LIFE CRITICAL CARE CORP, SB-2/A, 1997-02-04

LIFE CRITICAL CARE CORP
SB-2/A, 1997-02-04
HEALTH SERVICES

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As filed with the Securities and Exchange Commission on February 4, 1997

Registration No. 333-14755

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------

AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------

LIFE CRITICAL CARE CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Delaware 7352 65-0646290
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

3333 W. Commercial Blvd., Suite 203
Fort Lauderdale, Florida 33309
(954) 486-0424

(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive
offices)

Thomas H. White
Chief Executive Officer
3333 W. Commercial Blvd., Suite 203
Fort Lauderdale, Florida 33309
(954) 486-0424

(Name, address, including zip code, and telephone number,
including area code, of agent for service)

George S. Lawler, Esquire David S. Rosenthal, Esquire
Whiteford, Taylor & Preston L.L.P. Shereff, Friedman, Hoffman & Goodman, LLP
210 West Pennsylvania Avenue 919 Third Avenue
Towson, Maryland 21204-4515 New York, New York 10022
(410) 832-2000 (212) 758-9500

Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

<PAGE>

PROSPECTUS SUBJECT TO COMPLETION FEBRUARY 4, 1997

2,000,000 SHARES
LIFE CRITICAL CARE CORPORATION
COMMON STOCK
All of the shares of common stock, par value $.01 per share (the "Common
Stock"), offered hereby (the "Offering") are being issued and sold by Life
Critical Care Corporation (the "Company" or "Life Critical Care").

Prior to the Offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price will be
$5.50 per share. For information relating to the factors considered in
determining the initial public offering price, see "Underwriting." The Company
has received conditional approval for the quotation of the Common Stock on the
Nasdaq Small-Cap Market under the trading symbol "LCCC."

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
SEE "RISK FACTORS" BEGINNING ON PAGE EIGHT HEREOF AND
"DILUTION."

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
[CAPTION]
<TABLE>
UNDERWRITING DISCOUNTS PROCEEDS TO
PRICE TO PUBLIC AND COMMISSIONS (1) THE COMPANY (2)
<S> <C>
Per Share........................................... $ $ $
Total (3)........................................... $ $ $
</TABLE>
(1) Does not include a 2.5% non-accountable expense allowance payable to H. J.
Meyers & Co., Inc. (the "Underwriter") and warrants to purchase 200,000
shares of Common Stock issuable to the Underwriter (the "Underwriter
Warrants"). The Company has agreed to indemnify the Underwriter against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses in connection with the Offering, estimated at
$1,035,000, including the non-accountable expense allowance of $275,000, or
$316,250 if the Underwriter's over-allotment option is exercised in full,
payable by the Company.

(3) The Company has granted to the Underwriter an option, exercisable within 30
days of the date of this Prospectus, to purchase up to 300,000 additional
shares of Common Stock on the same terms as set forth above, solely to cover
over-allotments. If this option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions and Proceeds to the Company
will be $ , $ and $ , respectively. See
"Underwriting."

The shares of Common Stock offered hereby are being offered by the
Underwriter when, as and if delivered to and accepted by the Underwriter,
subject to prior sale and acceptance by the Underwriter and subject to its right
to withdraw, cancel, modify or reject any order in whole or in part. It is
expected that delivery of the Common Stock will be made at the offices of H. J.
Meyers & Co., Inc., 1895 Mt. Hope Avenue, Rochester, New York 14620.
H. J. MEYERS & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1997.

<PAGE>
[MAP]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALL-CAP MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish to its stockholders annual reports containing
consolidated audited financial statements.
2

<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. SIMULTANEOUSLY WITH THE CLOSING OF THE OFFERING, LIFE CRITICAL
CARE WILL ACQUIRE, IN SEPARATE TRANSACTIONS (THE "ACQUISITIONS") IN EXCHANGE FOR
CASH AND SHARES OF ITS COMMON STOCK, SUBSTANTIALLY ALL OF THE ASSETS OF THREE
HOME HEALTH CARE COMPANIES (EACH AN "ACQUIRED COMPANY" AND COLLECTIVELY THE
"ACQUIRED COMPANIES"). THE COMPLETION OF THE ACQUISITIONS AND THE CLOSING OF THE
CREDIT FACILITY (DEFINED BELOW) ARE CONDITIONS TO THE CONSUMMATION OF THE
OFFERING. UNLESS OTHERWISE INDICATED, REFERENCES TO THE COMPANY ASSUME
COMPLETION OF THE ACQUISITIONS AND INCLUDE THE OPERATIONS OF THE ACQUIRED
COMPANIES. EXCEPT AS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION AND HAS BEEN
ADJUSTED TO REFLECT THE ISSUANCE OF 771,875 SHARES OF COMMON STOCK AS PART OF
THE CONSIDERATION FOR THE ACQUISITIONS. WHEN USED HEREIN, THE TERM "OFFERING
PRICE" MEANS $5.50 PER SHARE OF COMMON STOCK.

THE COMPANY
Life Critical Care is a provider of home health care products and services
in the Northern Midwest region of the United States. Life Critical Care provides
a wide range of home health care products and services, including respiratory
therapy services and home medical equipment sales and rentals. The Company
operates from a total of 22 locations in Michigan and Wisconsin. The Company
believes that the Midwest region offers significant growth opportunities due to
the fragmentation of the home health market in the region. The Company's
objective is to become a leading comprehensive provider of home health care
products and services in the Midwest through acquisitions, internal growth and
the development of provider networks and strategic alliances, such as
contracting with other home health care providers for the provision of certain
services.
Life Critical Care was founded in June 1995. Although it has conducted no
operations to date, Life Critical Care has entered into definitive agreements to
acquire, simultaneously with the closing of the Offering, substantially all of
the assets of the following three home health care companies: (i) Blue Water
Medical Supply, Inc. and Blue Water Industrial Products, Inc. (collectively,
"Blue Water"); (ii) Great Lakes Home Medical, Inc. ("Great Lakes"); and (iii)
ABC Medical Supply, Inc. ("ABC"). The pro forma consolidated revenues of the
Acquired Companies were approximately $11.5 million and $8.9 million for the
year ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. The aggregate purchase price of the Acquired Companies consists of
771,875 shares of Common Stock and approximately $14.0 million in cash to be
provided by the net proceeds of the Offering to the Company and proceeds from a
bank credit facility (the "Credit Facility"). The purchase prices for each of
the Acquired Companies were determined by arms-length negotiations between the
respective sellers of the Acquired Companies and Life Critical Care. See "The
Company."
The home health care industry includes the provision of respiratory,
infusion therapy and nursing services in the home and the sale or rental of
medical equipment and supplies for use in the home. According to industry
sources, home health care is among the fastest growing segments of the health
care industry, with total expenditures in 1995 estimated to be approximately
$27.0 billion. The underlying growth factors in the home health care industry
include the following: (i) the cost-effective nature of home care compared to
hospital care; (ii) demographic trends toward an aging population; (iii)
technological advances that expand the range of home health procedures; and (iv)
patient preference for treatment in the home. See "Business -- Industry
Overview."
Historically, the home health care industry has been highly fragmented and
largely characterized by local providers serving discrete geographic areas and
offering a limited range of services. The Company believes these providers often
do not have the capital necessary to expand their operations or the range of
services offered, which limits their ability to compete for referrals and to
realize efficiencies in their operations. Payors are increasingly seeking home
health care providers that offer a cost-effective, comprehensive range of
services, which further limits the ability of local providers to compete. As a
result of these economic and competitive pressures, and an increasing regulatory
burden, the home health care industry is undergoing rapid consolidation, a trend
the Company expects to continue.
3

<PAGE>
The Company has developed the following strategy in order to achieve its
goal of becoming a leading comprehensive provider of home health care products
and services in the Midwest.
(Bullet) EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue an
aggressive acquisition strategy. In existing markets, the Company
will seek acquisitions that increase market share and broaden the
range of products and services provided by the Company in those
markets. In new geographic markets, the Company will target
established Midwestern home health care providers that are either
leaders in their geographic markets or provide other strategic
advantages to the Company.
(Bullet) ACCELERATING INTERNAL GROWTH. A key component of the Company's
strategy is to accelerate internal growth at each Acquired Company
and each subsequently acquired home health care business by
expanding existing product and service offerings. The Company
intends to expand its respiratory services operations and add
infusion therapy and nursing services at selected locations. The
expansion of these products and services may be accomplished
through provider networks or strategic alliances with other home
health care companies. The Company also intends to enhance its
sales and marketing efforts by developing programs targeted at
each of the major referral sources, including hospital discharge
planners, physicians and physician groups, as well as managed care
sources.
(Bullet) CAPITALIZING ON NEW MANAGEMENT AND CORPORATE STRUCTURE. The
Company has assembled a professional management team with
extensive experience in the home health care industry. The
Company's new management team intends to position the Company to
take advantage of the growth opportunities presented by industry
consolidation. In addition, the new corporate structure will allow
the consolidation of administrative functions of the Acquired
Companies such as reimbursement, billing and collection,
purchasing, management information and accounting systems and the
improvement of operating efficiencies through the elimination of
redundant facilities and equipment. The Company also believes that
it will have greater purchasing power in such areas as supplies,
inventory, equipment and insurance and better access to capital
than the Acquired Companies had independently. See
"Business -- Strategy."
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company...................... 2,000,000 shares (1)
Common Stock to be outstanding after the Offering........ 3,794,508 shares (2)
Use of proceeds.......................................... To pay a part of the cash portion of the purchase price for the
Acquired Companies and repay indebtedness. See "Use of Proceeds."
Proposed Nasdaq Small-Cap Market Symbol.................. LCCC
</TABLE>

(1) Includes 457,000 shares held by founding stockholders and management that
are prohibited from being transferred prior to December 2004 unless and
until the Company satisfies certain earnings performance criteria. See
"Shares Eligible for Future Sale."

(2) Excludes (i) 350,000 shares of Common Stock reserved for issuance upon the
exercise of stock options outstanding under individual awards and the
Company's 1996 Stock and Incentive Plan (the "1996 Plan"), none of which
will vest until December 2004 unless the Company satisfies certain earnings
performance criteria and (ii) 200,000 shares issuable upon exercise of the
Underwriter Warrants. See "Management -- Board of Directors," " -- 1996
Stock and Incentive Plan," "Shares Eligible for Future Sale" and
"Underwriting."
RISK FACTORS
The Common Stock offered hereby involves a high degree of risk, including
those discussed under "Risk Factors."
4

<PAGE>
SUMMARY FINANCIAL DATA
Life Critical Care will acquire the Acquired Companies simultaneously with
the closing of the Offering. The following table presents summary historical
financial data for each of the Acquired Companies and Life Critical Care
Corporation, as well as unaudited summary pro forma consolidated financial data.
The historical financial data below are derived from and should be read in
conjunction with the historical financial statements included elsewhere in this
Prospectus. The pro forma consolidated financial statement of operations data
below give effect to the Acquisitions as if they had occurred as of the
beginning of the periods presented. During the periods presented, the Acquired
Companies were not under common control or common management. Therefore, the
unaudited pro forma consolidated financial data presented may not be indicative
of the future results of operations or financial condition of the Company or the
results which would have occurred had the Acquired Companies been consolidated
during the periods presented. See the Unaudited Condensed Consolidated Pro Forma
Financial Data included elsewhere in this Prospectus.

LIFE CRITICAL CARE PRO FORMA CONSOLIDATED FINANCIAL DATA (1)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, 1995 1996
<S> <C>
Pro Forma Consolidated Statement of Operations Data:
Pro forma revenues.............................................................. $11,477,572 $ 8,885,443
Pro forma income from operations................................................ 2,643,320 1,945,065
Forfeiture of deposit........................................................... -- 700,000(2)
Financing expense............................................................... -- 89,000(3)
Other (income) expense, net..................................................... 909,416 636,991
Pro forma income before income taxes............................................ 1,733,904 519,074(4)
Pro forma net income............................................................ 1,040,342 311,444(4)
Pro forma net income per share.................................................. $ 0.31 $ 0.09(4)
Pro forma weighted average shares (5)........................................... 3,318,267 3,307,827
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
PRO FORMA
AS ADJUSTED (6)
<S> <C>
Pro Forma Consolidated Balance Sheet Data:
Working capital...................................................................................... $ 2,459,699
Total assets......................................................................................... 20,097,978
Total debt, including current portion................................................................ 8,031,797
Stockholders' equity................................................................................. 11,492,988
</TABLE>

(1) See Unaudited Condensed Consolidated Pro Forma Financial Data for a
discussion of the pro forma adjustments.
(2) Represents the non-recurring forfeiture of a deposit on a home health care
company that is not being acquired by Life Critical Care for strategic
business reasons. The Company believes that future acquisitions, if any,
will not involve non-refundable cash deposits, and therefore does not
anticipate incurring forfeitures of deposits in the future.
(3) Represents the difference between the purchase price and the fair market
value of stock issued in connection with the September Bridge.

(4) Excluding the forfeiture of deposit and financing expense, pro forma net
income before income taxes, pro forma net income and pro forma net income
per share would have been $1,308,074, $784,844 and $0.24, respectively, for
the nine months ended September 30, 1996.

(5) Excludes shares reserved for issuance pursuant to the Company's stock option
plans and under individual awards.
(6) Gives effect to (i) the Acquisitions using the purchase method of accounting
as if they occurred on September 30, 1996, (ii) the issuance of 771,875
shares of Common Stock to the sellers of the Acquired Companies, and (iii)
the incurrence of indebtedness under the Credit Facility, as adjusted for
the sale of the 2,000,000 shares of Common Stock offered hereby at the
Offering Price and the application of the net proceeds therefrom.
5

<PAGE>
HISTORICAL FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
1994 1995 1995 1996
<S> <C>
Historical Financial Data
Blue Water:
Revenues........................................................ $4,773,100 $5,289,682 $3,870,821 $4,208,055
Income from operations.......................................... 517,788 677,905 471,352 697,539
Net income...................................................... 459,334 623,774 442,559 632,628
Great Lakes:
Revenues........................................................ $2,672,078 $3,229,062 $2,344,402 $2,454,346
Income from operations.......................................... 440,673 1,196,959 819,250 837,991
Net income...................................................... 413,576 1,142,258 795,912 824,256
ABC:
Revenues........................................................ $2,602,203 $2,958,828 $2,206,910 $2,223,042
Income (loss) from operations................................... (485) 359,243 284,315 328,753
Net income (loss)............................................... (11,211) 358,156 284,284 326,381

<CAPTION>
JUNE 19,
1995 NINE
(INCEPTION) MONTHS
TO ENDED
DECEMBER SEPTEMBER
31, 1995 30, 1996
<S> <C>
Life Critical Care:
Operating expenses:
General and administrative................................................. $ 20,049 $ 187,273
Management fee............................................................. 225,000 136,500
Professional fees.......................................................... 10,259 143,229
Operating loss.................................................................. (255,308) (467,002)
Forfeiture of deposit........................................................... -- 700,000(1)
Financing expense............................................................... -- 89,000(2)
Interest expense................................................................ 12,618 175,693
Net loss........................................................................ $ (267,926) $(1,431,695)
</TABLE>

(1) Represents the non-recurring forfeiture of a deposit on a home health care
company that is not being acquired by Life Critical Care for strategic
business reasons. The Company believes that future acquisitions, if any,
will not involve non-refundable cash deposits, and therefore does not
anticipate incurring forfeitures of deposits in the future.
(2) Represents the difference between the purchase price and the fair market
value of stock issued in connection with the September Bridge.
6

<PAGE>
THE COMPANY
Although the Company has conducted no operations to date, the Company has
executed definitive agreements to acquire, simultaneously with the consummation
of the Offering, the Acquired Companies. Set forth below is certain information
with respect to each of the Acquired Companies.
BLUE WATER MEDICAL SUPPLY, INC. AND BLUE WATER INDUSTRIAL PRODUCTS, INC.

Blue Water, based in New Baltimore, Michigan, provides respiratory therapy
and home medical equipment and supplies to customers in Southeastern Michigan,
including the Detroit metropolitan area. Blue Water also supplies industrial
gases to medical offices and other customers. The Company is currently
considering the disposition of Blue Water's industrial gas business operating as
Blue Water Industrial Products, Inc. ("Blue Water Industrial"), and has entered
into a finders' fee arrangement with the sellers of Blue Water. The sale of Blue
Water Industrial if it were to occur would not have a material effect on the
Company's pro forma assets, revenues or stockholders' equity. Blue Water
received accreditation from The Joint Commission on the Accreditation of
Healthcare Organizations ("JCAHO") in 1993 and has been in business for over 30
years. Blue Water has two locations and, as of October 31, 1996, had 44
employees.

GREAT LAKES HOME MEDICAL, INC.
Great Lakes, based in Escanaba, Michigan, provides respiratory therapy and
home medical equipment and supplies to customers in the upper peninsula area of
Michigan and Northern Wisconsin. The Company intends to apply for JCAHO
accreditation for Great Lakes following the Offering. Great Lakes has been in
business for over 9 years and has 7 locations and, as of October 31, 1996, had
40 employees, serving mostly non-urban areas.
ABC MEDICAL SUPPLY, INC.
ABC, based in West Branch, Michigan, provides respiratory therapy and home
medical equipment and supplies to customers in Central and Northern Michigan.
ABC has a total of 13 locations and, as of October 31, 1996, had 34 employees,
serving mostly non-urban areas. ABC received its JCAHO accreditation in 1994.
The consideration to be paid by Life Critical Care to complete the
Acquisitions consists of approximately $14.0 million in cash and 771,875 shares
of Common Stock, subject to certain adjustments. The consideration was
determined by arms-length negotiations between Life Critical Care and the
sellers of each of the Acquired Companies, based primarily on the results of
operations and financial condition of each Acquired Company, as well as
strategic considerations. None of the sellers of the Acquired Companies are
affiliated with Life Critical Care or its founding stockholders.
The following table sets forth the consideration being paid for each
Acquired Company:

<TABLE>
<CAPTION>
COMMON STOCK TOTAL
CASH SHARES(#) VALUE (1) CONSIDERATION(2)
<S> <C>
Blue Water(3)....................................................... $ 5,494,500 122,100 $ 671,550 $ 6,166,050
ABC................................................................. 3,700,000 327,275 1,800,000 5,500,000
Great Lakes(4)...................................................... 4,837,500 322,500 1,773,750 6,611,250
Total........................................................ $ 14,032,000 771,875 $ 4,245,300 $ 18,277,300
</TABLE>

(1) Represents the cash value of the shares of Common Stock issued as
consideration based upon the Offering Price.

(2) The asset purchase agreements provide for certain post-closing adjustments
and prorations. Any such adjustments are not expected to be material.

(3) The purchase price for Blue Water is $6,105,000, payable 90% in cash and 10%
in Common Stock valued at 90% of the Offering Price. The Company may be
required to issue Common Stock with a value of up to $201,465 in the event
the average closing price of the Common Stock for the ten business days
ending with the second anniversary of closing declines by at least 15% from
the Offering Price.

(4) The contract purchase price for Great Lakes is $6,450,000, payable 75% in
cash and 25% in Common Stock valued at 91% of the Offering Price.

<PAGE>
The Company was incorporated in Delaware in June 1995. The Company's
executive offices will be located at the headquarters of Blue Water Medical
Supply, 37885 Green Street, New Baltimore, Michigan 48047, following
consummation of the Offering. The Company's executive offices are currently
located at 3333 West Commercial Blvd., Suite 203, Fort Lauderdale, Florida
33309, and its telephone number is 954-486-0424.
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before making an investment in the Common Stock offered hereby.
LACK OF COMBINED OPERATING HISTORY. The Company has no independent
operating history. Although the Acquired Companies each have a substantial
operating history on an individual basis, they have not been operated as a
consolidated entity. Accordingly, the Company's prospects cannot be evaluated
solely based on the history of the Acquired Companies and should be evaluated in
light of the uncertainties and risks related to the Company's ability to
successfully integrate the Acquired Companies, to recognize operational and
administrative efficiencies in delivering products and services and to expand
operations and enhance its ability to compete for referrals. The Company's
management group has been assembled only recently and there can be no assurance
that the management group will be able to effectively manage the consolidated
entity or effectively implement the Company's strategy, including the objective
of becoming a leading provider of comprehensive home health care in the Midwest.
There can be no assurance that the Company will succeed in addressing any or all
of these risks. The failure to do so could have a material adverse effect on the
Company's business, results of operations and financial condition.
RISKS ASSOCIATED WITH ACQUISITION STRATEGY. The Company will consummate the
Acquisitions simultaneously with the consummation of the Offering. The Company
intends to expand its business through selective acquisitions of other
established home health care companies, primarily those engaged in respiratory
therapy and durable medical equipment sales and rentals. There can be no
assurance, however, that the Company will be able to successfully integrate or
retain key personnel of the Acquired Companies or of future acquisitions. There
also can be no assurance that the Company will not incur disruptions and
unexpected expenses or experience reduced revenues in integrating the Acquired
Companies or future acquisitions. Competition for acquisition candidates exists
and may intensify, in which event there may be fewer acquisition opportunities,
as well as higher acquisition prices. Many of the competitors for such
acquisitions have greater financial and operational resources than Life Critical
Care. Furthermore, the process of identifying, evaluating, negotiating and
integrating acquisitions may divert management time and resources away from
current operations. There can be no assurance that any given acquisition, when
consummated, will not materially adversely affect the Company's business,
results of operations or financial condition. The Company currently has no
agreements, commitments or understandings with respect to any acquisitions.
INABILITY TO OBTAIN ACQUISITION FINANCING. The Company currently
anticipates that a substantial portion of the consideration for future
acquisitions will consist of cash and that the Company will be required to
utilize borrowings, if available, to pursue its acquisition program. The Company
has limited cash resources and borrowing capacity which may be insufficient to
allow the Company to pursue its acquisition program. In addition, the Credit
Facility contains restrictive financial covenants, including minimum debt
service coverage and net worth requirements, and limitations on indebtedness,
capital expenditures, mergers and the purchase or sale of assets not in the
ordinary course of business, which may restrict the Company's ability to borrow.
There can be no assurance that the Company will be able to obtain financing for
its acquisition program on terms the Company deems acceptable or at all. See
" -- Substantial Indebtedness;" " -- Future Capital Needs; Uncertainty of
Additional Financing" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources --
Consolidated."
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS. The Company is dependent
on third-party payors for a majority of its revenues. Medicare, Medicaid and
other payors, such as managed care organizations (including health maintenance
organizations ("HMOs") and preferred provider organizations ("PPOs")),
traditional indemnity insurers and third-party administrators ("TPAs") are
increasing pressures both to control health care utilization and to limit
reimbursement. Since substantially all of the Company's revenues will be
attributable to payments received from Medicare and a limited number of other
payor categories, the level of revenues and profitability of the Company will be
subject to the effect of possible changes in the mix of the Company's patients
among Medicare, Medicaid and third-party payor categories, increases in case
management and review of services or reductions in coverage or reimbursement
rates by such payors. Such changes could have a material adverse effect on the
Company's business, results of operations or financial condition. See
"Business -- Reimbursement, Billing and Collection" and " -- Regulation."
8

<PAGE>

POTENTIAL REDUCTIONS IN MEDICARE REIMBURSEMENT. The Federal government is
considering significant reductions in planned Medicare spending. The Senate and
the House of Representatives have passed budget resolutions calling for
reductions of up to $270 billion in forecasted Medicare expenditures over the
next seven years. No specific measures for achieving such reductions have been
adopted, but Congressional proposals include reductions in oxygen reimbursement
rates of up to 20% and a prohibition on increases in reimbursement rates for a
seven year period. As part of its fiscal 1998 budget, the Clinton Administration
plans to propose Medicare reforms including a prospective payment system for
home health care estimated to result in $20 billion in savings over six years.
In August 1996, the Health Care Financing Administration ("HCFA"), which
regulates the Medicare and Medicaid programs, after completing its study of
reasonable market prices, proposed a 40% reduction in oxygen reimbursement
rates. HCFA has not yet issued this proposal for Administration approval for
publication for notice and comment, but it is expected to do so in connection
with efforts to restrain federal spending. If approved, the reduction would have
a material adverse effect on the Company's business by significantly decreasing
the Company's revenues from its respiratory therapy services, which represented
approximately 72.0% of the Company's pro forma consolidated revenues during each
of 1995 and the nine months ended September 30, 1996. Another proposal would
change Medicare reimbursement for skilled nursing, rehabilitation services and
the first 60 days of home health care services by "bundling" payments for these
services into a single prospective payment to hospitals to cover "post-acute"
care for beneficiaries who are discharged from a hospital. The adoption of any
or all of such proposals could have a material adverse effect on the Company's
business, results of operations or financial condition. See "Business --
Regulation."

REIMBURSEMENT PAYMENT DELAYS. The Company generally is paid for its
services by government health administration authorities, insurance companies,
or other third party payors, not by the patients themselves. The home health
care industry is generally characterized by long collection cycles for accounts
receivable due to the complex and time consuming requirements for obtaining
reimbursement from private and governmental third party payors. In addition,
reimbursement from government payors is subject to examination and retroactive
adjustment. Such delays or retroactive adjustments could lead to cash shortages,
which may require the Company to borrow funds, issue equity securities or take
other action to meet its ongoing obligations. The Company would be adversely
affected if it were to experience such difficulties and were unable to obtain
funds on acceptable terms to meet possible cash shortages. See
"Business -- Reimbursement, Billing and Collection" and " -- Regulation."
HEALTH CARE REFORM RISKS. The health care industry is subject to changing
political, economic and regulatory influences that may affect the procurement
practices and operation of health care industry participants. Changes in the law
or new interpretations of existing laws may have a dramatic effect on the
definition of permissible or impermissible activities, the relative costs
associated with doing business and the amount of payment for medical care by
both governmental and other payors. In addition, numerous health care reform
proposals have been formulated by the current administration, members of
Congress and state legislators. Recent HCFA regional office action, which became
effective December 1, 1996, imposes reductions in reimbursement rates and
delivery restrictions on aerosol medications, and prohibits DME suppliers from
billing for prescription products unless they are licensed as pharmacies.
Government officials can be expected to continue to review and assess
alternative health care delivery systems and payment methodologies, and public
debate of these issues can be expected to continue in the future. The adoption
of reforms or alternative delivery systems could have a material adverse effect
on the Company's business, results of operations or financial condition. See
"Business -- Regulation."
RISKS ASSOCIATED WITH GOVERNMENTAL REGULATION. As a provider of services
under the Medicare and Medicaid programs, the Company is subject to strict laws
at both the federal and state levels which provide for civil and criminal
penalties, loss of licensure and exclusion from participation in the Medicare
and Medicaid programs. As a result of the Acquisitions, the Medicare
participation agreements of the Acquired Companies will automatically be
assigned to the Company. The federal government, private insurers and various
state enforcement agencies have increased their scrutiny of provider business
practices and claims, particularly in the area of home health care and durable
medical equipment, in an effort to identify and prosecute fraudulent and abusive
practices. While the Company believes that the Acquired Companies are in
material compliance with such laws, there can be no assurance that the practices
of the Company, if reviewed, would be found to be in full compliance with such
laws, as such laws ultimately may be interpreted. In addition, the federal
government and individual states regulate various aspects of the home health
care industry. Such regulations include federal and state laws covering the
dispensing of drugs and the operation of pharmacies, as well as state laws which
impose licensure requirements on home health care agencies and on certain types
of health care practitioners employed by the Company. The failure to obtain,
renew or maintain any of the required federal, state or local regulatory
certifications, approvals or licenses could have a material adverse affect on
the Company. There can be no assurance that either the Federal government or the
states will not impose additional regulations which would adversely affect the
Company's business, results of operations or financial condition. See
"Business -- Regulation."
9

<PAGE>
DEPENDENCE ON RELATIONSHIPS WITH REFERRAL SOURCES. The growth and
profitability of the Company depend on its ability to establish and maintain
close working relationships with referral sources, including payors, hospitals,
physicians and other health care professionals. Hospitals, physicians and
managed care organizations, which are exerting an increasing amount of influence
over the health care industry, have been consolidating to enhance their ability
to impact the delivery of health care services. There can be no assurance that
the Company will be able to successfully maintain existing referral sources or
develop and maintain new referral sources, or that some of its referral sources
will not become competing providers of home health care services. The loss of
any significant number of existing referral sources or the failure to develop
new referral sources could have a material adverse effect on the Company's
business, results of operations or financial condition. The Company's
relationships with existing and potential referral sources also could be
adversely affected by a loss of JCAHO accreditation or by the inability of the
Company to obtain JCAHO accreditation. Accredited companies are subject to
periodic resurveys by JCAHO, and there can be no assurance that a renewal of
accreditation will be forthcoming. See "Business -- Operations -- Sales and
Marketing."
SUBSTANTIAL INDEBTEDNESS. Upon consummation of the Offering, the Company's
sources of liquidity will consist of cash and cash equivalents and amounts
available under the revolving credit portion of the Credit Facility, as well as
funds generated from operations. The Company will have only approximately
$204,000 in cash and cash equivalents and will be required to make substantial
principal and interest payments under the Credit Facility. Based on current
rates, required principal and interest payments under the term and subordinated
debt portions of the Credit Facility will total approximately $1,453,000 during
1997. Payments of principal and interest will have to be made with respect to
such borrowings regardless of the Company's operating results. Because a
substantial portion of the Company's operating cash flow will be required to be
utilized to service the indebtedness under the Credit Facility, the working
capital available to the Company to capitalize on business opportunities and to
pursue all elements of its growth strategy will be limited. In addition, the
credit agreements relating to the Credit Facility contain customary
representations, warranties and covenants, as well as prohibitions against the
incurrence of other indebtedness without the consent of the lender. The
Company's obligations under the Credit Facility are secured by a pledge of
substantially all of the assets of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Consolidated."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The Company may
need to raise additional funds to meet its working capital needs, develop new or
enhanced services, respond to competitive pressures, acquire complementary
businesses or upgrade management information systems. If additional funds are
raised through the issuance of equity securities, the percentage ownership of
the existing stockholders of the Company will be reduced, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences or privileges senior to those of the holders of the Company's Common
Stock. There can be no assurance that additional financing will be available
when needed on terms favorable to the Company or at all. The inability of the
Company to obtain additional financing on acceptable terms could have a material
adverse effect on the Company's business, financial condition or operating
results. In addition, the Company has agreed that it will not sell any
securities (except upon the exercise of outstanding options, warrants or rights)
for a period of 12 months from the date of this Prospectus, without the
Underwriter's prior written consent. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Consolidated" and "Underwriting."
CURRENT GEOGRAPHIC CONCENTRATION. Substantially all of the Company's pro
forma consolidated net revenues has been derived from operations in Michigan and
Wisconsin. Unless and until the Company's operations become more diversified
geographically (as a result of acquisitions or internal expansion), adverse
economic, regulatory, or other developments in the foregoing states could have a
material adverse effect on the Company. See "Business -- Regulation."
UNCERTAINTY OF EXPANSION INTO NEW GEOGRAPHIC MARKETS. In pursuing its
growth strategy, the Company may expand its presence into new geographic
markets. When entering new geographic markets, the Company will need to
establish relationships with additional referral sources and will be reliant on
local management, who have important relationships with local referral sources.
In addition, the Company will be required to comply with laws and regulations of
states that could differ from those in which the Company currently operates, and
may face competitors with greater knowledge of such local markets. There can be
no assurance that the Company will be able to maintain existing or establish new
referral sources, develop efficient business operations or otherwise establish a
presence in these new geographic markets. See "Business -- Business Strategy."
DEPENDENCE ON KEY MANAGEMENT AND HEALTH CARE PROFESSIONALS. The Company's
success will be highly dependent on Thomas H. White, its Chief Executive
Officer, Frank E. McGeath, its Chief Financial Officer, as well as its other key
management and health care professionals. The loss of one or more of these
personnel could have a material adverse effect on the
10

<PAGE>
Company. The Company has entered into an employment agreement with Mr. White;
however, the Company does not have similar arrangements with its other key
management personnel. The Company intends to obtain a $1.0 million key man life
insurance policy on Mr. White, which will be assigned to the Bank (as defined)
under the Credit Facility. The Company's success will also depend in part on its
ability to attract and retain additional qualified management and health care
professionals. Competition for such personnel in the health care industry is
strong. There can be no assurance that the Company will be successful in
attracting or retaining the personnel it requires. See "Business -- Employees"
and "Management."
HIGHLY COMPETITIVE INDUSTRY. The home health care industry is highly
competitive and includes a large number of providers. The Company competes with
major national and regional companies, hospital-based provider programs as well
as local providers. Many current and potential competitors have or may obtain
significantly greater financial and marketing resources than the Company. In
addition, compared to other health care markets, relatively few barriers to
entry exist in the home health care industry. Other companies, including
manufacturers and suppliers of home health care equipment, managed care
organizations, hospitals and other health care providers and provider groups
that currently are not serving the home health care market, may become
competitors. To the extent that these companies enter the home health care
market, the Company may also lose existing and potential referral sources. As a
result, there can be no assurance that the Company will not encounter increased
competition in the future that may limit its ability to maintain or increase its
market share or otherwise materially adversely affect its business, results of
operations or financial condition. See "Business -- Competition."
POTENTIAL LIABILITY. Participants in the home health care market, including
the Company, are sometimes the subject of lawsuits alleging negligence, products
liability and other legal theories, many of which involve large claims and
significant defense costs. The Company also distributes industrial gas products,
such as acetylene, which have been the subject of lawsuits arising from
industrial and other accidents. Although the Acquired Companies currently
maintain liability insurance, there can be no assurance that the coverage limits
of such insurance policies were adequate in the past or will be adequate in the
future, or that such claims will be covered by insurance. While the Acquired
Companies have been able to obtain insurance in the past, such insurance varies
in cost, may be difficult to obtain and may not be available in the future on
terms acceptable to the Company. Claims, regardless of their merit or eventual
outcome, may have a material adverse effect on the Company's business, results
of operations or financial condition. See "Business -- Insurance."

CONCENTRATION OF STOCK OWNERSHIP. Upon the completion of the Offering, the
Company's directors, executive officers and founding stockholders will
beneficially own approximately 19.0% of the outstanding Common Stock. As a
result, assuming they act collectively, these stockholders will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. Such concentration of ownership may also have the effect of
preventing or deterring a change in control of the Company. See "Management --
Executive Officers and Directors" and "Principal and Selling Stockholders."

RELATED PARTY TRANSACTIONS. The majority of the funding for the Company's
operations to date has been provided by $1.5 million in bridge funds (the
"Morgenthau Bridge Funds") sponsored by Morgenthau Bridge Financing Corp.
("MBFC"), the current principals of which include two of the Company's four
founding stockholders. In connection with its sponsorship and management of the
Morgenthau Bridge Funds and services provided in connection with forming and
organizing the Company, investigating and evaluating potential acquisition
candidates, and arranging and negotiating the Acquisitions and the Offering,
MBFC received management fees totaling $361,500 and was reimbursed $65,000 for
travel and other expenses. Each of the four founding stockholders received
compensation from MBFC associated with raising the Morgenthau Bridge Funds and
for the foregoing services provided to the Company. In connection with raising
$500,000 in additional bridge financing (referred to as the "September Bridge"),
Morgenthau & Associates, Inc., a registered broker-dealer of which Anthony R.
Morgenthau, a founding stockholder, is the President, received placement fees of
$40,000.

At the time the Morgenthau Bridge Funds were raised, the principals of MBFC
were the Company's only stockholders, and the Company's sole director was
affiliated with MBFC. Accordingly, the management fees and expenses paid to MBFC
were not subject to arms-length negotiations and necessarily involved conflicts
between the interests of the founding stockholders and the Company. The Company
has adopted a policy that any future transactions between the Company and its
affiliates will be on terms at least as favorable to the Company as those
available from non-affiliates and will be approved by a majority of the
Company's directors not having an interest in the transaction. See "Certain
Transactions."
CONTINUING RELATIONSHIPS WITH THE UNDERWRITER. The Company and the
Underwriter have established written contractual arrangements to which the
Company will remain subject after the completion of the Offering. For a period
of three years from the date of this Prospectus, the Company will allow a
non-voting observer of the Underwriter to receive notice of and attend meetings
of the Company's Board of Directors or, in lieu of an observer, will allow the
Underwriter, at its election, to cause the Company to use its best efforts to
elect one designee of the Underwriter to the Board of Directors. It is currently
11

<PAGE>
anticipated that a designee of the Underwriter will be named to the Board of
Directors after the Offering, although such person has not yet been selected.
The Underwriter has been granted warrants exercisable for 200,000 shares of
Common Stock at an exercise price equal to 135% of the Offering Price. The
warrants may adversely affect the Company's ability to raise capital in the
future. In addition, the Company will enter into a consulting agreement and a
merger and acquisition agreement with the Underwriter. Under the consulting
agreement, the Underwriter will perform consulting services related to corporate
finance and other financial services at the request of the President of the
Company for a fee of $72,000. The Company also has agreed to pay pre-set fees to
the Underwriter if, during the two years following the closing of the Offering,
it participates in any merger, consolidation or other transaction that closes
within 36 months of the closing of the Offering. The consulting agreement and
merger and acquisition agreement preclude the Company from entering into such
arrangements with other investment bankers, which could be available on terms
more favorable to the Company than those contained in such agreements. See
"Underwriting."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. Prior to the
Offering, there has been no market for the Company's Common Stock, and there can
be no assurance that an active public market for the Common Stock will develop
or be sustained after the Offering. The initial offering price will be
determined by negotiation between the Company and the Underwriter based upon
several factors. The market price of the Company's Common Stock is likely to be
highly volatile and could be subject to wide fluctuations in response to
quarterly variations in operating results, announcements related to acquisitions
or products or services offered by the Company or its competitors, changes in
financial estimates by securities analysts, or other events or factors, many of
which are beyond the Company's control. In addition, the stock market has
experienced significant price and volume fluctuations that have particularly
affected the market prices of equity securities of many health care companies
and that often have been unrelated to the operating performance of such
companies. These broad market fluctuations may adversely affect the market price
of the Company's Common Stock.

CONDITIONAL APPROVAL; POSSIBLE ILLIQUIDITY OF TRADING MARKET; PENNY STOCK.
The Company has received conditional approval from the Nasdaq Qualifications
Panel (the "Panel") to have the Common Stock included for quotation on the
Nasdaq Small-Cap Market. The Nasdaq staff has the right until March 13, 1997 to
appeal the Panel's decision. There can be no assurance that the Nasdaq staff
will not appeal the Panel's decision to permit the quotation of the Company's
Common Stock on the Nasdaq Small-Cap Market, or that if an appeal is made, the
Company will be able to maintain such quotation. The Nasdaq Small-Cap Market is
less liquid than the Nasdaq National Market, on which larger Nasdaq issues
trade. If the Company's Common Stock were removed from quotation on the Nasdaq
Small-Cap Market, the Common Stock could be subject to so-called "penny stock"
rules that impose additional sales practice and market-making requirements on
broker-dealers who sell and/or make a market in such securities. Consequently,
removal from the Nasdaq Small-Cap Market, if it were to occur, could affect the
ability or willingness of broker-dealers to sell and/or make a market in the
Company's Common Stock and the ability of purchasers of the Company's Common
Stock to sell their securities in the secondary market. In addition, if the
market price of the Company's Common Stock is less than $5.00 per share, the
Company may become subject to certain penny stock rules even if still quoted on
the Nasdaq Small-Cap Market. While such penny stock rules should not affect the
quotation of the Company's Common Stock on the Nasdaq Small-Cap Market, such
rules may further limit the market liquidity of the Common Stock and the ability
of purchasers in the Offering to sell such Common Stock in the secondary market.

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial numbers of shares of
Common Stock in the public market following the Offering could adversely affect
the market price for the Common Stock. Upon completion of the Offering, the
Company will have outstanding an aggregate of 3,794,508 shares of Common Stock
(4,094,508 shares of Common Stock if the Underwriter's over-allotment option is
exercised in full). Of these shares, all of the shares sold in the Offering will
be freely tradable, without restriction, except for shares purchased by
"affiliates" of the Company, as that term is defined in Rule 144 under the
Securities Act. The remaining 1,794,508 shares of Common Stock are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may only be sold pursuant to a
registration statement under the Securities Act or an applicable exemption from
the registration requirements of the Securities Act, including Rule 144
thereunder. In addition, a total of 457,000 Restricted Shares are subject to a
performance earn-out restricting their sale prior to December 2004 unless and
until the Company meets certain earnings per share thresholds, and a total of
264,000 and 271,475 shares are subject to non-discretionary lock-up agreements
preventing the disposition of the shares after the Offering for three years and
18 months, respectively. Subject to meeting the terms of the performance
earn-out, approximately 162,735 shares will be eligible for sale in the public
market (subject to certain volume limitations) upon expiration of the lock-up
agreement 18 months after the date of this Prospectus, and the remainder of the
Restricted Shares will be eligible for sale from time to time thereafter upon
expiration of their respective two-year holding periods or the applicable
lock-up period, whichever is longer. Any shares subject to the Underwriter's
lock-up agreements may be released at any time without notice by the
Underwriter. In addition, beneficial owners of 771,875 shares of Common Stock,
and the Underwriter with respect to the Underwriter Warrants, have registration
rights. See "Description of Capital Stock -- Registration Rights." Moreover,
the Company intends to register under the Securities Act a total of 675,000
shares of Common Stock reserved for

<PAGE>
issuance under the 1996 Plan, the Non-Employee Directors Stock Option Plan (the
"Directors Option Plan") and individual option grants. See "Shares Eligible for
Future Sale" and "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Common Stock in the
Offering will experience immediate and substantial dilution of approximately
$6.53, or 118.7%, in the pro forma consolidated net book value per share of the
Common Stock so purchased, based on the Offering Price. The Offering and the
Acquisitions will result in the existing stockholders of the Company realizing
an immediate dilution in the net tangible book value of their investment of
approximately $0.17 per share. Moreover, the founding stockholders of the
Company and investors in the Bridge Funds (as defined) acquired their equity
interests at prices substantially below the Offering Price. Accordingly, public
investors may bear a disproportionate risk of loss. See "Dilution."

NO DIVIDENDS. The Company intends to retain any future earnings to support
the growth and development of its business and has no present intention of
paying any cash dividends on the Common Stock in the foreseeable future. The
Credit Facility does not permit the payment of dividends on the Common Stock.
See "Dividend Policy."
LIMITATIONS ON OFFICER AND DIRECTOR LIABILITY. Pursuant to the Company's
Certificate of Incorporation and under Delaware law, directors of the Company
are not liable to the Company or its stockholders for monetary damages for
breach of fiduciary duty, except for liability in connection with a breach of
the duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, for dividend payments or
stock repurchases illegal under Delaware law or any transaction in which a
director has derived an improper personal benefit.
As a result of the inclusion of such provisions, stockholders may be unable
to recover monetary damages against directors for actions taken by them that
constitute negligence or gross negligence or that are in violation of their
fiduciary duties, even though it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to stockholders in any particular case, stockholders may not
have any effective remedy against the challenged conduct. These provisions may
have the effect of reducing the likelihood of derivative litigation against
directors that might have benefited the Company.

POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS. The Company's Board of
Directors has the authority to issue shares of preferred stock and to determine
the price, rights, preferences, privileges and restrictions of those shares
without any further vote or action by the stockholders. Such issuance could
adversely affect the voting power of holders of Common Stock. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue shares of preferred stock. Furthermore, the Company's
Certificate of Incorporation and Amended and Restated By-Laws provide that the
Board of Directors may take certain actions without stockholder approval, such
as establishing a staggered board of directors or limiting stockholder actions
and proposals, which actions may have the effect of discouraging, delaying or
preventing a merger, tender offer or proxy contest. Such actions could adversely
affect the market price of the Common Stock. See "Management" and "Description
of Capital Stock."

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby, after deducting underwriting
discounts and commissions and estimated Offering expenses, will be approximately
$9.0 million ($10.4 million if the Underwriter's over-allotment option is
exercised in full). The net proceeds of the Offering, together with borrowings
of $8.0 million under the Credit Facility, will be used approximately as
follows:

<TABLE>
<CAPTION>
AMOUNT PERCENT
<S> <C>
Cash balance of Acquisition purchase prices, less deposits........................................... $13,832,000* 81.5
Bridge loans and interest thereon.................................................................... 2,286,000 13.5
Acquisition and other expenses....................................................................... 653,000 3.8
Working capital...................................................................................... 204,000 1.2
$16,975,000 100.0
</TABLE>

* Of this amount, $50,000 was advanced by an affiliate of the Company and will
be repaid from the proceeds of the Offering. See "Certain Transactions."

<PAGE>
The $2.0 million in bridge loans were made to the Company by Morgenthau
Bridge Investment LP ("Bridge LP") and Morgenthau Bridge Loan LLC ("Bridge LLC")
(together, the "Morgenthau Bridge Funds") and by certain investors (the
"September Bridge," together with the loans made by the Morgenthau Bridge Funds,
the "Bridge Financing") (the Morgenthau Bridge Funds and the September Bridge
are sometimes referred to collectively as the "Bridge Funds"). The Bridge
Financing has been used to fund deposits to the sellers of the Acquired
Companies under the acquisition agreements and to pay certain expenses in
connection with the Acquisitions and the Offering. A portion of the proceeds
from the Bridge Financing were used for a non-refundable deposit on a home
health care company which is not being acquired by the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Consolidated." The Morgenthau
Bridge Funds were sponsored by MBFC, and the principals of MBFC are directors
and beneficial owners of more than 5% of the Common Stock of the Company. The
outstanding principal balance, interest rate and maturity of the financing
provided by the Morgenthau Bridge Funds is $1.5 million, 18.0% and December 31,
1997, respectively. The outstanding principal balance, interest rate and
maturity of the financing provided by the September Bridge is $500,000, 12.0%
and June 30, 1997, respectively. The Morgenthau Bridge Funds also received
warrants to purchase an aggregate of 214,000 shares of Common Stock at $0.10 per
share, which were exercised in September 1996. The exercise price was paid by
foregoing $21,400 in accrued interest. See "Certain Transactions." The investors
in the September Bridge also received 50,000 shares of Common Stock.
Any amounts remaining from the net proceeds of the Offering, including any
proceeds from the exercise of the Underwriter's over-allotment option, will be
used for working capital purposes, including future acquisitions. The Company
currently has no agreements, commitments or understandings with respect to any
such acquisitions. Pending such uses, the Company intends to invest the net
proceeds in short-term, interest bearing investment grade securities.
The Company has obtained a commitment from Manufacturers and Traders Trust
Company (the "Bank") for a $6.0 million term loan, a $4.0 million revolving
credit facility and a $2.0 subordinated note facility. The term portion of the
Credit Facility and the subordinated note facility will be used to pay the
remainder of the cash portion of the purchase prices for the Acquisitions, repay
the Bridge Financing and pay certain expenses of the Acquisitions and the
Offering. The revolving credit portion of the Credit Facility will be available
for working capital and other general corporate purposes, including future
acquisitions. Borrowings under the term and subordinated note portions of the
Credit Facility amortize over six years. The revolving credit facility and term
loan bear interest at a floating rate based upon an index to the Bank's prime
rate or LIBOR. Borrowings under the subordinated note facility bear interest at
a fixed rate of 19% per annum. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Consolidated."
CAPITALIZATION

The following table sets forth the short-term debt and capitalization of
the Company as of September 30, 1996: (i) on a consolidated pro forma basis
giving effect to the Acquisitions and the contribution of shares to the Company
by certain founding stockholders, and (ii) on a consolidated pro forma basis, as
adjusted, to give effect to the Acquisitions, borrowings under the Credit
Facility and the sale by the Company of 2,000,000 shares of Common Stock at the
Offering Price and the application of the net proceeds therefrom as described
under "Use of Proceeds." This table does not include Common Stock reserved for
issuance upon exercise of the Underwriter's Warrants or options issued or
reserved for issuance under the Company's 1996 Plan, the Directors Option Plan
or individual option grants. See "Management -- Board of Directors," " -- 1996
Stock and Incentive Plan," "Certain Transactions," "Shares Eligible for Future
Sale" and "Underwriting."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
PRO FORMA
PRO FORMA AS ADJUSTED
<S> <C>
Short-term debt, including current portion of long-term debt.................................... $ 522,132 $ 27,132
Long term debt.................................................................................. $ 1,519,653 $ 8,004,665
Stockholders' equity:
Preferred stock, par value $.01 per share; 500,000 shares authorized; no shares issued and
outstanding............................................................................... -- --
Common stock, par value $.01 per share; 10,000,000 authorized; 1,794,508 shares issued and
outstanding, pro forma; 3,794,508 shares issued and outstanding on a pro forma basis, as
adjusted.................................................................................. 17,945 37,945
Additional paid-in-capital................................................................. 4,404,865 13,360,276
Retained earnings (deficit)................................................................ (1,699,621) (1,905,233)
Total stockholders' equity...................................................................... 2,723,189 11,492,988
Total capitalization....................................................................... $ 4,242,842 $19,497,653
</TABLE>

<PAGE>
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the financial
statements and notes thereto and the Unaudited Condensed Consolidated Pro Forma
Financial Data included elsewhere in this Prospectus.
DILUTION

The net pro forma tangible book value of the Company as of September 30,
1996 was $(1,548,279) or $(0.86) per share of Common Stock outstanding. Pro
forma net tangible book value per share is determined by dividing the pro forma
negative net tangible book value (tangible assets less liabilities) of the
Company by the number of shares of Common Stock outstanding on a pro forma
basis.

After giving effect to the Acquisitions, borrowings of $8.0 million under
the Credit Facility and the sale of 2,000,000 shares of Common Stock offered by
the Company hereby at an initial pubic offering price equal to the Offering
Price, the pro forma net tangible book value of the Company as of September 30,
1996 would have been $(3,915,528) or $(1.03) per share of Common Stock
outstanding, representing an immediate dilution of $6.53 and $0.17 per share of
Common Stock to new investors and existing stockholders, respectively. The
following table illustrates this pro forma per share dilution as of September
30, 1996:

<TABLE>
<S> <C>
Initial public offering price per share(1).................................................................. $ 5.50
Pro forma negative net tangible book value per share before the Offering.................................. $(0.86)
Decrease in pro forma net tangible book value per share of Common Stock attributable to sale of Common in
the Offering and the Acquisitions(2)................................................................... $(0.17)
Pro forma adjusted negative net tangible book value per share after the Offering and Acquisitions(2)........ $(1.03)
Dilution per share to new investors......................................................................... $ 6.53
</TABLE>

(1) Before deduction of underwriting discounts and commissions and estimated
expenses of the Offering payable by the Company.
(2) After deduction of underwriting discounts and commissions and estimated
expenses of the Offering payable by the Company.
The following table sets forth, on a pro forma basis as of September 30,
1996, the number and percentage of total outstanding shares of Common Stock
purchased, the total cash consideration and percentage of total cash
consideration paid, and the average price per share paid by existing
stockholders, and by purchasers of the Common Stock offered hereby. The
calculations in this table with respect to the Common Stock to be issued to the
Sellers of the Acquired Companies and to be purchased by new investors in the
Offering reflect an initial offering price of $5.50 per share.

<TABLE>
<CAPTION>
AVERAGE
SHARES PURCHASED TOTAL CONSIDERATION PER SHARE
NUMBER PERCENT AMOUNT PERCENT PRICE
<S> <C>
Existing stockholders(1)........................................ 1,794,508 47.3% $ 4,275,400(1) 28.0% $2.38
New investors................................................... 2,000,000 52.7 11,000,000 72.0 5.50
Total......................................................... 3,794,508 100.0% $15,275,400 100.0%
</TABLE>

(1) Includes the value of the shares issued to the sellers of the Acquired
Companies at the Offering Price.

DIVIDEND POLICY
The Company currently intends to retain any future earnings to support the
growth and development of its business and has no present intention of paying
any cash dividends on its Common Stock for the foreseeable future. Any future
determination as to the payment of dividends will be at the discretion of the
Company's Board of Directors and will depend on the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant. The Company's Credit Facility does not
permit the payment of dividends on the Common Stock.
15

<PAGE>
SELECTED FINANCIAL DATA
The following tables present selected historical financial data for each of
the Acquired Companies and Life Critical Care Corporation, as well as unaudited
selected pro forma consolidated financial data. The historical financial data
for each of the periods ended December 31, 1994 and 1995 have been derived from
the historical financial statements which have been audited by Ernst & Young
LLP, independent auditors, included elsewhere in this Prospectus. The selected
financial data set forth below for the respective nine month periods ended
September 30, 1995 and 1996 are unaudited and include all adjustments
(consisting only of normal recurring adjustments) that management believes
necessary for a fair presentation of the data for those periods and are not
necessarily indicative of the results to be expected for the year ended December
31, 1996. During the periods presented, the Acquired Companies were not under
common control or common management. Therefore, the unaudited pro forma
consolidated financial data presented may not be indicative of the future
results of operations or financial condition of the Company or the results which
would have occurred had the Acquired Companies been consolidated during the
periods presented. See Unaudited Condensed Consolidated Pro Forma Financial Data
included elsewhere in this Prospectus.
LIFE CRITICAL CARE PRO FORMA CONSOLIDATED FINANCIAL DATA(1)

<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
<S> <C>
Pro Forma Consolidated Statement of Operations Data:
Pro forma revenues............................................................ $11,477,572 $8,885,443
Pro forma income from operations.............................................. 2,643,320 1,945,065
Forfeiture of deposit......................................................... -- 700,000(2)
Financing expense............................................................. -- 89,000(3)
Other (income) expense, net................................................... 909,416 636,991
Pro forma income before income taxes.......................................... 1,733,904 519,074(4)
Pro forma net income.......................................................... 1,040,342 311,444(4)
Pro forma net income per share................................................ $ 0.31 $ 0.09(4)
Pro forma weighted average shares(5).......................................... 3,318,267 3,307,827
</TABLE>

<PAGE>
HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED SEPTEMBER 30,
1994 1995 1995 1996
<S> <C>
Blue Water:
Revenues........................................................... $4,773,100 $5,289,682 $3,870,821 $4,208,055
Cost of revenues................................................... 1,632,018 1,752,968 1,245,944 1,273,035
Gross profit....................................................... 3,141,082 3,536,714 2,624,877 2,935,020
Selling, general and administrative expenses....................... 2,623,294 2,858,809 2,153,525 2,237,481
Income from operations............................................. 517,788 677,905 471,352 697,539
Net income......................................................... 459,334 623,774 442,559 632,628
Great Lakes:
Revenues........................................................... $2,672,078 $3,229,062 $2,344,402 $2,454,346
Cost of revenues................................................... 677,488 694,637 517,384 502,479
Gross Profit....................................................... 1,994,590 2,534,425 1,827,018 1,951,867
Selling, general and administrative expenses....................... 1,553,917 1,337,466 1,007,768 1,113,876
Income from operations............................................. 440,673 1,196,959 819,250 837,991
Net income......................................................... 413,576 1,142,258 795,912 824,256
ABC:
Revenues........................................................... $2,602,203 $2,958,828 $2,206,910 $2,223,042
Cost of revenues................................................... 1,170,701 1,308,517 915,034 886,133
Gross profit....................................................... 1,431,502 1,650,311 1,291,876 1,336,909
Selling, general and administrative expenses....................... 1,431,987 1,291,068 1,007,561 1,008,156
Income (loss) from operations...................................... (485) 359,243 284,315 328,753
Net income (loss).................................................. (11,211) 358,156 284,284 326,381
</TABLE>

<TABLE>
<CAPTION>
JUNE 19, 1995 NINE MONTHS
(INCEPTION) TO ENDED
DECEMBER 31, SEPTEMBER 30,
1995 1996
<S> <C>
Life Critical Care:
Operating expenses:
General and administrative.................................................. $ 20,049 $ 187,273
Management fee.............................................................. 225,000 136,500
Professional fee............................................................ 10,259 143,229
Operating loss................................................................... (255,308) (467,002)
Forfeiture of deposit............................................................ -- 700,000(1)
Financing expense................................................................ 89,000(2)
Interest expense................................................................. 12,618 175,693
Net Loss......................................................................... $ (267,926) $ (1,431,695)
</TABLE>

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements for the reasons set forth
herein and under "Risk Factors."
GENERAL
Prior to the completion of the Offering, the Company's only business was to
identify and evaluate potential acquisition candidates, negotiate the terms of
the Acquisitions and the Offering and to arrange for the financing of the
Acquisitions.
Life Critical Care provides a wide range of home health care products and
services, including respiratory therapy services and home medical equipment
sales and rentals in the Northern Midwest region. The Company operates from a
total of 22 locations in the region, consisting of 19 locations in Michigan and
three locations in Wisconsin. The discussion of the Company's Plan of Operation
and Liquidity and Capital Resources assumes the Company's completion of the
Acquisitions.
The Company derives substantially all of its revenues from Medicare,
Medicaid and private payors, such as traditional indemnity insurers and managed
care organizations, including HMOs and PPOs, and TPAs. The Company anticipates
that Medicare will continue to represent a significant component of its
revenues. Based on available industry and demographic data, the Company believes
that demand for home health care will continue to increase as the ongoing
pressure to contain health care costs accelerates the growth and utilization of
alternate site care, such as home health care, and as the elderly percentage of
the population continues to grow. The Company also believes that regulatory and
industry pressure to significantly reduce health care costs and the growth of
managed care organizations will result in increased pricing pressure.
The Company has preliminarily analyzed the savings that it expects to be
realized by consolidating certain administrative functions (including
reimbursement, billing and collection, purchasing and management information and
accounting systems), and anticipates that it may realize significant savings in
other general and administrative areas. The Company, however, has not and cannot
quantify these savings until completion of the combination of the Acquired
Companies. It is anticipated that these savings will be partially offset by the
costs of being a public company and the costs related to the Company's new
corporate structure. However, these costs, like the savings that they offset,
cannot be quantified accurately. Accordingly, neither the anticipated savings
nor the anticipated costs have been included in the pro forma financial
information. See Unaudited Condensed Consolidated Pro Forma Financial Data.
Effective upon the completion of the Offering, the Company will acquire
three home health care companies. The historical results of the Acquired
Companies are discussed below. The Acquired Companies have operated as
closely-held independent private companies and their results of operations
reflect S Corporation tax structures which have influenced, among other things,
historical levels of owners' compensation. The differential between the previous
compensation and the compensation subsequent to the Acquisitions is referred to
as the "Compensation Differential." In addition, as a result of the
Acquisitions, the Company has acquired intangible assets, primarily goodwill, of
approximately $15.2 million which will be amortized over a useful life of 40
years. On a pro forma consolidated basis, assuming completion of the
Acquisitions as of the beginning of the respective periods, the Company would
have recognized amortization expense related to goodwill of approximately
$379,600 and $285,100 during 1995 and the nine months ended September 30, 1996,
respectively. The Compensation Differential, the related and certain other
income tax effects and the amortization expense related to goodwill (as well as
other adjustments) have been included as pro forma adjustments in the Unaudited
Condensed Consolidated Pro Forma Financial Data.
In connection with the September Bridge, the Company raised approximately
$500,000 and issued 50,000 shares of Common Stock to the September Bridge
investors at a price of $0.10 per share. The difference between the estimated
fair market value of the shares of $1.88 and the $0.10 purchase price was
recorded as a financing expense in Life Critical Care's Statement of Operations
for the Nine Months ended September 30, 1996. The Company also will incur
non-cash charges in future periods aggregating $90,000 in connection with
options exercisable for 75,000 shares of Common Stock granted to its Chief
Financial Officer. The amount of the charges is equal to the difference between
the exercise price of the options of $0.25 per share and the approximate fair
market value of the options at the time of grant of $1.45 per share.
The variations in the gross margins of the Acquired Companies are primarily
due to internal reporting and product mix differences. For example, ABC, unlike
Blue Water and Great Lakes, records the cost of contract labor (respiratory
therapists) in cost of goods sold, resulting in lower gross margins. In
addition, Blue Water sells industrial gases, which typically have a lower gross
margin than other products and services sold by the Company.
18

<PAGE>
PLAN OF OPERATION
The Company anticipates that during the next 12 months it will seek to
integrate and expand the operations of the Acquired Companies. In particular,
the Company intends to expand its respiratory therapy operations and add
infusion therapy and nursing services at selected locations. The expansion of
products and services may occur through provider networks or strategic alliances
with other home health care companies. In addition, management will centralize
certain administrative functions in order to increase efficiency and take
advantage of economies of scale. Management also anticipates that it will seek
to strengthen its regional base through the acquisition of established
Midwestern home health care companies. Management believes that acquisition
opportunities will arise as regulatory and competitive pressures encourage
further consolidation in the industry. See "Business -- Industry Overview," and
" -- Strategy."
RESULTS OF OPERATIONS -- BLUE WATER
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
REVENUES. Revenues increased approximately $337,000, or 8.7%, from $3.9
million for the nine months ended September 30, 1995 (the "1995 Period") to $4.2
million for the nine months ended September 30, 1996 (the "1996 Period") as a
result of increased rental revenues from an expanded customer base.
COST OF REVENUES. Cost of revenues increased approximately $27,000 from
$1,246,000 for the 1995 Period to $1,273,000 for the 1996 Period, and cost of
revenues as a percentage of revenues declined from 32.2% to 30.3%. The decrease
in cost of revenues as a percentage of revenues is primarily due to increased
rental revenues, which generally have a higher margin than sales. Gross profit
increased approximately $310,000, or 11.8%, from $2.6 million for the 1995
Period to $2.9 million for the 1996 Period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $2.2 million for both periods,
primarily due to a decrease in the profit sharing contribution, partially offset
by higher overhead costs due to the expanded customer base.
INCOME FROM OPERATIONS. Income from operations increased $226,000, or
48.0%, from $471,000 for the 1995 Period to $698,000 for the 1996 Period,
primarily as a result of an increase in higher margin rentals.
NET INCOME. Net income, increased 43.0%, from $443,000, or 11.4% of
revenues, for the 1995 Period to $633,000, or 15.0% of revenues, for the 1996
Period.
YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES. Revenues increased approximately $517,000, or 10.8%, from $4.8
million for 1994 to $5.3 million for 1995. This increase was due to an increase
in both rentals and sales of Blue Water's products and services.
COST OF REVENUES. Cost of revenues increased approximately $121,000, or
7.4%, from approximately $1.6 million in 1994 to approximately $1.8 million in
1995, but decreased as a percentage of revenues from 34.2% for 1994 to 33.1% for
1995. Gross profit increased approximately $396,000, or 12.6%, from $3.1 million
in 1994 to $3.5 million in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $236,000, or 9.0%, from $2.6
million for 1994 to $2.9 million for 1995 primarily due to higher overhead costs
including increased professional fees associated with the pending sale of Blue
Water.
INCOME FROM OPERATIONS. Income from operations increased approximately
$160,000, or 30.9%, from $518,000 in 1994 to $678,000 in 1995, primarily due to
increased revenues and gross profits.
NET INCOME. Net income increased approximately $164,000, or 35.8%, from
$459,000, or 9.6% of revenues, for 1994 to $624,000, or 11.8% of revenues, for
1995.
RESULTS OF OPERATIONS -- GREAT LAKES
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
REVENUES. Revenues increased approximately $110,000, or 4.7%, from $2.3
million for the 1995 Period to $2.5 million for the 1996 Period, primarily due
to increases in both rentals and sales of Great Lake's products and services.
19

<PAGE>
COST OF REVENUES. Cost of revenues decreased approximately $15,000 from
$517,000 for the 1995 Period to $502,000 for the 1996 Period. Gross profit
increased approximately $125,000, or 6.8%, from $1.8 million for the 1995 Period
to $2.0 million for the 1996 Period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased approximately $106,000, or 10.5%, from
$1,008,000 for the 1995 Period to $1,114,000 for the 1996 Period, primarily due
to higher overhead costs, including annual salary increases, and the institution
of an employee incentive compensation plan.
INCOME FROM OPERATIONS. Income from operations increased $19,000, or 2.3%,
from $819,000 for the 1995 Period to $838,000 for the 1996 Period, due primarily
to improved gross margins on higher revenues.
NET INCOME. Net income increased approximately $28,000, or 3.6%, from
$796,000, or 33.9% of revenues, for the 1995 Period to $824,000, or 33.6% of
revenues, for the 1996 Period.
YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES. Revenues increased approximately $557,000, or 20.8%, from $2.7
million for 1994 to $3.2 million for 1995, primarily due to an increase in
rental revenues.
COST OF REVENUES. Cost of revenues increased approximately $17,000, or
2.5%, from $677,000 for 1994 to $695,000 for 1995, but declined as a percentage
of revenues from 25.4% for 1994 to 21.5% for 1995. The decline in cost of
revenues as a percentage of revenues was primarily due to decreased depreciation
expense. Gross profit increased approximately $540,000, or 27.1%, from $2.0
million for 1994 to $2.5 million for 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately $216,000, or 13.9%, from $1.6
million for 1994 to $1.3 million for 1995, primarily due to a non-compete payout
to a former owner which was completed in 1994, a decrease in facilities expense
and decreases in other administrative expenses.
INCOME FROM OPERATIONS. Income from operations increased approximately
$756,000, or 171.6%, from $441,000 for 1994 to $1.2 million for 1995, primarily
due to higher revenues, increased gross margins and decreased overhead costs.
NET INCOME. Net income increased approximately $729,000, or 176.2%, from
$414,000, or 15.5% of revenues, for 1994 to $1.1 million, or 35.4% of revenues,
for the same period in 1995.
RESULTS OF OPERATIONS -- ABC
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1996
REVENUES. Revenues were approximately $2.2 million for both periods.
COST OF REVENUES. Cost of revenues decreased approximately $29,000, or
3.2%, from $915,000 for the 1995 Period to $886,000 for the 1996 Period, and
cost of revenues as a percentage of revenues decreased from 41.5% for the 1995
Period to 39.9% for the 1996 Period. Gross profit increased approximately
$45,000, or 3.5%, from $1,292,000 for the 1995 Period to $1,337,000 for the 1996
Period. The increase in gross profits was primarily due to decreased
depreciation expense as more assets became fully depreciated and ABC made no
significant new purchases at the request of the Company.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses were approximately $1,008,000 for each of the 1995
Period and the 1996 Period.
INCOME FROM OPERATIONS. Income from operations increased approximately
$44,000, or 15.6%, from $284,000 for the 1995 Period to $329,000 for the 1996
Period as a result of lower operating expenses on relatively flat revenues.
NET INCOME. Net income increased approximately $42,000, or 14.8%, from
$284,000, or 12.9% of revenues, for the 1995 Period to $326,000, or 14.7% of
revenues, for the 1996 Period.
YEARS ENDED DECEMBER 31, 1994 AND 1995
REVENUES. Revenues increased approximately $357,000, or 13.7%, from $2.6
million for 1994 to $3.0 million for 1995. This increase was primarily due to
increased volume for both rental and sales of ABC's products and services.
COST OF REVENUES. Cost of revenues increased $138,000, or 11.8%, from $1.2
million in 1994 to $1.3 million in 1995, but decreased as a percentage of
revenues from 45.0% for 1994 to 44.2% for 1995. The decline in the cost of
revenues as a percentage of revenues was primarily due to a decrease in
depreciation expense and an improved commission structure. Gross profit
increased approximately $219,000, or 15.3%, from $1.4 million in 1994 to $1.7
million in 1995.
20

<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased approximately $141,000, or 9.8%, from $1.4
million in 1994 to $1.3 million in 1995, primarily due to lower overhead
expenses and owners' compensation.
INCOME FROM OPERATIONS. Income from operations increased by approximately
$360,000 to $359,000 in 1995 primarily due to lower operating expenses on higher
revenues and lower owners' compensation.
NET INCOME. Net income increased $369,000, from a loss of $11,000 for 1994
to income of $358,000, or 12.1% of revenues, for 1995.
LIQUIDITY AND CAPITAL RESOURCES -- CONSOLIDATED
Since its inception in June 1995, the Company has incurred expenses in
connection with the Acquisitions, including cash deposits to the sellers of the
Acquired Companies and preparation for the Offering, which have been paid by the
Bridge Financing. Approximately $700,000 of the proceeds of the Bridge Financing
were used for a non-refundable deposit on a home health care company that is not
being acquired by the Company for strategic business reasons. The net proceeds
of the Offering, together with the term and subordinated note portions of the
Credit Facility, will be used to pay the remainder of the cash portion of the
purchase price for the Acquisitions and to repay the Bridge Financing. See "Use
of Proceeds."

In connection with the Offering, the Company has obtained the Credit
Facility, consisting of a $6.0 million six year term loan, a $4.0 million
revolving credit facility and a $2.0 million subordinated note facility. The
Company incurred a one-time facility fee of $140,000 and is required to pay a
fee on the average unused portion of the revolving credit facility of 0.375% per
annum. Borrowings under the revolving credit facility and term portions of the
Credit Facility will bear interest at a floating rate based upon an index to the
Bank's prime rate or LIBOR. As of January 30, 1997, the applicable interest
rates for the term loan and the revolving credit facility would have been 5.96%
and 5.94%, respectively. Borrowings under the subordinated note facility
amortize over six years, and will bear interest at a fixed rate of 19.0% per
annum. The revolving credit facility will be available for working capital and
acquisition funding purposes. Borrowings under the Credit Facility are
collateralized by substantially all of the Company's assets. The Credit Facility
also contains financial covenants applicable to the Company, including minimum
debt service coverage and net worth requirements, and limitations on
indebtedness, dividends, capital expenditures, mergers and the sale or purchase
of assets not in the ordinary course of business.

On a pro forma consolidated basis as of September 30, 1996, assuming the
completion of the Acquisitions and the Offering, the Company expects to have
working capital of approximately $2.5 million, including cash and cash
equivalents of approximately $204,000. The Company anticipates that existing
working capital, together with $4.0 million available to it under the revolving
credit portion of the Credit Facility and cash generated from operations, will
be sufficient to fund the operations of the Company after the consummation of
the Acquisitions, and to fund the planned expansion of services to be offered by
the Company during the next 12 months, including the potential addition of
infusion therapy and nursing services at selected locations. However, delays in
reimbursement may result in working capital constraints and there can be no
assurance that the funds available to the Company from the Offering and the
Credit Facility will be sufficient for the Company's working capital needs or to
fund any further acquisitions. In that event, the Company may be required to
seek additional financing or issue additional shares of capital stock in order
to consummate any such acquisitions. There can be no assurance that any such
additional financing will be available on terms acceptable to the Company or at
all. See "Risk Factors -- Substantial Indebtedness" and " -- Future Capital
Needs; Uncertainty of Additional Financing."
IMPACT OF INFLATION
A substantial portion of the Company's revenues is subject to reimbursement
rates which are regulated by the federal and state governments or through
contractual arrangements and do not automatically adjust for inflation. These
reimbursement rates are adjusted periodically based upon certain factors,
including legislation and executive and congressional budget reduction and
control processes, inflation and costs incurred in rendering the services, but
in the past have had little relationship to the actual cost of doing business.
See "Risk Factors -- Potential Reductions in Medicare Reimbursement," " --
Reimbursement Payment Delays," " -- Health Care Reform Risks" " -- Risks
Associated with Governmental Regulation" and "Business -- Regulation."
21

<PAGE>
BUSINESS
GENERAL
Life Critical Care is a provider of a wide range of home health care
products and services in the Northern Midwest region, including respiratory
therapy services and home medical equipment sales and rentals. In the region,
the Company operates from a total of 22 locations in Michigan and Wisconsin. The
Company believes that the Midwest region offers significant growth opportunities
due to the fragmentation of the home health market in the region. The Company's
objective is to become a leading comprehensive provider of home health care
products and services in the Midwest through acquisitions, internal growth and
the development of provider networks and strategic alliances with other home
health care providers.
INDUSTRY OVERVIEW
Total expenditures within the health care industry, which have increased at
twice the rate of inflation in recent years, were approximately $1.1 trillion in
1995. The ongoing pressure to contain health care costs, while maintaining high
quality care, is accelerating the growth of alternate site care, such as home
health care, that reduces hospital admissions and lengths of hospital stays.
Home health care is among the fastest growing segments of the health care
industry, with total expenditures in 1995 estimated to be approximately $27.0
billion. The Company believes that the growth in home health care is influenced
by the following factors and trends:
(Bullet) COST EFFECTIVE ALTERNATIVE. Health care providers, as well as
Medicare and other payors, are increasingly recognizing that
in many situations home health offers a less costly
alternative to in-patient hospital care.
(Bullet) AGING POPULATION. The U.S. Bureau of the Census has estimated
that in 1995 approximately 12.6% of the U.S. population was
65 or more years of age, with the population of persons over
85 years of age growing at an annual rate of 3.6%, more than
three times faster than the total population.
(Bullet) TECHNOLOGICAL ADVANCEMENTS. Advancements in medical
technology have allowed the delivery of an increasing amount
of health care products and services in the home and other
residential environments.
(Bullet) PATIENT PREFERENCE FOR HOME CARE. In general, patients prefer
to recuperate in their homes rather than in a hospital or
other institutional environment.
Historically, the home health care industry has been highly fragmented and
largely characterized by local providers that typically do not offer a
comprehensive range of cost-effective services. These local providers often do
not have the capital necessary to expand their operations or the range of
services offered, which limits their ability to compete for referrals and to
realize efficiencies in their operations. Payors increasingly are seeking home
health care providers that offer a cost-effective, comprehensive range of
services in each market served, which further inhibits the ability of local
providers to compete effectively. As a result of these economic and competitive
pressures, the home health care industry is undergoing rapid consolidation, a
trend the Company expects will continue.
STRATEGY
The Company intends to utilize a decentralized operating and service
philosophy in order to assure high quality customer service while capitalizing
on the centralization of certain administrative functions. The strategy also
emphasizes the retention of local management, all of which the Company believes
will allow it to achieve its goal of becoming a leading comprehensive provider
of home health care products and services in the Midwest.
(Bullet) EXPANDING THROUGH ACQUISITIONS. The Company intends to pursue
an aggressive acquisition strategy primarily in the Midwest
Region, where the Company believes there are significant
growth opportunities due to fragmentation of the market in
the region. In existing markets, the Company will seek
acquisitions that increase market share and broaden the range
of products and services provided by the Company in those
markets. In new geographic markets, the Company will target
established Midwestern home health care service providers
that are either leaders in their markets or provide other
strategic advantages for the Company.
(Bullet) ACCELERATING INTERNAL GROWTH. A key component of the
Company's strategy to become a comprehensive provider to
accelerate internal growth at each Acquired Company and each
subsequently acquired home health care business by
standardizing and expanding existing products and services.
The Company intends to expand its respiratory services
operations and add infusion therapy and nursing services at
selected locations. The expansion of these products and
services may be accomplished through provider networks or
strategic alliances with other
22

<PAGE>
home health care companies. The Company also intends to
enhance its sales and marketing efforts by developing
programs targeted at each of the major referral sources,
including hospital discharge planners, physicians and
physician groups, as well as managed care sources.
(Bullet) CAPITALIZING ON NEW MANAGEMENT AND CORPORATE STRUCTURE. The
Company has assembled a professional management team with
extensive experience in the home health care industry. The
Company's new management team intends to position the Company
to take advantage of the growth opportunities presented by
industry consolidation. In addition, the new corporate
structure will allow the consolidation of administrative
functions of the Acquired Companies such as reimbursement,
billing and collection, purchasing, management information
and accounting systems and the improvement of operating
efficiencies through the elimination of redundant facilities
and equipment. The Company also believes that it will have
greater purchasing power in such areas as supplies,
inventory, equipment and insurance and better access to
capital than the Acquired Companies had independently.
PRODUCTS AND SERVICES
The Company derives its revenues primarily through the provision of home
respiratory therapy products and services and home medical equipment ("HME")
sales and rentals. The Company estimates that respiratory therapy products and
services, HME sales and rentals and other products and services represented
approximately 72.0%, 20.0% and 8.0%, respectively, of pro forma consolidated
revenues during 1995 and approximately 72.0%, 19.0% and 9.0%, respectively, of
pro forma consolidated revenues during the nine months ended September 30, 1996.
The products and services discussed below are provided by the Company on a
consolidated basis, although not all of the Acquired Companies provide all
products and services.
RESPIRATORY THERAPY SERVICES. Respiratory therapy patients use equipment
such as oxygen systems, which assist patients with breathing; nebulizers, which
aerosolize medications; and ventilators, which breathe for the patient. The
Company believes that increasing physician acceptance of home health care,
improving clinical techniques which prolong life, the aging population, and cost
effectiveness are resulting in the increasing utilization of home respiratory
therapy services.
In providing respiratory therapy products and services to patients, the
Company's personnel manage the needs of the patient according to the
physician-directed plan of care and educate the patient and care giver regarding
treatment requirements, use of equipment and self-care. Certain equipment, such
as oxygen concentrators, ventilators and apnea monitors, require periodic visits
to the patient's home to assure patient compliance with physician orders and to
monitor the proper functioning of the equipment. The respiratory therapy
services that the Company provides include the following:
Oxygen systems to assist patients with breathing. There are three
types of oxygen systems: (i) oxygen concentrators, which are
stationary units that filter ordinary air in order to provide
continuous flow of oxygen; (ii) liquid oxygen systems, which are
portable, thermally-insulated containers of liquid oxygen; and (iii)
high pressure oxygen cylinders, which are used for portability with
oxygen concentrators. Oxygen systems are used to treat patients with
chronic obstructive pulmonary disease, cystic fibrosis and
neurologically-related respiratory problems.
Nebulizers to deliver aerosol medication to patients. Nebulizers are
used to treat patients with asthma, chronic obstructive pulmonary
disease, cystic fibrosis and neurologically-related respiratory
problems.
Home ventilators to sustain a patient's respiratory function
mechanically in cases when a patient requires breathing assistance.
Continuous positive airway pressure therapy ("CPAP") to force air
through respiratory passage-ways during sleep. This treatment is
used primarily on adults with sleep apnea, a condition in which a
patient's normal breathing patterns are disturbed during sleep.
Apnea monitors to monitor and warn parents of apnea episodes in
newborn infants as a preventive measure against sudden infant death
syndrome.
HOME MEDICAL EQUIPMENT SALES AND RENTALS. The Company's primary product
lines include hospital beds, wheelchairs, bathroom aids, patient aids (such as
walkers, canes and commodes) and diabetic supplies, including meters and strips.
The Company also offers a variety of incontinence, ostomy supplies and orthotic
fittings as well as self-help items such as lift chairs, blood pressure kits and
ice packs. In addition to its sales activities, the Company rents durable
medical equipment, such as beds and wheelchairs, to patients on a short-term and
a long-term basis.
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FUTURE SERVICES.
The Company intends to add infusion therapy and nursing services at
selected locations as part of its efforts to become a leading comprehensive
provider of home health care products and services in the Midwest. The expansion
may be the result a combination of internal growth, acquisitions and the
development of provider networks and strategic alliances with other home health
care providers.
HOME INFUSION THERAPY. Home infusion therapy is the administration outside
the hospital setting of nutrients, antibiotics and other medications
intravenously (into the vein), subcutaneously (under the skin), intramuscularly
(into the muscle), intrathecally or epidurally (via spinal routes) or through
tubes into the digestive tract. Typical infusion services include antibiotic and
related therapies (therapies used to treat various infections and diseases);
parenteral nutrition therapy (the intravenous feeding of life sustaining
nutrients to patients with impaired or altered digestive tracts); blood
products; and enteral nutrition therapy (the administration of nutrients through
a feeding tube).
NURSING AND RELATED CARE. Nursing services include Registered Nurses, who
provide a broad range of nursing care services, Licensed Practical Nurses, who
perform a variety of technical nursing procedures, specialty therapists,
occupational therapists, speech therapists, social workers and home health aids
and companions.
OPERATIONS.
GENERAL. The Company's corporate offices will be located at Blue Water
Medical Supply's office in New Baltimore, Michigan. The Company maintains
offices and warehouse facilities in the following locations:

MICHIGAN Marquette
Menominee
Atlanta New Baltimore (2 locations)
Bay City Reed City
Charlevoix Sault Ste. Marie
Cheboygan West Branch (2 locations)
Escanaba
Gaylord WISCONSIN
Gladwin
Ionia Appleton
Kalkaska Manitowoc
Lapeer Sturgeon Bay
Manistee

The Company intends to centralize certain administrative functions at its
corporate offices, including reimbursement, billing and collection, purchasing
and management information and accounting systems. The Company intends to retain
local control over most aspects of day to day operations, especially those
functions that are related to patient care.
Sales and rentals at each of the Company's locations are generally handled
by customer service representatives, who take orders, obtain payor information
and dispatch equipment and supplies to the patient's home. The Company's
technicians deliver and install HME and instruct patients in the use of the
equipment. The Company maintains warehouse and repair facilities where most
orders are filled and repairs and maintenance of equipment are performed. The
Company has a periodic routing system to pick up and deliver equipment in need
of repair or maintenance and to provide inventory to individual store locations.
SALES AND MARKETING. The Company currently markets its services and
products to referral sources such as physicians, hospital discharge planners and
social service workers, insurance companies and prepaid health plans, as well as
directly to patients. In seeking to attract and retain referral sources, the
Company emphasizes its reputation for quality service and responsiveness to the
requirements of the referral sources. In general, the sales representatives
market the Company's services through direct contact with referral sources in
the form of meetings, telephone calls and solicitations. In addition to these
traditional referral sources, management believes that managed care
organizations and other third party payors will become increasingly important
sources of referrals to home health care providers. As a result, the Company is
developing marketing initiatives directed at managed care organizations.
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In addition to its direct marketing efforts, the Company participates in
local trade shows and exhibitions in order to promote its products and services
to potential referral sources and managed care payors. The Company also provides
referral sources with in-service education programs and training sessions.
In most of the Company's markets, the Company maintains a retail store and
showroom where patients may purchase supplies or purchase or rent various types
of equipment. The Company believes its retail locations increase community
awareness of its products and services.
PURCHASING. The Company purchases or leases medical equipment and supplies
required in connection with the Company's business from many suppliers, and
participates in a buying group that provides the opportunity to receive volume
discounts. The Company has not experienced, and does not anticipate that it will
experience, difficulty in purchasing such materials or leasing such equipment
and supplies. If the Company's current suppliers should cease to supply the
Company, the Company believes that alternative sources can be readily located
that would adequately meet its needs.
QUALITY ASSURANCE AND ACCREDITATION. In order to compete effectively,
management believes that it is essential that the Company provide high quality
products and services with the goal of improving patient outcomes and efficiency
in the delivery of care. Management also believes that all of the Acquired
Companies have reputations in the markets served for providing quality products
and services. In order to promote continued quality, the Company will institute
a rigorous, Company-wide quality assurance program which will emphasize a
corporate philosophy of service excellence and will provide guidance, education
and resources for implementing the quality improvement program.
Blue Water and ABC have been accredited by the JCAHO, a nationally
recognized organization that develops standards for various health care industry
segments and monitors compliance with those standards through voluntary surveys
of participating providers. The Company intends to apply for JCAHO accreditation
for the Great Lakes locations following completion of the Offering. Not all home
health providers have chosen to undergo this accreditation process due to its
expense and time burden. As the home health care industry becomes increasingly
competitive and as managed care organizations increase their penetration in the
markets served by the Company, management believes that JCAHO accreditation will
become an increasingly important factor in procuring business.
The Acquired Companies are subject to periodic resurveys by the JCAHO, and
there can be no assurance that a renewal of accreditation will be forthcoming.
The Company relationship with existing and potential referral sources could be
adversely affected by a loss of JCAHO accreditation at one or more of the
Acquired Companies.
REIMBURSEMENT, BILLING AND COLLECTION. The Company's revenues are derived
primarily from Medicare, Medicaid, private insurance companies, HMOs and PPOs,
workers' compensation programs and directly from patients. The Company assumes
payment for some durable equipment and directly bills Medicare, Medicaid and
private insurance companies for the collection of these patient claims. This
service allows customers to obtain rentals and purchase equipment after they
have received proper documentation from a physician or discharge planner,
without up-front cash payments.
Reimbursement from private insurers, Medicare and Medicaid is largely
dependent on the Company's timely and correct claims form submission in
accordance with varying requirements of different payors. This process is
facilitated by the Company's use of electronic billing systems which are in
place for certain major payors. The Company intends to consolidate its billing
and collections functions, thus eliminating certain duplicate overhead costs.
The Company estimates that Medicare, Medicaid, private pay, and private
insurance and other payors represented approximately 57.0%, 12.0%, 9.0%, and
22.0%, respectively, of the Company's pro forma consolidated revenues during
1995 and approximately 60.0%, 11.0%, 7.0%, and 22.0%, respectively, for the nine
months ended September 30, 1996.
The home health care industry is generally characterized by long collection
cycles for accounts receivable due to the complex and time consuming
requirements for obtaining reimbursement from private and governmental third
party payors. In addition, reimbursement from government payors is subject to
examination and retroactive adjustment. Such delays or retroactive adjustments
could lead to cash shortages, which may require the Company to borrow funds,
issue equity securities or take other action to meet its ongoing obligations.
The Company would be adversely affected if it were to experience such
difficulties and were unable to obtain funds on acceptable terms to meet
possible cash shortages.
MANAGEMENT INFORMATION SYSTEMS. All of the Acquired Companies have
computerized billing systems, which provide invoicing and statistical data and
electronic billing systems for claims with Medicare and certain other payors.
Following the completion of the Acquisitions, the Company intends to consolidate
the claims processing functions of the Acquired Companies. The consolidation is
expected to take place in stages, with the initial stage being the consolidation
of the Blue Water and
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ABC billing systems. Further consolidation will depend upon the Company's
assessment of the benefits and costs of consolidation. In certain markets,
providers, payors and managed care organizations are demanding data on outcomes
and utilization and other analytical reports as a measure of the efficacy and
quality of care. In these markets, home health care companies are required to
invest in increasingly sophisticated systems. Management does not believe that a
significant portion of home health care companies in the markets served by the
Acquired Companies are currently utilizing sophisticated systems, although
inroads by managed care organizations could lead to increased information system
requirements. In such event, the Company would need to make capital investments
in such systems, which may require the Company to seek additional financing.
COMPETITION
The home health care industry is highly competitive. Historically, it has
been highly fragmented and characterized by small, local operators with only a
small number of national providers. The Company competes with a number of home
health care providers including some national companies which seek to offer a
comprehensive range of home health care services as well as regional companies
and locally-owned, limited service home health care providers. In addition,
there are relatively few barriers to entry into the home health care industry.
Other companies, including manufacturers and suppliers of home health care
equipment, managed care organizations, hospitals and other health care providers
and provider groups that currently are not serving the home health care market,
may become competitors. To the extent that these companies enter the home health
care market, the Company may also lose existing and potential referral sources.
The Company believes that the most important competitive factors are
quality of care and services, reputation with referral sources, payors, patients
and the medical community, reasonable and competitive prices, the range of
services offered and geographic coverage. Management believes the Company is
well positioned to compete effectively with respect to quality of care and
service, reputation and pricing. Management intends to expand the range of
services offered and the geographic coverage of the Company in order to more
effectively compete in the future, particularly as managed care becomes a more
significant source of business for the Company.
In attempting to carry out its acquisition strategy, Life Critical Care
will also compete for acquisition candidates. The Company believes that its
decentralized management and operating strategies will make it an attractive
acquirer to home health care companies. However, other potential home health
care acquirers have greater financial and operational resources than the
Company, and there can be no assurance that the Company will be able to compete
effectively for acquisitions in its chosen markets.
REGULATION
The Company's business is subject to extensive federal, state and local
regulation.
PERMITS AND LICENSURE. Many states require companies providing certain home
health care services to be licensed as home health agencies. In addition,
certain of the Company's operations are subject to federal and other state laws
and regulations governing the packaging and repackaging and dispensing of drugs
(including oxygen). State laws also require licensing of the sale of industrial
and other gases. Federal laws may require registration with the Drug Enforcement
Administration of the United States Department of Justice and the satisfaction
of certain requirements concerning security, record keeping, inventory controls,
prescription order forms and labeling. In addition, certain health care
practitioners employed by the Company require state licensure and/or
registration and must comply with laws and regulations governing standards of
practice. The failure to obtain, renew or maintain any of the required
regulatory approvals or licenses could adversely affect the Company's business.
There can be no assurance that either the states or the federal government will
not impose additional regulations upon the Company's activities which might
adversely affect its business, results of operations or financial condition.
CERTIFICATES OF NEED. Certain states require companies providing home
health care services to obtain a certificate of need issued by a state health
planning agency. Some states require such certificates of need only for
Medicare-certified home health agencies. Where required by law, the Company has
obtained certificates of need from those states in which it operates. There can
be no assurance that the Company will be able to obtain any certificates of need
which may be required in the future if the Company expands the scope of its
services or if state laws change to impose additional certificate of need
requirements, and any attempt to obtain additional certificates of need will
cause the Company to incur certain expenses.
FRAUD AND ABUSE LAWS. The Company is also subject to federal and state laws
prohibiting direct or indirect payments for patient referrals, prohibiting
referrals to an entity in which the referring provider has a financial interest,
and regulating
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reimbursement procedures and practices under Medicare, Medicaid and state
programs as well as in relation to private payors.
The anti-kickback provisions of the federal Medicare and Medicaid Patient
and Program Protection Act of 1987 (the "Anti-kickback Statute") prohibit the
offer, payment, solicitation or receipt of any remuneration in return for the
referral of items or services paid for in whole or in part under the Medicare or
Medicaid programs (or certain other state health care programs). To date, courts
and government agencies have interpreted the Anti-kickback Statute to apply to a
broad range of financial relationships between providers and referral sources,
such as physicians and other practitioners. The United States Department of
Health and Human Services has adopted regulations creating "safe harbors" from
federal criminal and civil penalties under the Anti-kickback Statute by
exempting certain types of ownership interests and other financial arrangements
that do not appear to pose a threat of Medicare and Medicaid program abuse.
Transactions covered by the Anti-kickback Statute that do not conform to an
applicable safe harbor are not necessarily in violation of the Anti-kickback
Statute, but the practice may be subject to increased scrutiny and possible
prosecution. The criminal penalty for conviction under the Anti-kickback Statute
is a fine of up to $25,000 and/or up to five years imprisonment. In addition,
conviction mandates exclusion from participation in the Medicare and Medicaid
programs. Such exclusion can also result based on conviction under other federal
laws which impose civil and criminal penalties for submitting false claims, such
as claims for services not provided as alleged. Several health care reform
proposals have included an expansion of the Anti-kickback Statute to apply to
referrals of any patients regardless of payor source.
The Federal government has enacted the so-called "Stark Law," which
generally prohibits referrals by physicians to certain entities with which they
have a financial relationship. More recently, the Stark Law was broadly expanded
by the "Amended Stark Law," which provides that where a physician has a
"financial relationship" with a provider of "designated health services"
(including, among other things, the provision of parenteral and enteral
nutrients, equipment and supplies, home health services, ultrasound services and
durable medical equipment, which include products and services provided by the
Company), the physician will be prohibited from making a referral to the health
care provider (and the provider will be prohibited from billing) for the
designated health service for which Medicare or Medicaid payment would otherwise
be made. Certain exceptions are available under the Amended Stark Law, which may
or may not be available to the Company for arrangements in which the Company may
be involved. Submission of a claim that a provider knows or should know is for
services for which payment is prohibited under the Amended Stark Law could
result in refunds of any amounts billed, civil money penalties of not more than
$15,000 for each such service billed and possible exclusion from the Medicare
and Medicaid programs. Furthermore, Medicare regulations contain similar
self-referral restrictions which provide that unless certain conditions are met
a plan of care for home health services generally may not be certified by a
physician who has a significant ownership interest in, or a significant
financial or contractual relation with, that home health agency.
Many states have adopted statutes and regulations which vary from state to
state prohibiting provider referrals to an entity in which the provider has a
financial interest, direct or indirect remuneration or fee-splitting
arrangements between health care providers for patient referrals, and other
types of financial arrangements with health care providers. Sanctions for
violation of these state restrictions may include loss of licensure and civil
and criminal penalties. Certain states also require health care practitioners to
disclose to patients any financial relationship with a provider and to advise
patients of the availability of alternative providers.
The federal government has increased significantly the financial and human
resources allocated to enforcing the fraud and abuse laws. Private insurers and
various state enforcement agencies also have increased their scrutiny of health
care providers' practices and claims, particularly in the home health and
durable medical equipment areas. Although it is the Company's policy to monitor
compliance with these laws, no assurance can be given that the practices of the
Company, if reviewed, would be found to be in compliance with such laws or with
any future laws, as such laws ultimately may be interpreted.
REIMBURSEMENT. In August 1993, Congress passed the Omnibus Budget
Reconciliation Act of 1993 ("OBRA 1993"), which included approximately $56
billion in reimbursement reductions to the Medicare program over five years. In
January 1994, two developments lowered the Company's reimbursement by Medicare
for nebulizers, each of which had a significant impact on net revenues of the
Company attributable to the rental of nebulizers. First, reclassification of
nebulizers to "capped rental equipment" pursuant to OBRA 1993 capped the total
allowable rental payments at the allowable purchase cost of such equipment.
Second, effective January 1, 1994, new fee schedules published by the various
Durable Medical Equipment Regional Carriers ("DMERCs") reduced by approximately
50% the allowable monthly rental fees for nebulizers. Recently, the DMERCs
released for industry comment a draft policy which, if adopted, would
incorporate the pharmacy requirement imposed by HCFA and described above and
impose certain conditions to the coverage of nebulizers and aerosol medications.
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Comments on the proposed draft policy have been submitted by members of the home
care industry and currently are being reviewed by the DMERCs and HCFA. In its
continuing effort to contain health care costs, Congress also is contemplating
changes in oxygen reimbursement.
More generally, government officials are continuing to review and assess
alternative health care delivery systems and payment methodologies in efforts to
curtail costs. Several proposals involving potential changes in the way home
health care services are reimbursed are presently under consideration. See
" -- Current Developments."
CURRENT DEVELOPMENTS. Political, economic and regulatory influences are
subjecting the health care industry in the United States to fundamental change.
Although Congress has failed to pass comprehensive health care reform
legislation, the Company anticipates that Congress and state legislatures will
continue to review and assess alternative health care delivery and payment
systems and may in the future propose and adopt legislation effecting
fundamental changes in the health care delivery system. Congress currently is
considering proposals to reduce Medicare spending increases by $270 billion over
the next seven years. Legislative debate on health care reform is expected to
continue in the future. While the principal focus of these broad initiatives is
not on costs in the home health care segment of the industry (which in 1995
represented only approximately 3% of total health care costs), it can be
expected that the home health care segment would be affected to some extent by
the passage of any such initiative.
Congress passed the Balanced Budget Act of 1995 (H.R. 2491) (the "Budget
Act") which included provisions that would have converted Medicaid to a block
grant program that would give the states greater freedom to experiment with
innovative benefit packages, provider payment levels, delivery systems, and
eligibility criteria and would have reduced the rate of spending growth, with
projected savings of $182 billion over the next seven years. On December 7,
1995, President Clinton vetoed the Budget Act and offered an alternative
balanced budget proposal. The Medicaid portion of President Clinton's proposal
calls for a per capita spending cap to limit the growth of average federal
spending for each Medicaid recipient. At this time, Congress and the President
are trying to reach an accord on budget legislation, which in its final form
will likely impact federal spending for Medicaid.
In August 1996, HCFA, after completing its study of reasonable market
prices, proposed a 40% reduction in oxygen reimbursement rates. HCFA has not yet
issued this proposal for Administration approval for publication for notice and
comment, but is expected to do so in connection with efforts to restrain federal
spending. If approved, the reduction would have a material adverse effect on the
Company's business by significantly decreasing the Company's revenues from its
respiratory therapy services, which represented approximately 72.0% of the
Company's pro forma consolidated revenues during each of 1995 and the nine
months ended September 30, 1996. Recent HCFA regional office action, which
became effective December 1, 1996, imposes reductions in reimbursement rates and
delivery restrictions on aerosol medications, and prohibits DME suppliers from
billing for prescription products unless they are licensed as pharmacies.

As part of its fiscal 1998 budget, the Clinton Administration plans to
propose a prospective payment system ("PPS") for home health care estimated to
result in $20 billion in savings over six years. Congress is also considering
establishing a PPS for home health services. The proposal would lower cost
limits over the short-run and implement a per-episode PPS for home health not
later than 1999. Currently, HCFA is running a demonstration project to test per
episode reimbursement for home health services.

The Company is unable to predict whether the proposed Medicare prospective
payment system, the Medicaid block grant program, or the DMERCs draft policy
will be enacted or what final form such legislation might take. Furthermore, the
Company cannot predict what additional government regulations, if any, affecting
its business may be enacted in the future, how existing or future laws and
regulations might be interpreted, or whether the Company will be able to comply
with such laws and regulations in its existing or future markets. In addition,
the level of net revenues and profitability of the Company, like those of other
health care providers, will be affected by the continuing efforts of payors to
contain or reduce the costs of health care by lowering reimbursement rates,
increasing case management review of services, negotiating reduced contract
pricing, and capitation arrangements.
EMPLOYEES
On a pro forma basis as of October 31, 1996, the Company had 104 full-time
and 16 part-time employees. Management believes that the Company's employee
relationships are good. None of the Company's employees are represented by a
labor union.
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PROPERTIES
The Company has a total of 22 leased facilities in Michigan and Wisconsin
pursuant to leases that expire on various dates through 2001 or continue on a
month-to-month basis. The Company believes that these leases can be renegotiated
as they expire or that alternative properties can be leased on acceptable terms.
The Company also believes that these facilities are adequate for its current
operations and for foreseeable future operations. Certain of the leases are with
the former owners of the Acquired Companies and may be on terms less favorable
to the Company than those currently available to the Company elsewhere. The
Company's corporate headquarters following the consummation of the Offering will
be located at Blue Water's offices in New Baltimore, Michigan in a 15,500 square
foot facility with a lease that expires in November 2000, with one four-year
renewal option.
INSURANCE

Home health care providers are subject to lawsuits alleging negligence,
product liability or other similar legal theories. The Company, through Blue
Water Industrial, also distributes industrial gas products, such as acetylene,
which have been the subject of lawsuits arising from industrial and other
accidents. The Acquired Companies maintain liability insurance, including
professional liability insurance and excess liability coverage. The Company
believes that the policies are adequate for its operations and is currently
evaluating obtaining new policies on a corporate level. However, there can be no
assurance that claims will be covered by insurance or that the Company will be
able to obtain insurance on terms acceptable to the Company. See "Risk
Factors -- Potential Liability."

LEGAL PROCEEDINGS
Although the Acquired Companies have been engaged in routine litigation
incidental to their businesses, there are no material legal proceedings to which
any of the Acquired Companies or the Company is a party or to which any of their
properties is subject.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and current and proposed directors of the Company
are as follows:

NAME AGE POSITION
Thomas H. White 49 President, Chief Executive Officer
and Director
Frank E. McGeath 52 Chief Financial Officer and
Director
J. Edward Beck, Jr. 48 Director*

* Effective upon the completion of the Offering.
Thomas H. White. Mr. White, who has over twenty years of experience in the
home health care industry, has served as President and Chief Executive Officer
of the Company since August 1996 and was appointed as a director in October
1996. From May 1995 to November 1995, Mr. White was a consultant to American
HomePatient. From 1988 through April 1995, when it was acquired by American
HomePatient, Mr. White served as President of Conpharma Home Health Care, Inc.,
a home health care provider. At the time of sale, Conpharma had over 450
employees in 35 branches located in six states and approximately $35 million in
annual sales. From 1983 though 1989, Mr. White worked in various positions,
including Senior Vice President, Vice President and General Manager for Beverly
Home Health, Inc. and subsequently for Primedica, Inc. when it acquired Beverly
in 1987. Mr. White was a private investor and a consultant to the health care
industry from November 1995 to July 1996. Mr. White received his M.B.A. in 1972
and his B.B.A. in 1970 from Western Michigan University.

Frank E. McGeath. Mr. McGeath, who has over twenty years of financial and
accounting experience, has served as Chief Financial Officer of the Company
since December 1, 1996 and was appointed as a director in January 1997. From
1994 through November 1996, Mr. McGeath was Chief Financial Officer of
ComfortCare of Michigan, Inc., a home health care provider. From 1989 to 1993,
Mr. McGeath served as Vice President and Chief Financial Officer of Visiting
Nurse Association, Inc. From 1986 to 1989, Mr. McGeath served as Vice President,
Controller and Chief Financial Officer of Radius Health Care System, Inc. and
DMC Clinics, Inc., subsidiaries of The Detroit Medical Center. Mr. McGeath is a
certified public accountant and served in various accounting capacities with
Price Waterhouse for over ten years. Mr. McGeath holds M.B.A. and B.B.A. degrees
from Western Michigan University.

J. Edward Beck, Jr. will be appointed as a director of the Company
effective upon the completion of the Offering. He is currently the President and
Chief Executive Officer of Bitrek Corporation, a manufacturer of fabricated pipe
fittings, a position he has held since 1985. During 1983 and 1984, Mr. Beck
served as a senior advisor to the Assistant Secretary, U.S. Department of
Treasury. Mr. Beck is an attorney and was engaged in private legal practice from
1972 to 1983. Mr. Beck holds B.A. and J.D. degrees from Dickinson College and
received an M.B.A. from Mt. St. Mary's College. Mr. Beck is a director of
Dauphin Deposit Corporation.

BOARD OF DIRECTORS
Following the consummation of the Offering, the Company intends to add two
additional directors, bringing the total number of directors to five. These
directors will serve for a term expiring at the annual meeting of stockholders
in 1997 or until their respective successors are elected and qualified. It is
anticipated that one of the additional directors will be a nominee of the
Underwriter and will not be an officer or employee of the Company. See
"Underwriting." At each annual meeting of stockholders, the stockholders will
elect a new Board of Directors for a one year term. Pursuant to the Certificate
of Incorporation of the Company, the Board of Directors has the power to elect
to classify the Board into three classes, with only one-third of the directors
coming up for election each year, although the Board currently has no plans to
do so. See "Description of Capital Stock -- Delaware Law and Certificate of
Incorporation and By-Law Provisions."
COMMITTEES AND RELATIONSHIPS. The Board of Directors will establish an
Audit Committee and a Compensation Committee. The Audit Committee will review
the Company's accounting practices, internal accounting controls and financial
results and oversee the engagement of the Company's independent auditors. The
Compensation Committee will review and recommend to the Board of Directors the
salaries, bonuses and other forms of compensation for executive officers of the
Company and administer various compensation and benefit plans. The Board of
Directors does not intend to maintain a nominating committee or a committee
performing similar functions.
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DIRECTORS' COMPENSATION. The Company reimburses its directors for their
expenses in attending Board or committee meetings, and beginning upon the
completion of the Offering, will pay directors a fee of $1,000 per day for
attending Board or committee meetings.
DIRECTORS OPTION PLAN. The Company's Non-Employee Directors Stock Option
Plan ("Directors Option Plan") provides for the grant of options exercisable for
up to 50,000 shares of Common Stock. Under the Directors Option Plan, each non-
employee director is entitled to an automatic grant of an option to purchase up
to 7,500 shares of Common Stock on the later of the date of the consummation of
the Offering or the date such director is elected to the Board at the fair
market value on the date of grant. These options vest as to 25% of the shares on
the grant date, with the remaining 75% vesting ratably over three years
commencing one year from the grant date.
In addition, each outside director, and each person who is subsequently
elected as an outside director, will be granted an option at each annual meeting
of stockholders to purchase 2,500 shares at an exercise price equal to the fair
market value on the date of grant. One third of these options will vest annually
commencing one year after the grant date.
EXECUTIVE COMPENSATION AND EMPLOYMENT ARRANGEMENTS
Prior to the completion of the Offering, the Company's only business was to
identify and evaluate potential acquisition candidates, negotiate the terms of
the Acquisitions and the Offering and to arrange for the financing of the
Acquisitions. The Company did not pay any compensation to any executive officer
during 1995. The Company did pay management fees to MBFC for administrative and
other services during 1995 and 1996 totaling $341,500. See "Certain
Transactions."
In July 1996, the Company entered into an employment agreement to employ
Mr. White as President and Chief Executive Officer. The agreement has an initial
term through December 31, 1998, and unless the Board of Directors notifies Mr.
White otherwise at least 90 days prior to the end of the initial or subsequent
term, the term of the agreement automatically renews annually for succeeding one
year periods. Mr. White's agreement provides for an initial annual base salary
of $150,000, and he will be entitled to bonuses calculated in accordance with
the Company's incentive compensation plans and policies. Mr. White's base salary
will automatically increase to $175,000 for 1997 and to $200,000 for 1998. Mr.
White is also entitled to quarterly bonuses of $7,500 per quarter through
December 31, 1997 and may receive performance bonuses as determined by the
Compensation Committee. As of November 30, 1996, Mr. White had $62,500 in
accrued salary and bonuses. In conjunction with the Offering, Mr. White will
receive a grant of options for 275,000 shares of Common Stock at an exercise
price equal to the Offering Price. See " -- 1996 Stock and Incentive Plan."
The agreement provides that in the event of the termination of employment
without cause (as defined in the employment agreement), Mr. White would be paid
when and as due, the greater of the total salary payable to him for the
remainder of the term of the agreement or for 12 months. The agreement also
contains provisions for health insurance and other employee benefits as provided
by the Company to its senior executive officers and provides for a covenant not
to compete during the term of the agreement and for 12 months thereafter. After
the termination of Mr. White's employment, a court may refuse to enforce or only
partially enforce the covenant not to compete.
In connection with his engagement as the Company's President and Chief
Executive Officer, Mr. White purchased a total of 370,000 shares of Common Stock
from the Company's founding stockholders for nominal consideration. Of these
shares, 270,000 shares are subject to the performance earn-out discussed under
"Shares Eligible for Future Sale."
On December 1, 1996, Frank E. McGeath was appointed as the Chief Financial
Officer of the Company at an annual salary of $105,000, with an annual bonus
payable at the discretion of the Company's Board of Directors. Mr. McGeath also
will be eligible to participate in the Company's health insurance and benefit
plans. Although there is no employment contract between the Company and Mr.
McGeath, the Company has agreed to provide a severance payment equal to six
months of salary in the event Mr. McGeath's employment is terminated without
just cause. In addition, the Company has granted stock options to Mr. McGeath to
purchase 75,000 shares of Common Stock at an exercise price of $0.25 per share.
These options are subject to the performance restrictions on vesting described
under " -- 1996 Stock and Incentive Plan."
1996 STOCK AND INCENTIVE PLAN
In October 1996, the Board of Directors adopted the Company's 1996 Stock
and Incentive Plan (the "1996 Plan"). The 1996 Plan was approved by the
Company's stockholders in November 1996. The primary reason for adopting the
1996 Plan was to ensure that the Company will be able to provide equity-based
compensation to its key employees.
31

<PAGE>
PURPOSES. The purpose of the 1996 Plan is to attract and retain outstanding
individuals as officers and employees and to motivate such individuals to
achieve the long-term performance goals of the Company by providing incentives
to such individuals in the form of stock ownership or monetary payments based on
the value of the Common Stock. To achieve this purpose, the 1996 Plan permits
grants of incentive stock options ("ISOs"), options not intended to qualify as
ISOs ("nonqualified options"), stock appreciation rights ("SARs"), restricted
and unrestricted stock awards and performance awards, and combinations of the
foregoing (all referred to as "Awards").
NUMBER OF SHARES. The 1996 Plan permits Awards to be granted for a total of
550,000 shares of Common Stock. Shares issuable under Awards that terminate
unexercised, shares issuable under Awards that are payable in stock or cash but
are paid in cash, and shares issued but later forfeited will be available for
future Awards under the 1996 Plan.
ELIGIBLE RECIPIENTS. All employees of the Company are eligible to receive
Awards under the 1996 Plan.
ADMINISTRATION. The 1996 Plan is administered by the Compensation
Committee, which determines, among other things and subject to certain
conditions, the persons eligible to receive Awards, the persons who actually
receive Awards, the type of each Award, the number of shares of Common Stock
subject to an Award, the date of grant, exercise schedule, vesting schedule and
other terms and conditions of each Award, whether to accelerate the exercise or
vesting schedule or waive any other term or condition of an Award, whether to
amend or cancel an Award, and the form of any instrument used under the 1996
Plan. The Compensation Committee has the right to adopt rules for the
administration of the 1996 Plan, settle all controversies regarding the 1996
Plan and any Award, and construe and correct defects and omissions in the 1996
Plan and any Award. The 1996 Plan may be amended, suspended or terminated by the
Board of Directors, subject to certain conditions, provided that stockholder
approval will be required whenever necessary for the 1996 Plan to continue to
satisfy the requirements of certain securities and tax laws, rules and
regulations.
The Company has issued options to purchase an aggregate of 275,000 shares
of Common Stock (the "Performance Options") to Thomas H. White. The Performance
Options are exercisable at the Offering Price and vest as follows: (i) 50% of
the options become exercisable upon the Company achieving earnings per share
("EPS") as shown in the Company's financial statements for the year ended
December 31, 1997 of not less than $0.30; and (ii) any remaining options become
exercisable upon the Company achieving EPS for the year ended December 31, 1998
of not less than $0.60. Also, in any year, 100% of the Performance Options will
vest upon the Company achieving EPS of not less than $1.25 in any year.
Notwithstanding, the options become exercisable on December 31, 2004.
SAVINGS INCENTIVE PLAN
The Company intends to establish a profit sharing plan qualified under
Section 401(k) of the Internal Revenue Code. All employees of the Company who
have completed one year of service will be eligible to participate in the plan.
Subject to certain limitations on individual contributions and allocations and
Company deductions, the plan will allow participants to defer up to 15% of their
pay on a pre-tax basis. The plan also may allow the Company to make
discretionary matching contributions equal to a portion of the amount a
participant defers, up to 6% of the participant's pay. All participants will be
fully vested in their contributions. Company contributions will vest 20% per
year over five years.
CERTAIN TRANSACTIONS

In connection with its formation in June 1995, the Company issued a total
of 743,700 shares of Common Stock to the four founding stockholders of the
Company, Anthony R. Morgenthau, Richard M. Andzel, Gregory A. Poloni and Amy E.
Parker, in a private transaction for nominal consideration. In April 1996, the
Company authorized and in September 1996 issued a total of 248,640 shares of
Common Stock to the IRA accounts of such persons in a private transaction for
nominal consideration.

In May 1996, the founding stockholders of the Company sold a total of
370,000 shares to Thomas H. White, currently the President and Chief Executive
Officer and a Director of the Company, for nominal consideration.

In October and November 1996, the founding stockholders contributed a total
of 103,215 shares to the Company for no consideration. During November 1996, the
Company granted options to its Chief Financial Officer exercisable for 75,000
shares of Common Stock at an exercise price of $0.25 per share. These options
are subject to the performance restrictions on vesting described under
"Management -- 1996 Stock and Incentive Plan."

<PAGE>

In January 1997, Richard M. Andzel and Anthony R. Morgenthau agreed to
contribute all of the shares of Common Stock owned by them (a total of 130,492
shares) to the Company for nominal consideration. Upon dissolution of the
Morgenthau Bridge Funds promptly following the Offering, neither MBFC nor
Messrs. Andzel and Morgenthau will receive any payments or distributions from
the Morgenthau Bridge Funds and will not beneficially own any shares of Common
Stock.

In August 1995, the Company entered into loan and securities purchase
agreements (the "Loan Agreements") with the Morgenthau Bridge Funds, whereby the
Morgenthau Bridge Funds have loaned the Company $1.5 million to provide funding
for the deposits and other expenses incurred in connection with the Acquisitions
and the Offering. Advances pursuant to the Loan Agreements bear interest at the
rate of 18% per annum, and will be due in full by December 31, 1997. It is the
intention of the Company to repay the loans with a portion of the proceeds of
the Offering. Richard M. Andzel and Anthony R. Morgenthau, each of whom is a
founding stockholder of the Company, are officers and owners of MBFC, the
general partner or manager of the Bridge Funds. Through their ownership of MBFC,
Messrs. Andzel and Morgenthau have received compensation associated with raising
the Morgenthau Bridge Funds. Amy E. Parker, another founding stockholder of the
Company, was, until October 1996, affiliated with MBFC and received compensation
from MBFC in such capacity. Prior to his death in December 1996, Gregory A.
Poloni, a founding stockholder, was also affiliated with MBFC in various
capacities. In connection with the September Bridge, Morgenthau & Associates,
Inc., a registered broker-dealer of which Anthony R. Morgenthau is the
President, received placement fees of $40,000.

During the period from June 1995 to October 17, 1996, the Company paid
management fees to MBFC totaling $361,500 for services rendered and $65,000 for
reimbursement of travel and other expenses incurred in connection with the
formation and organization of the Company, investigating and evaluating
potential acquisition candidates and arranging and negotiating the Acquisitions
and the Offering.

In connection with the Loan Agreements, the Company issued warrants to the
Morgenthau Bridge Funds to purchase 214,000 shares of Common Stock at an
exercise price of $0.10 per share. These warrants were exercised in September
1996. The exercise price of the warrants was paid through the application of
$21,400 in accrued and unpaid interest to the exercise price.

Mr. Morgenthau has advanced $50,000 to fund an additional deposit to Blue
Water. Mr. Morgenthau will not receive interest or other remuneration in
connection with the advance and will be reimbursed out of the proceeds of the
Offering.
The Company has adopted a policy that all transactions between the Company
and its executive officers, directors, holders of 5% or more of the shares of
any class of its Common Stock and affiliates thereof, will contain terms no less
favorable to the Company than could have been obtained by it in arms-length
negotiations with unaffiliated persons and will be approved by a majority of
outside directors of the Company not having any interest in the transaction.
33

<PAGE>

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information known to the Company
with respect to the beneficial ownership of the Common Stock as of January 31,
1997, and as adjusted to reflect the Acquisitions and the sale of the shares of
Common Stock offered hereby, by (i) each person known by the Company to be the
beneficial owner of more than five percent of the Common Stock, (ii) each of the
Company's directors and director nominees, (iii) each of the Company's executive
officers and (iv) all directors and executive officers as a group. Except as
otherwise indicated below, the beneficial owners of the Common Stock listed
below have sole investment and voting power with respect to such shares.

<TABLE>
<CAPTION>
PERCENT OWNED
SHARES BEFORE THE AFTER THE
BENEFICIALLY OFFERING AND OFFERING AND
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED (2) ACQUISITIONS ACQUISITIONS
<S> <C>
Thomas H. White (3).............................................................. 370,000 36.2 9.8
Frank E. McGeath................................................................. -- -- --
J. Edward Beck, Jr............................................................... -- -- --
Richard M. Andzel (4)(6)......................................................... 214,000 20.9 --
Anthony R. Morgenthau (4)(6)..................................................... 214,000 20.9 --
Estate of Gregory A. Poloni (5)(6)............................................... 77,158 7.5 2.0
Amy E. Parker (7)................................................................ 271,475 26.5 7.2
Executive Officers and Directors as a Group (3 persons).......................... 370,000 36.2 9.8
</TABLE>

(1) Except as otherwise shown, the address of each person listed above is c/o of
the Company, 3333 West Commercial Blvd., Suite 203, Fort Lauderdale, Florida
33309.

(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to the shares.

(3) Of these shares, 270,000 shares are subject to the performance earn-out
discussed under "Shares Eligible for Future Sale."

(4) Issued to the Morgenthau Bridge Funds. All of these shares are subject to a
three year non-discretionary lock-up. Each of Messrs. Andzel and Morgenthau
may be deemed to have indirect beneficial ownership of such shares as a
result of their positions with MBFC prior to distribution of all such shares
to Bridge Fund investors after the completion of the Offering.

(5) Of these shares, 34,000 are subject to the performance earn-out discussed
under "Shares Eligible for Future Sale".

(6) The address of the Estate of Gregory A. Poloni and of Messrs. Andzel and
Morgenthau is c/o The Morgenthau Group, Inc., 504 Cathedral Street,
Baltimore, Maryland 21201.

(7) All shares are subject to an 18 month non-discretionary lock-up. Also,
153,000 of such shares are subject to the performance earn-out discussed
under "Shares Eligible for Future Sale." A total of 74,370 of these shares
are held by an individual retirement account for the benefit of Ms. Parker.
Ms. Parker's address is 1150 NW 93rd Terrace, Plantation, Florida 33322.

DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company currently consists of
10,500,000 shares, of which 10,000,000 shares have been designated Common Stock,
par value $0.01 per share, and 500,000 shares have been designated Preferred
Stock, par value $0.01 per share. The following summary description of the
capital stock of the Company is qualified in its entirety by reference to the
Company's Certificate of Incorporation and By-Laws, as amended, copies of which
are exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK

As of January 31, 1997, there were 1,022,633 shares of Common Stock
outstanding and held of record by 23 stockholders. Based upon the number of
shares outstanding as of that date and after giving effect to the issuance of
771,875 shares to the sellers of the Acquired Companies and the issuance of the
2,000,000 shares of Common Stock offered by the Company hereby, there will be
3,794,508 shares of Common Stock outstanding.

<PAGE>
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared by the Board of Directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding Preferred Stock. Upon the liquidation, dissolution or winding up
of the Company, the holders of Common Stock are entitled to receive ratably the
net assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock, as such, have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of Common Stock are, and the shares
offered by the Company in the Offering will be, when issued and paid for, fully
paid and nonassessable. The rights, preferences and privileges of holders of
Common Stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of Preferred Stock which the Company may
designate and issue from time to time in the future.
PREFERRED STOCK

The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further stockholder approval, to issue from time to
time up to an aggregate of 500,000 shares of Preferred Stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption prices, liquidation preferences and the number of shares constituting
any series. The issuance of Preferred Stock may have the effect of delaying,
deterring or preventing a change in control of the Company, and may adversely
affect the voting power of holders of Common Stock.

DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
The Company is subject to the provisions of Section 203 of the General
Corporation Law of the State of Delaware (the "Delaware GCL"). Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
either caused by the interested stockholder or resulting in a financial benefit
to the interested stockholder which is not shared pro rata with the other
stockholders of the Company. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock. The
statute contains provisions enabling a corporation to avoid the statute's
restrictions if stockholders holding a majority of a corporation's voting stock
approve an amendment to the corporation's certificate of incorporation or
by-laws to avoid the restrictions. The Company has not and does not currently
intend to "elect out" of the application of this statute.
The Company's Certificate of Incorporation contains certain provisions
permitted under the Delaware GCL which eliminate the personal liability of
directors for monetary damages for a breach of the director's fiduciary duty,
except for: (i) breach of a director's duty of loyalty; (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law; (iii) unlawful payments of dividends, stock purchases or stock
redemptions; and (iv) any transaction from which the director derives any
improper personal benefit. The Company's Certificate of Incorporation and By-
Laws also contain provisions indemnifying the Company's directors, officers and
employees to the fullest extent permitted by the Delaware GCL. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors, officers and employees.
The Certificate of Incorporation provides that a director's liability shall be
eliminated or limited to the fullest extent permitted by the Delaware GCL, as
amended from time to time.
The Company's Certificate of Incorporation empowers the Board of Directors
to reclassify the Board into three classes as nearly equal in number as possible
with staggered three-year terms. See "Management -- Executive Officers and
Directors." The classification of the Board of Directors could make it more
difficult for a third party to acquire, or discourage a third party from
attempting to acquire, control of the Company. The Board of Directors currently
has no plans to reclassify the Board.
REGISTRATION RIGHTS

In connection with the Acquisitions, the Company has granted the sellers of
the Acquired Companies certain piggyback registration rights for the 771,875
shares issued in the Acquisitions with respect to any eligible registration
statement that the

<PAGE>

Company files with the Securities and Exchange Commission ("SEC"). The Company
also has granted the Underwriter certain registration rights in connection with
the Underwriter Warrants. See "Underwriting."

TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer and Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock.
Future sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices and the ability of the Company to
raise equity capital in the future.

Upon completion of the Offering, the Company will have a total of 3,794,508
shares of Common Stock outstanding (assuming no exercise of the Underwriter's
over-allotment option). Of these shares, the 2,000,000 shares offered hereby
will be freely tradable without restriction or registration under the Securities
Act by persons other than "affiliates" of the Company as defined in Rule 144
under the Securities Act. The remaining 1,794,508 shares outstanding are
"restricted shares" as defined in Rule 144 under the Securities Act (the
"Restricted Shares").

The Company's officers and directors, and certain other stockholders,
including the sellers of the Acquired Companies, who in the aggregate will hold
approximately 1,794,508 shares upon the completion of the Offering, have agreed
(the "Lock-Up Agreements") that they will not, without the written consent of
the Underwriter, sell, offer, hypothecate, make any short sale of, pledge,
transfer or otherwise dispose of, directly or indirectly, any shares of Common
Stock or securities convertible into or exchangeable for shares of Common Stock
owned by them or with respect to which any of them have the power of disposition
during a 18 month period following the date of this Prospectus. The 214,000
shares owned by the Morgenthau Bridge Funds and the 50,000 owned by the
September Bridge Investors are also subject to non-discretionary lock-up
agreements which prevent the disposition of the shares for three years after the
completion of the Offering. The 271,475 shares beneficially owned by Amy E.
Parker are subject to an 18 month non-discretionary lock-up agreement. In
addition, a total of 457,000 Restricted Shares owned by the Company's founding
stockholders and members of management are subject to performance earn-outs
restricting their sale as follows: (i) 50% of the shares may be sold upon the
Company achieving EPS for the year ended December 31, 1997 of not less than
$0.30 per share; and any remaining shares may be sold upon the Company achieving
EPS for the year ended December 31, 1998 of not less than $0.60 per share. Also,
subject to Rule 144 and other applicable lock-up agreements, all of the shares
may be sold upon the Company achieving EPS of not less than $1.25 in any year.
Notwithstanding, all of the shares may be sold on or after December 31, 2004.
Subject to meeting the performance earn-out, approximately 162,735 shares will
be eligible for sale under Rule 144 upon expiration of the Lock-Up Agreements
and the remainder of the Restricted Shares will become eligible for sale under
Rule 144 upon the expiration of their respective two-year holding periods or the
applicable lock-up period, whichever is longer.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of the
Company, would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of 1% of the number of shares of Common
Stock then outstanding (approximately 38,000 shares upon completion of the
Offering) or the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the filing of a Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements, and to the availability of current public information
about the Company. In addition, a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, will be entitled to sell such shares under Rule 144(k) immediately after
the Offering without regard to the volume limitations, manner of sale
provisions, public information requirements or notice requirements.

A total of 675,000 shares of Common Stock are reserved for issuance upon
the exercise of options that may be granted under the 1996 Plan, the Directors
Option Plan and individual option grants. The Company intends to file a
registration statement on Form S-8 to register the Common Stock issued or
reserved for issuance under the plans and individual grants. Shares of Common
Stock issued after the effective date of such registration statement and the
shares of Common Stock outstanding on the date of such registration statement as
a result of option exercises, other than shares held by affiliates of the
Company, will be eligible for resale in the public market without restriction
subject to the agreements described in the preceding paragraph. See
"Management -- Board of Directors -- Directors Option Plan" and " -- 1996 Stock
and Incentive Plan."
36

<PAGE>
UNDERWRITING
The Underwriter has agreed to purchase from the Company, subject to the
terms and conditions of the Underwriting Agreement between the Company and the
Underwriter, the number of shares of Common Stock set forth opposite its name.
The Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent and that the Underwriter shall be
obligated to purchase all of the Shares if any of the Shares are purchased. The
underwriting discount set forth on the cover page of this Prospectus will be
allowed to the Underwriter at the time of delivery to the Underwriter of the
Shares so purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
NAME OF UNDERWRITER PURCHASED
<S> <C>
H. J. Meyers & Co., Inc..................................................................
Total............................................................................. 2,000,000
</TABLE>

The Underwriter has advised the Company that it proposes to offer the
Shares to the public at an offering price estimated to be $5.50 per Share and
that the Underwriter may allow certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") a concession of not in excess
of $0. per share, of which the Underwriter may allow and such dealers may
reallow consessions not in excess of $0. per share to certain other dealers.
After commencement of the Offering, the public offering price and concession may
be changed.

The Company has granted to the Underwriter an option, exercisable during
the 30-day period from the date of this Prospectus, to purchase up to a maximum
of 300,000 additional shares on the same terms set forth above. The Underwriter
may exercise such right only to satisfy over-allotments in the sale of the
shares.

The Company has agreed to pay to the Underwriter a non-accountable expense
allowance equal to 2.5% of the total proceeds of the Offering, or $275,000
($316,250 if the Underwriter exercises the over-allotment option in full). In
addition to the Underwriter's commission and the Underwriter's non-accountable
expense allowance, the Company is required to pay the costs of qualifying the
shares of Common Stock under federal and state securities laws, together with
legal and accounting fees (including $46,315 payable to the Underwriter's
counsel as reimbursement for its fees in connection with the representation of
an underwriter in a proposed offering that was not completed), printing and
other costs in connection with the Offering, estimated to total approximately
$760,000.
At the closing of the Offering, the Company will issue to the Underwriter
for nominal consideration the Underwriter Warrant to purchase for investment a
maximum of 200,000 shares of Common Stock. The Underwriter Warrant will be
exercisable for a four-year period commencing one year from the date of this
Prospectus. The exercise price of the Underwriter Warrant is equal to 135% of
the Offering Price. The Underwriter Warrant will not be transferable prior to
its exercise date except to officers of the Underwriter and members of the
selling group and officers and partners thereof. The Underwriter Warrant will
contain anti-dilution provisions. The Underwriter Warrant does not entitle the
Underwriter to any rights as a stockholder of the Company until such warrant is
exercised and the shares of Common Stock are purchased thereunder. The
Underwriter Warrant and the shares of Common Stock thereunder may not be offered
for sale except in compliance with the applicable provisions of the Securities
Act. The Company has agreed that, if subsequent to the Offering it shall cause
to be filed with the SEC either an amendment to the Registration Statement of
which this Prospectus is a part or a separate registration statement, the
Underwriter shall have the right during the five-year period commencing on the
date of this Prospectus to include in such amendment or Registration Statement
the Underwriter Warrant and the shares of Common Stock issuable upon its
exercise at no expense to the Underwriter. Additionally, the Company has agreed
that upon written request by a holder or holders of 50% or more of the
Underwriter Warrant which is made during the exercise period of the Underwriter
Warrant, the Company will on two separate occasions, register the Underwriter's
Warrant and the shares of Common Stock issuable upon exercise thereof. The
initial such registration will be at the Company's expense and the second such
registration will be at the expense of the holder(s) of the Underwriter Warrant.
For the period during which the Underwriter Warrant is exercisable, the
holder or holders will have the opportunity to profit from a rise in the market
value of the Company's Common Stock, with a resulting dilution in the interests
of the other stockholders of the Company. The holder or holders of the
Underwriter Warrant can be expected to exercise it at a time when the Company
would, in all likelihood, be able to obtain any needed capital from an offering
of its unissued Common Stock on terms more favorable to the Company than those
provided for in the Underwriter Warrant. Such facts may materially adversely
affect the terms on which the Company can obtain additional financing. To the
extent that the Underwriter realizes
37

<PAGE>
any gain from the resale of the Underwriter Warrant or the securities issuable
thereunder, such gain may be deemed additional underwriting compensation under
the Securities Act.
The Company has agreed to enter into a one-year consulting agreement with
the Underwriter pursuant to which the Underwriter agrees to perform consulting
services related to corporate finance and other financial service matters, upon
the request of the President of the Company, and will make available qualified
personnel for this purpose and devote such business time and attention to such
matters as it shall determine is required. The consulting fee of $72,000 will be
payable, in full, on the closing date of the Offering.
The Company has agreed to engage a public relations firm mutually
acceptable to the Underwriter and the Company. The Company has also agreed to
maintain a relationship with such public relations firm for a minimum period of
24 months and on such other terms as are acceptable to the Underwriter.
The Company has also agreed that, for a period of two years from the
closing of the Offering, if it participates in any merger, consolidation or
other transaction which the Underwriter has brought to the Company (including an
acquisition of assets or stock for which it pays, in whole or in part, with
shares of the Company's Common Stock or other securities), and the transaction
is consummated within 36 months of the closing of the Offering, then it will pay
for the Underwriter's services an amount equal to 5.0% of the first $2,000,000
of value paid or value received in the transaction and 2.0% of any consideration
above $2,000,000. The Company has also agreed that if, during this two-year
period, someone other than the Underwriter brings such a merger, consolidation
or other transaction to the Company, and if the Company in writing retains the
Underwriter for consultation or other services in connection therewith, then
upon consummation of the transaction, the Company will pay to the Underwriter as
a fee the appropriate amount as set forth above or as otherwise agreed between
the Company and the Underwriter.
Holders of all of the Company's capital stock outstanding prior to the
Offering are expected to be subject to lock-up agreements under which the
holders of such shares will agree not to sell or dispose of any shares owned by
them prior to this Offering, or subsequently acquired under any option, warrant
or convertible security owned prior to this Offering, for a period of 18 months
after the date of this Prospectus without the prior written consent of the
Underwriter.
The Company has agreed that, for a period of 12 months from the date of
this Prospectus, it will not sell any securities, with the exception of the
shares of Common Stock issued upon exercise of currently outstanding options,
warrants or other convertible securities, without the Underwriter's prior
written consent, which consent shall not be unreasonably withheld. In addition,
for a period of 24 months from the date of this Prospectus, the Company will not
sell or issue any securities pursuant to Regulation S under the Securities Act
without the Underwriter's prior written consent.
The Company has agreed that, for a period of three years from the date of
this Prospectus, it will allow a non-voting observer designated by the
Underwriter and acceptable to the Company to receive notice of and be invited to
attend all meetings of the Company's Board of Directors. In addition, the
Company has agreed that for a period of three years from the date of this
Prospectus, the Underwriter, at its election and in lieu of an observer, shall
have the right to cause the Company to use its best efforts to elect one
designee of the Underwriter to the Board of Directors. It is anticipated that
the Underwriter will elect to cause the Company to use its best efforts to elect
a designee of the Underwriter to the Company's Board.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against certain liabilities in connection with
the Registration Statement, including liabilities under the Securities Act.
The Underwriter has advised the Company that the Underwriter does not
intend to confirm sales to any account over which they exercise discretionary
authority.
On July 16, 1996, the National Association of Securities Dealers, Inc. (the
"NASD") issued a notice of acceptance of Acceptance, Waiver, and Consent (the
"AWC") whereby the Underwriter was censured, and ordered to pay fines and
restitution to retail customers in the amount of $250,000 and approximately
$1.025 million, respectively. The AWC was issued in connection with claims by
the NASD that the Underwriter charged excessive markups and markdowns in
connection with the trading of four certain securities originally underwritten
by the Underwriter. The activities in question occurred during periods between
December 1990 and October 1993. The Underwriter has informed the Company that
the fines and refunds will not have a material adverse effect on the
Underwriter's operations and that the Underwriter has effected remedial measures
to help ensure that the subject conduct does not recur. As of the date of this
Prospectus, all fines and restitution associated with such AWC have been paid.
Prior to the Offering, there has been no public market for the shares of
Common Stock. The initial public offering price has been negotiated among the
Company and the Underwriter. Among the factors considered in determining the
initial public
38

<PAGE>
offering price of the Common Stock, are prevailing market conditions, estimates
of the business potential and earnings prospects of the Company, an assessment
of the Company's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
LEGAL MATTERS
The validity of the Common Stock being offered hereby will be passed upon
for the Company by Whiteford, Taylor & Preston L.L.P., Baltimore, Maryland.
Certain legal matters will be passed upon for the Underwriters by Shereff,
Friedman, Hoffman & Goodman, LLP, New York, New York.
EXPERTS
The historical financial statements of the Company and the Acquired
Companies as of December 31, 1995 for each of the two years in the period ended
December 31, 1995 included in this Prospectus have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not currently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended. The Company has filed with the SEC
a Registration Statement on Form SB-2 (the "Registration Statement") under the
Securities Act of 1933, as amended, with respect to the Common Stock offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
omits certain of the information contained in the Registration Statement and the
exhibits and schedules thereto. For further information with respect to the
Company and such Common Stock, reference is made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in this
Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference. The
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the SEC's principal office in Washington,
D.C., and copies of all or any part of the Registration Statement may be
obtained from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of certain fees prescribed by the SEC. The
SEC maintains a Web site at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
39

<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
LIFE CRITICAL CARE CORPORATION:
Report of Independent Auditors......................................................................................... F-2
Financial Statements:
Balance Sheets as of December 31, 1995 and (Unaudited) September 30, 1996............................................ F-3
Statements of Operations for the period from June 19, 1995 (Date of Inception) to December 31, 1995 and (Unaudited)
for the Nine Months Ended September 30, 1996...................................................................... F-4
Statements of Shareholders' Equity (Deficit) for the period from June 19, 1995 (Date of Inception) to December 31, 1995
and (Unaudited) for the Nine Months Ended September 30, 1996......................................................... F-5
Statements of Cash Flows for the period from June 19, 1995 (Date of Inception) to December 31, 1995 and (Unaudited) for
the Nine Months Ended September 30, 1996............................................................................. F-6
Notes to Financial Statements.......................................................................................... F-7
BLUE WATER MEDICAL SUPPLY, INC. AND BLUE WATER INDUSTRIAL PRODUCTS, INC.
Report of Independent Auditors......................................................................................... F-11
Combined Financial Statements:
Combined Balance Sheets as of December 31, 1995 and (Unaudited) September 30, 1996................................... F-12
Combined Statements of Operations for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months
Ended September 30, 1995 and 1996................................................................................. F-13
Combined Statements of Shareholders' Equity for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the
Nine Months Ended September 30, 1996.............................................................................. F-14
Combined Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months
Ended September 30, 1995 and 1996................................................................................. F-15
Notes to Combined Financial Statements............................................................................... F-16
GREAT LAKES HOME MEDICAL, INC.
Report of Independent Auditors......................................................................................... F-19
Financial Statements:
Balance Sheets as of December 31, 1995 and (Unaudited) September 30, 1996............................................ F-20
Statements of Operations for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months Ended
September 30, 1995 and 1996....................................................................................... F-21
Statements of Shareholders' Equity for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months
Ended September 30, 1996.......................................................................................... F-22
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months Ended
September 30, 1995 and 1996....................................................................................... F-23
Notes to Financial Statements........................................................................................ F-24
ABC MEDICAL SUPPLY, INC.:
Report of Independent Auditors......................................................................................... F-27
Financial Statements:
Balance Sheets as of December 31, 1995 and (Unaudited) September 30, 1996............................................ F-28
Statements of Operations for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months Ended
September 30, 1995 and 1996....................................................................................... F-29
Statements of Shareholders' Equity for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months
Ended September 30, 1995 and 1996................................................................................. F-30
Statements of Cash Flows for the Years Ended December 31, 1994 and 1995 and (Unaudited) for the Nine Months Ended
September 30, 1995 and 1996....................................................................................... F-31
Notes to Financial Statements........................................................................................ F-32
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Introduction to Unaudited Pro Forma Condensed Consolidated Financial Statements...................................... F-35
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30, 1996.................................... F-36
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Nine Months ended September 30, 1996...... F-37
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the Year Ended December 31, 1995.............. F-38
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements............................................. F-39
</TABLE>

F-1

<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
LIFE CRITICAL CARE CORPORATION
We have audited the accompanying balance sheet of Life Critical Care
Corporation as of December 31, 1995, and the related statements of operations,
shareholders' equity (deficit), and cash flows for the period from June 19, 1995
(date of inception) to December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company at December 31,
1995, and the results of its operations and cash flows for the period from June
19, 1995 (date of inception) to December 31, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
August 23, 1996, except paragraph 1 of
Note 6 for which the date is
August 29, 1996
F-2

<PAGE>
LIFE CRITICAL CARE CORPORATION
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash........................................................................................... $ 23,158 $ 252,254
Note receivable, affiliate..................................................................... -- 10,000
Deferred costs................................................................................. 245,426 576,842
Deposits....................................................................................... 250,000 200,000
Total current assets............................................................................. 518,584 1,039,096
Organization costs, net of accumulated amortization of $73 in 1995 and $292 in 1996.............. 1,387 1,168
Deferred financing cost.......................................................................... -- 25,000
Total assets..................................................................................... $ 519,971 $ 1,065,264
LIABILITIES AND SHAREHOLDERS' EQUITY (deficit)
Current liabilities:
Accounts payable and accrued expenses.......................................................... $ 59,400 $ 437,334
Accrued interest............................................................................... 12,618 155,041
Loan payable to affiliate...................................................................... 15,000 --
Notes payable.................................................................................. -- 495,000
Total current liabilities........................................................................ 87,018 1,087,375
Notes payable to affiliates...................................................................... 700,879 1,500,000
Shareholders' equity (deficit):
Preferred stock, $.01 par value, 500,000 shares authorized, no shares issued and outstanding... -- --
Common stock, $.01 par value, 10,000,000 shares authorized, 743,700 at December 31, 1995 and
1,256,340 at September 30, 1996 shares issued and outstanding (net of loans receivable from
shareholders for common stock of $7 at December 31, 1995)................................... -- 12,563
Additional paid-in capital, net of loans receivable from shareholders for common stock of $663
at December 31, 1995........................................................................ -- 164,947
Accumulated deficit............................................................................ (267,926) (1,699,621)
Total shareholders' equity (deficit)............................................................. (267,926) (1,522,111)
Total liabilities and shareholders' equity (deficit)............................................. $ 519,971 $ 1,065,264
</TABLE>

See accompanying notes.
F-3

<PAGE>
LIFE CRITICAL CARE CORPORATION
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM JUNE 19, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995 AND (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996

<TABLE>
<CAPTION>
1995 1996
<S> <C>
(UNAUDITED)
Operating expenses:
General and administrative...................................................................... $ 20,049 $ 187,273
Management fee.................................................................................. 225,000 136,500
Professional fees............................................................................... 10,259 143,229
Operating loss.................................................................................... (255,308) (467,002)
Forfeiture of deposit............................................................................. -- 700,000
Financing expense................................................................................. -- 89,000
Interest expense.................................................................................. 12,618 175,693
Net loss.......................................................................................... (267,926) (1,431,695)
Loss per common share............................................................................. $ (.49) $ (1.86)
Weighted-average shares outstanding............................................................... 546,392 769,659
</TABLE>

See accompanying notes.
F-4

<PAGE>
LIFE CRITICAL CARE CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
NUMBER OF PAID-IN SHAREHOLDER ACCUMULATED
SHARES AMOUNT CAPITAL LOANS DEFICIT TOTAL
<S> <C>
Balance at June 19, 1995 (Date of
Inception).................................. 670 $ 7 $ 663 $ (670) $ -- $ --
Net loss...................................... -- -- -- -- (267,926) (267,926)
Balance at December 31, 1995.................. 670 7 663 (670) (267,926) (267,926)
Payment for common stock (Unaudited).......... -- -- -- 670 -- 670
Compensation expense on sale of common stock
to management (Unaudited)................... -- -- 59,200 -- -- 59,200
Exercise of stock purchase warrants
(Unaudited)................................. 214,000 2,140 19,260 -- -- 21,400
Issuance of stock (Unaudited)................. 248,640 2,486 (246) -- -- 2,240
1,110 for one stock split (Unaudited)......... 743,030 7,430 (7,430) -- -- --
Issuance of stock in connection with bridge
financing (Unaudited)....................... 50,000 500 93,500 -- -- 94,000
Net loss (Unaudited).......................... -- -- -- -- (1,431,695) (1,431,695)
Balance at September 30, 1996
(Unaudited)................................. 1,256,340 $12,563 $ 164,947 $ -- $(1,699,621) $(1,522,111)
</TABLE>

See accompanying notes.
F-5

<PAGE>
LIFE CRITICAL CARE CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM JUNE 19, 1995 (DATE OF INCEPTION)
TO DECEMBER 31, 1995 AND (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1996

<TABLE>
<CAPTION>
1995 1996
<S> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net loss.......................................................................................... $(267,926) $(1,431,695)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization.................................................................................... 73 219
Forfeiture of deposit........................................................................... -- 700,000
Stock compensation expense...................................................................... -- 59,200
Financing expense............................................................................... -- 89,000
Changes in operating assets and liabilities:
Accounts payable and accrued expenses........................................................ 59,400 377,934
Accrued interest............................................................................. 12,618 163,823
Net cash used in operating activities............................................................. (195,835) (41,519)
INVESTING ACTIVITIES
Payment of organization and acquisition costs..................................................... (211,999) (125,519)
Deposits made..................................................................................... (250,000) (650,000)
Net cash used in investing activities............................................................. (461,999) (775,519)
FINANCING ACTIVITIES
Proceeds from notes payable....................................................................... 700,879 1,294,121
Proceeds from issuance of common stock............................................................ -- 7,910
Payment of deferred offering costs................................................................ (34,887) (205,897)
Payment of deferred financing costs............................................................... -- (25,000)
Proceeds (payment) of loans to/from affiliates.................................................... 15,000 (25,000)
Net cash provided by financing activities......................................................... 680,992 1,046,134
Net increase in cash.............................................................................. 23,158 229,096
Cash at beginning of period....................................................................... -- 23,158
Cash at end of period............................................................................. $ 23,158 $ 252,254
SUPPLEMENTAL INFORMATION
Cash paid for interest............................................................................ $ -- $ 11,870
</TABLE>

See accompanying notes.
F-6

<PAGE>
LIFE CRITICAL CARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1996 IS
UNAUDITED)
1. DESCRIPTION OF BUSINESS
Life Critical Care Corporation (the Company) was formed on June 19, 1995.
The Company acquires and manages providers of health care products and services,
primarily in the Midwest.
BASIS OF PRESENTATION
The financial statements of the Company as of September 30, 1996, and for
the nine-month period ended September 30, 1996, and all information subsequent
to December 31, 1995, are unaudited. All adjustments and accruals (consisting
only of normal recurring adjustments) have been made which, in the opinion of
management, are necessary for a fair presentation of the financial position and
operating results of the Company for the interim period presented.
The interim financial statements are condensed and do not include all the
information and disclosures necessary for a full interim financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION COSTS AND DEFERRED COSTS
Organization costs are amortized on a straight-line basis over five years.
Deferred costs arise from a planned initial public offering which will be netted
against offering proceeds upon completion of the offering and from the planned
acquisitions (Note 9) which will be applied to the purchase price. Deferred
financing costs will be amortized on a straight-line basis over the term of the
pending bank loan.
INCOME TAXES
The Company uses the liability method of accounting for income taxes, as
set forth in the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under this method, deferred tax assets and
liabilities are determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include a note receivable, accounts
payable, accrued expenses, and loans and notes payable. The fair values of all
financial instruments were not materially different from their carrying values.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NET LOSS AND PRO FORMA NET LOSS PER COMMON SHARE
Pro forma net loss per common share and historical net loss per common
share (as discussed below) are computed based upon the weighted-average number
of common shares outstanding. Common equivalent shares are not included in the
pro forma and historical per share calculations since the effect of their
inclusion would be antidilutive, except that common equivalent shares issued
during the 12-month period prior to the proposed public offering have been
included in the pro forma calculation as if they were outstanding for all
periods presented using the treasury stock method and an assumed initial public
offering price of $5.50 per share.
3. RELATED PARTY TRANSACTIONS
In August 1995, the Company entered into two promissory notes due December
31, 1997, to affiliates for borrowings up to $750,000 on each note. The notes
accrue interest at 18% per year which is payable quarterly commencing December
31,
F-7

<PAGE>
LIFE CRITICAL CARE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
3. RELATED PARTY TRANSACTIONS -- Continued
1995. Any unpaid interest accrues to the notes. Borrowings on the notes were
$700,879 and $1,500,000 at December 31, 1995 and September 30, 1996,
respectively.
In the period ended December 31, 1995, the Company paid a $225,000
management fee to an affiliate for personnel, office supplies, insurance and
other services provided by the affiliate.
In April 1996, the Company authorized and established terms to issue
248,640 shares of Common Stock for $2,240 to certain shareholders. Due to delays
in completing legal documents and requirements, the shares were issued in
September 1996 (at the terms and price established in April 1996).
On May 19, 1996, certain shareholders of the Company sold 370,000 shares of
Common Stock to the Chief Executive Officer (CEO) for $.01 per share. The
Company has recorded compensation expense of $59,200 in connection with this
transaction.

In conjunction with the September 1996 bridge financing (Note 9),
commissions and fees of $70,000 were paid to an affiliate. It was subsequently
agreed that $10,000 would be repaid to the Company in December 1996.
Accordingly, a note receivable in the amount of $10,000 has been recorded at
September 30, 1996. The note is non-interest bearing.

4. COMMON STOCK WARRANTS
In connection with the issuance of the promissory notes in August 1995, the
Company issued common stock purchase warrants for 214,000 shares. These warrants
have an exercise price of $.10 per share and are exercisable commencing March
15, 1996, and expire upon the earlier of December 31, 1998, or two years from
the date all sums under the respective notes have been paid. All warrants were
outstanding at December 31, 1995. At December 31, 1995, 214,000 shares of common
stock have been reserved for future issuance in connection with these warrants.
These warrants were exercised in September 1996 through the conversion of
accrued interest of $21,400.
In conjunction with a planned public offering of common stock, warrants to
purchase an aggregate of 200,000 of common stock at an exercise price equal to
135% of the initial public offering price per share will be sold to the managing
underwriter of the initial public offering. The warrants will be exercisable for
a period of four years beginning one year from the effective date of the initial
public offering.
5. STOCK OPTIONS
On October 16, 1996, the Board of Directors adopted the 1996 Stock and
Incentive Plan (the Plan) for employees. The maximum number of shares issuable
under the Plan is 550,000. The Plan is administered by a committee consisting of
two or more outside directors appointed by the board of directors of the
Company.
The Plan provides for granting of Incentive Stock Options (ISOs) and
Non-Qualified Stock Options (NSOs). The exercise price shall be determined by
the committee; however, such exercise price shall not be less than the fair
value of the common stock on the date of grant. The term of the options shall be
determined by the committee, and in the case of ISOs, shall not exceed ten
years.
In addition, the Board of Directors adopted the 1996 Non-employee Directors
Stock Option Plan. (Directors Plan). This plan will be effective upon the
effective date of a planned initial public offering. The Directors Plan provides
for issuance of a maximum number of 50,000 shares. Under the Directors Plan,
each outside director will be automatically granted 7,500 shares on the date of
their initial election to the board of directors. The options vest 50% as of the
date of the first annual meeting following date of grant and 50% as of the date
of the second annual meeting. In addition, on the date of the annual meeting
each outside director will be granted 2,500 shares or a lesser number of shares
prorated for the number of months the director has served on the board of
directors since the most recent annual meeting. These options vest as of the
date of the first annual meeting following the date of grant. All options under
the Directors Plan have a ten-year term.
In November 1996, options to purchase 75,000 shares of common stock were
granted to the chief financial officer of the Company at an exercise price of
$.25 per share. The options expire ten years from the date of grant and vest
upon the earlier
F-8

<PAGE>
LIFE CRITICAL CARE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
5. STOCK OPTIONS -- Continued
of the Company achieving certain earnings per share levels, as specified in the
option agreement, or December 31, 2004. The difference between the exercise
price and the estimated fair market value of the options at the time of grant of
$1.45 per share will be charged to expense as the options vest.
6. CAPITAL STOCK
All common share and per share amounts in the financial statements and
notes to financial statements have been restated to reflect a 1,110 for 1 stock
split effective August 29, 1996.

In conjunction with the pending initial public offering, 28,215 shares of
common stock were returned by the founding shareholders to the Company for no
consideration in October 1996. An additional 130,492 shares were returned in
January 1997. These shares were retired and the transactions had no impact on
stockholders'equity.

In addition, 75,000 shares of common stock were donated to the Company by
the founding shareholders to be held and reissued upon the exercise by the Chief
Financial Officer of options to purchase common stock granted in connection with
his employment with the Company (Note 5). These shares will be held in treasury
until the options are exercised.
All common share and per share amounts in the financial statements and
notes to financial statements have been restated to reflect a 1,110 for 1 stock
split effective August 1996.
7. INCOME TAXES
The Company has net operating loss carryforwards for tax purposes of
approximately $270,000 at December 31, 1995, which begin to expire in 2010.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax asset at
December 31, 1995, of $100,000 relates primarily to the net operating loss
carryforward for income tax purposes and has been offset by a valuation
allowance in the same amount. Based on the Internal Revenue Code and changes in
the ownership of the Company, utilization of the net operating loss carryforward
may be subject to annual limitations.
8. COMMITMENTS
The Company has entered into an employment agreement with its CEO which
provides for annual base compensation of $150,000 through December 31, 1996, and
automatic increases to $175,000 in 1997 and $200,000 in 1998. Under the
agreement, the CEO is entitled to quarterly bonuses of $7,500 through December
31, 1997. Additional bonuses of up to 50% of base compensation may be granted at
the discretion of the Board of Directors.
The agreement also provides for the granting of options to purchase 270,000
shares of Common Stock upon the completion of the proposed initial public
offering. These options will vest over five years and will have an exercise
price equal to the initial public offering price.
9. SUBSEQUENT EVENTS
In 1996, the Company has entered into a definitive stock purchase agreement
and three asset purchase agreements with home medical equipment suppliers. In
connection with these purchase agreements, deposits totaling $250,000 and
$900,000 at December 31, 1995 and September 30, 1996, respectively, have been
paid by the Company. In September 1996, the Company terminated its stock
purchase agreement, forfeiting a $700,000 deposit. This forfeiture is reflected
in the statement of operations for the nine months ended September 30, 1996.
The transactions proposed by the asset purchase agreements are to close
concurrent with the effective date of the planned initial public offering. The
aggregate purchase price of $18,277,300 is to be paid $14,032,000 in cash and
$4,245,300 in common stock of the Company to be issued to the sellers. The cash
portion of the purchase price will be funded through
F-9

<PAGE>
LIFE CRITICAL CARE CORPORATION
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
9. SUBSEQUENT EVENTS -- Continued
the proceeds of the planned initial public offering and a $6 million term loan,
which the Company expects to negotiate with a lender.
These agreements are contingent upon the Company completing the initial
public offering, and one of the asset purchase agreements contains a contingent
payment clause in the event the fair value of the stock of the Company has
declined by greater than 15% by the second anniversary of the closing date of
the asset purchase.
In September 1996, the Company entered into bridge loan agreements and
received proceeds from the loans totaling $495,000. The loans accrue interest at
the rate of 12% per annum and interest and principal are due the earlier of June
30, 1997 or three days after the closing of a qualified initial public offering
of the Company's common stock. In connection with the loans, 50,000 shares of
common stock were purchased by the parties to the bridge loans at a purchase
price of $0.10 per share. The shares were estimated to have a fair market value
of $1.88 per share. Accordingly, financing expenses of $89,000 have been
recorded by the Company.
F-10

<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
LIFE CRITICAL CARE CORPORATION
We have audited the accompanying combined balance sheet of Blue Water
Medical Supply, Inc. and Blue Water Industrial Products, Inc. as of December 31,
1995 and the related combined statements of operations, shareholders' equity,
and cash flows for the years ended December 31, 1994 and 1995. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Companies at
December 31, 1995, and the results of their operations and their cash flows for
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
Chicago, Illinois
June 28, 1996
F-11

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
<S> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash........................................................................................... $ 149,940 $ 250,050
Trade accounts receivable, less allowance for doubtful accounts of $242,493 in 1995 and
$263,088 in 1996............................................................................ 797,493 875,762
Advances to shareholders....................................................................... 609,265 978,765
Inventories.................................................................................... 374,530 403,356
Prepaid expenses and other assets.............................................................. 45,224 127,056
Total current assets............................................................................. 1,976,452 2,634,989
Property and equipment, net...................................................................... 903,088 855,508
Other assets..................................................................................... 103,306 89,842
Total assets..................................................................................... $2,982,846 $3,580,339
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................................................................. $ 364,000 $ 810,000
Accounts payable............................................................................... 553,192 376,857
Accrued expenses............................................................................... 74,799 145,567
Current portion of long-term debt and capital lease obligations................................ 240,504 27,132
Total current liabilities........................................................................ 1,232,495 1,359,556
Long-term debt, less current portion............................................................. 79,037 4,665
Capital lease, less current portion.............................................................. 87,824 --
Shareholders' equity:
Common stock, $1 and $10 par value: 50,000 and 5,000 shares authorized, 3,000 and 600 issued
and outstanding, Blue Water Industrial Products, Inc. and Blue Water Medical Supply, Inc.,
respectively................................................................................ 9,000 9,000
Additional paid-in capital..................................................................... 39,650 39,650
Retained earnings.............................................................................. 1,534,840 2,167,468
Total shareholders' equity....................................................................... 1,583,490 2,216,118
Total liabilities and shareholders' equity....................................................... $2,982,846 $3,580,339
</TABLE>

See accompanying notes.
F-12

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1995 1996
<S> <C>
(UNAUDITED)
Net sales............................................................ $1,818,952 $2,001,952 $1,508,953 $1,496,918
Rental revenue....................................................... 2,954,148 3,287,730 2,361,868 2,711,137
4,773,100 5,289,682 3,870,821 4,208,055
Cost of revenues..................................................... 1,632,018 1,752,968 1,245,944 1,273,035
Gross profit......................................................... 3,141,082 3,536,714 2,624,877 2,935,020
Selling, general and administrative expenses......................... 2,623,294 2,858,809 2,153,525 2,237,481
Income from operations............................................... 517,788 677,905 471,352 697,539
Other (income) expense:
Interest income.................................................... (14,102) (15,548) (11,934) (11,973)
Interest expense................................................... 85,638 82,110 45,749 81,607
Other (income) expense, net........................................ (52,334) (60,070) (32,753) (37,099)
19,202 6,492 1,062 32,535
Income before income taxes......................................... 498,586 671,413 470,290 665,004
Income taxes....................................................... 39,252 47,639 27,731 32,376
Net income......................................................... $ 459,334 $ 623,774 $ 442,559 $ 632,628
Pro forma data (unaudited):
Pro forma net income adjusted only for income taxes................ $ 299,152 $ 402,848 $ 282,174 $ 399,002
Pro forma net income adjusted for compensation differential and
income taxes....................................................... $ 472,898 $ 459,302
</TABLE>

See accompanying notes.
F-13

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS TOTAL
<S> <C>
Balance at January 1, 1994....................................... $9,000 $39,650 $ 684,908 $ 733,558
Net income....................................................... -- -- 459,334 459,334
Shareholder distributions........................................ -- -- (233,176) (233,176)
Balance at December 31, 1994..................................... 9,000 39,650 911,066 959,716
Net income....................................................... -- -- 623,774 623,774
Balance at December 31, 1995..................................... 9,000 39,650 1,534,840 1,583,490
Net income (Unaudited)........................................... -- -- 632,628 632,628
Balance at September 30, 1996 (Unaudited)........................ $9,000 $39,650 $2,167,468 $2,216,118
</TABLE>

See accompanying notes.
F-14

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1994 1995 1995 1996
<S> <C> <C>
(UNAUDITED)
OPERATING ACTIVITIES
Net income................................................................ $ 459,334 $ 623,774 $ 442,559 $ 632,628
Adjustments to reconcile net income to:
Allowance for doubtful accounts......................................... 232,725 5,655 -- 20,595
Depreciation and amortization........................................... 345,102 428,553 272,756 257,730
(Gain)/loss on sale of fixed assets..................................... (1,116) 6,932 953 (3,464)
Changes in operating assets and liabilities:
Receivables............................................................. (463,202) (588,564) (581,646) (468,364)
Inventories............................................................. 207,597 (208,190) (137,122) (28,826)
Prepaid expenses and other assets....................................... 16,379 62,038 (977) (68,369)
Accounts payable........................................................ 70,142 286,527 51,616 (176,334)
Accrued expenses........................................................ 149,449 (228,237) 12,334 70,768
Net cash provided by operating activities................................. 1,016,410 388,488 60,473 236,364
INVESTING ACTIVITIES
Proceeds from sale of property and equipment.............................. 23,499 2,500 1,500 3,464
Expenditures for property and equipment................................... (543,929) (366,368) (150,269) (210,150)
Net cash used in investing activities..................................... (520,430) (363,868) (148,769) (206,686)
FINANCING ACTIVITIES
Net increase in line of credit............................................ -- 131,959 151,959 446,000
Payments on long-term debt, including capital leases...................... (308,758) (275,915) (238,988) (375,568)
Proceeds from long-term debt.............................................. 216,635 60,827 60,827 --
Shareholder distributions................................................. (233,176) -- -- --
Net cash provided by (used in) financing activities....................... (325,299) (83,129) (26,202) 70,432
Net increase (decrease) in cash........................................... 170,681 (58,509) (114,498) 100,110
Cash at beginning of period............................................... 37,768 208,449 208,449 149,940
Cash at end of period..................................................... $ 208,449 $ 149,940 $ 93,951 $ 250,050
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest.................................................... $ 86,253 $ 82,110 $ 45,749 $ 81,607
Equipment capitalized under lease agreements.............................. $ -- $ 128,735 $ 90,935 $ --
</TABLE>

See accompanying notes.
F-15

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
Blue Water Medical Supply, Inc. provides health care products and services
and rents health care equipment to patients in their homes or in an outpatient
setting primarily in the Midwest. These products and services, which are
typically prescribed by a physician, include respiratory therapy and other home
medical equipment and medical supplies. Blue Water Industrial Products, Inc. is
a retailer of health care products, primarily respiratory therapy equipment.
BASIS OF PRESENTATION
Blue Water Medical Supply, Inc. and Blue Water Industrial Products, Inc.
(collectively the Company) are affiliated companies with common ownership. As
such, these financial statements have been prepared on a combined basis. All
intercompany transactions and related balance sheet accounts have been
eliminated.
The financial statements of the Company as of September 30, 1996 and for
the nine-month periods ended September 30, 1995 and 1996, and all information
subsequent to December 31, 1995 are unaudited. All adjustments and accruals
(consisting only of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation of the financial
position and operating results of the Company for the interim periods presented.
The interim financial statements are condensed and do not include all the
information and disclosures necessary for a full interim financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
All of the Company's leases are classified as operating leases, and rental
income is reported as revenue ratably over the life of the lease; the lease
terms are primarily month-to-month. Sales revenue is recognized in total upon
the sale of the healthcare equipment and medical supplies.
INVENTORIES
Inventories, primarily consisting of medical supplies, are stated at the
lower of cost or market value determined on the first-in, first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is calculated
utilizing the straight-line and accelerated methods over the estimated useful
lives of the assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the estimated useful
life of the asset. Amortization is included with depreciation.
INCOME TAXES
The shareholders of the Company have elected to be taxed under Subchapter S
of the Internal Revenue Code and, as such, the Company is not subject to federal
and certain state income taxes. Accordingly, the Company's taxable income or
loss is includable in the personal income tax returns of the shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include trade accounts receivable,
accounts payable, accrued expenses and notes payable. The fair values of all
financial instruments were not materially different from their carrying values.
CASH AND CASH EQUIVALENTS
All highly liquid financial instruments purchased with a maturity of three
months or less are considered to be cash equivalents.
F-16

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Land.................................................................................... $ 31,897
Building................................................................................ 194,932
Land, building and leasehold improvements............................................... 45,327
Equipment and furniture................................................................. 2,140,602
Vehicles................................................................................ 787,747
Computer hardware and software.......................................................... 27,120
3,227,625
Accumulated depreciation................................................................ 2,324,537
Net property and equipment.............................................................. $ 903,088
</TABLE>

Rental equipment of approximately $1,645,331 with related accumulated
depreciation of $1,196,369 at December 31, 1995 is included with equipment and
furniture.
4. LINE OF CREDIT
The Company has a $400,000 bank demand line of credit. Interest at prime
plus 1% (8.5% at December 31, 1995) is payable monthly. Available borrowings at
December 31, 1995 were $36,000.
In 1996, the line of credit availability and borrowings were increased to
$810,000.
5. LONG-TERM DEBT
The Company's long-term debt consisted of the following at December 31,
1995:
<TABLE>
<S> <C>
Bank Loans:
Secured computer equipment note, due in monthly installments of $1,493, including interest to
September 1996.................................................................................. $ 13,438
Secured installment business loan, payable in monthly installments of $4,333 plus interest at prime
plus .75% to October 1997....................................................................... 94,164
107,602
Various vehicle installment loans payable in monthly installments totaling $9,043, including
interest........................................................................................ 159,612
267,214
Less current portion............................................................................... (188,177)
$ 79,037
</TABLE>

The foregoing bank obligations, including the line of credit, are secured
by the Company's assets and are guaranteed by the shareholders.
F-17

<PAGE>
BLUE WATER MEDICAL SUPPLY, INC. AND
BLUE WATER INDUSTRIAL PRODUCTS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- CONTINUED
5. LONG-TERM DEBT -- Continued
The aggregate principal maturities of the long-term debt at December 31,
1995 are as follows:
<TABLE>
<S> <C>
1996.......................................................................... $188,177
1997.......................................................................... 68,906
1998.......................................................................... 10,131
$267,214
</TABLE>

Except for three vehicle notes totaling $56,037, the above outstanding
installment loans and all capital leases were repaid in 1996 with borrowings on
the line of credit.
6. LEASES AND COMMITMENTS
OPERATING LEASES
The buildings in which the Company conducts operations are leased from a
partnership the partners of which are the shareholders of the Company. The
leases require monthly payments totalling $17,500. Rent expense was $299,831 and
$313,860 for the years ended December 31, 1994 and 1995, respectively. The
leases require monthly payments totalling $17,500. In addition, the Company
leases certain equipment under operating leases.
CAPITAL LEASES
The Company has entered into capital lease agreements for office and
computer equipment. These agreements require monthly minimum lease payments
totaling $4,360 through 1999, and are collaterialized by the equipment. The
Company has recorded $103,000 in equipment at December 31, 1995 related to these
leases. Amortization is included in depreciation expense.
Future minimum payments at December 31, 1995 under the leases, including
interest are as follows:
<TABLE>
<S> <C>
1996.......................................................................... $ 52,327
1997.......................................................................... 51,417
1998.......................................................................... 27,753
1999.......................................................................... 8,654
140,151
Less current portion.......................................................... (52,327)
$ 87,824
</TABLE>

7. ADVANCES TO SHAREHOLDERS
Advances to shareholders include amounts paid to the shareholders to
facilitate the individual income tax payments. The amounts do not bear interest
and are to be repaid upon the closing of the proposed asset sale (Note 9).
8. PROFIT SHARING PLAN
The Company maintains a defined contribution plan which covers
substantially all employees. Contributions to the plan are at the discretion of
the Board of Directors and totaled $150,866 in 1994. There were no contributions
in 1995.
9. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company and its shareholders have
entered into a definitive agreement to sell substantially all the assets of the
Company.
F-18

<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
LIFE CRITICAL CARE CORPORATION
We have audited the accompanying balance sheet of Great Lakes Home Medical,
Inc. as of December 31, 1995 and the related statements of operations,
shareholders' equity, and cash flows for the years ended December 31, 1994 and
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Great Lakes Home Medical,
Inc. at December 31, 1995, and the results of its operations and its cash flows
for the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG, LLP
Chicago, Illinois
June 28, 1996
F-19

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
<S> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................................... $ 651,200 $ 351,464
Trade accounts receivable, less allowance for doubtful accounts of $138,887 in 1995
and $145,155 in 1996........................................................................ 625,909 654,156
Accounts receivable, other..................................................................... 162,578 160,000
Current portion of note receivable............................................................. -- 6,555
Inventories.................................................................................... 106,509 106,509
Prepaid expenses and other assets.............................................................. 100 100
Total current assets............................................................................. 1,546,296 1,280,784
Note receivable, less current portion............................................................ -- 40,916
Furniture and equipment, net..................................................................... 567,116 462,432
Total assets..................................................................................... $2,113,412 $1,784,132
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable............................................................................... $ 65,001 $ 46,922
Accrued expenses............................................................................... 36,722 53,765
Current portion of noncompete liability........................................................ 50,000 50,000
Total current liabilities........................................................................ 151,723 190,687
Noncompete liability, less current portion....................................................... 41,567 4,167
Shareholders' equity Common stock, $1 par value: 50,000 shares authorized,
3,000 issued and outstanding................................................................... 3,000 3,000
Retained earnings.............................................................................. 1,917,022 1,586,278
Total shareholders' equity....................................................................... 1,920,022 1,589,278
Total liabilities and shareholders' equity....................................................... $2,113,412 $1,784,132
</TABLE>

See accompanying notes.
F-20

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1995 1996
<S> <C>
(UNAUDITED)
Net sales............................................................ $ 488,000 $ 462,044 $ 301,312 $ 336,635
Rental revenue....................................................... 2,184,078 2,767,018 2,043,090 2,117,711
2,672,078 3,229,062 2,344,402 2,454,346
Cost of revenues..................................................... 677,488 694,637 517,384 502,479
Gross profit......................................................... 1,994,590 2,534,425 1,827,018 1,951,867
Selling, general, and administrative expenses........................ 1,553,917 1,337,466 1,007,768 1,113,876
Income from operations............................................... 440,673 1,196,959 819,250 837,991
Other (income) expense:
Interest income.................................................... (9,572) (9,194) (6,392) (9,711)
Interest expense................................................... 2,595 5,405 2,678 --
Other (income) expense, net........................................ 15,604 31,452 10,584 (5,062)
8,627 27,663 6,870 (14,773)
Income before income taxes........................................... 432,046 1,169,296 812,380 852,764
Income taxes......................................................... 18,470 27,038 16,468 28,508
Net income........................................................... $ 413,576 $1,142,259 $ 795,912 $ 824,256
Pro forma data (unaudited):
Pro forma net income adjusted only for income taxes.................. $ 259,228 $ 701,578 $ 487,428 $ 511,658
Pro forma net income adjusted for compensation differential
and income taxes................................................... $ 766,378 $ 560,258
</TABLE>

See accompanying notes.
F-21

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
<S> <C>
Balance at January 1, 1994........................................................... $4,000 $ 1,850,588 $ 1,854,588
Net income........................................................................... -- 413,576 413,576
Purchase of stock.................................................................... (1,000 ) (399,000) (400,000)
Shareholder distributions............................................................ -- (551,900) (551,900)
Balance at December 31, 1994......................................................... 3,000 1,313,264 1,316,264
Net income........................................................................... -- 1,142,258 1,142,258
Shareholder distributions............................................................ -- (538,500) (538,500)
Balance at December 31, 1995......................................................... 3,000 1,917,022 1,920,022
Net income (Unaudited)............................................................... -- 824,256 824,256
Shareholder distributions (Unaudited)................................................ -- (1,155,000) (1,155,000)
Balance at September 30, 1996 (Unaudited)............................................ $3,000 $ 1,586,278 $ 1,589,278
</TABLE>

See accompanying notes.
F-22

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1995 1996
<S> <C>
(UNAUDITED)
Operating activities
Net income............................................................ $ 413,576 $1,142,258 $ 795,912 $ 824,256
Adjustments to reconcile net income to net cash provided by operating
activities:
Noncompete agreement................................................ 150,000 -- -- --
Payments on noncompete agreement.................................... (8,333) (50,000) (37,500) (37,500)
Allowance for doubtful accounts..................................... 24,489 (22,884) -- 6,268
Depreciation and amortization....................................... 257,676 242,224 180,652 154,113
(Gain) loss on sale of fixed assets................................. 4,490 2,617 2,619 (20,062)
Changes in operating assets and liabilities:
Receivables...................................................... (277,426) 6,011 84,340 (81,408)
Accounts payable................................................. (4,139) 13,959 14,648 (18,079)
Accrued expenses................................................. 6,752 (366) 22,422 57,043
Net cash provided by operating activities............................. 667,418 1,333,819 1,063,093 884,631
Investing activities
Proceeds from assets sold............................................. 16,600 1,002 -- 21,000
Change in investments................................................. 179,596 85,277 27,158 --
Expenditures for furniture and equipment.............................. (259,229) (193,594) (154,059) (50,367)
Net cash used in investing activities................................. (63,033) (107,315) (126,901) (29,367)
Financing activities
Payments on long-term debt............................................ (4,211) (145,789) (145,789) --
Purchase of stock..................................................... (250,000) -- -- --
Shareholder distributions............................................. (551,900) (538,500) (538,523) (1,155,000)
Net cash used in financing activities................................. (806,111) (684,289) (684,312) (1,155,000)
Net increase (decrease) in cash and cash equivalents.................. (202,059) 542,215 251,880 (299,736)
Cash and cash equivalents at beginning of period...................... 311,044 108,985 108,985 651,200
Cash and cash equivalents at end of period............................ $ 108,985 $ 651,200 $ 360,865 $ 351,464
Supplemental information:
Cash paid for interest.............................................. $ 1,745 $ 6,256 $ 3,528 $ --
Note payable issued for stock purchase.............................. $ 150,000 $ -- $ -- $ --
</TABLE>

See accompanying notes.
F-23

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF BUSINESS
Great Lakes Home Medical, Inc. (the Company) provides health care products
and services and rents health care equipment to patients in their homes or in an
outpatient setting primarily in the Midwest. These products and services, which
are typically prescribed by a physician, include respiratory therapy and other
home medical equipment and medical supplies.
BASIS OF PRESENTATION
The financial statements of the Company as of September 30, 1996 and for
the nine-month periods ended September 30, 1995 and 1996, and all information
subsequent to December 31, 1995 are unaudited. All adjustments and accruals
(consisting only of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation of the financial
position and operating results of the Company for the interim periods presented.
The interim financial statements are condensed and do not include all the
information and disclosures necessary for a full interim financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
All of the Company's leases are classified as operating leases, and rental
income is reported as revenue ratably over the life of the lease; the lease
terms are less than one year on substantially all of the leases. Sales revenue
is recognized in total upon the sale of health care equipment and medical
supplies.
INVENTORIES
Inventories, primarily consisting of medical supplies, are stated at the
lower of cost or market value determined on the first in, first out basis.
FURNITURE AND EQUIPMENT
Equipment is stated at cost. Depreciation is calculated utilizing the
straight-line and accelerated methods over the estimated useful lives of the
assets. Leasehold improvements are amortized using the straight-line method over
the lesser of the lease term or the estimated useful life of the asset.
Amortization is included with depreciation.
INCOME TAXES
The shareholders of the Company have elected to be taxed under Subchapter S
of the Internal Revenue Code and, as such, the Company is not subject to federal
and certain state income taxes. Accordingly, the Company's taxable income or
loss is includable in the personal income tax returns of the shareholders.
CASH AND CASH EQUIVALENTS
All highly liquid financial instruments purchased with a maturity of three
months or less are considered to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include trade accounts receivable,
accounts payable, accrued expenses, and a note payable. The fair values of all
financial instruments were not materially different from their carrying values.
F-24

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Equipment and furniture................................................................. $1,483,027
Vehicles................................................................................ 196,265
Computer hardware and software.......................................................... 60,410
1,739,702
Accumulated depreciation................................................................ 1,172,586
Net equipment........................................................................... $ 567,116
</TABLE>

Rental equipment of approximately $1,473,000 with related accumulated
depreciation of $995,100 at December 31, 1995 is included with equipment and
furniture.
4. RELATED PARTY TRANSACTIONS
At December 31, 1994, the Company owed $145,789 to a former shareholder,
due in monthly installments at 7% interest through October 1999. In June 1995,
the Company paid this note in full. Interest expense on this note was $1,738 and
$4,916 for the years ended December 31, 1994 and 1995, respectively.
Great Lakes made payments of $8,333 and $50,000 during the years ended
December 31, 1994 and 1995, respectively, to a former shareholder in connection
with a noncompete agreement (Note 7).
5. COMMON STOCK
In October 1994, Great Lakes purchased 1,000 shares of common stock from a
shareholder for $400,000. These shares were subsequently canceled.
6. LEASES
The Company is obligated under various operating leases for its sales
offices. Rent expense was $88,064 and $65,906 for the years ended December 31,
1994 and 1995, respectively.
At December 31, 1995, the aggregate minimum lease commitments under all
noncancelable leases are as follows:
<TABLE>
<S> <C>
1996........................................................................... $42,679
1997........................................................................... 15,625
$58,304
</TABLE>

F-25

<PAGE>
GREAT LAKES HOME MEDICAL, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. NONCOMPETE AGREEMENT
In October 1994, the Company entered into a three-year noncompete agreement
with a former shareholder resulting in a $150,000 charge to 1994 selling,
general and administrative expense. The agreement calls for monthly payments of
$4,167.
8. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company and its shareholders have
entered into a definitive agreement to sell substantially all of the assets of
the Company.
F-26

<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
LIFE CRITICAL CARE CORPORATION
We have audited the accompanying balance sheet of ABC Medical Supply, Inc.
as of December 31, 1995 and the related statements of operations, shareholders'
equity, and cash flows for the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of ABC Medical Supply, Inc. at
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1994 and 1995, in conformity with generally accepted
accounting principles.
ERNST & YOUNG, LLP
Chicago, Illinois
June 28, 1996
F-27

<PAGE>
ABC MEDICAL SUPPLY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
<S> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash........................................................................................... $ 483,096 $ 407,267
Trade accounts receivable, less allowance for doubtful accounts of $79,200
in 1995 and 1996............................................................................ 754,137 478,578
Inventories.................................................................................... 135,609 135,609
Prepaid expenses and other assets.............................................................. 51,380 56,365
Total current assets............................................................................. 1,424,222 1,077,819
Furniture and equipment, net..................................................................... 334,494 259,089
Other assets..................................................................................... 6,416 6,000
Total assets..................................................................................... $1,765,132 $1,342,908
LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
Accounts payable............................................................................... $ 46,845 $ 38,372
Accrued expenses............................................................................... 83,942 71,710
Current portion of long-term debt.............................................................. 21,201 --
Total current liabilities........................................................................ 151,988 110,082
Long-term debt, less current portion............................................................. 6,098 14,988
Shareholders' equity
Common stock $1 par value; 50,000 shares authorized,
7,000 shares issued and outstanding......................................................... 7,000 7,000
Retained earnings.............................................................................. 1,600,046 1,210,838
Total shareholders' equity....................................................................... 1,607,046 1,217,838
Total liabilities and shareholders' equity....................................................... $1,765,132 $1,342,908
</TABLE>

See accompanying notes.
F-28

<PAGE>
ABC MEDICAL SUPPLY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31 ENDED SEPTEMBER 30
1994 1995 1995 1996
<S> <C>
(UNAUDITED)
Net sales............................................................ $ 340,332 $ 390,930 $ 290,198 $ 263,611
Rental revenue....................................................... 2,261,871 2,567,898 1,916,712 1,959,431
2,602,203 2,958,828 2,206,910 2,223,042
Cost of revenues..................................................... 1,170,701 1,308,517 915,034 886,133
Gross profit......................................................... 1,431,502 1,650,311 1,291,876 1,336,909
Selling, general, and administrative expenses........................ 1,431,987 1,291,068 1,007,561 1,008,156
Income (loss) from operations........................................ (485) 359,243 284,315 328,753
Other (income) expense:
Interest income.................................................... (14,529) (12,743) (8,562) (10,726)
Interest expense................................................... 9,443 2,619 1,430 635
Other (income) expense, net........................................ (4,626) (4,552) (3,400) (537)
(9,712) (14,676) (10,532) (10,628)
Income before income taxes........................................... 9,227 373,919 294,847 339,381
Income tax provision................................................. 20,438 15,763 10,563 13,000
Net income (loss).................................................... $ (11,211) $ 358,156 $ 284,284 $ 326,381
Pro forma data (unaudited):
Pro forma net income adjusted only for income taxes.................. $ 5,536 $ 224,351 $ 176,908 $ 203,629
Pro forma net income adjusted for compensation differential and
income taxes....................................................... $ 483,551 $ 419,629
</TABLE>

See accompanying notes.
F-29

<PAGE>
ABC MEDICAL SUPPLY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
<S> <C>
Balance at January 1, 1994............................................................. $7,000 $1,253,101 $1,260,101
Net loss............................................................................... -- (11,211) (11,211)
Balance at December 31, 1994........................................................... 7,000 1,241,890 1,248,890
Net income............................................................................. -- 358,156 358,156
Balance at December 31, 1995........................................................... 7,000 1,600,046 1,607,046
Net income (Unaudited)................................................................. -- 326,381 326,381
Shareholder distributions (Unaudited).................................................. -- (715,589) (715,589)
Balance at September 30, 1996 (Unaudited).............................................. $7,000 $1,210,838 $1,217,838
</TABLE>

See accompanying notes.
F-30

<PAGE>
ABC MEDICAL SUPPLY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
1994 1995 1995 1996
<S> <C>
(UNAUDITED)
Operating activities
Net income (loss)......................................................... $ (11,211) $ 358,156 $ 284,284 $ 326,381
Adjustments to reconcile net income (loss) to net cash
provided by operations:
Allowance for doubtful accounts......................................... 187,019 -- 79,856 49,705
Depreciation and amortization........................................... 188,456 168,448 136,526 109,528
Gain on sale of equipment............................................... (4,901) (4,552) (3,400) (551)
Changes in operating assets and liabilities:
Receivables.......................................................... (62,071) (238,505) (188,599) 225,854
Inventories.......................................................... 9,012 1,797 -- --
Prepaid expenses and other assets.................................... 1,314 (49,360) 1,272 (4,569)
Accounts payable..................................................... 27,448 (70,857) (93,581) (8,473)
Accrued expenses..................................................... (23,826) 21,056 (30,884) (12,232)
Net cash provided by operating activities................................. 311,240 186,183 185,474 685,643
Investing activities
Purchases of furniture and equipment...................................... (389,885) (26,582) (42,377) (46,072)
Proceeds from sale of equipment........................................... 234,944 32,631 31,500 12,500
Net cash provided by (used in) investing activities....................... (154,941) 6,049 (10,877) (33,572)
Financing activities
Proceeds from long-term debt.............................................. 49,221 20,000 10,195 --
Payments of long-term debt................................................ (188,223) (24,101) (26,159) (12,311)
Shareholder distributions................................................. -- -- -- (715,589)
Net cash provided by (used in) financing activities....................... (139,002) (4,101) (15,964) (727,900)
Net increase (decrease) in cash........................................... 17,297 188,131 158,633 (75,829)
Cash at beginning of period............................................... 277,668 294,965 294,965 483,096
Cash at end of period..................................................... $ 294,965 $ 483,096 $ 453,598 $ 407,267
Supplemental cash flow information:
Cash paid for interest.................................................. $ 9,443 $ 2,619 $ 1,430 $ 635
</TABLE>

See accompanying notes.
F-31

<PAGE>
ABC MEDICAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE NINE-MONTH PERIODS
ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED)
1. BUSINESS AND ORGANIZATION
ABC Medical Supply, Inc. (the Company) provides health care products and
services and rents health care equipment to patients in their homes or in an
outpatient setting. These products and services, which are typically prescribed
by a physician, include respiratory therapy and other home medical equipment and
medical supplies.
BASIS OF PRESENTATION
The financial statements of the Company as of September 30, 1996 and for
the nine-month periods ended September 30, 1995 and 1996 and all information
subsequent to December 31, 1995 are unaudited. All adjustments and accruals
(consisting only of normal recurring adjustments) have been made which, in the
opinion of management, are necessary for a fair presentation of the financial
position and operating results of the Company for the interim periods presented.
The interim financial statements are condensed and do not include all the
information and disclosures necessary for a full interim financial statement
presentation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
All of the Company's leases are classified as operating leases, and rental
income is reported as revenue ratably over the life of the lease; the lease
terms are primarily on a month-to-month basis. Sales revenue is recognized in
total upon the shipment of health care equipment and medical supplies.
INVENTORIES
Inventories, primarily consisting of medical supplies, are stated at the
lower of cost or market value determined on the first in, first out basis.
FURNITURE AND EQUIPMENT
Furniture and Equipment is stated at cost. Depreciation is calculated
utilizing the straight-line and accelerated methods over the estimated useful
lives of the assets.
FURNITURE AND EQUIPMENT
Furniture and Equipment is stated at cost. Depreciation is calculated
utilizing the straight-line and accelerated methods over the estimated useful
lives of the assets. Leasehold improvements are amortized using the
straight-line method over the lesser of the lease term or the estimated useful
life of the asset. Amortization is included with depreciation.
INCOME TAXES
The shareholders of the Company have elected to be taxed under Subchapter S
of the Internal Revenue Code and, as such, the Company is not subject to federal
and certain state income taxes. Accordingly, the Company's taxable income or
loss is includable in the personal income tax returns of the shareholders.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities and long-term debt. The fair values of all
financial instruments were not materially different than their carrying values.
F-32

<PAGE>
ABC MEDICAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following at December 31, 1995:
<TABLE>
<S> <C>
Equipment and furniture................................................................. $1,030,053
Vehicles................................................................................ 167,579
Computer hardware and software.......................................................... 79,234
Leasehold improvements.................................................................. 9,910
1,286,776
Accumulated depreciation................................................................ 952,282
Net furniture and equipment............................................................. $ 334,494
</TABLE>

Rental equipment of approximately $895,000 with related accumulated
depreciation of $685,000 at December 31, 1995 is included with the equipment and
furniture.
4. DEBT
Debt is comprised of the following at December 31, 1995:
<TABLE>
<S> <C>
Telephone equipment note with monthly payments of $273, including interest,
through March 1998....................................................................... $ 4,147
Computer software and voice mail loan with monthly payment so $1,206,
including interest, through December 1996................................................ 13,688
Vehicle note with monthly payments of $424, including interest through
December 1998............................................................................ 9,464
27,299
Less: Current portion...................................................................... (21,201)
$ 6,098
</TABLE>

5. BENEFIT PLANS
The Company sponsors a profit sharing plan that covers substantially all
employees. The Company may make discretionary contributions. The Company
contributed $22,500 to this plan during the year ended December 31, 1994. During
the year ended December 31, 1995, the Company did not contribute to this plan.
6. LEASES
The Company is obligated under various operating leases for its sales
offices. Rent expense for all operating leases was $105,979 and $119,749 for the
years ended December 31, 1994 and 1995, respectively. Several of the leases are
with a Company owned by the shareholders. Rent paid to the related party was
$36,840 and $59,940 for the years ended December 31, 1994 and 1995,
respectively.
F-33

<PAGE>
ABC MEDICAL SUPPLY, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASES -- Continued
At December 31 1995, the aggregate minimum lease commitments under all
noncancelable leases are as follows:
<TABLE>
<S> <C>
1996.......................................................................... $ 86,014
1997.......................................................................... 42,409
1998.......................................................................... 10,350
$138,773
</TABLE>

7. SUBSEQUENT EVENT
Subsequent to December 31, 1995, the Company and its shareholders have
entered into a definitive agreement to sell substantially all the assets of the
Company.
F-34

<PAGE>
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following unaudited Pro Forma Condensed Consolidated Balance Sheets as
of September 30, 1996 and the Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 give effect (i) to the Acquisitions and (ii) the Offering and
the other financing transactions described under "Use of Proceeds." The
unaudited Pro Forma Condensed Consolidated Balance Sheet reflects such
transactions as if they had occurred as of September 30, 1996 and the unaudited
Pro Forma Condensed Consolidated Statements of Operations reflect such
transactions as if they had occurred as of January 1, 1995 and January 1, 1996,
respectively.
The pro forma financial statements have been prepared by the Company based
on the historical financial statements of the Company and the Acquired
Companies. These pro forma financial statements do not purport to be indicative
of the results that would have been obtained if the transactions had occurred on
the dates indicated or that may be realized in the future. The pro forma
financial statements should be read in conjunction with the Company's historical
financial statements and the notes thereto and the historical financial
statements of the Acquired Companies and the notes thereto included elsewhere in
this Prospectus.
The acquisition prices of the acquired companies are discussed below.
BLUE WATER
The purchase price of Blue Water is $6,166,050 comprised of $5,494,500 in
cash and $671,550 in Common Stock. The Company will not assume debt or cash.
ABC
The purchase price of ABC is $5,500,000 comprised of $3,700,000 in cash and
$1,800,000 in Common Stock. The Company will not assume debt or cash.
GREAT LAKES
The purchase price of Great Lakes is $6,611,250 comprised of $4,837,500 in
cash and $1,773,750 in Common Stock. The Company will not assume debt or cash.
F-35

<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
PRO FORMA
LIFE AND
CRITICAL GREAT OFFERING CONSOLIDATED
CARE BLUE WATER ABC LAKES ADJUSTMENTS PRO FORMA
<S> <C>
ASSETS
CURRENT ASSETS:
Cash................................ $ 252,254 $ 250,050 $ 407,267 $ 351,464 $(1,057,057)(1) $ 203,978
Trade accounts receivable, net...... -- 875,762 478,578 654,156 -- 2,008,496
Accounts receivable other........... -- 978,765 -- 160,000 (978,765)(2) 160,000
Inventories......................... -- 403,356 135,609 106,509 -- 645,474
Prepaid expenses and other assets... -- 127,056 56,365 100 (150,000)(2) 33,521
Current portion of note
receivable....................... 10,000 -- -- 8,555 (10,000)(4) 8,555
Deposits............................ 200,000 -- -- -- (200,000)(3) --
Deferred costs...................... 576,842 -- -- -- (576,842)(4) --
Total current assets........... 1,039,096 2,634,989 1,077,819 1,280,784 (2,972,664) 3,060,024
Property and equipment, net........... -- 855,508 259,089 462,432 (78,349)(2) 1,498,680
Note receivable, less current
portion............................. -- -- -- 40,916 -- 40,916
Other assets.......................... -- 89,842 6,000 -- (6,000)(2) 89,842
Goodwill, net......................... -- -- -- -- 15,207,348(5) 15,207,348
Organizational costs.................. 1,168 -- -- -- -- 1,168
Deferred financing cost............... 25,000 -- -- -- 175,000(6) 200,000
Total assets........................ $ 1,065,264 $3,580,339 $1,342,908 $1,784,132 $12,325,335 $20,097,978
LIABILITIES AND SHAREHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable.................... $ 437,334 $ 376,857 $ 38,372 $ 46,922 $ (437,334)(7) $ 462,151
Accrued expenses.................... 155,041 145,567 71,710 93,765 (355,041)(7) 111,042
Line of credit...................... -- 810,000 -- -- (810,000)(2) --
Current portion of long-term debt
and capital lease obligations.... -- 27,132 -- -- -- 27,132
Current portion of non-complete
liability........................ -- -- -- 50,000 (50,000)(2) --
Notes payable to affiliate.......... 495,000 -- -- -- (495,000)(7) --
Total current liabilities...... 1,087,375 1,359,556 110,082 190,687 (2,147,375) 600,325
LONG-TERM DEBT:
Long-term debt, less current
portion.......................... -- 4,665 14,988 -- (14,988)(2) 4,665
Non-compete liability, less current
portion.......................... -- -- -- 4,167 (4,167)(2) --
Senior term loan.................... -- -- -- -- 6,000,000(8) 6,000,000
Subordinated debt................... -- -- -- -- 2,000,000(8) 2,000,000
Notes payable to affiliate.......... 1,500,000 -- -- -- (1,500,000)(7) --
Total long-term debt........... 1,500,000 4,665 14,988 4,167 6,480,845 8,004,665
Total liabilities.............. 2,587,375 1,364,221 125,070 194,854 4,333,470 8,604,990
STOCKHOLDERS' EQUITY:
Common stock........................ 12,563 9,000 7,000 3,000 (21,337)(9) 10,226
Common stock, this Offering......... -- -- -- -- 20,000(10) 20,000
Common stock, sellers............... -- -- -- -- 4,245,300(11) 4,245,300
Additional paid in capital.......... 164,947 39,650 -- -- 8,918,098(12) 9,122,695
Retained earnings (deficit)......... (1,699,621) 2,167,468 1,210,838 1,586,278 (5,170,196)(13) (1,905,233)
Total stockholders' equity..... (1,522,111) 2,216,118 1,217,838 1,589,278 7,991,865 11,492,988
Total Liabilities and Stockholders'
Equity.............................. $ 1,065,264 $3,580,339 $1,342,908 $1,784,132 $12,325,335 $20,097,978
</TABLE>

F-36

<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996

<TABLE>
<CAPTION>
LIFE GREAT PRO FORMA CONSOLIDATED
CRITICAL BLUE WATER ABC LAKES ADJUSTMENTS PRO FORMA
<S> <C>
Net sales............................... $ -- $1,496,918 $ 263,611 $ 336,635 $ -- $2,097,164
Rental revenue.......................... -- 2,711,137 1,959,431 2,117,711 -- 6,788,279
-- 4,208,055 2,223,042 2,454,346 -- 8,885,443
Cost of revenues........................ -- 1,273,035 886,133 502,479 (168,782)(1) 2,492,865
Gross profit............................ -- 2,935,020 1,336,909 1,951,867 168,782 6,392,578
Selling, general and administrative
expenses.............................. 467,002 2,237,481 1,008,156 1,113,876 (379,002)(2) 4,447,513
Income from operations.................. (467,002) 697,539 328,753 837,991 547,784 1,945,065
Forfeiture of deposit................... 700,000 -- -- -- -- 700,000
Financing expense....................... 89,000 -- -- -- -- 89,000
Other (income) expense:
Interest income......................... -- (11,973) (10,726) (9,711) -- (32,410)
Interest expense........................ 175,693 81,607 635 -- 432,065(3) 690,000
Other (income) expense, net............. -- (37,099) (537) (5,062) 22,099(4) (20,599)
175,693 32,535 (10,628) (14,773) 454,164 636,991
Income before income taxes.............. (1,431,695) 665,004 339,381 852,764 93,620 519,074
Income tax provision.................... -- 32,376 13,000 28,508 133,746(5) 207,630
Net income.............................. ($1,431,695) $ 632,628 $ 326,381 $ 824,256 ($ 40,126) $ 311,444
Earnings per common share............... $ 0.09
Weighted average shares outstanding..... 3,307,827
</TABLE>

F-37

<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
LIFE
CRITICAL GREAT PRO FORMA CONSOLIDATED
CARE BLUE WATER ABC LAKES ADJUSTMENTS PRO FORMA
<S> <C>
Net sales............................... -- $2,001,952 $ 390,930 $ 462,044 $ -- $2,854,926
Rental revenue.......................... -- 3,287,730 2,567,898 2,767,018 -- 8,622,646
-- 5,289,682 2,958,828 3,229,062 -- 11,477,572
Cost of revenues........................ -- 1,752,968 1,308,517 694,637 (268,275)(1) 3,487,847
Gross profit............................ -- 3,536,714 1,650,311 2,534,425 268,275 7,989,725
Selling, general and administrative
expenses.............................. 255,308 2,858,809 1,291,068 1,337,466 (396,246)(2) 5,346,405
Income from operations.................. (255,308) 677,905 359,243 1,196,959 664,521 2,643,320
Other (income) expense:
Interest income......................... -- (15,548) (12,743) (9,194) -- (37,485)
Interest expense........................ 12,618 82,110 2,619 5,405 817,248(3) 920,000
Other (income) expense, net............. -- (60,070) (4,552) 31,452 60,071(4) 26,901
12,618 6,492 (14,676) 27,663 877,319 909,416
Income before income taxes.............. (267,926) 671,413 373,919 1,169,296 (212,798) 1,733,904
Income tax provision.................... -- 47,639 15,763 27,038 603,122(5) 693,562
Net income.............................. ($ 267,926) $ 623,774 $ 358,156 $1,142,258 ($ 815,920) $1,040,342
Earnings per common share............... $ 0.31
Weighed average shares outstanding...... 3,318,267
</TABLE>

F-38

<PAGE>
LIFE CRITICAL CARE CORPORATION
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA BALANCE SHEET ADJUSTMENTS
The accompanying unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1996, gives effect to the Offering, borrowings under the
Credit Facility and the simultaneous closing of the Acquisitions all as
described under "Use of Proceeds" as if such transactions had occurred on
September 30, 1996.
(1) Adjustments to reduce cash not acquired and record working capital.
(2) Removes assets and liabilities that are not being acquired or assumed
by the Company.
(3) Removes assets that are allocated to the Acquisitions.
(4) Removes assets that have been either netted against the Offering
proceeds or applied to the purchase price of the Acquisitions.
(5) Reflects recording of goodwill.
(6) Reflects recording of capitalized expenses associated with the Credit
Facility.
(7) Reflects liabilities that are paid with proceeds from the Offering and
the Credit Facility.
(8) Records the Credit Facility.

(9) Eliminates existing common stock of the Acquired Companies and records
the return of 130,492 shares to Company in January 1997.

(10) Records shares issued in the Offering in the amount of $20,000.
(11) Records Common Stock issued to the Sellers and the associated
additional paid-in-capital.
(12) Eliminates paid-in-capital of the Acquired Companies in the amount of
$39,650 and records the net proceeds from the Offering less the par
value in the amount of $8,955,411.
(13) Eliminates existing retained earnings of the Acquired Companies in the
amount of $4,964,584 and records additional expenses of the Company in
the amount of $225,612.
PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
The accompanying unaudited Pro Forma Condensed Consolidated Statements of
Operations for the year ended December 31, 1995 and for the nine months ended
September 30, 1996 give effect to the Offering, borrowings under the Credit
Facility and the simultaneous closing of the Acquisitions all as described under
"Use of Proceeds" as if they occurred on January 1, 1995 and January 1, 1996,
respectively.
(1) Reflects an adjustment in the carrying value of the rental equipment to
the estimated fair market value (which is assumed to be the net book
value at the date of acquisition) and a change in the estimated useful
lives of the assets from 5 to 7 years to 4 years.
(2) Reflects adjustments to selling, general and administrative expenses
(i) to eliminate Compensation Differential (as defined elsewhere in
this Prospectus) in the amount of $656,750 for the year ended December
31, 1995 and $541,500 for the nine months ended September 30, 1996,
(ii) to record the amortization of goodwill in connection with the
purchase using the straight-line method over 40 years in the amount of
$377,938 and $284,722, respectively, (iii) to reflect an adjustment in
the carrying value of vehicles, office equipment and other property to
the estimated fair market value (which is assumed to be the net book
value at the date of acquisition) and a change in the estimated useful
lives of the assets from 5-7 years to 4 years in the amount of $108,120
and $101,587, respectively, (iv) to record compensation for executive
officers and expense reimbursement in the amount of $345,000 and
$227,232, respectively, (v) to reduce rent expense of Blue Water to
reflect the contractual future rate in the amounts of $90,000 and
$67,500, respectively, (vi) to reflect the elimination of certain
vehicle expenses related to the owners of Blue Water which will not
continue in the amounts of $12,965 and $9,724, respectively, (vii) to
eliminate compensation of certain terminated and non-replaced employees
of Blue Water in the amount of $29,247 for the year
F-39

<PAGE>

ended December 31, 1995, (viii) to eliminate other non-recurring
expenses, including life insurance, in the amount of $37,102 and
$64,145, respectively, (ix) to record the amortization of capitalized
transaction expenses in connection with the Credit Facility using the
straight line method over 5 years in the amounts of $40,000 and
$30,000, respectively, (x) to eliminate management fees paid to MBFC in
the amounts of $225,000 and $136,500, respectively.

(3) Reflects the elimination of interest expense related to debt and/or
capital leases that will be extinguished or not assumed and records the
interest related to the term portion of the Credit Facility at an
annual rate of 9.0% and the subordinated debt portion at an annual rate
of 19.0%
(4) Removes other income and expense that will not be recurring because
related assets/liabilities are not being assumed.
(5) Incremental adjustment in income tax provision assuming an estimated
effective tax rate of 40.0%.
F-40

<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)

<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
TABLE OF CONTENTS

PAGE
Prospectus Summary............................. 3
The Company.................................... 7
Risk Factors................................... 8
Use of Proceeds................................ 13
Capitalization................................. 14
Dilution....................................... 15
Dividend Policy................................ 15
Selected Financial Data........................ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 18
Business....................................... 22
Management..................................... 30
Certain Transactions........................... 32
Principal Stockholders......................... 34
Description of Capital Stock................... 34
Shares Eligible for Future Sale................ 36
Underwriting................................... 37
Legal Matters.................................. 39
Experts........................................ 39
Additional Information......................... 39
Index to Financial Statements.................. F-1

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

2,000,000 SHARES
LIFE CRITICAL CARE
CORPORATION
COMMON STOCK
PROSPECTUS
H. J. MEYERS & CO., INC.
, 1997

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 24. Indemnification of Directors and Officers.

Section 145 of the General Corporation Law of the State of Delaware
(the "Delaware GCL") provides that the Registrant may indemnify any person,
including any officer or director, who was or is a party or who is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Registrant), by reason of the fact that he
is or was a director, officer, employee or agent of the Registrant or is or was
serving at the request of the Registrant as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise (collectively, "such Person"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred by such Person in connection with such action, suit or proceeding if
such Person acted in good faith and in a manner such Person reasonably believed
to be in or not opposed to the best interests of the Registrant and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. In any threatened, pending or completed action or suit
by or in the right of the Registrant, the Registrant also may indemnify any such
Person against expenses (including attorneys' fees) actually and reasonably
incurred by such Person in connection with that action's or suit's defense or
settlement, if such Person acted in good faith and in a manner such Person
reasonably believed to be in or not opposed to the best interests of the
Registrant, except that no indemnification shall be made with respect to any
claim, issue or matter as to which such Person shall have been adjudged to be
liable to the Registrant, unless and only to the extent that a court shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such Person is fairly and reasonably
entitled to indemnity. Where such Person is successful on the merits or
otherwise in defense of any action or suit referred to above or in defense of
any claim, issue or matter therein, the Registrant shall indemnify such Person
against the expenses (including attorneys' fees) that such Person actually and
reasonably incurred.

The Registrant's Certificate of Incorporation provides that, to the
fullest extent permitted by the laws of the State of Delaware, no director or
officer of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for breach of fiduciary duty as a director or
officer. The Registrant's Certificate of Incorporation also provides that to the
fullest extent permitted by the Delaware GCL, as amended or interpreted, the
Registrant shall indemnify all persons whom it may indemnify pursuant thereto.
These provisions in the Certificate of Incorporation do not eliminate the duty
of care. In appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief remain available under Delaware law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant or its stockholders, for acts
or omissions not in good faith or involving intentional misconduct or knowing
violations of law, for actions leading to improper personal benefit to the
director and for payment of dividends or approval of stock repurchases or
redemptions that are unlawful under the Delaware GCL. These provisions also do
not affect a director's or officer's responsibilities

II-1

<PAGE>

under any other law, such as the federal or state securities laws or state or
federal environmental laws.

The Underwriting Agreement (a form of which is filed as Exhibit 1.1
hereto) will provide that the Underwriters will indemnify and hold harmless the
Registrant and each director, officer or controlling person of the Registrant
from and against any liability caused by any statement or omission in the
Registration Statement or Prospectus based upon certain information furnished to
the Registrant by the Underwriters for use in the preparation thereof.

II-2

<PAGE>

Item 25. Other Expenses of Issuance and Distribution.*

The following table sets forth a statement of all expenses payable by
the Registrant in connection with the registration, issuance and distribution of
the Common Stock offered hereby, other than the underwriting discount.

SEC Registration Fee................................. $ 4,234
Accounting Fees and Expenses......................... 132,500
Legal Fees and Expenses.............................. 160,000
Underwriter's Expense Allowance...................... 275,000
Printing and Engraving Expenses...................... 50,000
Blue Sky Fees and Expenses........................... 60,000
NASD Filing Fee...................................... 1,897
Nasdaq Quotation Fee................................. 25,000
Registrar and Transfer Agent Fees.................... 5,000
Miscellaneous Fees and Expenses...................... 241,369
---------
Total...................................... $ 955,000
=========
- ------------
* Except for the SEC registration fee, the NASD filing fee and the Nasdaq
quotation fee, all expenses are estimated.

Item 26. Recent Sales of Unregistered Securities.

The following share amounts and sales prices have been adjusted for a
1,110-for-one stock split of the Company's Common Stock, par value $0.01 per
share, effective on August 29, 1996.

On August 10, 1995, Registrant sold 743,700 shares of Common Stock, par
value $0.01 per share, for $0.01 per share to the four founders of the
Registrant in connection with the formation of the Registrant.

On August 12, 1995, the Registrant sold a $750,000 18% Subordinated
Note due December 31, 1997 for $750,000 to Morgenthau Bridge Investment Limited
Partnership.

On August 12, 1995, the Registrant sold a $750,000 18% Subordinated
Note due December 31, 1997 for $750,000 to Morgenthau Bridge Loan LLC.

On April 8, 1996, the Registrant authorized the sale of and, on
September 30, 1996, the Registrant sold 248,640 shares of Common Stock, par
value $0.01 per share, for $0.01 per share to IRA accounts for the benefit of
the four founding stockholders of the Registrant.

On September 5, 1996, the founding stockholders of the Registrant sold
an aggregate of 370,000 shares of Common Stock, par value $0.01 per share, to
Thomas H. White for $0.01 per share.

During September and October 1996, the Registrant sold an aggregate
principal amount of $500,000 of 12% Subordinated Notes due December 31, 1997 and
50,000 shares of Common Stock, par value $0.01 per share, for $0.10 per share to
14 investors.

II-3

<PAGE>

The foregoing sales were exempt from registration under Section 4(2) of
the Securities Act as they did not involve a public offering. In issuing
securities under the exemption provided by Section 4(2) of the Securities Act,
the Registrant relied upon certain purchasers' status as an officer or director
of the Registrant and that each purchaser had such knowledge and experience in
financial and business matters that such person was capable of evaluating the
merits and risks of the investment.

Item 27. Exhibits.

Exhibit
Number Description
------- -----------

1.1 Form of Underwriting Agreement*

3.1 Restated Certificate of Incorporation*

3.2 Amended and Restated By-Laws*

4.1 Specimen form of Common Stock certificate of the
Company*

5.1 Opinion of Whiteford, Taylor & Preston L.L.P.*

10.1 Loan and Securities Purchase Agreement, Stock
Warrant and Subordinated Note each dated August
12, 1995 between Life Critical Care and
Morgenthau Bridge Investment Limited
Partnership, as amended

10.2 Loan and Securities Purchase Agreement, Stock
Warrant and Subordinated Note each dated August
12, 1995 between Life Critical Care Corporation
and Morgenthau Bridge Loan LLC, as amended

10.3 Asset Purchase Agreement dated January 22, 1996
between Life Critical Care and Blue Water Medical
Supply, Inc. and Blue Water Industrial Products,
Inc., as amended

10.4 Asset Purchase Agreement dated March 1, 1996
among ABC Medical Supply, Inc., Timothy Dillon,
Dennis Phillips and Life Critical Care, as amended

10.5 Asset Purchase Agreement dated March 1, 1996 among
Great Lakes Home Medical, Inc., Michael E.
Belleau, James Bickel, Thomas Mainhardt and Life
Critical Care, as amended

10.6 Form of Lease Agreement between Life Critical
Care and Blue Water Land Development for 37885
Green Street, New Baltimore, Michigan 48047*

10.7 Form of Lease Agreement between Life Critical
Care and Blue Water Land Development for 37280
Green Street, New Baltimore, Michigan 48047*

II-4

<PAGE>

10.8 Form of Loan and Security Agreement between Life
Critical Care and certain investors*

10.9 Employment Agreement dated as of July 25, 1996
between Life Critical Care and its Chief
Executive Officer*

10.10.1 Form of Stock Escrow Agreement*

10.10.2 Amendment No. 1 to Stock Escrow Agreement*

10.11 1996 Non-Employee Directors Stock Option Plan*

10.12 1996 Stock and Incentive Plan*

10.13 Form of Stock Option Agreement between Life
Critical Care and Frank E. McGeath*

10.14 Revolving Credit and Term Loan Agreement between
Life Critical Care and Manufacturers and Traders
Trust Co.*

10.15 Form of Underwriter's Warrant Agreement*

10.17 Form of Financial Consulting Agreement*

10.18 Form of Merger and Acquisition Agreement*

10.19 Form of Lock-Up Agreement*

10.19.1 Form of Non-Discretionary Lock-Up Agreement

10.20 Form of Agreement of Management and Principal
Stockholders*

10.21 Form of Mezzanine Loan Agreement between Life
Critical Care Corporation and Manufacturers and
Traders Trust Company*

11.1 Statement Re: Computation of Per Share Earnings*

23.1 Consent of Ernst & Young LLP

23.2 Consent of Proposed Director*

23.3 Consent of Whiteford, Taylor & Preston L.L.P.
(included in Exhibit 5.1)*

24.1 Power of Attorney (included as part of the
signature page of the Registration Statement)*

27.1 Financial Data Schedule*

II-5

<PAGE>

- ---------
* Previously filed.

II-6

<PAGE>

Item 28. Undertakings.

The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

1. For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

2. For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-7

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of East Amherst, State of
New York, on February 3, 1997.

LIFE CRITICAL CARE CORPORATION

By: /s/Thomas H. White
-------------------------
Thomas H. White,
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date

/s/Thomas H. White Principal Executive Officer, February 3, 1997
- --------------------------
THOMAS H. WHITE and Director

/s/Frank E. McGeath Chief Financial Officer February 3, 1997
- -------------------------- (Principal Financial and
FRANK E. McGEATH Accounting Officer) and
Director

II-8

<PAGE>

EXHIBIT INDEX

Exhibit
Number Description
------- -----------

1.1 Form of Underwriting Agreement*

3.1 Restated Certificate of Incorporation*

3.2 Amended and Restated By-Laws*

4.1 Specimen form of Common Stock certificate of the
Company*

5.1 Opinion of Whiteford, Taylor & Preston L.L.P.*

10.1 Loan and Securities Purchase Agreement, Stock
Warrant and Subordinated Note each dated August 12,
1995 between Life Critical Care and Morgenthau
Bridge Investment Limited Partnership, as amended

10.2 Loan and Securities Purchase Agreement, Stock
Warrant and Subordinated Note each dated August 12,
1995 between Life Critical Care Corporation and
Morgenthau Bridge Loan LLC, as amended

10.3 Asset Purchase Agreement dated January 22, 1996
between Life Critical Care and Blue Water Medical
Supply, Inc. and Blue Water Industrial Products, Inc.,
as amended

10.4 Asset Purchase Agreement dated March 1, 1996 among ABC
Medical Supply, Inc., Timothy Dillon, Dennis Phillips
and Life Critical Care, as amended

10.5 Asset Purchase Agreement dated March 1, 1996 among
Great Lakes Home Medical, Inc., Michael E. Belleau,
James Bickel, Thomas Mainhardt and Life Critical Care,
as amended

10.6 Form of Lease Agreement between Life Critical Care and
Blue Water Land Development for 37885 Green Street,
New Baltimore, Michigan 48047*

10.7 Form of Lease Agreement between Life Critical Care and
Blue Water Land Development for 37280 Green Street,
New Baltimore, Michigan 48047*

10.8 Form of Loan and Security Agreement between Life
Critical Care and certain investors*

10.9 Employment Agreement dated as of July 25, 1996
between Life Critical Care and its Chief Executive
Officer*

10.10.1 Form of Stock Escrow Agreement*

<PAGE>

10.10.2 Amendment No. 1 to Stock Escrow Agreement*

10.11 1996 Non-Employee Directors Stock Option Plan*

10.12 1996 Stock and Incentive Plan*

10.13 Form of Stock Option Agreement between Life Critical
Care and Frank E. McGeath*

10.14 Revolving Credit and Term Loan Agreement between Life
Critical Care and Manufacturers and Traders Trust
Co.*

10.15 Form of Underwriter's Warrant Agreement*

10.17 Form of Financial Consulting Agreement*

10.18 Form of Merger and Acquisition Agreement*

10.19 Form of Lock-Up Agreement*

10.19.1 Form of Non-Discretionary Lock-Up Agreement

10.20 Form of Agreement of Management and Principal
Stockholders*

10.21 Form of Mezzanine Loan Agreement between Life Critical
Care Corporation and Manufacturers and Traders Trust
Company*

11.1 Statement Re: Computation of Per Share Earnings*

23.1 Consent of Ernst & Young LLP

23.2 Consent of Proposed Director*

23.3 Consent of Whiteford, Taylor & Preston L.L.P. (included
in Exhibit 5.1)*

24.1 Power of Attorney (included as part of the signature
page of the Registration Statement)*

27.1 Financial Data Schedule*

- ---------
* Previously filed.

Exhibit 10.1

Loan and Securities Purchase Agreement, Stock Warrant and Subordinated Note each
dated August 12, 1995 between Life Critical Care and Morgenthau Bridge
Investment Limited Partnership, as amended

<PAGE>

FIRST AMENDMENT
TO
LOAN AND SECURITIES PURCHASE AGREEMENT

THIS FIRST AMENDMENT TO LOAN AND SECURITIES PURCHASE AGREEMENT (this
"Amendment") is executed this 24th day of January, 1997, by and between
Morgenthau Bridge Investment Limited Partnership and Life Critical Care
Corporation.

RECITALS

The parties are parties to a Loan and Securities Purchase Agreement
between them dated August 12, 1995 (the "Agreement") and desire to amend the
Agreement as set forth herein.

NOW, THEREFORE, FOR AND IN CONSIDERATION OF the mutual entry into this
Amendment by the parties hereto, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged by each party hereto,
the parties hereto hereby agree as follows:

Section 1. Amendment of Agreement. The provisions of the Agreement are
hereby amended as follows: Article IX ("Registration Rights") is hereby deleted
and the following is hereby inserted in lieu thereof:

"ARTICLE IX

LOCK-UP AGREEMENT

SECTION 9.1. Lock-Up Agreement. The Purchaser agrees that, for
a period of three (3) years following the closing date of the Offering
(i.e., the Company has filed with the Securities and Exchange
Commission a registration statement on Form SB-2 (No. 333-14755) for
the registration of shares of Common Stock of the Company in connection
with a proposed public offering of such securities (the "Offering")),
neither the Purchaser nor any distributees or assigns of the Purchaser
will sell, assign, hypothecate, pledge or otherwise dispose (either
pursuant to Rule 144 promulgated under the Securities Act of 1933, as
amended, or otherwise) any of the 107,000 shares of Common Stock of the
Company registered in the name of the Purchaser as of the date hereof
(the "Securities").

<PAGE>

SECTION 9.2. Restrictive Legend. The Purchaser hereby consents
to the placing of restrictive legends on all certificates evidencing
any of the Securities, the placement of appropriate stop transfer
orders with the transfer agent of the Company and the noting of such
restrictions on the transfer books and records of the Company.

SECTION 9.3. Terms Binding. This Article IX shall be subject
to Section 8.07 of this Agreement which provides as follows: 'All of
the terms, conditions, stipulations, representations and covenants of
this Agreement shall apply to and be binding upon, and shall inure to
the benefit of, the parties hereto and each of their respective heirs,
personal representatives, successors and assigns.'"

Section 2. Effect of this Amendment. Except as is hereinabove set
forth, the provisions of the Agreement shall hereafter remain in full force and
effect.

Section 3. This Amendment may be executed in two counterparts, both of
which when taken together shall constitute one and the same original.

Section 4. By their execution hereof, the parties hereto hereby agree
that this Amendment is voluntarily accepted for the purpose of making a full and
final compromise adjustment, settlement and waiver of any and all prior defaults
of the Agreement that either has alleged has occurred prior to the execution
hereof.

[TEXT CONTINUED ON NEXT PAGE]

-2-

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first above written.

MORGENTHAU BRIDGE INVESTMENT
LIMITED PARTNERSHIP

By: Morgenthau Bridge Financing Corp.,
General Partner

By: _______________________________
Richard M. Andzel, Vice President

LIFE CRITICAL CARE CORPORATION

By: _______________________________
Thomas H. White, President

-3-

Exhibit 10.2

Loan and Securities Purchase Agreement, Stock Warrant and Subordinated Note each
dated August 12, 1995 between Life Critical Care Corporation and Morgenthau
Bridge Loan LLC, as amended

<PAGE>

FIRST AMENDMENT
TO
LOAN AND SECURITIES PURCHASE AGREEMENT

THIS FIRST AMENDMENT TO LOAN AND SECURITIES PURCHASE AGREEMENT (this
"Amendment") is executed this 24th day of January, 1997, by and between
Morgenthau Bridge Loan LLC and Life Critical Care Corporation.

RECITALS

The parties are parties to a Loan and Securities Purchase Agreement
between them dated August 12, 1995 (the "Agreement") and desire to amend the
Agreement as set forth herein.

"ARTICLE IX

LOCK-UP AGREEMENT

<PAGE>

Section 2. Effect of this Amendment. Except as is hereinabove set
forth, the provisions of the Agreement shall hereafter remain in full force and
effect.

Section 3. This Amendment may be executed in two counterparts, both of
which when taken together shall constitute one and the same original.

[TEXT CONTINUED ON NEXT PAGE]

-2-

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment the
day and year first above written.

MORGENTHAU BRIDGE LOAN LLC

By: Morgenthau Bridge Financing Corp.,
Manager

By: _______________________________
Richard M. Andzel, Vice President

LIFE CRITICAL CARE CORPORATION

By: _______________________________
Thomas H. White, President

-3-

Exhibit 10.3

Asset Purchase Agreement dated January 22, 1996 between Life Critical Care and
Blue Water Medical Supply, Inc. and Blue Water Industrial Products, Inc., as
amended

<PAGE>

SIXTH AMENDMENT
TO
ASSET PURCHASE AGREEMENT

THIS SIXTH AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is
executed this ___ day of January, 1997 to be made effective as of the 24th day
of January, 1997, by and among Blue Water Medical Supply, Inc., Blue Water
Industrial Products, Inc. and Life Critical Care Corporation.

RECITALS

The parties are parties to an Asset Purchase Agreement among them dated
January 22, 1996, as previously amended by a First Amendment to Asset Purchase
Agreement dated April 24, 1996, as further amended by a Second Amendment to
Asset Purchase Agreement dated July 2, 1996, as further amended by a Third
Amendment to Asset Purchase Agreement dated September 9, 1996, as further
amended by a Fourth Amendment to Asset Purchase Agreement dated November 8,
1996, and as further amended by a Fifth Amendment to Asset Purchase Agreement
dated as of December 18, 1996 (collectively, the "Agreement") and desire to
amend the Agreement as set forth herein.

Section 1. Amendment of Agreement. The provisions of the Agreement are
hereby amended as follows:

(a) Section 1.1 of the Agreement is hereby amended by deleting
the date "January 31, 1997" as it appears in the fourth line thereof
and by inserting in lieu thereof the date "February 28, 1997".

(b) Section 1.4 is hereby amended by deleting existing
Section 1.4 and by inserting the following in lieu thereof:

"SECTION 1.4. Purchase Price. Subject to the
provisions and adjustments set forth in Section 1.5 hereof, the
purchase price (the 'Purchase Price') for the Purchased Assets, and for
the benefits and rights conferred upon Purchaser hereunder, shall be:
(i) for the Purchased Assets of Medical Supply, an amount equal to Five
Million Five Hundred Thousand Dollars ($5,500,000) (the 'Medical Supply
Purchase Price'); and (ii) for the Purchased

<PAGE>

Assets of Industrial Products, an amount equal to Six Hundred
Five Thousand Dollars ($605,000) (the 'Industrial Products Purchase
Price'). "

(c) Section 1.5(ii)(a) of the Agreement is hereby amended by
deleting the existing Section 1.5(ii)(a) and by inserting the following
in lieu thereof:

"(a) Subject to the provisions of Section 1.5(ii)(b)
hereof, a portion of the Purchase Price shall be paid by the issuance
by Purchaser to Seller of 122,100 shares of the Common Stock of
Purchaser (the 'Common Stock') which shall be valued at 90.91% of the
offering price per share in Purchaser's IPO (as defined in Section
4.1.0.1 hereof) (e.g., if the offering price per share in the IPO is
$5.50, then the amount applied against the Purchase Price shall be
$610,500), which shall be allocated first to the Industrial Products
Purchase Price, such that the Industrial Products Purchase Price shall
be paid entirely in Common Stock, and any balance shall be allocated to
the Medical Supply Purchase Price; and".

(d) Section 1.5(iv) of the Agreement is hereby deleted.

(e) Section 1.5(v) of the Agreement is hereby amended by
deleting the existing Section 1.5(v) and by inserting the following in
lieu thereof:

"v) The Purchase Price shall be decreased by the
amount, if any, of any liabilities of the Seller in excess of $265,000
assumed by Purchaser at Closing and set forth in Schedule 1.6 of this
Agreement, it being the agreement of the parities that Purchaser shall
assume, at Closing, the first $265,000 of liabilities of Seller as set
forth in Schedule 1.6 to be provided by Seller at Closing."

(f) Section 1.5(vi) of the Agreement is hereby amended by
deleting the existing Section 1.5(vi) and by inserting the following in
lieu thereof:

"vi) Seller's Estimate of Purchase Price and
Prorations. No later than five (5) days prior to the Closing Date,
Seller shall provide Purchaser with an estimate (as of the Closing
Date) of the Purchase Price, as adjusted pursuant to Sections 1.5(iii)
and 1.5(v) hereof, if applicable ('Seller's Estimate') and of the
Prorations (as such term is defined in Section 1.5(viii) hereof).
Seller's Estimate and the Prorations shall be accompanied by the
certificate of Seller's chief financial officer stating that Seller's
Estimate and the Prorations have been prepared in good faith in
accordance with the

-2-

<PAGE>

terms of this Agreement, and by such accounting records,
workpapers, and other back-up material as shall be sufficient to enable
Purchaser to review and verify the computation of Seller's Estimate
and the Prorations."

(g) Section 1.5(viii) of the Agreement is hereby amended by
deleting the existing Section 1.5(viii) and by inserting the following
in lieu thereof:

"viii) Prorations. Within sixty (60) days following
the Closing Date, Purchaser shall pay to Seller, or Seller shall pay to
Purchaser, as applicable, an amount equal to all items normally
prorated in the sale of assets of a business including prepaid
expenses, rent, taxes and utility charges (the 'Prorations');".

(h) Section 1.5(ix) of the Agreement is hereby amended by
deleting the existing Section 1.5(ix) and by inserting the following in
lieu thereof:

"ix) General Determination and Payment. Prorations
shall be made within thirty (30) days following Closing and shall be
paid within sixty (60) days following Closing. Purchaser shall, within
thirty (30) days after the Closing Date, determine all such Prorations
and deliver a statement of its determinations to Seller, which
statement shall set forth in reasonable detail the basis for such
determinations. If Seller does not concur with Purchaser's
determinations, the provisions of Section 1.5(vii) hereof shall apply
with 'Prorations' to be used in place of 'Seller's Estimate' as to the
interpretation and application of such Section 1.5(vii) hereof; and".

(i) Section 1.5(xii) is hereby amended by deleting existing
Section 1.5(xii) and by inserting the following in lieu thereof:

"(xii) The Closing shall have been completed on or
before February 28, 1997. Conforming changes are hereby made to any
other affected Section of this Agreement, including without limitation
Section 7.2.5 (by extending the date in the last line thereof to
February 28, 1997)."

Section 2. In consideration of Seller entering into this Amendment and
the other benefits to Purchaser as a result of Seller entering into this
Amendment, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, upon the termination of the
Agreement for the Purchaser's failure to close thereunder on or before February
28, 1997 other than as a result of Seller's fraud, Purchaser, for itself and
each of its successors and assigns (collectively, the "Releasers") hereby
remise, release and forever discharge Seller

-3-

<PAGE>

and its officers, directors, stockholders and agents (collectively, the
"General Released Parties") from any and all claims, demands and causes of
action of every kind and nature (including without limitation claims for
damages, costs, expenses, attorneys', brokers' and accountants' fees and
expenses), whether known or unknown, suspected or unsuspected, that the
Releasers now have or at any time prior to February 28, 1997 may have or could
have asserted against any of the General Released Parties (collectively, the
"General Released Claims"). The Releaser hereby irrevocably agrees to refrain
from directly or indirectly asserting any claim or demand or commencing (or
causing to be commenced) any suit, action or proceeding of any kind, in court
or before any tribunal, against any General Released Party based upon any
General Released Claim.

Section 3. Effect of this Amendment. Except as is hereinabove set
forth, the provisions of the Agreement shall hereafter remain in full force and
effect.

Section 4. Counterparts. This Amendment may be executed in two or more
counterparts, all of which when taken together shall constitute one and the same
original.

[TEXT CONTINUED ON NEXT PAGE]

-4-

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first above written.

BLUE WATER MEDICAL SUPPLY, INC.

By: __________________________
Louis Campbell, President

BLUE WATER INDUSTRIAL PRODUCTS, INC.

By: ___________________________
Louis Campbell, President

LIFE CRITICAL CARE CORPORATION

By: __________________________
Thomas H. White, President

-5-

Exhibit 10.4

Asset Purchase Agreement dated March 1, 1996 among ABC Medical Supply, Inc.,
Timothy Dillon, Dennis Phillips and Life Critical Care, as amended

<PAGE>

FIFTH AMENDMENT
TO
ASSET PURCHASE AGREEMENT

THIS FIFTH AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is
executed this _____ day of January, 1997 to be made effective as of the 24th day
of January, 1997, by and among ABC Medical Supply, Inc., Timothy Dillon, Dennis
Phillips and Life Critical Care Corporation.

RECITALS

The parties are parties to an Asset Purchase Agreement among them dated
March 1, 1996, as amended by a First Amendment to Asset Purchase Agreement dated
June 29, 1996, as further amended by a Second Amendment to Asset Purchase
Agreement dated September 5, 1996, as further amended by a Third Amendment to
Asset Purchase Agreement dated November 8, 1996, and as further amended by a
Fourth Amendment to Asset Purchase Agreement dated as of December 18, 1996 (as
amended, the "Agreement") and desire to amend the Agreement as set forth herein.

Section 1. Amendment of Agreement. The provisions of the Agreement are
hereby amended as follows:

(a) Section 1.1 of the Agreement is hereby amended by deleting
the date "January 31, 1997" as it appears in the third line thereof and
by inserting in lieu thereof the date "February 28, 1997."

(b) Section 1.5 of the Agreement is hereby amended by deleting
clause (iii) and by inserting the following in lieu thereof:

(iii) The Closing shall have been completed on or
before February 28, 1997. Any adjustments to the Purchase
Price shall be post-Closing adjustments. Conforming changes
are hereby made to any other affected Section of this
Agreement, including without limitation Sections 5.3, 7.2.2
and 7.2.3.

Section 2. Effect of this Amendment. Except as is hereinabove set
forth, the provisions of the Agreement shall hereafter remain in full force and
effect.

Section 3. This Amendment may be executed in two or more counterparts,
all of which when taken together shall constitute one and the same original.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first above written.

ABC MEDICAL SUPPLY, INC.

By: _________________________________
Dennis Phillips, President

LIFE CRITICAL CARE CORPORATION

By: ________________________________
Thomas H. White, President

_____________________________________
Timothy Dillon, Individually

_____________________________________
Dennis Phillips, Individually

-2-

Exhibit 10.5

Asset Purchase Agreement dated March 1, 1996 among Great Lakes Home Medical,
Inc., Michael E. Belleau, James Bickel, Thomas Mainhardt and Life Critical Care,
as amended

<PAGE>

FOURTH AMENDMENT
TO
ASSET PURCHASE AGREEMENT

THIS FOURTH AMENDMENT TO ASSET PURCHASE AGREEMENT (this "Amendment") is
executed this ___ day of January, 1997 to be made effective as of the 24th day
of January, 1997, by and among Great Lakes Home Medical, Inc., Michael E.
Belleau, James Bickel, Thomas Mainhardt and Life Critical Care Corporation.

RECITALS

The parties are parties to an Asset Purchase Agreement among them dated
March 1, 1996, as amended by a First Amendment to Asset Purchase Agreement dated
June 24, 1996, as further amended by a Second Amendment to Asset Purchase
Agreement dated September 20, 1996, and as further amended by a Third Amendment
to Asset Purchase Agreement dated as of December 18, 1996 (as amended, the
"Agreement") and desire to amend the Agreement as set forth herein.

Section 1. Amendment of Agreement. The provisions of the Agreement are
hereby amended as follows:

(a) Section 1.1 of the Agreement is hereby amended by deleting the date
"January 31, 1997" as it appears in the third line thereof and by inserting in
lieu thereof the date "February 28, 1997."

(b) Section 1.5(vi) is hereby amended by deleting existing Section
1.5(vi) and by inserting the following in lieu thereof:

"(vi) The Closing shall have been completed on or before
February 28, 1997. Conforming changes are hereby made to any
other affected Sections of this Agreement, including without
limitation Sections 7.2.2 and 7.2.3."

Section 2. Effect of this Amendment. Except as is hereinabove set
forth, the provisions of the Agreement shall hereafter remain in full force and
effect.

Section 3. This Amendment may be executed in two or more counterparts,
all of which when taken together shall constitute one and the same original.

<PAGE>

IN WITNESS WHEREOF, the parties have executed this Amendment the day
and year first above written.

GREAT LAKES HOME MEDICAL, INC.

By: ________________________________
Michael E. Belleau, President

LIFE CRITICAL CARE CORPORATION

By: ________________________________
Thomas H. White, President

_____________________________________
Michael E. Belleau, Individually

_____________________________________
James Bickel, Individually

_____________________________________
Thomas Mainhardt, Individually

-2-

Exhibit 10.19.1

Form of Non-Discretionary Lock-Up Agreement

<PAGE>

LIFE CRITICAL CARE CORPORATION

LOCK-UP AGREEMENT
AND
AMENDMENT TO LOAN AND SECURITIES PURCHASE AGREEMENT

Life Critical Care Corporation
c/o George S. Lawler, Esquire
210 West Pennsylvania Avenue, Suite 400
Towson, Maryland 21204-4515

Dear Mr. Lawler:

The undersigned is the owner of shares of Life Critical Care
Corporation (the "Company"), purchased as part of the Company's September Bridge
offering. The Company has requested the undersigned to execute and return this
Agreement in connection with the Company's proposed public offering of its
securities (the "Offering"), as a result of which Offering the undersigned will
materially benefit.

In order to induce the Company to proceed with the Offering, and in
consideration thereof, the undersigned hereby agrees that, for a period of three
(3) years following the closing date of the Offering, the undersigned will not
sell, assign, hypothecate, pledge or otherwise dispose (either pursuant to Rule
144 promulgated under the Securities Act of 1933, as amended, or otherwise) of
any shares of Common Stock of the Company registered in the undersigned's name
as of the date hereof.

The undersigned hereby consents to the placing of restrictive legends
on the shares owned by the undersigned as of the date hereof, the placement of
appropriate stop transfer orders with the transfer agent of the Company and the
noting of such restrictions on the transfer books and records of the Company.

The undersigned further agrees that Section 7.6 of the Loan and
Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of
September 1996 between the undersigned and the Company is hereby deleted.
Section 7.6 required the Company to use its best efforts to cause the
underwriter to purchase certain of the undersigned's shares of the Company as
part of the overallotment option. In addition, as a result of the foregoing
lock-up agreement, Article VII of the Securities Purchase Agreement
("Registration Rights") is no longer applicable to the undersigned.

This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns and shall be
governed and construed in accordance with the laws of the State of Maryland,
without giving effect to conflict of law principles.

Dated: January ___, 1997 Very truly yours,

_______________________________
Signature

_______________________________
Printed Name

Exhibit 23.1

Consent of Independent Auditors

<PAGE>

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated August 23, 1996, except paragraph 1 of Note 6 for which
the date is August 29, 1996, for Life Critical Care Corporation, and June 28,
1996 for Blue Water Medical Supply, Inc. and Blue Water Industrial Products,
Inc., Great Lakes Home Medical, Inc., and ABC Medical Supply, Inc., in the
Registration Statement (Form SB-2) and related Prospectus of Life Critical Care
Corporation, for the registration of 2,000,000 shares of its common stock.

ERNST & YOUNG LLP

Chicago, Illinois
February 3, 1997