAL QUALITY CARE, INC.Date: March 21, 2008
    By:

/s/    ROBERT SNUKALRobert SnukalChief Executive Officer,
President and Director  Signature
    
    Capacity in Which Signed
    
    Date/s/ LEONARDO BEREZOVSKY, M.D.

Leonardo Berezovsky M.D.
    
    Chairman of the Board of Directors and
Chief Financial Officer
(principal financial officer and
principal accounting officer)
    
    March 21, 2008/s/ ROBERT SNUKAL

Robert Snukal
    
    Chief Executive Officer,
President and Director
(principal executive officer)
    
    March 21, 2008/s/ RONALD LANG, M.D.

Ronald Lang, M.D.
    
    Executive Vice-President,
Secretary and Director
    
    March 21, 2008/s/ JOSE SPIWAK

Jose Spiwak, M.D.
    
    Director
    
    March 21, 2008
 34




---



##### Table of Contents



Exhibit No.
    
    Description23.1
    
    Consent of PMB Helin Donovan, LLP.31.1
    
    Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as
adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and 15d-15(c) as
adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of CEO and CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.