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

FORM 10-Q

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

| | For
the quarterly period ended January 31, 2007
| | -----------------------------------------------

OR

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

| | For the transition period from ______________to ______________
| | --------------------------------------------------------------

Commission file number
0-12927

|                                                               | NATIONAL HOME HEALTH CARE CORP.                                                   |                                  
|-------------------------------------------------------------- | --------------------------------------------------------------------------------- | ---------------------------------
|                                                               | (Exact name of Registrant as Specified in Its Charter)                            |                                  
|Delaware                                                       |                                                                                   | 22-2981141                       
|(State or Other Jurisdiction of
Incorporation or Organization) |                                                                                   | (IRS Employer Identification No.)
|                                                               | 700 White Plains Road, Scarsdale, New York 10583                                  |                                  
|                                                               | (Address of Principal Executive Offices with Zip Code)                            |                                  
|                                                               | Registrant's Telephone Number Including Area Code: 914-722-9000                   |                                  
|                                                              
|                                                               | Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. |                                  

Indicate by check mark whether the
Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the
Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). Large Accelerated Filer    Accelerated Filer 
Non-Accelerated Filer

Indicate by check mark whether the
Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes    No

# APPLICABLE ONLY TO
CORPORATE ISSUERS:

The number of shares of common stock
outstanding as of March 16, 2007 was 5,662,531.



---

# NATIONAL HOME HEALTH
CARE CORP. Form 10-QFor the
Quarter Ended January 31, 2007 Table of Contents

|              |                                                                               |      
|------------- | ----------------------------------------------------------------------------- | -----
|PART I        | FINANCIAL INFORMATION                                                         | Page 
|              |                                                                               |      
|Item 1        | Financial Statements                                                          |      
|              |                                                                               |      
|              | Condensed Consolidated Balance Sheets as of January 31, 2007 and              | 3-4  
|              | July 31, 2006 (unaudited)                                                     |      
|              |                                                                               |      
|              | Condensed Consolidated Statements of Operations for the three                 | 5    
|              | months and six months ended January 31, 2007 and January 31, 2006 (unaudited) |      
|              |                                                                               |      
|              | Condensed Consolidated Statements of Cash Flows for the six                   | 6    
|              | months ended January 31, 2007 and January 31, 2006                           
|              | (unaudited)                                                                   |      
|              |                                                                               |      
|              | Notes to Condensed Consolidated Financial Statements                          | 7-11 
|              |                                                                               |      
|Item 2        | Management's Discussion and Analysis of Financial Condition and               | 12-17
|              | Results of Operations                                                        
|              |                                                                               |      
|Item 3        | Quantitative and Qualitative Disclosure About Market Risk                     | 17   
|              |                                                                               |      
|Item 4        | Controls and Procedures                                                       | 17   
|              |                                                                               |      
|PART II       | OTHER INFORMATION                                                             |      
|              |                                                                               |      
|Item 1        | Legal Proceedings                                                             | 18   
|              |                                                                               |      
|Item 6        | Exhibits                                                                      | 19   
|              |                                                                               |      
|SIGNATURES    |                                                                               | 20   
|              |                                                                               |      
|EXHIBIT INDEX |                                                                               | 21   

-2-



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NATIONAL HOME HEALTH
CARE CORP. AND SUBSIDIARIESCONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

|                                                | January 31, 2007 |  | July 31, 2006 |           
|----------------------------------------------- | ---------------- |  | ------------- | ----------
|ASSETS                                          |                  | 
|                                                |                  | 
|Current:                                        |                  |  |               |           
|Cash and cash equivalents                       |                  |  | $             | 19,177,000
|Accounts receivable-less allowance for possible |                  | 
|losses of $1,808,000 and $1,419,000             |                  |  |               | 20,641,000
|Prepaid expenses and other                      |                  |  |               | 1,196,000 
|Income taxes receivable                         |                  |  |               | 197,000   
|Deferred income taxes                           |                  |  |               | 332,000   
|                                                |                  |  |               |           
|                                                |                  | 
|Total current assets                            |                  |  |               | 41,543,000
|                                                |                  | 
|                                                |                  | 
|Furniture, equipment and leasehold              |                  | 
|improvements, net                               |                  |  |               | 1,834,000 
|Goodwill                                        |                  |  |               | 14,463,000
|Other intangible assets, net                    |                  |  |               | 819,000   
|Deposits and other assets                       |                  |  |               | 589,000   
|                                                |                  |  |               |           
|                                                |                  | 
|TOTAL                                           |                  |  | $             | 59,248,000
|                                                |                  |  |               |           

(continued)

-3-



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NATIONAL HOME HEALTH
CARE CORP. AND SUBSIDIARIES                                                  CONDENSED
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

|                                                 | January 31, 2007 |  | July 31, 2006 |           
|------------------------------------------------ | ---------------- |  | ------------- | ----------
|LIABILITIES AND STOCKHOLDERS' EQUITY             |                  |  |               |           
|                                                 |                  | 
|Current liabilities:                             |                  | 
|Accounts payable and accrued expenses            |                  |  | $             | 4,253,000 
|Estimated third-party payor settlements          |                  |  |               | 151,000   
|Deferred revenue                                 |                  |  |               | 311,000   
|Dividend payable                                 |                  |  |               | 425,000   
|Income taxes payable                             |                  |  |               | --        
|                                                 |                  | 
|Total current liabilities                        |                  |  |               | 5,140,000 
|                                                 |                  | 
|Stockholders' equity:                            |                  | 
|Common stock, $.001 par value; authorized        |                  | 
|20,000,000 shares, issued  7,125,544 shares      |                  |  |               | 7,000     
|Additional paid-in capital                       |                  |  |               | 26,532,000
|Retained earnings                                |                  |  |               | 31,417,000
|                                                 |                  |  |               | 57,956,000
|Less:  treasury stock (1,462,953 shares) at cost |                  |  |               | (3,848,000
|                                                 |                  | 
|Total stockholders' equity                       |                  |  |               | 54,108,000
|                                                 |                  | 
|TOTAL                                            |                  |  | $             | 59,248,000

See accompanying notes
to consolidated financial statements.

-4-



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NATIONAL HOME HEALTH
CARE CORP. AND SUBSIDIARIES                                                 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
                                                              (UNAUDITED)

|                                     | For the three months
ended January 31, |  | For the six months
ended January 31, |           
|------------------------------------ | -------------------------------------- |  | ------------------------------------ | ----------
|
|Net patient revenue                  |                                        |  | $                                    | 27,469,000
|                                     |                                        |  |                                      |           
|Operating expenses:                  |                                        | 
|Cost of revenue                      |                                        |  |                                      | 18,247,000
|General and administrative           |                                        |  |                                      | 7,332,000 
|Amortization of intangibles          |                                        |  |                                      | 80,000    
|Allowance for possible losses        |                                        |  |                                      | 262,000   
|                                     |                                        |  |                                      |           
|Total operating expenses             |                                        |  |                                      | 25,921,000
|                                     |                                        |  |                                      |           
|Income from operations               |                                        |  |                                      | 1,548,000 
|Other income:                        |                                        | 
|Interest                             |                                        |  |                                      | 235,000   
|                                     |                                        |  |                                      |           
|Income before income taxes           |                                        |  |                                      | 1,783,000 
|Provision for income taxes           |                                        |  |                                      | 726,000   
|                                     |                                        |  |                                      |           
|Net income                           |                                        |  | $                                    | 1,057,000 
|                                     |                                        |  |                                      |           
|Net income per common share:         |                                        | 
|Basic                                |                                        |  | $                                    | 0.19      
|                                     |                                        |  |                                      |           
|Diluted                              |                                        |  | $                                    | 0.18      
|                                     |                                        |  |                                      |           
|Weighted average shares outstanding: |                                        | 
|Basic                                |                                        |  |                                      | 5,664,124 
|                                     |                                        |  |                                      |           
|Diluted                              |                                        |  |                                      | 5,746,356 
|                                     |                                        |  |                                      |           
|Dividends declared per share         |                                        |  | $                                    | 0.075     
|                                     |                                        |  |                                      |           

See accompanying notes
to consolidated financial statements.

-5-



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NATIONAL HOME HEALTH
CARE CORP. AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

|                                                            | For the six months ended
January 31, | 
|----------------------------------------------------------- | ------------------------------------ | 
|
|Cash flows from operating activities:                       |                                      | 
|Net income                                                  |                                      | 
|Adjustments to reconcile net income                         |                                      | 
|to net cash provided by operating activities:               |                                      | 
|Depreciation and amortization                               |                                      | 
|Allowance for possible losses, net of writeoffs             |                                      | 
|Deferred income taxes                                       |                                      | 
|Changes in assets and liabilities:                          |                                      | 
|Accounts receivable                                         |                                      | 
|Prepaid expenses and other                                  |                                      | 
|Income taxes receivable                                     |                                      | 
|Accounts payable, accrued expenses and                      |                                      | 
|other liabilities                                           |                                      | 
|Estimated third-party payor settlements                     |                                      | 
|Deferred revenue                                            |                                      | 
|                                                            |                                      | 
|Net cash provided by operating activities                   |                                      | 
|                                                            |                                      | 
|Cash flows from investing activities:                       |                                      | 
|Purchase of furniture, equipment and leasehold improvements |                                      | 
|Proceeds from sale of investments                           |                                      | 
|                                                            |                                      | 
|Net cash used in investing activities                       |                                      | 
|                                                            |                                      | 
|Cash flows from financing activities:                       |                                      | 
|Purchase of treasury shares                                 |                                      | 
|Payment of cash dividend                                    |                                      | 
|                                                            |                                      | 
|Net cash used in financing activities                       |                                      | 
|                                                            |                                      | 
|Net decrease in cash and cash equivalents                   |                                      | 
|                                                            |                                      | 
|Cash and cash equivalents-beginning of period               |                                      | 
|                                                            |                                      | 
|Cash and cash equivalents-end of period                     |                                      | 
|                                                            |                                      | 
|Supplemental disclosures of cash flow information:          |                                      | 
|Cash paid during the period for:                            |                                      | 
|Income taxes                                                |                                      | 
|Interest                                                    |                                      | 
|Dividends declared and not paid                             |                                      | 

See accompanying notes
to consolidated financial statements.

-6-



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NATIONAL HOME HEALTH
CARE CORP. AND SUBSIDIARIESNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1  BASIS OF
PRESENTATION

The
accompanying unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month periods
ended January 31, 2007 are not necessarily indicative of the results that may be expected
for the year ending July 31, 2007. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Companys annual report on
Form 10-K for the year ended July 31, 2006.

NOTE 2  RECLASSIFICATIONS

Certain
reclassifications have been made in prior periods financial statements to conform to
classifications used in the current period.

NOTE 3  NET INCOME
PER SHARE DATA

A
reconciliation of shares used in calculating basic and diluted net income per share is as
follows:

|                              | For the three months ended January 31, | 
|----------------------------- | -------------------------------------- | 
|
|
|                              |                                        | 
|Basic EPS:                    |                                        | 
|Effect of dilutive securities |                                        | 
|                              |                                        | 
|Diluted EPS:                  |                                        | 
|                              |                                        | 

|                              | For the six months ended January 31, | 
|----------------------------- | ------------------------------------ | 
|
|
|                              |                                      | 
|Basic EPS:                    |                                      | 
|Effect of dilutive securities |                                      | 
|                              |                                      | 
|Diluted EPS:                  |                                      | 
|                              |                                      | 

-7-



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NOTE 4  STOCK-BASED
COMPENSATION

In
December of 2004, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 123 (revised) , Share-Based
Payment. SFAS No. 123R provides investors and other users of financial statements
with more complete and neutral financial information by requiring that the compensation
cost relating to share-based payment transactions be recognized in financial statements.
The Company adopted SFAS No. 123R in the first quarter of fiscal 2006. This standard
requires that the Company measure the cost of employee services received in exchange for
any award of equity instruments based on the grant date fair value of the award. That cost
will be recognized over the period in which the employee is required to provide the
services  the requisite service period (usually the vesting period)  in
exchange for the award. The grant date fair value for options and similar instruments will
be estimated using option pricing models. Under SFAS 123R, the Company is required to
select a valuation technique or option pricing model that meets the criteria as stated in
the standard, which includes a binomial model and the Black-Scholes model. At the present
time, the Company is continuing to use the Black-Scholes model. The adoption of SFAS 123R,
applying the modified prospective method, as elected by the Company, requires
the Company to value stock options prior to its adoption of SFAS 123R under the fair value
method and expense these amounts over the remaining vesting period of the stock options.
SFAS 123R requires that the Company estimate forfeitures for stock options and reduce
compensation expense accordingly. The adoption of SFAS No. 123R did not have any impact on
the Companys overall results of operations or financial position. Prior to the
adoption of SFAS No. 123R, the Company accounted for stock-based compensation using the
intrinsic value method under Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
stock option plan by recording as compensation expense the excess of the fair market value
of the underlying common stock over the exercise price per share as of the date of grant.
Because the exercise price of the Companys employee stock options equaled the market
price of the underlying stock on the date of grant, no compensation expense was
recognized.

NOTE 5  AGREEMENT
AND PLAN OF MERGER

On
November 28, 2006, the Company, AG Home Health Acquisition Corp., a Delaware corporation
(the Acquisition Corp), and AG Home Health LLC, a Delaware limited liability
company (the Parent) entered into an Agreement and Plan of Merger, dated
November 28, 2006 (the Merger Agreement), pursuant to which and subject to the
conditions set forth therein, the Acquisition Corp will merge with and into the Company,
with the Company continuing as the surviving corporation under the laws of the State of
Delaware. The Parent is an affiliate of Angelo, Gordon & Co.

At
the effective time and as a result of the merger, each share of the Companys common
stock, par value $.001 per share (each a Common Share) issued and outstanding
immediately prior to the effective time will be cancelled, extinguished and converted into
the right to receive either of the following per share amounts, payable in cash (the
Merger Consideration): (i) $11.35 per share if the adjusted EBITDA of the
Company (calculated in accordance with the Merger Agreement) for the EBITDA Period (as
defined in the Merger Agreement) is equal to or greater than $7,900,000 but less than
$8,150,000, or (ii) $11.50 per share if the adjusted EBITDA of the Company for the EBITDA
Period is equal to or greater than $8,150,000. Pursuant to a separate agreement among the
Company, the Acquisition Corp, the Parent and Mr. Frederick H. Fialkow, Mr. Fialkow will
contribute a portion of his Common Shares to the Company in exchange for an 8%
subordinated note in a principal amount equal to the amount of cash he would otherwise
have received for such Common Shares.

At
the effective time of the merger, all options issued under the Companys Stock Option
Plans shall be converted into the right to receive a cash payment equal to the product of
(i) the total number of Common Shares otherwise issuable upon exercise of such option and
(ii) the amount, if any, by which the Merger Consideration per Common Share exceeds the
applicable exercise price per Common Share of such option.

-8-

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Consummation
of the transactions contemplated by the Merger Agreement is conditioned upon, among other
things, (1) approval of the Merger Agreement by the stockholders of the Company, (2) other
regulatory approvals, including healthcare regulatory approvals, (3) an adjusted EBITDA of
the Company for the EBITDA Period of at least $7,900,000, (5) the absence of a material
adverse change in the Company, (6) holders of fewer than 71⁄2 % of the Common Shares
seek appraisal of the fair value of their shares, (7) the absence of a court order
enjoining the merger and (8) the amendment of the lease for the Companys Queens, New
York facility. The landlord to this lease is 175-20 Hillside Avenue Associates, which is a
company that is controlled by Frederick Fialkow, the Chairman of the Companys Board
of Directors and the holder of approximately 36% of the Companys outstanding common
stock. The amendment of this lease will, among other things, extend the term of the lease
for an additional 5 years (with two additional five year renewal options) and during such
five year period, the yearly rent will be subject to a 3% increase per year. Subject to
the satisfaction of the conditions to closing, it is anticipated that the merger will be
consummated during the Companys fourth fiscal quarter ending July 31, 2007.

The
Merger Agreement contains customary representations and warranties by the Company, the
Acquisition Corp and the Parent. The Merger Agreement also contains customary covenants
and agreements, including with respect to the operation of the business of the Company and
its subsidiaries between signing and closing, restrictions on solicitation of proposals
with respect to alternative transactions, governmental filings and approvals, public
disclosures and similar matters. Nothing in the Merger Agreement, however, prevents the
Company from furnishing information to, or engaging in discussions or negotiations with,
any person that offers the Company a Superior Proposal (as defined by the Merger
Agreement), or from accepting a Superior Proposal, which in either such case the board of
directors of the Company, upon the recommendation of the special committee of the board of
directors, determines in good faith (after consultation with independent legal counsel)
that such action is necessary for the board to comply with its fiduciary duties to the
Companys shareholders. If the Company accepts a Superior Proposal, however, it must
pay the Parent and Acquisition Corp a break-up fee of $2,300,000 plus the lesser of (i)
the aggregate amount of Parents and Acquisition Corps Expenses (as defined in
the Merger Agreement) and (ii) $1,250,000.

Two
stockholders of the Company, holding approximately 15% of the Companys Common
Shares, have indicated that it is their current intention to exercise their appraisal
rights. A lawsuit has been commenced against the Company and its directors (see Note 6)
and plaintiff has moved for a preliminary injunction, a hearing in respect of which is
scheduled for April 23, 2007.

The
Merger Agreement may be terminated by any of the parties thereto if there is any law that
prohibits the consummation of the merger; if a governmental order is issued that prohibits
the consummation of the merger or the payment of the Merger Consideration; if the
Companys shareholders do not approve the Merger Agreement; or if the merger is not
consummated before September 1, 2007. The Parent or Acquisition Corp may terminate the
Merger Agreement if, among other things, any of its closing conditions are incapable of
being satisfied; if the Company materially breaches any of its representations, warranties
or agreements in the Merger Agreement; or if the Companys board or its special
committee withdraws or adversely modifies its favorable recommendation of the Merger
Agreement, or fails to recommend against any Acquisition Proposal (as defined in the
Merger Agreement), or fails to call its shareholder meeting or mail its proxy statement to
its shareholders within 15 days after clearance from the SEC. The Company may terminate
the Merger Agreement if, among other things, any of its closing conditions are incapable
of being satisfied; if the Parent or Acquisition Corp materially breaches any of its
representations, warranties or agreements in the Merger Agreement; or if the Company
complies with its covenants in the Merger Agreement and an Acquisition Proposal
constitutes a Superior Proposal.

-9-



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A
special meeting of the shareholders of the Company to a vote on the Merger Agreement is
scheduled for April 27, 2007.

NOTE 6  LITIGATION

On
February 28, 2006, Lerai Jones, individually and on behalf
of all other persons similarly situated, filed a lawsuit against
the Company for alleged unpaid overtime wages pursuant to the New York Labor Law. 
Plaintiff seeks to certify a class of regular full-time hourly employees working within
the State of New York. The legal issues in this case are closely intertwined and connected
to the legal issues currently being litigated in the matter of Coke v. Long Island Care
at Home, 376 F.3d 118 (2d Cir. 2004), which involves the exemption for home health
care aides under the Fair Labor Standards Act. On August 31, 2006, upon a remand from the
United States Supreme Court, the United States District Court for the Second Circuit
affirmed the decision of the United States District Court for the Southern District of New
York ruling that the exemption did not apply to home health aides employed by third
parties. This decision, however, has been stayed pending an appeal to the United
States Supreme Court, which has granted certiorari, and the defendant in the Coke
decision is currently in the process of appealing this decision to the United States
Supreme Court. Thus, because of this pending appeal of the Coke decision, Jones and
the Company have agreed to enter into a stipulation extending the defendants
time to answer the complaint or agreeing to have plaintiff stipulate to a
discontinuance of this matter within thirty (30) days after a ruling in the Coke
decision by the United States Supreme Court. Based on the United States Supreme
Courts earlier remand, the Company believes that the Supreme Court will
overturn the decision of the United States Court of Appeals for the Second Circuit and
uphold the exemption from overtime wages for home health aides. The Company cannot predict
the ultimate resolution of this matter or the total amount of legal fees or other expenses
to be incurred in connection with this matter.

On
October 3, 2006, the Companys New York subsidiary received an Information Subpoena
with Restraining Notice by certified mail in connection with a Judgment obtained by Ida
Faulkner against the New York subsidiary in the amount of $2,149,180 entered on default on
January 4, 2005 in the Supreme Court of New York, Bronx County. The Company had no prior
knowledge of Ms. Faulkners action, nor of the entry of the default. Upon a review of
the Courts file, the Company has ascertained that the action was commenced on or
about August 21, 2003 and service of the Summons and Verified Complaint was made at an
incorrect address. All subsequent notices were sent to this incorrect address and were not
received by the Company. The Verified Complaint asserted causes of action for negligence
and breach of contract and alleged that Ms. Faulkner suffered unspecified personal
injuries. On October 6, 2006, the Company moved by Order to Show Cause to vacate the
default based upon its lack of notice of the Summons and Verified Complaint. By
Stipulation dated January 29, 2007, the default was vacated and the action was restored to
the courts active calendar. On February 8, 2007 the Company served an Answer
asserting numerous defenses to the Verified Complaint. The Company believes that the
claims are without merit and are fully covered by insurance.

On
November 17, 2006, Americare at Home, Inc. brought an action against Medical Resources,
Inc. (MRI), a subsidiary of the Company, and certain others, in the Superior
Court of the Commonwealth of Massachusetts. The plaintiff alleges that there was an
existing contract between it and defendant Psychiatric Home Care, Inc. (PHC)
and that MRI entered into a contract with PHC tortiously interfering with such contract
and interfering with an advantageous relationship. Plaintiff seeks damages of
approximately $573,000 against all of the defendants. MRI has answered the complaint,
denied all of the allegations contained therein and is vigorously defending the claims.
The Company cannot predict the ultimate resolution of this matter or the total amount of
legal fees or other expenses to be incurred in connection with this matter.

-10-



---

On
January 19, 2007, Helaba Invest Kapitalanlagegesellschaft mbH filed a verified class
action complaint in the Delaware Court of Chancery (the Class Action
Complaint). The suit purportedly was filed on behalf of the public
shareholders of the Company. The Class Action Complaint names as defendants the
Company and the individual members of its board of directors. In the Class Action
Complaint, the plaintiff challenges the Merger Agreement and seeks a declaration that the
defendants, and each of them, have committed or participated in a breach of their
fiduciary duties of loyalty, good faith and care to the Companys minority, public
stockholders by approving the merger, and causing the Company to enter into the Merger
Agreement. The plaintiff in the Class Action Complaint seeks preliminary and permanent
injunctive relief preventing the consummation of the transaction, or in the alternative,
if the transaction is consummated, rescission of the transaction. In the Class Action
Complaint, the plaintiff alleges, among other things, that the Merger Consideration of
$11.35-$11.50 per Common Share is inadequate; that the break up fee in the Merger
Agreement is excessive and discourages other potentially superior offers for the Company;
that two of the directors, the largest individual stockholders of the Company, have
executed voting agreements requiring them to vote in favor of the transaction; and that
certain terms of the transaction provide financial benefits to management and inside
directors that create conflicts of interest. The defendants filed answers on or about
February 13, 2007, denying the material allegations of the Class Action Complaint.
Discovery has commenced. Plaintiffs motion for a preliminary injunction is scheduled
to be heard on April 23, 2007. The Company and its directors believe the suit is without
merit and intend to vigorously defend it.

-11-



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ITEM 2  Managements
Discussion and Analysis of Financial Condition and Results of Operations.

# General

The
following discussion and analysis provides information which the Companys management
believes is relevant to an assessment and understanding of the Companys results of
operations and financial condition. This discussion and analysis should be read in
conjunction with the attached unaudited consolidated financial statements and notes
thereto, and with the Companys audited financial statements and notes thereto for
the fiscal year ended July 31, 2006 included with the Companys annual report on Form
10-K with respect to such fiscal year.

Certain
matters set forth in this report are forward-looking statements that are dependent on
certain risks and uncertainties, including but not limited to risks and uncertainties
relating to whether the Company can identify, consummate and integrate on favorable terms
acquisitions or market penetrations, market acceptance, pricing and demand for the
Companys services, changing regulatory environment, changing economic conditions,
whether the Company can attract and retain qualified personnel, the ability to manage the
Companys growth, and other risks detailed in the Companys other filings with
the Securities and Exchange Commission.

The
Company is subject to external factors that could significantly impact its business,
including potential reductions in reimbursement rates by Medicare, Medicaid and other
third party payers for the Companys services, retroactive adjustments due to prior
year audits, reviews and investigations, government fraud and abuse initiatives and other
such factors that are beyond the control of the Company. These factors could cause future
results to differ materially from historical results.

New
England Home Care, Inc. (New England), as a participant in the State of
Connecticut Department of Social Services Medicaid program, is subject to survey and
audits of operational, clinical and financial records with respect to proper applications
of general regulations governing operations and billing of claims. These audits can result
in retroactive adjustments for payments received from this program. In October 2006, New
England received the final results of an audit for the period covering April 1, 2003
through March 31, 2005 which resulted in a liability of $151,000. There can be no
assurance that federal, state or local governments will not change existing standards or
impose additional standards. There can be no assurance that future Medicaid audits will
not have a material adverse impact on the Company.

The
Balanced Budget Act (the Act) was signed into law in August 1997. The Act made
significant changes in the reimbursement system for Medicare home health care services.
The primary change that affects the Company is the restructuring of the reimbursement
system related to Medicare certified home health care agencies. Prior to the Act, Medicare
reimbursed providers on a reasonable cost basis subject to program-imposed cost per visit
limitations.

Under
the Act, changes in Medicare home care reimbursement were scheduled in two phases. A
temporary or interim payment system (IPS) took effect for cost reports
beginning on or after October 1, 1997. Under IPS, home health care providers were
reimbursed the lowest of (i) their actual costs, (ii) cost limits based on 105% of median
costs of freestanding home health agencies, or (iii) an agency-specific per patient cost
limit, based on 1994 costs adjusted for inflation. Under IPS, most Medicare providers were
actually reimbursed under an agency-specific per patient cost limit. Effective October 1,
2000, under the prospective payment system, Medicare reimburses providers a predetermined
base payment. The payment is adjusted for the health condition and care needs of the
beneficiary and is also adjusted for geographic differences in wages across the country.
Medicare provides home health agencies with payments for 60-day episodes of
care.

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In
two of the last three fiscal years, less than five percent of the Companys net
patient revenue was derived directly from Medicare, and accordingly the change to the
prospective payment system has not, to date, had a material adverse effect on the Company.
However, there can be no assurance that the Medicare prospective payment system will not
adversely impact the Companys reimbursement rates in the future or otherwise have a
material adverse effect on the Company. The Companys operations in New York are
dependent upon referrals, primarily from Medicare certified home health care agencies,
whose reimbursement has been adversely affected by the prospective payment system. Under
the prospective payment system, there can be no assurance that the Companys future
referrals will not result in reduced reimbursement rates or reduced volume of business.

The
Company derives a substantial amount of revenue from state sponsored Medicaid programs.
Approximately 47%, 46% and 43% of net patient revenue for the fiscal years ended July 31,
2006, 2005 and 2004, respectively, were derived from state law under federal guidelines.
States differ as to reimbursement policies and rates. The Company is a licensed Medicaid
provider in Connecticut, Massachusetts, New Jersey and in Nassau and Westchester Counties,
New York.

From
March 1, 2004 through August 23, 2005, the Division of Health Systems Regulation for the
Connecticut Department of Public Health (the DPH) conducted various licensing
and certification inspections of New England, the Companys Medicare certified and
licensed home health care subsidiary in Connecticut. In December 2005, New England and DPH
entered into a Consent Order for the purpose of resolving DPHs findings at the
conclusion of those inspections. The Consent Order provides for the adoption of certain
policies and procedures pursuant to a Plan of Correction approved by DPH. The terms of the
Consent Order will generally remain in effect until the fall of 2007.

In
December 2004, New York State adopted legislation to increase the State minimum wage from
$5.15 per hour to $7.15 per hour over a two-year period. The law increased the minimum
wage to $6.00 per hour starting January 1, 2005. The minimum wage was raised to $6.75 per
hour on January 1, 2006 and to $7.15 per hour on January 1, 2007. This minimum wage
legislation has impacted the Companys New York operations on two fronts. Firstly,
the Company has been paying higher base wages and secondly, overtime in New York is
computed at 1.5 times the state minimum wage, thus increasing overtime costs to the
Company.

On
May 13, 2005, Accredited Health Services, Inc. (Accredited), the
Companys New Jersey wholly-owned subsidiary, received a copy of a Petition for
Certification of Representative, pursuant to the provisions of the National Labor
Relations Act. On March 21, 2006 the home health aides of Accredited, in a mail ballot
election, rejected union representation by SEIU 1199 New Jersey.

On
July 1, 2005, the State of New Jersey Medicaid Program introduced a revised Personal Care
Assistant (PCA) Beneficiary Tool (the Tool). The Tool is used to
determine the weekly hours a PCA Beneficiary receives. A a result of the implementation of
the Tool, Accredited has experienced a reduction in the total hours per week that each PCA
Beneficiary receives. For the fiscal year ended July 31, 2006, the State of New Jersey
Medicaid Program accounted for approximately 82% of Accrediteds revenue.

-13-



---

# Results of Operations
and Effects of Inflation

# Three Months Ended
January 31, 2007 Compared to Three Months Ended January 31, 2006.

Net
Patient Revenue.For the three months ended January 31, 2007, net patient revenue
increased $1,799,000, or 7.0%, to $27,469,000 from $25,670,000 for the three months ended
January 31, 2006. This increase was attributable to (i) an increase of $912,000 resulting
from the expansion of operations in Massachusetts, (ii) an increase of $793,000 resulting
from additional hours being subcontracted in New York and (iii) an increase of $169,000
resulting from increased business in Connecticut. The increase in net patient revenue was
offset by a decrease in New Jersey of $75,000 as a result of the implementation of the
Tool.

Gross
Profit. Gross profit margin decreased to 33.6% for the three months ended January 31,
2007 from 33.9% for the three months ended January 31, 2006. This decrease is attributable
to (i) higher wages paid to home health aides in New York as a result of the increase in
state minimum wages and the increase in wages paid to home health aides in Westchester and
Nassau Counties, as a result of living wage increases and (ii) increases in direct
payments to all caregivers and increased worker compensation costs.

General
and Administrative.General and administrative expenses increased $270,000, or 3.8%,
to $7,332,000 for the three months ended January 31, 2007 from $7,062,000 for the three
months ended January 31, 2006. This increase is primarily attributable to (i) increased
home office costs, primarily consisting of professional fees incurred with respect to the
Merger Agreement in the amount of $732,000 and (ii) an increase of $261,000 in general and
administrative costs in Massachussets as a result of the expansion of operations there.
This increase was partially offset by reduced occupancy and administrative personnel costs
in New Jersey, New York and Connecticut in the amount of $732,000, as the Company reduced
costs to compensate for the effects of the Tool and the elimination of the non-recurring
legal, consulting and administrative costs related to the above mentioned inspections in
Connecticut incurred in the prior three month period. As a percentage of net patient
revenue, general and administrative expenses decreased to 26.7% for the three months ended
January 31, 2007 from 27.5% for the three months ended January 31, 2006.

Amortization.  Amortization
of intangibles decreased $19,000, or 19.2%, to $80,000 for the           three months
ended January 31, 2007 from $99,000 for the three months ended           January 31,
2006. This decrease is attributable to previous acquisitions that           have now been
fully amortized.

Allowance
for Possible Losses. The Company recorded an allowance for possible losses of
$262,000 for the three months ended January 31, 2007 as compared to $173,000 for the three
months ended January 31, 2006. This increase is attributable to the Company increasing
reserves for possible losses from certain payor sources.

Income
from Operations. As a result of the foregoing, income from operations increased
$184,000, or 13.5%, to $1,548,000 for the three months ended January 31, 2007 from
$1,364,000 for the three months ended January 31, 2006.

Interest
Income.Interest income increased $113,000, or 92.6%, to $235,000 for the three months
ended January 31, 2007 from $122,000 for the three months ended January 31, 2006. This
increase is attributable to the higher cash balances of the Company and increased interest
rates.

Income
Taxes. The Companys effective tax rate increased to 40.7% for the three months
ended January 31, 2007 from 40.0% for the three months ended January 31, 2006.

-14-



---

Net
Income.Net income increased $166,000, or 18.6%, to $1,057,000, or $.18 per diluted
share, in the three months ended January 31, 2007 from $891,000, or $.16 per diluted
share, in the three months ended January 31, 2006.

# Six Months Ended January
31, 2007 Compared to Six Months Ended January 31, 2006.

Net
Patient Revenue.For the six months ended January 31, 2006, net patient revenue
increased $1,712,000, or 3.3%, to $53,703,000 from $51,991,000 for the six months ended
January 31, 2006. This increase was attributable to an increase of $2,919,000 resulting
from the expansion of operations in Massachusetts and additional hours being subcontracted
in New York. The increase in net patient revenue was partially offset by (i) a decrease in
Connecticut of $832,000, primarily the result of the above-mentioned inspections and the
elimination of small margin revenue business and (ii) a decrease of $375,000 in New Jersey
as a result of the implementation of the Tool.

Gross
Profit.Gross profit margin decreased to 33.6% for the six months ended January 31,
2007 from 34.1% for the six months ended January 31, 2006. This decrease was attributable
to higher direct wages paid to all caregivers and increased workers compensation costs.

General
and Administrative.General and administrative expenses increased $46,000, or .3%, to
$14,147,000 for the six months ended January 31, 2007 from $14,101,000 for the six months
ended January 31, 2006. This increase is attributable to (i) increased home office costs,
primarily consisting of professional fees incurred with respect to the Merger Agreement in
the amount of $950,000 and (ii) an increase of $471,000 in general and administrative
costs in Massachusetts and New York as a result of the expansion of business and increased
hours. This increase was partially offset by $1,375,000 as a result of reduced occupancy
and administrative personnel costs in New Jersey and Connecticut, as the Company reduced
costs to compensate for the effects of the Tool and the elimination of the non-recurring
legal, consulting and administrative costs related to the above mentioned inspections in
Connecticut incurred in the prior six month period. As a percentage of net patient
revenue, general and administrative expenses decreased to 26.3% for the six months ended
January 31, 2007 from 27.1% for the six months ended January 31, 2006.

Amortization.Amortization
of intangibles decreased $49,000, or 23.4% to $160,000 for the           six months ended
January 31, 2007 from $209,000 for the six months ended January           31, 2006. This
decrease is attributable to previous acquisitions that have now           been fully
amortized.

Allowance
for Possible Losses.Allowance for possible losses increased $364,000, or 130.9%, to
$642,000 for the six months ended January 31, 2007, as compared to $278,000 for the six
months ended January 31, 2006. This increase is primarily attributable to the Company
recording additional allowances as a result of certain accounts receivable balances
increasing and a Medicare certified agency in New York filing for Chapter 11 bankruptcy
protection in November 2006.

Income
from Operations.As a result of the foregoing, income from operations decreased
$41,000, or 1.3%, to $3,075,000 for the six months ended January 31, 2007 from $3,116,000
for the six months ended January 31, 2006.

Interest
Income. Interest income increased $228,000, or 105%, to $445,000 for the six months
ended January 31, 2007 from $217,000 for the six months ended January 31, 2006. This
increase is attributable to the higher cash balances of the Company and increased interest
rates.

-15-



---

Income
Taxes. The Companys effective tax rate increased to 40.5% for the six months
ended January 31, 2007 from 39.0% for the six months ended January 31, 2006.

Net
Income.Net income increased $62,000, or 3.0%, to $2,095,000, or $.36 per diluted
share, in the six months ended January 31, 2007 from $2,033,000, or $.35 per diluted
share, in the six months ended January 31, 2006.

The
rate of inflation had no material effect on operations for the six months ended January
31, 2007.

# Financial Condition and
Capital Resources

Current
assets increased to $41,543,000 and current liabilities increased to $5,140,000 at January
31, 2007. This resulted in an increase in working capital of $1,370,000 from $35,033,000
at July 31, 2006 to $36,403,000 at January 31, 2007. Cash and cash equivalents decreased
$124,000 to $19,177,000 at January 31, 2007 from $19,301,000 at July 31, 2006. The
decrease in cash and cash equivalents was primarily attributable to the increase in
accounts receivable and the payments of cash dividends.

The
Company provided net cash from operating activities of $982,000 for the six months ended
January 31, 2007 as compared to net cash provided by operating activities of $493,000 for
the six months ended January 31, 2006. The increase in net cash provided by operating
activities of $489,000 is attributable to an increase in operating cash flow of $15,000
and an increase in operating liabilities of $1,318,000, offset by an increase in operating
assets of $844,000 over the comparable period for the six months ended January 31, 2006.

The
net cash used in investing activities for the six months ended January 31, 2007 consisted
of the purchase of equipment. The net cash used in investing activities for the six months
ended January 31, 2006 consisted of the purchase of equipment, offset by the proceeds from
the sale of investments.

The
net cash used in financing activities for the six months ended January 31, 2007 consisted
of the payments of cash dividends. The net cash used in financing activities for the six
months ended January 31, 2006 consisted of the purchase of treasury shares and the payment
of cash dividends.

The
nature of the Companys business requires weekly payments to health care personnel at
the time services are rendered. The Company typically receives payment for these services
in 90 to 150 days with respect to contracted and insurance business and 8 to 45 days with
respect to certain governmental payers, such as Medicare and Medicaid programs. Accounts
receivable turnover was 76 days at January 31, 2007 as compared to 74 days at January 31,
2006.

The
Company closed on a $7,500,000 revolving credit facility ( the credit
facility) with Bank of America on April 28, 2006. The credit facility provides for
the Companys subsidiaries to borrow up to $7,500,000 at the banks prime rate
or LIBOR plus 1.5%. The credit facility expires on April 2, 2007 and requires the Company
to meet certain financial covenants and ratios. At January 31, 2007, there was no
outstanding balance under the credit facility. Borrowings are secured by a pledge of all
assets of the Company and its subsidiaries and guaranteed by the Company.

The
Company intends to incur capital expenditures of approximately $500,000 during the fiscal
year ending July 31, 2007 in connection with the proposed implementation of new computer
hardware, telephone equipment and networking equipment. These expenditures would be
designed to, among other things, update certain data input capability regarding services
rendered at certain locations. The Company believes that the software will provide
efficiencies in data organization, retrieval and analysis, both for

-16-



---

continuing operations and in
connection with certain audits. The Company intends to fund these expenditures,
acquisitions and cash dividends declared by the Board of Directors and otherwise meet its
short term and long term liquidity needs from its current cash balances, cash flow from
operations and its credit facility.

# Contractual Obligations

The
Company rents various office facilities through 2009 under terms of several lease
agreements that include escalation clauses. At January 31, 2007, minimum rental
commitments under noncancellable operating leases are as follows:

Operating Leases

|                 |  | 
|---------------- |  | 
|Less than 1 year |  | 
|1-3 years        |  | 
|3-5 years        |  | 
|                 |  | 
|Total            |  | 
|                 |  | 

# Item 3. Quantitative and
Qualitative Disclosure About Market Risk.

None.

# Item 4. Controls and
Procedures.

The
Company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that the Company is required to file
under the Securities Exchange Act of 1934 (the Exchange Act Reports) is
recorded, processed summarized and reported within the time periods specified in the
SECs rules and forms, and that such information is accumulated and communicated to
the Companys management, including the Principal Executive Officer and Principal
Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure. The Companys management necessarily has applied its judgement in
assessing the costs and benefits of such controls and procedures, which, by their nature,
can provide only reasonable assurances that the Companys controls and procedures
will achieve managements control objectives.

Prior
to the filing date of this report, the Company carried out an evaluation, under the
supervision and with the participation of its management, including the President and
Chief Executive Officer and the Vice President of Finance and Chief Financial Officer, of
the effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-15 as of January 31, 2007. Based upon
that evaluation, the President and Chief Executive Officer and the Vice President of
Finance and Chief Financial Officer concluded that the Companys disclosure controls
and procedures are effective in timely alerting them to material information relating to
the Company (and its consolidtaed subsidiaries) required to be included in its Exchange
Act Reports.

# Changes in Internal
Controls Over Financial Reporting

The
evaluation referred to above did not identify any changes in the Companys internal
controls over financial reporting that occurred during the quarter ended January 31, 2007
that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

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|PART II |  | OTHER INFORMATION
|------- |  | -----------------

# Item 1. Legal Proceedings

On
February 28, 2006, Lerai Jones, individually and on behalf
of all other persons similarly situated, filed a lawsuit against
the Company for alleged unpaid overtime wages pursuant to the New York Labor Law. 
Plaintiff seeks to certify a class of regular full-time hourly employees working within
the State of New York. The legal issues in this case are closely intertwined and connected
to the legal issues currently being litigated in the matter of Coke v. Long Island Care
at Home, 376 F.3d 118 (2d Cir. 2004), which involves the exemption for home health
care aides under the Fair Labor Standards Act. On August 31, 2006, upon a remand from the
United States Supreme Court, the United States District Court for the Second Circuit
affirmed the decision of the United States District Court for the Southern District of New
York ruling that the exemption did not apply to home health aides employed by third
parties. This decision, however, has been stayed pending an appeal to the United
States Supreme Court, which has granted certiorari, and the defendant in the Coke
decision is currently in the process of appealing this decision to the United States
Supreme Court. Thus, because of this pending appeal of the Coke decision, Jones and
the Company have agreed to enter into a stipulation extending the defendants
time to answer the complaint or agreeing to have plaintiff stipulate to a
discontinuance of this matter within thirty (30) days after a ruling in the Coke
decision by the United States Supreme Court. Based on the United States Supreme
Courts earlier remand, the Company believes that the Supreme Court will
overturn the decision of the United States Court of Appeals for the Second Circuit and
uphold the exemption from overtime wages for home health aides. The Company cannot predict
the ultimate resolution of this matter or the total amount of legal fees or other expenses
to be incurred in connection with this matter.

On
October 3, 2006, the Companys New York subsidiary received an Information Subpoena
with Restraining Notice by certified mail in connection with a Judgment obtained by Ida
Faulkner against the New York subsidiary in the amount of $2,149,180 entered on default on
January 4, 2005 in the Supreme Court of New York, Bronx County. The Company had no prior
knowledge of Ms. Faulkners action, nor of the entry of the default. Upon a review of
the Courts file, the Company has ascertained that the action was commenced on or
about August 21, 2003 and service of the Summons and Verified Complaint was made at an
incorrect address. All subsequent notices were sent to this incorrect address and were not
received by the Company. The Verified Complaint asserted causes of action for negligence
and breach of contract and alleged that Ms. Faulkner suffered unspecified personal
injuries. On October 6, 2006, the Company moved by Order to Show Cause to vacate the
default based upon its lack of notice of the Summons and Verified Complaint. By
Stipulation dated January 29, 2007, the default was vacated and the action was restored to
the courts active calendar. On February 8, 2007 the Company served an Answer
asserting numerous defenses to the Verified Complaint. The Company believes that the
claims are without merit and are fully covered by insurance.

On
November 17, 2006, Americare at Home, Inc. brought an action against Medical Resources,
Inc. (MRI), a subsidiary of the Company, and certain others, in the Superior
Court of the Commonwealth of Massachusetts. The plaintiff alleges that there was an
existing contract between it and defendant Psychiatric Home Care, Inc. (PHC)
and that MRI entered into a contract with PHC tortiously interfering with such contract
and interfering with an advantageous relationship. Plaintiff seeks damages of
approximately $573,000 against all of the defendants. MRI has answered the complaint,
denied all of the allegations contained therein and is vigorously defending the claims.
The Company cannot predict the ultimate resolution of this matter or the total amount of
legal fees or other expenses to be incurred in connection with this matter.

-18-



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On
January 19, 2007, Helaba Invest Kapitalanlagegesellschaft mbH filed a verified class
action complaint in the Delaware Court of Chancery (the Class Action
Complaint). The suit purportedly was filed on behalf of the public
shareholders of the Company. The Class Action Complaint names as defendants the
Company and the individual members of its board of directors. In the Class Action
Complaint, the plaintiff challenges the Agreement and Plan of Merger, dated November 28,
2006 among the Company, AG Home Health Acquisition Corp. and AG Home Health LLC (the
Merger Agreement) and seeks a declaration that the defendants, and each of
them, have committed or participated in a breach of their fiduciary duties of loyalty,
good faith and care to the Companys minority, public stockholders by approving the
merger, and causing the Company to enter into the Merger Agreement. The plaintiff in the
Class Action Complaint seeks preliminary and permanent injunctive relief preventing the
consummation of the transaction, or in the alternative, if the transaction is consummated,
rescission of the transaction. In the Class Action Complaint, the plaintiff alleges, among
other things, that the merger consideration of $11.35-$11.50 per share is inadequate; that
the break up fee in the Merger Agreement is excessive and discourages other potentially
superior offers for the Company; that two of the directors, the largest individual
stockholders of the Company, have executed voting agreements requiring them to vote in
favor of the transaction; and that certain terms of the transaction provide financial
benefits to management and inside directors that create conflicts of interest. The
defendants filed answers on or about February 13, 2007, denying the material allegations
of the Class Action Complaint. Discovery has commenced. Plaintiffs motion for a
preliminary injunction is scheduled to be heard on April 23, 2007. The Company and its
directors believe the suit is without merit and intend to vigorously defend it.

# Item 6. Exhibits

(a)      
          The following exhibits are filed herewith:

|        |                                                                       
|------- | ----------------------------------------------------------------------
|Exhibit |                                                                       
|Number  | Description                                                           
|       
|31.1    | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
|       
|31.2    | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
|       
|32.1    | Section 1350 Certification of Principal Executive Officer.            
|       
|32.2    | Section 1350 Certification of Principal Financial Officer.            

-19-



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SIGNATURES

Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.

| | NATIONAL HOME HEALTH CARE CORP.
| | -------------------------------

|Date:  March 16, 2007 | /s/ Robert P. Heller
Robert P. Heller
Vice President of Finance (principal financial officer and principal accounting officer)
|--------------------- | ------------------------------------------------------------------------------------------------------------------------------

| | 
| | 

-20-

---

EXHIBIT INDEX

|        |                                                                       
|------- | ----------------------------------------------------------------------
|Exhibit |                                                                       
|Number  | Description                                                           
|       
|31.1    | Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
|       
|31.2    | Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
|       
|32.1    | Section 1350 Certification of Principal Executive Officer.            
|       
|32.2    | Section 1350 Certification of Principal Financial Officer.            

_________________

* Filed herewith

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