##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-KSB
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the fiscal year ended December 31, 2006
 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: 0-19031
 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
 o
  o þ
    Class
    
    Outstanding at March 30, 2007Common Stock, $0.01 per share
    
    48,919,222
 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
    
    
    16Item 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
    
    Controls and Procedures
    
    
    23Item 8B
    
    Other Information
    
    
    23Item 9.
    
    Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
    
    
    23Item 10.
    
    Executive Compensation
    
    
    25Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    27Item 12.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    28Item 13.
    
    Exhibits
    
    
    29Item 14.
    
    Principal Accountant Fees and Services
    
    
    30Exhibit 10.10Exhibit 10.11Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




---



##### 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 have elected to
suspend 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
   Government Regulation
    7




---



##### Table of Contents



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




---



##### Table of Contents



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 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.
  9




---



##### Table of Contents



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.
 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 .
  10




---



##### Table of Contents



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.
 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.
  12




---



##### Table of Contents



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.
      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.
  13




---



##### Table of Contents



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.
  Our common stock is subject to penny stock rules, which may make it more difficult for
investors to sell their common stock.
  14




---



##### Table of Contents



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
  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, 2006First Quarter
    
    $
    0.82
    
    
    $
    0.43Second Quarter
    
    $
    0.72
    
    
    $
    0.45Third Quarter
    
    $
    0.70
    
    
    $
    0.25Fourth Quarter
    
    $
    0.61
    
    
    $
    0.28Year Ended December 31, 2005First Quarter
    
    $
    0.45
    
    
    $
    0.40Second Quarter
    
    $
    0.63
    
    
    $
    0.63Third Quarter
    
    $
    0.69
    
    
    $
    0.33Fourth Quarter
    
    $
    0.69
    
    
    $
    0.40
  16




---



##### Table of Contents



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
    
    0
    
    $0
    
    1,000,000 (1)Equity compensation
plans not approved
by security holders
    
    4,700,000
    
    $0.58
    
    N/ATotals
    
    4,700,000
    
    $0.58
    
    1,000,000
  Dividend Policy
   Recent Sales of Unregistered Securities
       17




---



##### Table of Contents



Item 6. Managements Discussion and Analysis or Plan of Operation
   
    
    achieve a favorable outcome in the arbitration with Xcorporeal, Inc. (Xcorporeal).
    
    continue the research and development of the Wearable Kidney.
    
    continue to pursue financing opportunities, including from our existing directors and shareholders.
  
    
    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, 2006 and December 31, 2005.
    18




---



##### Table of Contents



Liquidity and Capital Resources
   19




---



##### Table of Contents



20




---



##### Table of Contents



Significant Accounting Policies
  Derivative liabilities 
 Revenue recognition
  Income taxes
 Share-based compensation 
  21




---



##### Table of Contents



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 Controls and Procedures
   
 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.
    
    
    63
    
    
    Chairman of the Board of DirectorsRobert M. Snukal
    
    
    64
    
    
    Chief Executive Officer, President and DirectorRonald P. Lang, M.D.
    
    
    57
    
    
    Executive Vice-President, Secretary and DirectorJose Spiwak, M.D.
    
    
    62
    
    
    Director
  23




---



##### Table of Contents



Leonardo Berezovsky, M.D. ,
 Robert M. Snukal
 Ronald P. Lang, M.D.
 Jose Spiwak M.D
 Audit Committee Financial Expert
  Code of Ethics
  Compliance with Section 16(a) of the Securities Exchange Act of 1934 .
   24




---



##### 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)
    
    
    2006
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    437,450
    (1)(10)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    437,4502005
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Robert M. Snukal
(CEO, President,
Director)(2)
    
    
    2006
    
    
    
    0
    
    
    
    175,000
    (3)
    
    
    221,563
    (4)
    
    
    873,700
    (5)(10)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,270,263
    (6)2005
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Victor Gura (Former
CFO and Chief
Scientific Officer)
    
    
    2006
    
    
    
    385,000
    
    
    
    0
    
    
    
    112,000
    (7)
    
    
    7,450
    (10)
    
    
    0
    
    
    
    0
    
    
    
    12,288
    (8)
    
    
    516,7382005
    
    
    
    150,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    150,000Ronald Lang, M.D.
(Executive V.P.,
Secretary,
Director)
    
    
    2006
    
    
    
    10,431
    
    
    
    0
    
    
    
    0
    
    
    
    114,950
    (9)(10)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    125,3812005
    
    
    
    24,000
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    24,000
 *
    
    Represents dollar amount recognized for financial statement reporting purposes with respect to
the 2006 fiscal year in accordance with FAS 123(R). See the 2006 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.(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)
    
    Represents 200,000 shares of common stock issued to Dr. Gura in July 2006 as a bonus.
  25




---



##### Table of Contents



(8)
    
    Represents 2006 health insurance premiums.(9)
    
    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.(10)
    
    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.
   Outstanding Equity Awards at 2006 Fiscal Year-End
 Option Awards
    
    Stock AwardsEquityEquity
    
    IncentiveIncentive
    
    PlanPlan
    
    Awards:Equity
    
    
    
    
    
    
    
    Market
    
    Awards:
    
    Market orIncentive
    
    
    
    
    
    
    
    value of
    
    Number of
    
    Payout valuePlan Awards:
    
    
    
    
    
    
    
    Shares or
    
    Unearned
    
    of UnearnedNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    Number of
    
    Units of
    
    shares,
    
    Shares,Securities
    
    Securities
    
    Securities
    
    
    
    
    
    Shares or
    
    Stock
    
    Units or
    
    Units orUnderlying
    
    Underlying
    
    Underlying
    
    
    
    
    
    Units of
    
    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
    
    0Robert Snukal
    
    150,000
    
    100,000
    
    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
    
    0Victor Gura
    
    5,000
    
    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
    
    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
    
    0
 (1)
    
    All of these options are currently underwater, except for 150,000 of those held by
Mr. Snukal.
  26




---



##### Table of Contents



2006 Director Compensation
 Fees Earned orpaid inCash
    
    
    
    
    
    
    All Other
    
    
    Options
    
    
    TotalName
    
    ($)
    
    
    Stock Awards
    
    
    Compensation
    
    
    Awards(2)
    
    
    ($)Leonard Berezovsky (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Robert Snukal (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Ronald Lang (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Jose Spiwak
    
    
    6,000
    
    
    
    0
    
    
    
    0
    
    
    
    7,450
    (3)
    
    
    13,450Victor Gura (former director) (1)
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 (1)
    
    See Summary Compensation Table for compensation paid to these executive officers
named therein.(2)
    
    At December 31, 2006, there were the number of outstanding option awards held by the
directors as follows: L. Berezovsky  1,220,000, R. Snukal  2,670,000, R. Lang 
270,000, J. Spiwak  270,000, V. Gura  20,000.(3)
    
    Represents options to purchase 20,000 shares of common stock at an exercise price of
$0.65 per share.
 
 Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
   27




---



##### Table of Contents



Number of
    
    
    Percentage ofShares
    
    
    SharesBeneficially
    
    
    BeneficiallyName and Address of Beneficial Owner
    
    Owned(1)
    
    
    OwnedVictor Gura
    
    
    15,747,250
    (2)
    
    
    32.0
    %Robert M. Snukal
    
    
    14,664,276
    (3)
    
    
    28.5
    %Leonard Berezovsky
    
    
    4,349,973
    (4)
    
    
    8.4
    %Ronald P. Lang
    
    
    3,608,449
    (5)
    
    
    7.3
    %Jose Spiwak
    
    
    1,520,000
    (6)
    
    
    3.1
    %Executive officers and directors as a group (4 persons)
    
    
    24,142,698
    (7)
    
    
    45.2
    %
 (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 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.(3)
    
    Includes 2,620,000 shares subject to options held by Mr. Snukal which are
exercisable or become exercisable within 60 days after March 30, 2007.(4)
    
    Includes 1,319,556 shares held by the Leonardo Berezovsky Revocable Family
Trust of which Dr. Berezovsky is a trustee and as to which he has voting and investment
power. Also includes 1,220,000 shares subject to options held by Dr. Berezovsky which
are exercisable or become exercisable within 60 days after March 30, 2007 and 100,000
shares subject to warrants held by the Family Trust which are currently exercisable.(5)
    
    Includes 800,000 shares held by Medipace Medical Group, Inc., an affiliate of
Dr. Lang. Also includes 270,000 shares subject to options held by Dr. Lang which are
exercisable or become exercisable within 60 days after March 30, 2007.(6)
    
    Includes 270,000 shares subject to options held by Dr. Spiwak which are
exercisable or become exercisable within 60 days after March 30, 2007.(7)
    
    Includes 4,480,000 shares subject to options held by current officers and
directors as a group which are exercisable or become exercisable within 60 days after
March 30, 2007.
 
 Item 12. Certain Relationships and Related Transactions and Director Independence
 Sale of Dialysis Center.
   28




---



##### Table of Contents



2006 Convertible Notes.
  2006 Equity Issuances.
      Loans to and Transactions with Affiliates.
 Laboratory services .
 Office space.
 Director Independence
   29




---



##### 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)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.10.11
    
    Merger Agreement, dated as of September 1, 2006, among the Company, NQCI
Acquisition Corporation and Xcorporeal, Inc.14.1
    
    Code of Ethics. (9)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, 2003.10.
    
    Incorporated by reference herein to its Annual Report on
Form 10-KSB for the year ended December 31, 2004
  30




---



##### Table of Contents



Item 14. Principal Accountant Fees and Services
  For the Year Ended December 31,2006
    
    
    2005Audit fees
    
    $
    60,112
    
    
    $
    70,000Audit-related fees
    
    $
    19,500
    
    
    $
    43,670Tax fees
    
    $
    8,000
    
    
    $
    0All other fees
    
    $
    0
    
    
    $
    0Total fees
    
    $
    87,612
    
    
    $
    113,670
    
    
    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 an 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.
  31




---



##### Table of Contents



National Quality Care, Inc.Consolidated Financial StatementsDecember 31, 2006
 C O N T E N T S
 Report of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheet
    
    
    F-2Consolidated Statements of Operations
    
    
    F-3Consolidated Statements of Stockholders Equity
    
    
    F-4Consolidated Statements of Cash Flows
    
    
    F-5 - F-8Notes to Consolidated Financial Statements
    
    
    F-9 - F-38




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
  F-1




---



##### Table of Contents



National Quality Care, Inc.Consolidated Balance SheetDecember 31, 2006
 2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    1,730,907Accounts receivable, net of allowance for doubtful accounts
of $235,000  discontinued operations
    
    
    14,715Prepaid expenses and other assets
    
    
    58,466Prepaid expenses and other assets  discontinued operations
    
    
    138,519TOTAL CURRENT ASSETS
    
    
    1,942,607OTHER ASSETSTechnology rights, net of accumulated amortization of $25,582
    
    
    74,418TOTAL ASSETS
    
    $
    2,017,025LIABILITIES AND STOCKHOLDERS DEFICITCURRENT LIABILITIESAccounts payable and accrued expenses
    
    $
    387,635Accounts payable and accrued expenses discontinued operations
    
    
    100,759Due to stockholders  discontinued operations
    
    
    5,966Debt, net of discount of $181,541
    
    
    366,092Derivative liability
    
    
    624,998TOTAL CURRENT LIABILITIES
    
    
    1,485,450COMMITMENTS AND CONTINGENCIESSTOCKHOLDERS EQUITYPreferred stock, $.01 par value; 5,000,000 shares authorized;
no shares issued and outstanding
    
    
    Common stock, $.01 par value; 125,000,000 shares authorized;
48,919,222 issued and outstanding
    
    
    489,192Additional paid-in capital
    
    
    9,650,780Receivables from stockholders, net
    
    
    (46,395
    )Accumulated deficit
    
    
    (9,562,002
    )TOTAL STOCKHOLDERS EQUITY
    
    
    531,575TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    2,017,025
   F-2




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements of OperationsFor the Years Ended December 31, 2006 and 2005
 2006
    
    
    2005OPERATING EXPENSESSelling, general and administrative, including share-based compensation of
$2,412,250 for the year ended December 31, 2006, and net of $115,958
reimbursed under the license agreement for the year ended December 31,
2006
    
    $
    3,981,962
    
    
    $
    873,713Research 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
    
    
    690,703
    
    
    
    1,309,072TOTAL OPERATING EXPENSES
    
    
    4,672,665
    
    
    
    2,182,785LOSS FROM OPERATIONS
    
    
    (4,672,665
    )
    
    
    (2,182,785
    )OTHER INCOME (EXPENSE)Interest expense
    
    
    (798,957
    )
    
    
    (46,154
    )Interest income
    
    
    45,840
    
    
    
    Gain (loss) from change in derivative liability
    
    
    785,999
    
    
    
    (785,999
    )Other income
    
    
    8,386
    
    
    
    174TOTAL OTHER INCOME (EXPENSE)
    
    
    41,268
    
    
    
    (831,979
    )LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES ON
INCOME
    
    
    (4,631,397
    )
    
    
    (3,014,764
    )TAXES ON INCOME
    
    
    
    
    
    
    LOSS FROM CONTINUING OPERATIONS
    
    
    (4,631,397
    )
    
    
    (3,014,764
    )DISCONTINUED OPERATIONSIncome from operations of the discontinued component, including gain on
disposal of $3,013,469 in 2006
    
    
    3,093,010
    
    
    
    670,239Taxes on income
    
    
    
    
    
    
    Net gain on discontinued operations
    
    
    3,093,010
    
    
    
    670,239NET LOSS
    
    $
    (1,538,387
    )
    
    $
    (2,344,525
    )Earnings (Loss) per weighted average share of common stock outstanding  basic and
dilutedFrom continuing operations
    
    $
    (0.10
    )
    
    $
    (0.08
    )From discontinued operations
    
    
    0.07
    
    
    
    0.02TOTAL BASIC AND DILUTED LOSS PER SHARE
    
    $
    (0.03
    )
    
    $
    (0.06
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDING  Basic and Diluted
    
    
    43,500,435
    
    
    
    37,479,897
   F-3




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements of Stockholders EquityFor the Years Ended December 31, 2006 and 2005
 Receivables
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Additional
    
    
    From
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Paid-in Capital
    
    
    Stockholders
    
    
    Deficit
    
    
    Equity (Deficit)Balance at December 31, 2004
    
    
    36,890,322
    
    
    $
    368,903
    
    
    $
    4,322,213
    
    
    $
    (90,297
    )
    
    $
    (5,679,090
    )
    
    $
    (1,078,271
    )Sale of common stock
    
    
    968,750
    
    
    
    9,688
    
    
    
    571,560
    
    
    
    
    
    
    
    
    
    
    
    581,248Offering costs
    
    
    
    
    
    
    
    
    
    
    (48,750
    )
    
    
    
    
    
    
    
    
    
    
    (48,750
    )Reclassification of derivative liability
    
    
    
    
    
    
    
    
    
    
    (581,248
    )
    
    
    
    
    
    
    
    
    
    
    (581,248
    )Payments from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,740
    
    
    
    
    
    
    
    26,740Stock issued for exercise of options
    
    
    50,000
    
    
    
    500
    
    
    
    4,500
    
    
    
    
    
    
    
    
    
    
    
    5,000Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,344,525
    )
    
    
    (2,344,525
    )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
    )
    
    $
    531,575
   F-4




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements Of Cash FlowsDecember 31, 2006
 2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIES:Continuing operationsNet loss from continuing operations
    
    $
    (4,631,397
    )
    
    $
    (3,014,764
    )Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating
activities:Amortization of guarantee fee
    
    
    66,535
    
    
    
    18,148Amortization of technology rights
    
    
    5,737
    
    
    
    19,845Amortization of loan discount
    
    
    399,709
    
    
    
    Interest from options grant
    
    
    204,000
    
    
    
    Stock-based compensation  consultant
    
    
    1,007,000
    
    
    
    Stock-based compensation  directors and employees
    
    
    1,548,250
    
    
    
    Amortization of deferred director compensation from options grant
    
    
    6,250
    
    
    
    Amortization of prepaid interest
    
    
    78,096
    
    
    
    (Gain) loss from change in derivative liability
    
    
    (785,999
    )
    
    
    785,999Extinguished liabilities net of costs
    
    
    (9,877
    )
    
    
    Changes in operating assets and liabilities:Prepaid expenses and other assets
    
    
    (45,416
    )
    
    
    6,900Accounts payable and accrued expenses
    
    
    (105,975
    )
    
    
    351,251Net cash used in continuing operations
    
    
    (2,263,087
    )
    
    
    (1,832,621
    )Discontinued operationsNet gain on discontinued operations
    
    
    3,093,010
    
    
    
    670,239Adjustments to reconcile net gain from discontinued operations to net cash (used in) provided by discontinued
operating activities:Depreciation and amortization
    
    
    34,071
    
    
    
    60,494Provision for doubtful accounts
    
    
    93,000
    
    
    
    17,750Gain on disposal of assets
    
    
    (3,013,469
    )
    
    
    Extinguished liabilities net of costs
    
    
    (162,913
    )
    
    
    Changes in discontinued operations operating assets and liabilities:Accounts receivable
    
    
    620,607
    
    
    
    (170,383
    )Supplies inventory
    
    
    2,842
    
    
    
    (12,288
    )Prepaid expenses and other assets
    
    
    (110,578
    )
    
    
    35,235Accounts payable and accrued expenses
    
    
    (1,298,723
    )
    
    
    881,584Net cash (used in) provided by discontinued operations
    
    
    (742,153
    )
    
    
    1,482,631Net cash used in operating activities
    
    
    (3,005,240
    )
    
    
    (349,990
    )
    F-5




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements Of Cash Flows (Continued)December 31, 2006
 CASH FLOWS FROM INVESTING ACTIVITIES:Payment on note receivable
    
    
    2,000,000
    
    
    
    Payments on notes receivable from stockholders
    
    
    21,361
    
    
    
    26,740Cash received from the disposal of assets  discontinued operations
    
    
    1,286,767
    
    
    
    Property and equipment purchased  discontinued operations
    
    
    
    
    
    
    (299,317
    )Net cash provided by (used in) investing activities
    
    
    3,308,128
    
    
    
    (272,577
    )CASH FLOWS FROM FINANCING ACTIVITIES:Issuance of common stock
    
    
    46,750
    
    
    
    581,248Payment of offering costs
    
    
    (8,225
    )
    
    
    (48,750
    )Exercise of stock options
    
    
    159,172
    
    
    
    5,000Exercise of stock warrants
    
    
    300,000
    
    
    
    Advances from stockholders  discontinued operations
    
    
    100,000
    
    
    
    105,966Repayment of advances from stockholders  discontinued operations
    
    
    (100,000
    )
    
    
    Proceeds from convertible notes payable  related parties  $1,000,000 for discontinued
operations
    
    
    1,650,000
    
    
    
    Proceeds from notes payable  related parties
    
    
    1,200,000
    
    
    
    Repayment of long-term borrowings
    
    
    (102,367
    )
    
    
    Repayment of long-term borrowings  discontinued operations
    
    
    (1,852,316
    )
    
    
    (143,599
    )Net cash provided by financing activities
    
    
    1,393,014
    
    
    
    499,865NET CHANGE IN CASH AND CASH EQUIVALENTS
    
    
    1,695,902
    
    
    
    (122,702
    )CASH AND CASH EQUIVALENTS  BEGINNING OF YEAR
    
    
    35,005
    
    
    
    157,707CASH AND CASH EQUIVALENTS  END OF YEAR
    
    $
    1,730,907
    
    
    $
    35,005SUPPLEMENTAL CASH FLOW INFORMATION:Cash Paid during the year for:Interest
    
    $
    51,435
    
    
    $
    49,761Income taxes
    
    $
    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.
    F-6




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements Of Cash Flows (Continued)December 31, 2006
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED):
 
    
    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.
    
    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 50,000 options on February 12, 2006 to an officer and director. The
fair value of these options on the date of grant amounted to $6,250, was recorded as
deferred director compensation, and was amortized to director compensation (in selling,
general and administrative expense) on the straight-line method throughout 2006.
    
    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. For the year ended December 31, 2006, the Company recognized
$399,709 of amortized discount in interest expense.
    F-7




---



##### Table of Contents



National Quality Care, Inc.Consolidated Statements Of Cash Flows (Continued)December 31, 2006
 SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES (CONTINUED):
 
    
    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.
    
    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. For the year ended December 31, 2006, the Company recognized $78,096 of
amortization in interest expense.
    
    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 officer and director purchased the shares
using a bonus payable of the same amount owed the officer and 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.
   F-8




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 1  ORGANIZATION
 Nature of business
     F-9




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Principles of consolidation
  Going concern and liquidity
   
    
    Conducting a private placement beginning in April, 2005, with maximum possible
offering proceeds from the sale of its common stock of $5,025,000. As of December 31,
2006, the Company raised net proceeds of $551,248 relating to this offering. The
Company is actively seeking investors under this offering and otherwise.
    
    As described in Note 4, stockholders have loaned $547,633 to the Company. In 2006,
the Company has obtained funding for its working capital needs primarily through
financings from its shareholders, officers and directors.
    
    As described in Note 9 to the financial statements, the Company discontinued the
operations of the chronic and acute care dialysis clinic and sold substantially all of
the clinics assets in exchange for approximately $1,287,000 of cash, a $2,000,000 note
receivable, and satisfaction of $131,000 of a stockholder note payable plus accrued
interest thereon. The note receivable was paid-in-full by December 31, 2006.
Subsequent to the sale of the dialysis clinic operations, the Company is focusing on the
development of the wearable artificial kidney.
    
    The Company is currently negotiating reductions in amounts due its creditors. During
the year ended December 31, 2006, the Company successfully negotiated approximately
$173,000 of reductions in amounts due its creditors net of related costs.
    F-10




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Cash and cash equivalents
  Property and equipment
  Accounts receivable and allowances
  Derivative liabilities
    F-11




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Revenue recognition
   Income taxes
  Contingencies
    F-12




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Concentration of credit risk
  Research and development
  Impairment of long-lived assets and long-lived assets to be disposed of
  Use of estimates
    F-13




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Share-based compensation
  Reclassifications
  Fair Value of Financial Instruments
  Earnings (loss) per share
    F-14




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Guarantee fee
  Technology rights
  Recent accounting pronouncements
     F-15




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
 Recent accounting pronouncements (Continued)
    NOTE 3  INTANGIBLE ASSETS
  Gross Carrying
    
    
    Accumulated
    
    
    Net CarryingAmount
    
    
    Amortization
    
    
    AmountGuarantee fee
    
    $
    90,732
    
    
    $
    90,732
    
    
    $
    Technology rights
    
    
    100,000
    
    
    
    25,582
    
    
    
    74,418Total
    
    $
    190,732
    
    
    $
    116,314
    
    
    $
    74,418
   F-16




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 3  INTANGIBLE ASSETS (CONTINUED)
  NOTE 4  DEBT
  2006Uncollateralized $600,000 convertible promissory note with a
stockholder, bearing interest at 8% per annum, payable on April
25, 2007. Under the terms of the note, at the option of the
holder through maturity, the principal amount plus any accrued
interest thereon may be converted into shares of the Companys
common stock at a conversion price of $0.32 per share at any
time. The Company evaluated the convertible debenture in
accordance with EITF No.s 98-5 and 00-27, and it was determined
that the embedded conversion option within the debenture is
beneficial to the holder because the conversion price of $0.32
per share was lower than the market price on the commitment date.
The intrinsic value of the conversion option was calculated to
be $581,250 and has been recognized as a reduction to the
carrying amount of the debenture and as additional paid-in
capital. This reduction to the carrying amount of the debenture,
or discount, is being amortized to interest expense on the
straight-line method over the term of the convertible promissory
note. For the year ended December 31, 2006, the Company
recognized $399,709 of amortized discount in interest expense.
The unamortized discount as of December 31, 2006 amounted to
$181,541.
    
    $
    361,092Uncollateralized $50,000 convertible promissory note with a
director, bearing interest at 8% per annum, payable on March 27,
2007. Under the terms of the note, at the option of the holder
through maturity, the principal amount plus any accrued interest
thereon may be converted into shares of the Companys common
stock at a conversion price of $0.48 per share at any time. The
company evaluated the convertible debenture in accordance with
EITF No. 05-02, and it was deemed to be conventional. The
conversion price on the date of issuance was set based on the
fair value of the stock on the date of issuance. The proceeds
were used for general corporate purposes.
    
    
    5,000$
    366,092
  2007
    
    $
    636,474Amount representing interest
    
    
    (88,841
    )547,633Amount representing discount
    
    
    (181,541
    )$
    366,092
  F-17




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 5  INCOME TAXES
  2006Deferred tax assets (liabilities)Net operating loss carryforwards
    
    $
    4,384,000Share-based compensation
    
    
    574,000Allowance for doubtful accounts
    
    
    94,000Other
    
    
    (43,000
    )5,009,000Less valuation allowance
    
    
    (5,009,000
    )Net deferred tax assets
    
    $
    
   Percent of
    
    
    
    
    
    
    Percent ofPre-tax
    
    
    
    
    
    
    Pre-tax2006
    
    
    Income
    
    
    2005
    
    
    IncomeExpected tax at 34%
    
    $
    (522,000
    )
    
    
    (34.00
    )%
    
    $
    (797,000
    )
    
    
    (34.00
    )%State income tax, net of
federal tax
    
    
    (89,000
    )
    
    
    (5.80
    )%
    
    
    (144,000
    )
    
    
    (6.14
    )%Change in valuation allowance
    
    
    569,000
    
    
    
    37.00
    %
    
    
    499,000
    
    
    
    21.00
    %Non deductible expenses and
other
    
    
    42,000
    
    
    
    2.80
    %
    
    
    442,000
    
    
    
    19.10
    %$
    
    
    
    
    0.00
    %
    
    $
    
    
    
    
    0.00
    %
   F-18




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 6  STOCKHOLDERS EQUITY
 Common stock  2005 activity
 ,
  Common stock  2006 activity
      F-19




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 6  STOCKHOLDERS EQUITY (CONTINUED)
           F-20




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 Derivative Liability
      F-21




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 6  STOCKHOLDERS EQUITY (CONTINUED)
 Derivative Liability (Continued)
 December 31, 2006
    
    
    December 31, 2005Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    70
    %
    
    
    323
    %Average risk-free interest rate
    
    
    5.02
    %
    
    
    4.38
    %Expected life (in years)
    
    
    0.25
    
    
    
    1.25
   December 31, 2006
    
    
    December 31, 2005Derivative LiabilityIssuance of common
stock under private
placement during 2005
    
    $
    581,248
    
    
    $
    581,248Issuance of common
stock under private
placement during
three months ending
March 31, 2006 at
date of issuance
    
    
    18,750
    
    
    
    Issuance of common
stock under similar
terms as the
private placement
during three months
ending June 30,
2006 at date of
issuance
    
    
    25,000
    
    
    
    Issuance of
warrants under
private placement
during 2005
    
    
    
    
    
    
    271,191Fair value of the
excess of common
shares required to
settle all
outstanding
contracts as of
December 31, 2005
    
    
    
    
    
    
    514,808Total Derivative Liability
    
    $
    624,998
    
    
    $
    1,367,247
    F-22




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 6  STOCKHOLDERS EQUITY (CONTINUED)
 Receivables from Stockholders
 Note Receivable
  Receivable
  Stock options activity
  2006
    
    
    2005Wt Average
    
    
    
    
    
    
    Wt AverageExercise
    
    
    
    
    
    
    ExerciseOptions
    
    
    Price
    
    
    Options
    
    
    PriceOutstanding  beginning of year
    
    
    10,671,720
    
    
    $
    0.84
    
    
    
    11,531,720
    
    
    $
    0.93Granted
    
    
    4,130,000
    
    
    $
    0.63
    
    
    
    
    
    
    $
    Exercised
    
    
    (1,869,220
    )
    
    $
    0.09
    
    
    
    (50,000
    )
    
    $
    0.10Forfeited
    
    
    (680,000
    )
    
    $
    0.20
    
    
    
    (810,000
    )
    
    $
    2.20Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Expired
    
    
    (7,102,500
    )
    
    $
    1.17
    
    
    
    
    
    
    $
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Outstanding  end of year
    
    
    5,150,000
    
    
    $
    0.56
    
    
    
    10,671,720
    
    
    $
    0.84
  Total Outstanding
    
    
    Total Exercisable# of
    
    
    Wt Average
    
    
    
    
    
    
    # of
    
    
    Wt AveragePrice Range
    
    Shares
    
    
    Exercise Price
    
    
    Life
    
    
    Shares
    
    
    Exercise Price
    
    
    Life$0.07 - $0.35
    
    
    950.000
    
    
    $
    0.10
    
    
    
    2.54
    
    
    
    350,000
    
    
    $
    0.09
    
    
    
    2.42$0.36 - $0.99
    
    
    3,950,000
    
    
    $
    0.63
    
    
    
    9.29
    
    
    
    3,950,000
    
    
    $
    0.63
    
    
    
    9.29$1.00 - $1.25
    
    
    250,000
    
    
    $
    1.25
    
    
    
    0.16
    
    
    
    250,000
    
    
    $
    1.25
    
    
    
    0.165,150,000
    
    
    $
    0.56
    
    
    
    7.60
    
    
    
    4,550,000
    
    
    $
    0.62
    
    
    
    8.26
   F-23




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 6  STOCKHOLDERS EQUITY (CONTINUED)
 Stock warrant activity
     2006
    
    
    2005Wt Average
    
    
    
    
    
    
    Wt AverageWarrant
    
    
    Exercise Price
    
    
    Warrant
    
    
    Exercise PriceOutstanding  beginning of year
    
    
    2,734,375
    
    
    $
    0.39
    
    
    
    2,250,000
    
    
    $
    0.20Granted
    
    
    186,459
    
    
    $
    0.90
    
    
    
    484,375
    
    
    $
    1.25Exercised
    
    
    (1,500,000
    )
    
    $
    0.20
    
    
    
    
    
    
    $
    Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Outstanding  end of year
    
    
    1,420,834
    
    
    $
    0.65
    
    
    
    2,734,375
    
    
    $
    0.39
  Total Outstanding
    
    
    Total Exercisable# of
    
    
    Wt Average
    
    
    
    
    
    
    # of
    
    
    Wt AveragePrice Range
    
    Shares
    
    
    Exercise Price
    
    
    Life
    
    
    Shares
    
    
    Exercise Price
    
    
    Life$0.20 - $0.35
    
    
    750,000
    
    
    $
    0.20
    
    
    
    4.89
    
    
    
    750,000
    
    
    $
    0.20
    
    
    
    4.89$0.36 - $0.99
    
    
    100,000
    
    
    $
    0.60
    
    
    
    4.04
    
    
    
    100,000
    
    
    $
    0.60
    
    
    
    4.04$1.00 - $1.25
    
    
    570,834
    
    
    $
    1.25
    
    
    
    0.58
    
    
    
    570,834
    
    
    $
    1.25
    
    
    
    0.581,420,834
    
    
    $
    0.65
    
    
    
    3.10
    
    
    
    1,420,834
    
    
    $
    0.65
    
    
    
    3.10
  F-24




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  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-25




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
   2006Expected dividend yield
    
    
    0.00
    %Expected volatility
    
    72% to 81
    %Average risk-free interest rate
    
    4.82% to 5.21
    %Expected life (in years)
    
    
    0.9 to 6.5
   
    
    $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-26




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  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,
   Stock Options and Warrants Issued to Third Parties for Services
     F-27




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
   Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions relating to third party compensation
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2006
    
    
    2,784,220
    
    
    $
    0.09
    
    
    
    
    
    
    $
    1,480,294Granted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Exercised
    
    
    (1,584,220
    )
    
    $
    0.09
    
    
    
    
    
    
    $
    (192,633
    )Forfeited
    
    
    (500,000
    )
    
    $
    0.05
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2006
    
    
    700,000
    
    
    $
    0.12
    
    
    
    2.69
    
    
    $
    279,500Exercisable at December 31,
2006
    
    
    200,000
    
    
    $
    .10
    
    
    
    2.64
    
    
    $
    81,500
   Weighted-Average Grant-DateNonvested options relating to third party compensation
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    900,000
    
    
    $
    0.12Granted
    
    
    
    
    
    $
    Vested
    
    
    
    
    
    $
    Forfeited
    
    
    (400,000
    )
    
    $
    0.06Expired
    
    
    
    
    
    $
    Nonvested at December 31, 2006
    
    
    500,000
    
    
    $
    0.17
   F-28




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
   Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicWarrants relating to third party compensation
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted
    
    
    150,000
    
    
    $
    0.82
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2006
    
    
    150,000
    
    
    $
    0.82
    
    
    
    4.04
    
    
    $
    Exercisable at December 31, 2006
    
    
    150,000
    
    
    $
    0.82
    
    
    
    4.04
    
    
    $
    
   Stock Options Issued to Employees and Directors for Compensation
    F-29




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
          F-30




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
      2005Net lossAs reported
    
    $
    (2,344,525
    )Deduct: reported stock compensation
expense under APB 25  net of tax
    
    
    (6,250
    )Pro forma net loss
    
    $
    (2,350,775
    )Basic and diluted loss per share:As reported
    
    $
    (0.06
    )Pro Forma
    
    $
    (0.06
    )
   F-31




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions relating to employee and director compensation
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2006
    
    
    7,887,500
    
    
    $
    1.10
    
    
    
    
    
    
    $
    593,650Granted
    
    
    3,530,000
    
    
    $
    0.65
    
    
    
    
    
    
    
    Exercised
    
    
    (285,000
    )
    
    $
    0.07
    
    
    
    
    
    
    $
    (93,950
    )Forfeited
    
    
    (180,000
    )
    
    $
    0.60
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    (7,102,500
    )
    
    $
    1.17
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2006
    
    
    3,850,000
    
    
    $
    0.65
    
    
    
    8.25
    
    
    $
    110,000Exercisable at December 31,
2006
    
    
    3,750,000
    
    
    $
    .67
    
    
    
    8.41
    
    
    $
    66,000
    Weighted-Average Grant-DateNonvested options relating to employee and director compensation
    
    Shares
    
    
    Fair ValueNonvested at January 1, 2006
    
    
    2,750,000
    
    
    $
    0.01Granted
    
    
    180,000
    
    
    $
    0.43Vested
    
    
    (50,000
    )
    
    $
    0.13Forfeited
    
    
    (180,000
    )
    
    $
    0.43Expired
    
    
    (2,600,000
    )
    
    $
    0.01Nonvested at December 31, 2006
    
    
    100,000
    
    
    $
    0.13
    F-32




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 7  SHARE-BASED COMPENSATION (CONTINUED)
  Weighted-AverageWeighted-
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    IntrinsicOptions relating to interest expense to directors
    
    Shares
    
    
    Exercise Price
    
    
    Term
    
    
    ValueOutstanding at January 1, 2006
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted
    
    
    600,000
    
    
    $
    0.52
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Converted
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Expired
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Canceled
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    Outstanding at December 31,
2006
    
    
    600,000
    
    
    $
    0.52
    
    
    
    9.18
    
    
    $
    Exercisable at December 31,
2006
    
    
    600,000
    
    
    $
    .52
    
    
    
    9.18
    
    
    $
    
   NOTE 8  RELATED PARTY TRANSACTIONS
 Office space
    F-33




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 8  RELATED PARTY TRANSACTIONS (CONTINUED)
 Technology Purchase Agreement
  Laboratory services
  Dialysis services
  Due to stockholders  discontinued operations
    F-34




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 8  RELATED PARTY TRANSACTIONS (CONTINUED)
 Interest
  Sale of assets
  NOTE 9  DISCONTINUED OPERATIONS  DIALYSIS CLINIC
   F-35




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 10  COMMITMENTS AND CONTINGENCIES
 Operating Leases
   Litigation
     F-36




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 10  COMMITMENTS AND CONTINGENCIES (CONTINUED)
 Litigation (Continued)
    NOTE 11  EMPLOYEE BENEFIT PLAN
  NOTE 12  MALPRACTICE INSURANCE
   F-37




---



##### Table of Contents



National Quality Care, Inc.Notes To Consolidated Financial StatementsDecember 31, 2006
 NOTE 13  SEGMENT INFORMATION
    F-38




---



##### Table of Contents



SIGNATURES
  NATIONAL QUALITY CARE, INC.Date:  April 17, 2007
    By:
    /s/    ROBERT SNUKAL.Robert SnukalChief Executive Officer and President  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)
    
    April 17, 2007/s/ ROBERT SNUKAL

Robert Snukal
    
    Chief Executive Officer,
President and Director
(principal executive officer)
    
    April 17, 2007/s/ RONALD LANG, M.D.

Ronald Lang, M.D.
    
    Executive Vice-President,
Secretary and Director
    
    April 17, 2007/s/ JOSE SPIWAK
    
    Director
    
    April 17, 2007Jose Spiwak, M.D.
  32




---



##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description10.10
    
    License Agreement, dated as of September 1, 2006, between the Company and
Xcorporeal, Inc.10.11
    
    Merger Agreement, dated as of September 1, 2006, among the Company, NQCI
Acquisition Corporation and Xcorporeal, Inc.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.