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

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

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

                 THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

For the fiscal year ended July 31, 2005           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                     (I.R.S. Employer
Incorporation or Organization)                      Identification No.)


700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK                       10583
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(Address of Principal Executive Offices)                       (Zip Code)

Registrant's Telephone Number, Including Area Code:  914-722-9000

Securities registered pursuant to Section 12(b) of the Act:  None

Securities  registered  pursuant to Section 12(g) of the Act: Common Stock,  par
value $.001 per share.

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  X    No
                                              ---      ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of Registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2).   Yes        No  X
                                           ---       ---

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

As of January 31, 2005,  the  aggregate  market value of the Common Stock of the
Registrant,  its only class of voting securities,  held by non-affiliates of the
Registrant was approximately  $38,972,621 calculated on the basis of the average
of the closing  price of such stock on the National  Association  of  Securities
Dealers  Automated  Quotation  System on that date,  as reported by the National
Association of Securities Dealers, Inc.

The number of shares of the Registrant's Common Stock outstanding on October 28,
2005 was 5,664,124.

Certain  information  to  be  included  in  the  Registrant's  definitive  proxy
statement,  to be filed not later than 120 days after the end of the fiscal year
covered by this report, for the Registrant's 2005 Annual Meeting of Stockholders
is incorporated by reference into Part III of this Annual Report on Form 10-K.


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<TABLE>
<CAPTION>

                                                      TABLE OF CONTENTS
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                                                                                                                        PAGE
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                                                            PART I

<S>                                                                                                                      <C>
Cautionary Statement......................................................................................................1

Item 1.     Business......................................................................................................1

Item 2.     Properties...................................................................................................14

Item 3.     Legal Proceedings............................................................................................15

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


                                                           PART II

Item 5.     Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
            Equity Securities............................................................................................16

Item 6.     Selected Financial Data......................................................................................17

Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations........................18

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk...................................................26

Item 8.     Financial Statements and Supplementary Data..................................................................27

Item 9.     Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.........................27

Item 9A.    Controls and Procedures......................................................................................27

Item 9B.    Other Information............................................................................................27


                                                           PART III

Item 10.    Directors and Executive Officers of the Registrant...........................................................28

Item 11.    Executive Compensation.......................................................................................28

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
            Matters......................................................................................................28

Item 13.    Certain Relationships and Related Transactions...............................................................28

Item 14.    Principal Accountant Fees and Services.......................................................................28

<PAGE>


                                                  TABLE OF CONTENTS (CONT'D)
                                                  --------------------------

                                                                                                                        PAGE
                                                                                                                        ----


                                                           PART IV

Item 15.    Exhibits and Financial Statement Schedules...................................................................28















                                                           - ii -
</TABLE>

<PAGE>


                                     PART I

CAUTIONARY STATEMENT

         The  Annual  Report  on  Form  10-K  contains  certain  forward-looking
statements  that  involve a number of risks and  uncertainties.  Forward-looking
statements may be identified by the use of  forward-looking  terminology such as
"may,"  "will,"  "expect,"  "believe,"  "estimate,"   "project,"   "anticipate,"
"continue," or similar terms, variations of those terms or the negative of those
terms.  Important  factors that could cause actual results to differ  materially
from those  indicated by such  forward-looking  statements are set forth in this
document.  These include but are 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;
ability  to manage  the  Company's  growth;  and other  risks  detailed  in this
document. Please refer to the "Risk Factors" Section in Item 1 and "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  in
Item 7.

ITEM 1.  BUSINESS.

GENERAL

         National  Home  Health  Care  Corp.   (the  "Company")  is  a  Delaware
corporation that is a provider of home health care and staffing  services in the
Northeast region.

INDUSTRY OVERVIEW

         United  States  health care  spending  continues to outpace the rate of
inflation,  and the  population of older  Americans  continues to increase.  The
Company  believes that  alternatives  to costly  hospital and nursing home stays
will  continue to create  demand for home health  care.  Medicare,  Medicaid and
other managed care insurance  companies  continue to look for a setting  whereby
the aged population can receive health care services most cost efficiently. Home
health care has evolved as the acceptable and most preferred alternative in this
continuum.  Patient  comfort  and  substantial  cost  savings can  generally  be
realized   through   treatment  at  home  as  an   alternative   to  traditional
institutional  settings.  Continuing  economic  pressures within the home health
care industry and the changes to Medicare reimbursement have forced providers to
modify  the  manner in which they  provide  home  health  care  services.  Those
companies that successfully  operate with efficient  business models can provide
quality patient care and manage costs under the current reimbursement system.

         The home health care industry has traditionally been highly fragmented,
comprised of not-for  profit and for profit  smaller local home health  agencies
offering  limited  services.  These smaller  agencies do not generally  have the
necessary capital to expand their operations or services and are often unable to
achieve the cost efficiencies to compete effectively.  The implementation of the
Medicare  Prospective  Payment system and other  legislation at the state levels
has created major industry consolidation.

HOME HEALTH CARE SERVICES

         Home health  care  services  include  four broad  categories:  (1) home
health nursing services,  (2) infusion therapy, (3) respiratory therapy and, (4)
home medical  equipment.  According to statistics  from the

<PAGE>

Centers for Medicare and Medicaid Services ("CMS") Office of the Actuary,  total
expenditures by payers on home health nursing services was  approximately  $33.0
billion in 2001.  Medicare is the largest  single  payer,  accounting  for $11.0
billion  in  2002,  and  this is  projected  to grow to  $21.9  billion  by 2012
according  to the home health care  spending  projections  by CMS' Office of the
Actuary.

         The Company currently  operates  thirty-five  offices consisting of one
parent  corporate  office,  twenty-two  offices that coordinate home health care
services and twelve  satellite  offices.  The Company has two Medicare  provider
numbers  and is a  Medicaid  provider  in each of the  four  states  in which it
operates.  The Company  provides a wide  variety of home  health  care  services
including:

         o        Registered  nurses who  provide  specialty  services,  such as
                  skilled monitoring, clinical nursing assessments, evaluations,
                  clinical   interventions,    medication   supervision   and/or
                  administration.

         o        Licensed  practical nurses who perform  technical  procedures,
                  administer   medications   and  change  surgical  and  medical
                  dressings.

         o        Physical and  occupational  therapists  who work to strengthen
                  muscles, restore range of motion and help patients perform the
                  activities of daily living.

         o        Speech    pathologists/therapists    who   work   to   restore
                  communication and oral skills.

         o        Medical social workers who help families  address the problems
                  associated with acute and chronic illnesses.

         o        Home health aides who perform personal care such as bathing or
                  assistance in walking.

         o        Private duty services such as continuous  hourly  nursing care
                  and sitter services.

         The Company has five principal operating subsidiaries:

         o        Health Acquisition Corp., formerly Allen Health Care Services,
                  Inc.  ("Allen  Health  Care"),  a New  York  corporation  that
                  conducts home health care operations in New York.

         o        New England Home Care,  Inc.  ("New  England"),  a Connecticut
                  corporation  that  conducts  home  health care  operations  in
                  Connecticut.

         o        Accredited Health Services, Inc. ("Accredited"),  a New Jersey
                  corporation  that conducts home health care  operations in New
                  Jersey.

         o        Connecticut Staffing Works Corp.  ("Connecticut  Staffing"), a
                  Connecticut  corporation  that  conducts  healthcare  staffing
                  operations in Connecticut.

         o        Medical Resources Home Health Corp. ("Medical  Resources"),  a
                  Delaware corporation that conducts home health care operations
                  in Massachusetts.



                                     - 2 -
<PAGE>

         During the fiscal year ended July 31, 2004, the Company  terminated its
healthcare staffing operations in both New York and New Jersey.

         Health Acquisition Corp. d/b/a Allen Health Care Services. Allen Health
Care is a provider of home health aide services in New York State.  Services are
provided by personal care aides, home health aides and homemakers (collectively,
"caregivers"). Allen Health Care is licensed by the State of New York Department
of Health  ("DOH").  Allen Health Care  maintains its  principal  administrative
office in Jamaica,  New York and has a branch office in Mount Vernon,  New York.
Case  coordinating  of patients is performed at these two offices.  In addition,
Allen Health Care has  satellite  offices in Brooklyn,  Hempstead and the Bronx,
New York.  The satellite  offices are  primarily  used for the  recruitment  and
training of home health aides.  Services are provided in the following  counties
in the State of New York: Nassau,  Westchester,  Queens, Kings, New York and the
Bronx.

         Home health care personnel are licensed or agency certified under a New
York State  approved  program and can be engaged on a  full-time,  part-time  or
live-in  basis.  Since  July  1996,  Allen  Health  Care has  required  criminal
background investigations for all new personnel. In addition, urine drug testing
is part of the  pre-employment  screening  process and  thereafter  is performed
annually.  In accordance with DOH regulations,  effective April 1, 2005, all new
non-licensed employees who are employed to provide direct care or supervision to
clients of Allen Health Care will undergo a criminal history record check by the
Federal  Bureau  of  Investigation.   In  March  2005,  Allen  Health  Care  was
re-surveyed   by  the  Joint   Commission  of   Accreditation   of  Health  Care
Organizations  ("JCAHO"),  an accrediting body for health care providers.  JCAHO
accreditation  is associated  with providing  quality  services.  This status is
required by many of the certified home health care agencies ("CHHAs") that Allen
Health Care  currently  services.  The  re-survey  resulted in Allen Health Care
extending its accredited status through March 2008.

         Allen Health Care is reimbursed primarily by CHHAs and long-term health
care  provider  programs  that  subcontract  their home health  aides from Allen
Health  Care,  as well as by  private  payers  and the  Nassau  and  Westchester
Counties  Departments  of Social  Services  Medicaid  Programs,  for which Allen
Health Care is a participating provider.

         Allen  Health Care  provides  home health aide  services to its clients
twenty-four  hours per day,  seven days per week.  Although  Allen Health Care's
offices  are  open  during  normal  business  hours,   personnel  are  available
twenty-four hours per day to respond to emergencies and to provide other service
requests.  The  registered  nurses of Allen Health Care, in accordance  with DOH
regulations  and contract  requirements,  visit  patients  regularly  and review
records of service  completed by the home health aide and  personnel  care aides
daily.  These records are  maintained by Allen Health Care. In addition,  a home
care  coordinator  ensures  that  appropriate  coverage  is  maintained  for all
patients and acts as the liaison among family  members,  aides and  professional
staff.

         Allen  Health  Care has  expanded  in  recent  years  through  selected
acquisitions  of  complementary  businesses or assets in its geographic  region.
These  acquisitions  included the August 1998  acquisition  of certain assets of
Bryan  Employment   Agency,   Inc.,  d/b/a  Bryan  Home  Care  Services  ("Bryan
HomeCare"),  a New York  licensed  home health care  agency that  provided  home
health aide services in Westchester County, New York. This acquisition  expanded
the  geographic  presence  of Allen  Health  Care  and  enabled  it to  become a
participating  provider in the Westchester  County Department of Social Services
Medicaid Program.



                                     - 3 -
<PAGE>

         To a large extent,  Allen Health Care's  continued  growth  depends on,
among other  things,  its ability to recruit and maintain  qualified  personnel.
Allen Health  Care's  training  programs for home health aides and personal care
aides have been  approved  by the New York  State  Department  of Health.  Allen
Health Care believes that it offers competitive salaries and fringe benefits and
has been able to keep its caregivers working on a steady basis.

         New England Home Care,  Inc. In August 1995,  the Company  acquired New
England. New England is a Medicare certified and state licensed home health care
company in Connecticut.  In February 2005, New England was re-surveyed by JCAHO,
resulting in New England  extending its accredited status through February 2008.
New England provides services throughout  Connecticut.  Services include skilled
nursing,  physical therapy,  occupational therapy, medical social services, home
health aide and homemaker services. In addition,  New England provides specialty
services consisting of adult/geriatric, pediatric, post-acute rehabilitation and
behavioral   health.   New  England  provides   full-service  home  health  care
twenty-four  hours  per  day,  seven  days  per  week.  Weekends,  holidays  and
after-hours  are  supported by an on-call  system for each office  location with
medical  supervision  by a registered  nurse at all times.  All home health care
personnel are licensed or certified under a Connecticut  state-approved  program
and can be engaged on a  full-time,  part-time  or live-in  basis.  New  England
performs  a  multi-state  pre-employment  criminal  background  check on all new
hires. In addition, a Social Security number verification, satisfactory employer
references and a pre-employment drug screen are required.

         New England maintains its principal  administrative office in Cromwell,
Connecticut.  In addition,  New England has  administrative  offices in Milford,
West Hartford and Waterbury and satellite  offices in Norwalk,  Hamden,  Norwich
and Guilford,  Connecticut.  Case  coordinating  of patients is performed at the
Milford,  Cromwell,  West Hartford and  Waterbury  administrative  offices.  The
satellite  offices are used as drop-off offices for paperwork,  recruitment,  in
services and orientation of personnel.  Reimbursement for New England's services
is primarily provided by the State of Connecticut  Department of Social Services
Medical  Care  Administration,   the  Federal  Medicare  Program,  managed  care
companies,  private  payers,  hospices and other Medicare  certified home health
agencies and long-term care providers that  subcontract  their home health aides
from New England.

         New England has expanded its operations  through increased  penetration
of market share in Connecticut and selected acquisitions of complementary assets
in its geographic  region. In November 1999, New England acquired certain assets
of  Optimum  Care  Services  of  Connecticut,   Inc.,  Optimum  Home  Health  of
Connecticut, Inc. and Optimum Home Care of Connecticut, Inc. (collectively,  the
"Optimum  Entities").  The Optimum  Entities  included a Medicare  certified and
licensed home health care company engaged in providing home health care services
in  Connecticut.  The  acquisition of these assets was coupled with a successful
penetration of the market share made available as a result of the liquidation of
the Optimum Entities.

         In April 2000, New England  acquired  certain assets of the Connecticut
operations of U.S.  HomeCare  Corp.  ("U.S.  HomeCare-Connecticut"),  a Medicare
certified and licensed home health care company engaged in providing home health
care  services  in  Connecticut.  The  acquisition  complemented  the  Company's
existing operations in Connecticut.

         In March 2003, New England  acquired  certain assets from  Professional
Relief Nurses,  Inc. ("PRN"), a Medicare certified and licensed home health care
company engaged in providing home health care services in Hartford,  Litchfield,
New Haven and Middlesex Counties, Connecticut.



                                     - 4 -
<PAGE>

         In October  2004,  New  England  acquired  certain  assets from On Duty
Metropolitan  Connecticut,  LLC, a Medicare  certified  and licensed home health
care company  engaged in providing  nursing and home health care services in New
Haven and Fairfield Counties, Connecticut.

         The continued growth of New England depends on, among other things, its
ability  to  recruit  and  retain  qualified  personnel.  New  England  recruits
personnel through employee referrals, newsprint media, internet sourcing, direct
mailings  and  industry   networking.   New  England  believes  that  it  offers
competitive salaries and fringe benefits and has been able to keep its employees
working on a steady basis.

         Connecticut Staffing Works Corp.  Connecticut Staffing was organized in
October  1999 to  operate  certain  of the  assets  acquired  from  the  Optimum
Entities.  Connecticut  Staffing is a full-service health care staffing company,
maintaining its main administrative office in Cromwell, Connecticut. It provides
temporary  staffing to hospitals,  skilled  nursing  facilities,  long-term care
centers,  occupational  health sites,  juvenile detention centers,  correctional
facilities,  group homes,  schools and other  institutions.  Staffing  personnel
include  registered  nurses,   licensed  practical  nurses,   certified  nursing
assistants,  medical secretaries and medical  assistants.  Staffing services are
provided  twenty-four hours per day, seven days per week. Staffing  coordinators
are  available  in the office  Monday to Friday 6:00 a.m. to 5:00 p.m,  Saturday
6:00 a.m. to 2:00 p.m. and Sunday 6:00 a.m. to 12 noon. Holidays and after hours
are  supported  by  an  on-call  system  which  pages  a  staffing  coordinator.
Connecticut Staffing performs a multi-state  pre-employment  criminal background
check on all new hires.  In addition,  a Social  Security  number  verification,
satisfactory employer references and a pre-employment drug screen are required.

         Connecticut   Staffing  maintains  a  roster  of  quality  professional
personnel.  The continued success of Connecticut Staffing is dependent on, among
other  things,  its ability to maintain a steady  roster of per diem  workers to
meet the staffing  requirements of its clients.  Connecticut  recruits personnel
through employee referrals,  newsprint media, internet sourcing, direct mailings
and  industry   networking.   Connecticut   Staffing  believes  that  it  offers
competitive salaries and fringe benefits and has been able to keep its personnel
working on a steady basis.

         Accredited Health Services,  Inc. In October 1998, the Company acquired
Accredited. Accredited is a licensed health care service firm that provides home
health aide services in Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset,
Middlesex,  Monmouth and Ocean Counties,  New Jersey.  Accredited  maintains its
principal administrative office in Hackensack, New Jersey and has branch offices
in  East  Orange,   Jersey  City,  Edison  and  Toms  River,  New  Jersey.  Case
coordinating  of patients is performed in  Hackensack  and the other four branch
offices.  Accredited  also has  satellite  offices in Union City,  Paterson  and
Elizabeth, New Jersey that are used for recruitment, in services and orientation
of home health aides.

         Accredited   provides   home  health  care   services  to  its  clients
twenty-four  hours  per  day,  seven  days  per  week.  Weekends,  holidays  and
after-hours are supported by an on-call system for each office.  All home health
aides are certified under a New Jersey state-approved program and can be engaged
on a full-time,  part-time or live-in basis. Accredited has been approved by the
New Jersey  Board of Nursing for the  training of home health aides in the State
of New Jersey. Effective November 2003, all home health aides of Accredited have
criminal background checks performed by the State of New Jersey.

         In  March  2005,  Accredited  was  re-surveyed  by  the  Commission  on
Accreditation for Home Care (CAHC),  one of the accrediting  bodies required for
participation  as a Medicaid  provider in New  Jersey.  This  accreditation  was
extended for an additional  year.  Reimbursement  for  Accredited's  services is


                                     - 5 -
<PAGE>

primarily by the State of New Jersey Medicaid Program,  Medicare  certified home
health care agencies that  subcontract  their home health aides from  Accredited
and private payers.

         In August 2000,  Accredited completed the acquisition of certain assets
of Health Force Owned, Ltd. and its affiliates. The acquisition complemented the
Company's existing operations in New Jersey.

         In December  2002,  Accredited  completed  the  acquisition  of certain
assets of Mary Baker's Health Care Services,  Inc.  ("Mary  Baker").  Mary Baker
provided home health care services in Bergen and Passaic Counties, New Jersey.

         In May 2005,  Accredited  completed  the  acquisition  of Helping Hands
Health Care ("Helping Hands"). Helping Hands provided home health aides services
in Bergen, Hudson, Passaic, Essex, Morris, Union, Middlesex,  Somerset, Monmouth
and Ocean Counties, New Jersey.

         Accredited's  growth  depends on,  among other  things,  its ability to
recruit  and  retain  qualified  home  health  aides.  Recruiting  is  conducted
primarily  through  advertising,   direct  contact  with  community  groups  and
employment  programs,  and programs designed to encourage new employee referrals
by existing employees.  Accredited believes that it offers competitive  salaries
and fringe benefits and has been able to keep its caregivers working on a steady
basis.

         Medical  Resources  Home Health Corp. In September  2002,  the Company,
through a wholly-owned subsidiary, acquired certain assets of Medical Resources,
Inc. and related entities (collectively,  the "Medical Resources Entities"). The
Medical Resources Entities provided home care services in Massachusetts.

         The  Massachusetts   State  Home  Care  Program  provides  services  to
approximately  33,000 frail,  low income elders  throughout the state. The funds
and  services are managed  through  twenty-seven  Aging  Service  Access  Points
("ASAPs")  that  are  not-for-profit   organizations   geographically  dispersed
throughout  the state.  Services  provided  through this state  program  include
homemaking,  personal  care,  companion  and  shopping.  Medical  Resources  has
contracts  with certain of these ASAPs to provide  homemaking  and personal care
services.  Services are provided twenty-four hours per day, seven days per week.
Weekends, holidays and after-hours are supported by an on-call system staffed by
coordinators  and  registered  nurses.  From  inception,  Medical  Resources has
performed criminal background investigations on all new personnel.

         Medical  Resources  maintains  its principal  administrative  office in
Newton,  Massachusetts  and has satellite offices in Boston,  Lynn,  Framingham,
North Andover, Leominster,  Worcester, Chicopee, Bellingham, North Dartmouth and
North  Easton,  Massachusetts.  Case  coordinating  of patients is  performed in
Newton  and the  satellite  offices.  The  satellite  offices  are also  used as
drop-off  offices  for  paperwork,   recruitment,   in  services,  training  and
orientation of new personnel.

         In April 2003,  Medical Resources  received its Medicare  certification
from the CMS. In June 2003,  Medical  Resources  received its Medicaid  provider
number from the  Commonwealth of  Massachusetts.  As a result of receiving these
certifications,  Medical  Resources  expanded its  services to include  nursing,
physical therapy,  occupational therapy, speech therapy, medical social services
and home health aide services to Medicare and Medicaid recipients.

         The growth of Medical  Resources  depends on, among other  things,  its
ability to recruit and retain staff as well as its ability to generate referrals
of Medicare and Medicaid  patients.  Medical  Resources


                                     - 6 -
<PAGE>

believes that it offers  competitive  salaries and fringe  benefits and has been
able to keep its employees working on a steady basis.

ORGANIZATION

         The Company's corporate headquarters is located in Scarsdale, New York,
where all senior corporate administrative functions are performed. The Company's
operations  are  conducted  by its five  operating  subsidiaries.  Although  the
Company  maintains  separate   subsidiaries  in  its  various  jurisdictions  of
operations,  it reviews its  operations  primarily on an integrated  rather than
geographic  or   separate-subsidiary   basis.   Each   subsidiary   has  a  main
administrative  office where all management functions are performed and overseen
by the subsidiary President. Each administrative office performs intake and case
coordinating of patients, corporate compliance,  human resources,  marketing and
all financial and accounting functions.

INSURANCE

         The Company and its subsidiaries maintain casualty coverages for all of
its  operations,   including   professional  and  general  liability,   workers'
compensation,  automobile,  property,  fiduciary  liability  and  directors  and
officers insurance.  The Company reviews its insurance coverages  throughout the
year to insure that  adequate  coverages  are in place.  In New York State,  the
Company self insures up to specified  limits  certain  risks related to workers'
compensation. While the Company believes its insurance policies are adequate, in
the wake of the  terrorist  events  of  September  11,  2001,  the  Company  has
experienced  substantial  increases in the cost of its insurance coverage.  As a
result, there can be no assurance that coverage will continue to be available in
adequate amounts or at a reasonable cost.

EMPLOYEES AND LABOR RELATIONS

         As of October 28, 2005,  the Company had  approximately  3,680 full and
part-time employees. The Company currently employs the following classifications
of personnel: administrative employees which consist of a senior management team
(CEO and CFO) of the parent company and a COO, CFO and  vice-presidents  at each
subsidiary company;  office administrative staff, nursing directors and clinical
managers;  sales and marketing executives;  licensed and certified  professional
staff (RNs, LPNs,  therapists);  and  non-licensed  care givers (home health and
personal care aides).  The Company has  standardized  procedures for recruiting,
interviewing  and reference  checking  prospective  health care  personnel.  All
nurses and home  health  aides must be  licensed  or  certified  by  appropriate
authorities.

         Effective  May 1, 2004 Allen  Health Care and  District  Council  1707,
American  Federation  of  State,  County  and  Municipal  Employees  ("AFSCME"),
concluded  negotiations  on an  initial  three-year  labor  contract.  The labor
contract provided "covered" home health aides with some new benefits, consisting
of an  immediate  wage  increase,  eligibility  for paid time off,  increase  in
minimum hourly base rates,  holiday premium pay and  representation by the Union
in procedures and personnel  matters.  The Company has no other union  contracts
with any of its  employees.  The  Company  believes  its  relationship  with its
employees is satisfactory.

         In 2004, in Coke v. Long Island Care At Home,  Ltd.,  the United States
Court of Appeals for the Second Circuit  invalidated the  interpretation  by the
United States Department of Labor of certain overtime  exemptions under the Fair
Labor Standards Act regarding  companionship  services.  As a result, it appears
that  federal  overtime  pay  requirements  would apply to all of the  Company's
personnel  that  provide  home health care  services.  A petition  for a writ of
certiorari  has been filed with the Supreme Court of the United


                                     - 7 -
<PAGE>

States.  Unless the decision is overturned on appeal,  the Company's labor costs
would increase, but the Company does not believe that such increase would have a
material adverse affect on its operating results.

         On  May  13,  2005,  Accredited  received  a  copy  of a  Petition  for
Certification  of  Representative,  pursuant to the  provisions  of the National
Labor  Relations  Act.  The Company  has had a  preliminary  meeting  before the
National Labor Relations Board ("NLRB") in Newark, New Jersey with SEIU 1199 New
Jersey ( a health care union) to address  certain issues  regarding the Petition
and the timing of the election. It is expected that a union vote will be held on
a date to be determined by the NLRB.

RISK FACTORS

         This section  summarizes  certain risks,  among others,  that should be
considered by  stockholders  and prospective  investors in the Company.  Many of
these risks are also discussed in other sections of this report.

Risk Related to the Company's Ability to Attract Qualified Caregivers.

         The Company relies  significantly  on its ability to attract and retain
caregivers who possess the skills, experience and licenses necessary to meet the
requirements of the Company's  customers.  The Company  competes for home health
care services  personnel with other providers of home health care services.  The
Company must  continually  evaluate and expand its network of caregivers to keep
pace with its  customers'  needs.  Currently,  there is a shortage of  qualified
nurses and a  diminishing  pool of home health  aides in the states in which the
Company conducts its business,  competition for nursing  personnel is increasing
and wages and benefit costs have risen. The Company may be unable to continue to
increase the number of  caregivers  that it recruits,  adversely  affecting  the
potential for growth of the Company's business. The Company's ability to attract
and retain  caregivers  depends  on several  factors,  including  the  Company's
ability to provide such caregivers with assignments that they view as attractive
and with  competitive  wages and  benefits.  There can be no assurance  that the
Company  will be  successful  in any of  these  areas.  The  cost of  attracting
caregivers and providing  them with  attractive  benefit  packages may be higher
than the  Company  anticipates  and,  as a  result,  if it is  unable  to obtain
increased  reimbursement  rates,  the  Company's  profitability  could  decline.
Moreover, if the Company is unable to attract and retain caregivers, the quality
of its services to its  customers  may decline  and, as a result,  it could lose
certain customers.

         Effective  May 1, 2004 Allen  Health Care and  District  Council  1707,
AFSCME concluded negotiations on an initial three-year labor contract. There can
be no assurance that the terms of this collective  bargaining agreement will not
have a material  adverse  effect on the  Company.  On May 13,  2005,  Accredited
received a copy of a Petition for Certification of  Representative,  pursuant to
the provisions of the National Labor  Relations Act. It is expected that a union
vote  will be  held on a date to be  determined  by the  NLRB.  There  can be no
assurance as to the outcome of this election,  that further unionizing  activity
will not occur at this or other  subsidiaries  of the  Company  or that any such
activity or any new collective  bargaining  agreements  will not have a material
adverse effect on the Company.

Risks Related to Competition.

         The home  health  care  business  is  highly  competitive.  Some of the
Company's competitors,  unlike the Company,  provide pharmaceutical products and
other home health care services that generate additional referrals.  Some of the
Company's  competitors also may have greater  marketing and financial  resources
than the Company.  The Company believes that the primary  competitive factors in
obtaining and retaining


                                     - 8 -
<PAGE>

customers are the quality of services provided and the pricing of such services.
Competition  for  referrals  may  increase in the future  and, as a result,  the
Company may not be able to remain competitive. To the extent competitors gain or
retain market share by reducing prices or increasing marketing expenditures, the
Company  could lose market  share or  otherwise  experience  a material  adverse
effect. The Company does not have long-term  agreements or exclusive  guaranteed
order  contracts  with its customers.  The success of the Company's  business is
dependent upon its ability to continually secure new business from its customers
and to service such new business with its  caregivers.  The Company's  customers
are free to seek services from the Company's  competitors  and to use caregivers
that such competitors offer them. Therefore,  the Company must maintain positive
relationships  with its  customers,  otherwise  the  Company  may be  unable  to
generate new business for its  caregivers,  which could have a material  adverse
effect on the Company.

Risks Related to Medicare and Medicaid Retroactive Adjustments and Recoupments.

         The  Company,  as a  Medicare  and  Medicaid  provider,  is  subject to
retroactive  adjustments due to prior year audits,  reviews and  investigations,
government  fraud  and abuse  initiatives  and other  similar  actions.  Federal
regulations  also provide for  withholding  payments to recoup  amounts  payable
under the programs. While the Company believes it is in material compliance with
applicable  Medicare and  Medicaid  reimbursement  regulations,  there can be no
assurance that the Company, pursuant to such audits, reviews and investigations,
among other things,  will be found to be in compliance in all respects with such
reimbursement  regulations.  A determination that the Company is in violation of
any such reimbursement  regulations could result in retroactive  adjustments and
recoupments  and have a material  adverse  effect on the Company.  As a Medicaid
provider, the Company also is subject to routine,  unscheduled audits, which may
have an adverse impact on the Company's  results of operations.  For information
on a recent audit  performed by the Connecticut  Department of Social  Services,
Office of Quality Assurance, see "Government Regulation and Licensing - Audit".

Risks Related to Federal and State Regulations.

         The Company is subject to substantial and frequently  changing federal,
state and local  regulations.  The Company must also comply with state licensing
along with  federal  and state  eligibility  standards  for  certification  as a
Medicare  and  Medicaid  provider.  In addition,  new laws and  regulations  are
adopted  periodically  to regulate new and existing  services in the health care
industry. Changes in laws or regulations or new interpretations of existing laws
or  regulations  can have a  dramatic  effect on  operating  methods,  costs and
reimbursement  amounts  provided by  government  and other  third-party  payers.
Federal laws governing the Company's  activities  include regulation of Medicare
reimbursement and certification and certain financial  relationships with health
care providers (collectively,  the "fraud and abuse laws"). Although the Company
intends to comply  with all  applicable  federal and state fraud and abuse laws,
these  laws are not  always  clear and may be  subject  to a range of  potential
interpretations.  (For  further  discussion  on such fraud and abuse  laws,  see
"Government  Regulation and Licensing - Medicare Fraud and Abuse"). There can be
no assurance that administrative or judicial  clarification or interpretation of
existing  laws  or  regulations,   or  legislative  enactment  of  new  laws  or
regulations,  will  not  have a  material  adverse  effect  on the  Company.  In
addition,  the Balanced  Budget Act of 1997,  as amended (the  "Balanced  Budget
Act"),  introduced  several government  initiatives  causing changes to Medicare
reimbursement. These changes have resulted in the Company experiencing a decline
in revenue from its Medicare  certified nursing agency.  (For further discussion
on  the  Balanced  Budget  Act,  see  "Government  Regulation  and  Licensing  -
Medicare").  New England and Medical Resources,  as participants in the Medicare
and Medicaid programs, are 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


                                     - 9 -
<PAGE>

retroactive  adjustments for payments received from these programs  resulting in
amounts due to  governmental  agencies.  There can be no assurance that federal,
state  or local  governments  will  not  change  existing  standards  or  impose
additional  standards.  Any failure to comply with existing or future  standards
could have a material  adverse  effect on the  Company.  For  information  as to
surveys of New England  conducted by the Division of Health Services  Regulation
for the  Connecticut  Department  of Public Heath (the "DPH"),  see  "Government
Regulation and Licensing - Surveys". A failure by New England to retain Medicare
certification  would result in New England's  termination from  participating in
the  Medicare  and  Medicaid  programs.  Revenues  derived  from  New  England's
participation in these programs for the fiscal year ended July 31, 2005 were 33%
of the Company's total revenues.

         In October 2003, New England received a subpoena from the United States
Attorney's Office in New Haven,  Connecticut.  The subpoena sought production of
documents in  connection  with an  investigation  into  possible  violations  of
certain federal health care laws. The Company  believes that the  investigation,
which  the  Company   understands  is  being   conducted  in  parallel  with  an
investigation by state of Connecticut authorities, seeks evidence of potentially
fraudulent claims that may have been submitted by psychiatric nurses employed by
New  England.  The  Company  cannot  now  predict  the  course or outcome of the
investigation  or whether  additional  information  will be sought.  The Company
believes  that the  investigation  extends to certain other  competitors  in the
Connecticut market for psychiatric  nursing.  New England has produced documents
in response to the  subpoena  and  intends to  continue  to  cooperate  with the
investigation.  In the  event  that  the  government  investigation  uncovers  a
fraudulent  scheme  and New  England is  convicted  of  participating  in such a
scheme,  the  penalties  could  include (1) fines and  restitution  in excess of
$1,000,000, (2) organizational probation that could include requirements such as
court-monitored  supervision and termination of responsible employees,  officers
and/or directors and (3) suspension or debarment from federally funded programs.
Ancillary  consequences could include:  (1) criminal  prosecution of responsible
employees,  officers and directors,  (2) civil enforcement and penalties and (3)
default under loan and insurance covenants.

Risks Related to the Company's Exposure to Professional Liabilities.

         Provision  of home health  care  services  entails an inherent  risk of
liability.  Certain participants in the home health care industry may be subject
to lawsuits that may involve large claims and  significant  defense costs. It is
expected that the Company periodically will be subject to such suits as a result
of the nature of its  business.  The Company  currently  maintains  professional
liability  insurance  intended to cover such claims in amounts which  management
believes are in accordance  with industry  standards.  There can be no assurance
that the  Company  will be able to obtain  liability  insurance  coverage in the
future on acceptable  terms, if at all. There can be no assurance that claims in
excess  of the  Company's  insurance  coverage  or  claims  not  covered  by the
Company's  insurance  coverage  will not arise.  A successful  claim against the
Company  in excess of the  Company's  insurance  coverage  could have a material
adverse effect on the Company.  Claims against the Company,  regardless of their
merit or  eventual  outcome,  may also  have a  material  adverse  effect on the
Company's ability to attract  customers or to expand its business.  In addition,
one of the Company's  subsidiaries is self-insured for its workers  compensation
and is at risk for claims up to certain levels.

Risks Related to Third Party Payers.

         For the  twelve  months  ended  July  31,  2005,  2004  and  2003,  the
percentage of the Company's revenues derived from Medicare and Medicaid was 51%,
48%, and 47%,  respectively.  The revenues and  profitability of the Company are
affected  by the  continuing  efforts  of all  third-party  payers to contain or


                                     - 10 -
<PAGE>

reduce the costs of health care by lowering  reimbursement rates,  narrowing the
scope of covered  services,  increasing case  management  review of services and
negotiating reduced contract pricing.  Any changes in reimbursement levels under
Medicare,  Medicaid  or  other  payer  sources  and any  changes  in  applicable
government  regulations could have a material adverse effect on the Company. See
Item 7 -  "Management's  Discussion  and  Analysis of  Financial  Condition  and
Results of Operations  -- Certain  Trends  Expected to Impact Future  Results of
Operations".  Changes  in the  mix of the  Company's  patients  among  Medicare,
Medicaid  and other payer  sources may also affect the  Company's  revenues  and
profitability.

Risks Related to the Company's Acquisition Strategy.

         In  recent  years,  the  Company's  strategic  focus  has  been  on the
acquisition of small to medium sized home health care agencies, or of certain of
their assets, in targeted markets.  These acquisitions involve significant risks
and uncertainties,  including  difficulties  integrating  acquired personnel and
other corporate cultures into the Company's business,  the potential loss of key
employees or customers of acquired companies,  the assumption of liabilities and
exposure to unforeseen  liabilities  of acquired  companies and the diversion of
management  attention from existing  operations.  The Company may not be able to
fully  integrate the  operations of the acquired  businesses  with its own in an
efficient and cost-effective manner. The failure to effectively integrate any of
these  businesses  could  have a  material  adverse  effect on the  Company.  In
addition,  the  Company's  growth over the last  several  years has  principally
resulted from  acquisitions and penetration of markets abandoned by competitors.
There can be no  assurance  that the Company  will be able to identify  suitable
acquisitions  or  available  market  share  in the  future  nor  that  any  such
opportunities,  if identified,  will be  consummated  on terms  favorable to the
Company, if at all. In the absence of such successful transactions, there can be
no assurance  that the Company will  experience  further  growth,  nor that such
transactions, if consummated, will result in further growth.

         In addition,  although the Company  attempted  in its  acquisitions  to
determine  the  nature  and  extent  of any  pre-existing  liabilities,  and has
obtained  indemnification  rights from the previous owners for acts or omissions
arising  prior to the date of the  acquisition,  resolving  issues of  liability
between the parties  could involve a  significant  amount of time,  manpower and
expense on the part of the  Company.  If the Company or any of its  subsidiaries
were to be  unsuccessful  in a claim for indemnity from a seller,  the liability
imposed on the Company or its subsidiary could have a material adverse effect on
the Company.

         The  Company  has grown  significantly  over the past few  years.  This
growth,  which has resulted  primarily from  acquisitions  and which  management
intends to continue to pursue,  poses a number of difficulties and risks for the
Company.  As the Company  has grown and may  continue to grow (as to which there
can be no  assurance)  in both  revenue  and  geographical  scope,  such  growth
stretches  the  various   resources  of  the  Company,   including   management,
information systems, regulatory compliance,  logistics and other controls. There
can be no assurance that such resources will keep pace with such growth.  If the
Company does not maintain  such pace,  then its  prospects  would be  materially
adversely affected.

Risks Related to the Company's Dependence on Senior Management.

         The Company believes that the success of its business  strategy and its
ability to operate profitably depends on the continued  employment of its senior
management team. If any member of the Company's  senior  management team becomes
unable or unwilling to continue in his present position,  the Company's business
and financial results could be materially adversely affected.



                                     - 11 -
<PAGE>

COMPETITION

         The home health care field is highly competitive in each state in which
the Company  operates.  The Company is competing with numerous other licensed as
well as certified home health care agencies in each of the markets it serves. In
addition,  the Company  competes with  companies  that, in addition to providing
home health aide and skilled nursing services, also, unlike the Company, provide
pharmaceutical  products  and other home  health  care  services  that  generate
additional referrals.  The Company believes it is one of the largest competitors
in the  state of  Connecticut.  However,  the  Company  believes  that  numerous
competitors in the other  principal  markets  served by the Company  (i.e.,  the
states of  Massachusetts,  New York and New Jersey) have  substantially  greater
personnel,  financial and other  resources  than the Company.  Competition  also
involves the quality of services provided and the pricing for such services. The
Company's largest  competitors  include Gentiva Health Services,  Inc.,  Premier
Health  Services,  Patient Care,  Inc., New York Health Care,  Inc. and Personal
Touch Home Care, Inc. As a result of changes in Medicare  reimbursement  and the
competitive  pressures of managed care, the home health care industry  continues
to experience  consolidation.  In addition,  the Company  believes that smaller,
less financially  secure home health agencies will continue to find it difficult
to compete for market share and comply with regulatory compliance standards.

         The Company's ability to attract a staff of highly trained personnel is
a material element of its business.  There currently is intense  competition for
qualified  personnel  and there can be no  assurance  that the  Company  will be
successful in maintaining or in securing  additional  qualified  personnel.  The
Company's  competition for personnel comes from other industries as well. If and
to the extent that  reimbursement  rates and other factors  constrain  wages and
other  benefits  to  caregivers,   other  industries  offering  more  attractive
compensation  and other  benefits  also may  attract  eligible  home health care
personnel.   The  Company  recruits  personnel   principally  through  newspaper
advertisements and through referrals from existing personnel.

CUSTOMERS

         The Company provides its services to four types of payer sources. These
sources include federal and state funded public  assistance  programs  (Medicare
and Medicaid), other third party payers (subcontracts),  insurance companies and
private payers.

         A  substantial  portion  of  the  Company's  revenue  is  derived  from
subcontracts  that the  Company  has with  Medicare  certified  home health care
agencies and  long-term  health care  provider  programs  that  subcontract  our
caregivers.  From time to time,  some of these agencies have requested bids from
the home  care  agencies  to  which  they  subcontract.  If the  Company  is not
successful in maintaining these contracts as they come up for bid, it could have
a materially adverse effect on the Company's results of operations.

         For the fiscal years ended July 31, 2005,  2004 and 2003,  the State of
Connecticut  Department of Social Services Medical Care  Administration  program
accounted  for 28%,  27% and 29%,  respectively,  of the  Company's  net patient
revenue  and the New Jersey  Department  of Human  Services  Division of Medical
Assistance  and  Health   Services   program   accounted  for  12%,  9%  and  7%
respectively, of the Company's net patient revenue. The loss of or a significant
adverse  change in the  business  terms with either of the  foregoing  customers
would have a material adverse effect on the Company.



                                     - 12 -
<PAGE>

GOVERNMENT REGULATION AND LICENSING

         The health care industry is highly regulated. The Company's business is
subject to substantial and frequently changing regulations by federal, state and
local  authorities.  The Company  must comply  with state  licensing  along with
federal and state  eligibility  standards  for  certification  as a Medicare and
Medicaid provider.  The ability of the Company to operate profitably will depend
in part upon the Company  obtaining and maintaining  all necessary  licenses and
other approvals in compliance with applicable health care regulations.

         The Health  Insurance  Portability and  Accountability  Act. The Health
Insurance  Portability  and  Accountability  Act  ("HIPAA")  was  enacted by the
Federal  government on August 12, 1996, and requires  organizations to adhere to
certain standards to protect data integrity,  confidentiality  and availability.
HIPAA  mandates,  among other  things,  that the  Department of Health and Human
Services  (the "DHHS") adopt  standards  for the exchange of  electronic  health
information in an effort to encourage overall administrative  simplification and
enhance  the   effectiveness   and  efficiency  of  the  health  care  industry.
Organizations  were required to be in compliance  with certain HIPAA  provisions
relating to security and privacy  beginning  April 14, 2003.  Organizations  are
subject to significant fines and penalties if found not to be compliant with the
provisions  outlined in the  regulations.  Regulations  issued pursuant to HIPAA
impose ongoing obligations relative to training, monitoring and enforcement, and
management  has  implemented   processes  and  procedures  to  ensure  continued
compliance with these regulations.

         Medicare.  Title XVIII of the Social  Security Act authorizes Part A of
the Medicare  program,  the health  insurance  program that pays for home health
care  services  for  covered  persons  (typically,  those  aged 65 and older and
long-term disabled).  Home health care providers may participate in the Medicare
program subject to certain  conditions of participation and upon acceptance of a
provider  agreement  by  the  Secretary  of  Health  and  Human  Services.  Only
enumerated  services,  upon  satisfaction  of  certain  coverage  criteria,  are
eligible  for  reimbursement  as a Medicare  provider.  The Company is currently
Medicare certified in Connecticut and Massachusetts. Approximately 6%, 5% and 5%
of  revenue  for  the  fiscal  years  ended  July  31,  2005,   2004  and  2003,
respectively,  were derived from the Medicare  program (see "Risk Factors -Risks
Related to Federal and State Regulations"  above for a discussion  regarding the
Company's participation in the Connecticut Medicare program).

         Medicare Fraud and Abuse.  Provisions of the Social  Security Act under
Medicare and Medicaid  generally  prohibit  soliciting,  receiving,  offering or
paying,  directly  or  indirectly,  any form of  remuneration  in return for the
referral of  Medicare or state  health  care  program  patients or patient  care
opportunities,  or in return for the  purchase,  lease or order of any  facility
item or service  that is covered by Medicare or state health care  program.  The
federal government has published  regulations that provide exceptions,  or "safe
harbors",  for  business  transactions  that will be deemed not to  violate  the
anti-kickback  statute.  Violations  of the  statute  may  result  in civil  and
criminal penalties and exclusion from participation in the Medicare and Medicaid
programs.  The Company believes that its current operations are not in violation
of the anti-kickback statute.

         Medicaid.  Approximately  46%,  43% and 42% of  revenue  for the fiscal
years ended July 31, 2005, 2004 and 2003, respectively,  were derived from state
sponsored  Medicaid  programs.  Reimbursement  for  home  health  care  services
rendered to eligible  Medicaid  recipients  is made in an amount  determined  in
accordance with procedures and standards  established by state law under federal
guidelines. States differ as to reimbursement policies and rates. The Company is
a licensed  Medicaid provider in Connecticut,  New Jersey,  Massachusetts and in
Nassau and Westchester Counties,  New York. Future Medicaid


                                     - 13 -
<PAGE>

reimbursement  rates may be reduced in response to state  economic and budgetary
constraints,  as well as in response  to changes in the  Medicare  program  (see
"Risk  Factors  -Risks  Related to Federal  and State  Regulations"  above for a
discussion  regarding the Company's  participation  in the Connecticut  Medicaid
program).

         Surveys.  In October  2004,  New  England  was  notified  by the DPH of
alleged lack of compliance with Medicare's Conditions of Participation. Also, in
October  2004,  New England  received  notice from DPH of alleged  violation  of
Connecticut  state regulations based on substantially the same grounds as stated
above.  Follow up surveys were  concluded in November  and  December  2004.  The
November  survey showed  results  similar to the October  survey.  The survey in
December was  concluded to the DPH's  satisfaction.  In February  2005,  the DPH
submitted a proposed  Consent  Order to New  England.  The  Consent  Order would
resolve the pending allegations by the DPH, adopt certain policies substantially
in accordance  with the Plan of  Correction  and remain in effect for two years.
The final terms of the Consent Order are still being  discussed  between the DPH
and New England.  Another Medicare  Certification Survey was concluded in August
2005.  That survey again alleged a lack of compliance.  New England is currently
awaiting the results of a follow up survey  conducted in October 2005. A failure
by New England to achieve Medicare  certification  would result in New England's
termination from participating in the Medicare and Medicaid  programs.  Revenues
derived from New England's  participation  in these programs for the fiscal year
ended July 31, 2005 were 33% of the Company's total revenues.

         Audit. In August 2005, the Connecticut  Department of Social  Services,
Office of Quality  Assurance  (the  "Department")  performed an audit of Medical
Assistance  claims paid to New England covering the period April 1, 2003 through
March 31,  2005.  The audit  included  a review of  relevant  claim  information
maintained  by the  Department  and a  review  of the  appropriate  medical  and
administrative   records  maintained  by  New  England.   New  England  received
approximately  $50,000,000 in reimbursement during the audit period. The Company
is unable to quantify the liability that may arise from this audit.

ITEM 2.  PROPERTIES.

         The Company,  directly or through certain subsidiaries,  leases various
office  facilities under lease agreements with various  expiration dates through
fiscal 2009. The following sets forth the location,  approximate  square footage
and use of each office, and the expiration date of each lease:

<TABLE>
<CAPTION>

                                 Approximate                                            Expiration Date
Location                         Square Feet                       Use                      of Lease
--------                         -----------                       ---                      --------
<S>                                 <C>                <C>                              <C>
Scarsdale, NY                       2,679              Corporate headquarters           October 31, 2008
Queens, NY                         12,300              Administrative office            July  31, 2008
Mount Vernon, NY                    2,500              Branch office                    November 30, 2005
Hempstead, NY                       1,528              Satellite office                 November 30, 2007
Brooklyn, NY                          800              Satellite office                 Month-to-Month
Bronx, NY                             648              Satellite office                 Month-to-Month
Milford, CT                        18,441              Administrative office            March 31, 2006
Cromwell, CT                       18,044              Administrative office            June 30, 2008
Norwalk, CT                         1,400              Satellite office                 Month-to-Month
Hamden, CT                          1,875              Satellite office                 Month-to-Month
Norwich,  CT                        1,200              Satellite office                 Month-to-Month
Waterbury,  CT                      3,986              Branch Office                    May 31, 2007


                                     - 14 -
<PAGE>

                                 Approximate                                            Expiration Date
Location                         Square Feet                       Use                      of Lease
--------                         -----------                       ---                      --------

West Hartford, CT                   4,455              Branch office                    January 31, 2009
Guilford, CT                          200              Satellite office                 Month-to-Month
Hackensack, NJ                      4,281              Administrative office            September 30, 2008
Verona, NJ                          2,265              Satellite office                 December 14, 2005
Union City, NJ                        700              Satellite office                 Month-to-Month
Elizabeth, NJ                         700              Satellite office                 Month-to-Month
East Orange, NJ                     3,000              Branch office                    August 31, 2006
Jersey City, NJ                     1,000              Branch office                    Month-to-Month
Toms River, NJ                      1,740              Branch office                    June 30, 2007
Paterson, NJ                        1,250              Satellite office                 November 30, 2006
Whiting, NJ                           730              Satellite office                 December 31, 2006
Edison, NJ                          1,450              Branch office                    February 28, 2006
Newton, MA                          3,838              Administrative office            August 31, 2007
Bellingham, MA                        260              Satellite office                 Month-to-Month
North Andover, MA                     220              Satellite office                 July 31, 2006
Framingham, MA                        525              Satellite office                 Month-to-Month
Boston, MA                            795              Satellite office                 April 30, 2008
Lynn, MA                              412              Satellite office                 Month-to-Month
North Dartmouth, MA                   964              Satellite office                 January 31, 2006
Chicopee, MA                        1,340              Satellite office                 November 30, 2005
North Easton, MA                      550              Satellite office                 Month-to-Month
Leominster, MA                      1,000              Satellite office                 Month-to-Month
Worcester, MA                       1,510              Branch office                    October 31, 2006
</TABLE>

         The Company  believes that its office  facilities  are adequate for the
conduct  of  its  existing  operations.  The  Company  regularly  evaluates  the
suitability  and the  overall  adequacy  of its  various  offices.  The  Company
believes  that it will be able to either (i) renew any leases  that will  expire
during  the  current  fiscal  year or (ii) find  adequate  leases in lieu of any
leases that have expired or will expire during the current fiscal year.

ITEM 3.  LEGAL PROCEEDINGS.

         The Company and certain of its officers and  directors  (the  "director
defendants") were named as defendants in a consolidated  class action brought on
behalf of certain  shareholders of SunStar  Healthcare,  Inc.  ("SunStar").  The
lawsuit  asserted  alleged  acts  or  omissions,  which  allegedly  resulted  in
misrepresentations or omissions of material information concerning the financial
condition of SunStar. In addition,  the lawsuit alleged that the Company and the
director defendants  exercised control over SunStar. In February 2001, the Court
dismissed the complaint and granted the  plaintiffs  leave to amend.  In October
2001, the Court granted the defendants'  motion to dismiss the amended complaint
with prejudice. Plaintiffs did not appeal this decision.

         In a related  action,  the  director  defendants  were  named in a case
brought by the  Department  of Insurance of the State of Florida as receiver for
SunStar.  The  allegations  in this action were similar to those  alleged in the
class action lawsuit, which was subsequently dismissed. Although the Company was
not  named  in this  action,  the  Company  agreed  to  indemnify  the  director
defendants to the fullest extent


                                     - 15 -
<PAGE>

permitted  under its by-laws.  In September  2002, the director  defendants (and
certain other defendants) entered into a settlement agreement with the plaintiff
to resolve this action.  The  settlement  payments were made in March 2004.  The
Company  indemnified  the director  defendants for their share of the settlement
payments. Because the amount paid had been previously reserved, the payments had
no impact on the Company's July 31, 2004 consolidated statement of earnings.

         In October 2003, New England received a subpoena from the United States
Attorney's Office in New Haven,  Connecticut.  The subpoena sought production of
documents in  connection  with an  investigation  into  possible  violations  of
certain federal health care laws. The Company  believes that the  investigation,
which  the  Company   understands  is  being   conducted  in  parallel  with  an
investigation by state of Connecticut authorities, seeks evidence of potentially
fraudulent claims that may have been submitted by psychiatric nurses employed by
New  England.  The  Company  cannot  now  predict  the  course or outcome of the
investigation  or whether  additional  information  will be sought.  The Company
believes  that the  investigation  extends to certain other  competitors  in the
Connecticut market for psychiatric  nursing.  New England has produced documents
in response to the  subpoena  and  intends to  continue  to  cooperate  with the
investigation.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

         No matters  were  submitted  to a vote of  stockholders  of the Company
during the fourth quarter of the fiscal year ended July 31, 2005.

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S  COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
         ISSUER PURCHASES OF EQUITY SECURITIES.

         (a)      Market Information

         The  Company's  Common  Stock is quoted on the NASDAQ  National  Market
under the symbol NHHC.  The following  table presents the quarterly high and low
bid  quotations  in the  over-the-counter  market,  as reported by the  National
Association  of Securities  Dealers for the two fiscal years ended July 31, 2004
and 2005.  These  quotations  reflect the  inter-dealer  prices,  without retail
mark-up,  mark-down  or  commission  and may not  necessarily  represent  actual
transactions.

                     First          Second           Third        Fourth
                    Quarter         Quarter         Quarter       Quarter
                    -------         -------         -------       -------

     2005

          High     $   11.23      $   14.00      $   14.44      $   14.92
          Low      $    9.30      $    9.71      $   11.50      $   10.87

     2004

          High     $   10.40      $   11.09      $   12.28      $   11.76
          Low      $    6.67      $    8.29      $    9.51      $    9.11

Dividends per share of common stock:

          2005     $   0.075     $    0.075     $    0.075     $    0.075
          2004             -              -              -              -



                                     - 16 -
<PAGE>

         (b)      Holders

         There were  approximately  86 holders of record of the Company's Common
Stock as of October 18,  2005,  excluding  certain  beneficial  holders that own
their  shares in street  name,  but  including  each firm which holds  shares on
behalf of such beneficial owners.

(c) Securities Authorized for Issuance Under Equity Compensation Plans.

<TABLE>
<CAPTION>

============================== ============================ =========================== ============================
                                                                                           Number of Securities
                                                                                          Remaining Available for
                               Number of Securities to be   Weighted-Average Exercise      Future issuance Under
                                 Issued Upon Exercise of       Price of Outstanding      Equity Compensation Plans
                                  Outstanding Options,        Options, Warrants and        (Excluding Securities
        Plan Category              Warrants and Rights                Rights              Reflected in Column (a))
------------------------------ ---------------------------- --------------------------- ----------------------------
                                           (a)                         (b)                           (c)
<S>                                             <C>                         <C>                     <C>
Equity compensation plans
approved by security holders                    283,783                     $9.60                   132,457
------------------------------ ---------------------------- --------------------------- ----------------------------

Equity compensation plans                           N/A                       N/A                       N/A
not approved by security
holders
------------------------------ ---------------------------- --------------------------- ----------------------------
TOTAL                                           283,783                      $9.60                  132,457
============================== ============================ =========================== ============================
</TABLE>

         (d)      Issuer Purchases of Equity Securities

                  None.

Effective  September  28, 2005,  the Company's  Board of Directors  extended its
program to repurchase shares for an additional year.  Purchases up to $3,000,000
per year will be made from time to time in open market transactions,  subject to
general market and other conditions.

ITEM 6.  SELECTED FINANCIAL DATA.

<TABLE>
<CAPTION>

                                                                    Fiscal Years Ended July 31,
                                        -------------------------------------------------------------------------------------
                                               2005             2004               2003          2002               2001
                                        -------------------------------------------------------------------------------------
<S>                                          <C>              <C>             <C>             <C>                <C>
   STATEMENT OF OPERATIONS DATA:
   Revenue...........................        $98,461,000      $94,592,000     $97,235,000     $82,172,000        $74,492,000
   Operating expenses................         93,090,000       86,975,000      87,694,000      73,792,000         67,804,000
   Income from operations............          5,371,000        7,617,000       9,541,000       8,380,000          6,688,000
   Other income :
    Interest income.............                 275,000          143,000         143,000         227,000            216,000
   Income before income taxes........          5,646,000        7,760,000       9,684,000       8,607,000          6,904,000
   Provision for income taxes........          2,079,000        3,040,000       3,901,000       3,336,000          2,704,000


                                     - 17 -
<PAGE>

                                                                    Fiscal Years Ended July 31,
                                        -------------------------------------------------------------------------------------
                                               2005             2004               2003          2002               2001
                                        -------------------------------------------------------------------------------------

   Net income........................          3,567,000        4,720,000       5,783,000       5,271,000          4,200,000
   Primary net income per share of common
   stock.............................        $      0.63      $      0.85     $      1.04     $      0.96        $      0.77
   Diluted net income per share of
  common stock.......................        $      0.62      $      0.83     $      1.01     $      0.91        $      0.75

 Dividends declared per share...             $      0.30      $         -     $         -     $         -        $         -
</TABLE>

<TABLE>
<CAPTION>

                                                                       At July 31,
                                   -------------------------------------------------------------------------------------------
                                           2005              2004              2003              2002              2001
                                   -------------------------------------------------------------------------------------------
<S>                                    <C>                <C>              <C>               <C>               <C>
BALANCE SHEET DATA:

Total assets....................       $55,600,000        $53,486,000      $48,473,000       $43,512,000       $37,250,000
Working capital.................        32,729,000         35,169,000       29,551,000        28,232,000        22,138,000
Retained earnings...............        28,216,000         26,342,000       21,622,000        15,839,000        14,784,000
Stockholders' equity............        50,922,000         49,039,000       43,866,000        38,679,000        32,584,000
</TABLE>

ITEM 7.  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
should be read in conjunction  with the  consolidated  financial  statements and
notes appearing elsewhere herein.

         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.

         As a  Medicaid  provider  in  Connecticut,  the  Company  is subject to
routine,  unscheduled  audits.  These audits may result in the  application of a
statistically-derived  adjustment  factor to the Company's  revenues,  which may
have an adverse  impact on the  Company's  results of  operations.  Although the
audits to date have not resulted in any material  adjustments,  such audits were
conducted at a time when the Company had significantly  lower Medicaid revenues.
There can be no assurance that future  Medicaid  audits will not have a material
adverse impact on the Company.



                                     - 18 -
<PAGE>

THE IMPACT OF THE BALANCED BUDGET ACT

         The  Balanced  Budget 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  affecting the Company was a 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, 2001, under the
prospective  payment system,  Medicare now 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".

         The  final  phase  of  the  Act  implemented  a  15%  cut  in  Medicare
reimbursement  rates effective  October 1, 2002. 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 impact 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.

RECENT ACQUISITIONS

         The  following  acquisitions  were made  through  one of the  Company's
wholly  owned  subsidiaries.  With the  exception  of  Medical  Resources,  Inc.
("Medical  Resources")  described  below,  these  acquisitions  complemented  an
existing  business of the Company in the  geographical  area in which the entity
whose assets were acquired provided services. Each of the acquisitions described
below was accounted for utilizing purchase accounting principles. At the time of
its acquisition,  the revenues of each acquired  business  constituted less than
ten percent of the consolidated revenues of the Company.

         On May  22,  2005,  the  Company  acquired  through  Accredited  Health
Services,  Inc.  ("Accredited")  certain  assets of Helping Hands Health Care, a
licensed  home health care company in the state of New Jersey that provided home
health  aide  services  in  Bergen,  Hudson,   Passaic,  Essex,  Morris,  Union,
Middlesex, Somerset and Ocean Counties, New Jersey.

         On October 6, 2004, the Company acquired through New England Home Care,
Inc. ("New England") certain assets of On Duty Metropolitan Connecticut,  LLC, a
Medicare  certified  and State  licensed  home health care company that provided
nursing  and home  health care  services  in New Haven and  Fairfield  Counties,
Connecticut.



                                     - 19 -
<PAGE>

         On March 17, 2003,  the Company  acquired  through New England  certain
assets of Professional  Relief Nurses,  Inc. ("PRN"),  a Medicare  certified and
State  licensed home health care company that  provided  nursing and home health
aide  services  in  Hartford,  Litchfield,  New  Haven and  Middlesex  Counties,
Connecticut.

         On December 14, 2002, the Company acquired through  Accredited  certain
assets of Mary Baker's Health Care Services,  Inc.  ("Mary  Baker"),  a licensed
home health care  company in the state of New Jersey that  provided  home health
aide services in Bergen and Passaic Counties, New Jersey.

         On  September  3,  2002,  the  Company,  through  a  then  newly-formed
subsidiary  Medical  Resources  Home Health Corp.,  acquired  certain  assets of
Medical Resources and related entities.  Medical Resources  provided home health
aide services throughout Massachusetts.

CRITICAL ACCOUNTING POLICIES

         The Company believes that the most critical accounting policies used in
the  preparation  of its  consolidated  financial  statements are those policies
relating to recognizing net patient  revenue,  determining the value of accounts
receivable, and assessing the value of goodwill and other long-lived assets.

         Net  Patient  Revenue.  The  Company  recognizes  net  patient  revenue
generally on the date services are provided to patients.  Net patient revenue is
recorded  at  amounts  the  Company  expects  to  receive  under   reimbursement
arrangements  with  third-party  payers,  including  private  insurers,  private
payers,  subcontractors,  Medicaid and Medicare.  Because the Company's business
depends upon third-party payers whose  reimbursement  rates and payment policies
are complex and subject to possible  change from time to time,  the Company must
make estimates with respect to certain  amounts it records as the net realizable
value of net patient revenue and accounts  receivable.  Because of the potential
for changes in these third-party  reimbursement rates and payment policies,  and
as a result of the  complexity  of  certain  of these  policies,  the  estimated
amounts originally  recorded as net patient revenue and accounts  receivable may
be subject to revision as additional information becomes known.

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

         Goodwill  and  Other  Long-Lived  Assets.  Goodwill  arising  from  the
acquisitions  of businesses is recorded as the excess of the purchase price over
the estimated fair value of the net assets of the businesses acquired. Statement
of  Financial  Accounting  Standards  No. 142  ("Goodwill  and Other  Intangible
Assets") provides that goodwill is to be tested for impairment annually, or more
frequently if circumstances indicate potential impairment.  Consistent with this
standard,  the Company reviews goodwill,  as well as other


                                     - 20 -
<PAGE>

intangible  assets  and  long-term  assets,  for  impairment  annually  or  more
frequently as warranted,  and if circumstances  indicate that the recorded value
of any such other asset is  impaired,  such asset is written  down to its proper
value. The Company  currently does not believe any impairment of its goodwill or
any such other asset existed at July 31, 2005.  Nevertheless,  future conditions
or events could  adversely  affect the recorded  value of goodwill or such other
assets.  If any  item of  goodwill  or such  other  asset  is  determined  to be
impaired,  an impairment  loss would be recognized  equal to the amount by which
the recorded value exceeds the estimated fair market value.

RESULTS OF OPERATIONS

(% of net patient revenue)                    FISCAL YEAR ENDED JULY 31,
                                        ------------------------------------
                                         2005           2004           2003
                                         ----           ----           ----

Net patient revenue                     100.0%         100.0%         100.0%
Cost of revenue                          66.1           65.4           65.0
General and administrative               26.6           24.8           24.2
Allowance for possible losses             1.3            1.2          - -
Amortization of intangibles                .6             .5            1.0
                                        -----          -----          -----
Total operating expenses                 94.5           91.9           90.2
Income from operations                    5.5            8.1            9.8
Interest income                            .2             .1             .1
                                        -----          -----          -----
Income before income taxes                5.7            8.2            9.9
Provision for income taxes                2.1            3.2            4.0
                                        -----          -----          -----
Net income                                3.6%           5.0%           5.9%
                                        =====          =====          =====

Certain Factors Expected to Impact Future Results of Operations

         Effective May 1, 2004, the  Connecticut  Department of Social  Services
("DSS")  increased the Medicaid rate for certain nursing visits.  The rate for a
medication   administration   visit,   defined   as   administration   of  oral,
intramuscular    and/or    subcutaneous    medication    by   a   health    care
agency/professional,  was  increased  from $52 to $56.50 for initial  visits and
from $26 to $28.25 for subsequent  visits.  The increase in these rates was made
retroactive to July 1, 2003,  resulting in an increase in net patient revenue of
approximately  $916,000 for the period from July 1, 2003 through April 30, 2004,
all of which was recorded in the results of operations for the fiscal year ended
July 31, 2004.  The rate change has impacted and will continue to impact periods
following  May 1,  2004,  and,  at current  levels of  operations,  the  Company
estimates that the rate change will result in an increase in net patient revenue
of approximately  $1,050,000 annually.  In May 2003, the rates for these nursing
visits had been significantly reduced from $85 to $52 per visit. The Connecticut
Department  of Social  Services  analyzed  the  impact of this rate cut and as a
result, effective May 1, 2004, increased the rates retroactive to July 1, 2003.

         In October  2005,  DSS  increased  the rates for all home  health  care
services  provided to  state-aided  persons by 4%.  These  rates were  increased
retroactive  to July 1, 2005 and at current  levels of  operations,  the Company
estimates that the rate change will result in an increase in net patient revenue
of approximately $1,000,000 annually.

         Health  Acquisition  Corp.,  d/b/a  Allen  Health  Care  Services,  the
Company's New York licensed home health care  subsidiary,  and District  Council
1707,  American  Federation of State,  County and Municipal  Employees concluded
negotiations on an initial  three-year  labor contract that became effective


                                     - 21 -
<PAGE>

May 1, 2004. This labor contract provides  "covered" home health aides with some
new benefits,  consisting of an immediate  wage increase,  eligibility  for paid
time off,  an increase in minimum  hourly  base rates,  holiday  premium pay and
representation  by the Union in procedures  and personnel  matters.  The Company
does not believe that the labor contract will have a material  adverse effect on
the Company's future results of operations or financial condition.

         In October  2004,  New England was  notified by the  Division of Health
Systems  Regulation for the Connecticut  Department of Public Health (the "DPH")
of alleged lack of compliance with Medicare's Conditions of Participation. Also,
in October 2004, New England  received notice from the DPH of alleged  violation
of Connecticut  state  regulations  based on  substantially  the same grounds as
stated  above.  Follow up surveys were  concluded at New England in November and
December 2004. The November survey showed results similar to the October survey.
The survey in December  was  concluded  to the DPH's  satisfaction.  In February
2005,  the DPH submitted a proposed  Consent  Order to New England.  The Consent
Order would resolve the pending  allegations by the DPH, adopt certain  policies
substantially in accordance with the Plan of Correction and remain in effect for
two  years.  The final  terms of the  Consent  Order are still  being  discussed
between  the DPH and New  England.  Another  Medicare  Certification  Survey was
concluded in August 2005.  That survey again alleged a lack of  compliance.  New
England is  currently  awaiting the results of a follow-up  survey  conducted in
October 2005. A failure by New England to achieve  certification would result in
New  England's  termination  from  participating  in the  Medicare  and Medicaid
programs.  Revenues  derived from New England's  participation in these programs
for the  fiscal  year  ended  July  31,  2005  were 33% of the  Company's  total
revenues.

         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 will be 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
and will  continue to impact the  Company's  New York  operations on two fronts.
Firstly, the Company will be paying higher base wages and secondly,  overtime in
New York is computed at 1.5 times the state minimum wage, thus increasing  costs
to the Company.

         On  May  13,  2005,  Accredited  received  a  copy  of a  Petition  for
Certification  of  Representative,  pursuant to the  provisions  of the National
Labor  Relations  Act.  The Company  has had a  preliminary  meeting  before the
National Labor Relations Board ("NLRB") in Newark, New Jersey with SEIU 1199 New
Jersey ( a health care union) ("SEIU 1199") to address certain issues  regarding
the Petition and the timing of the  election.  It is expected  that a union vote
will be held on a date to be determined by the NLRB.

         On July 1, 2005, the State of New Jersey Medicaid Program  introduced a
revised  Personal  Care  Assistant  ("PCA")  Beneficiary  Assessment  Tool  (the
"Tool").  The  Tool is used to  determine  the  weekly  hours a PCA  Beneficiary
receives.  As a  result  of the  implementation  of  the  new  assessment  Tool,
Accredited  will  experience  a reduction  in the amount of total hours per week
that each PCA Beneficiary receives. The Company is unable to quantify the amount
of the future decline in revenue as a result of the revised Tool. For the fiscal
year ended July 31, 2005, the State of New Jersey Medicaid Program accounted for
approximately 84% of Accredited's revenue.

YEAR ENDED JULY 31, 2005 COMPARED TO YEAR ENDED JULY 31, 2004

         NET PATIENT  REVENUE.  For the fiscal year ended July 31, 2005 ("fiscal
2005"), net patient revenue increased  $3,869,000,  or 4.0%, to $98,461,000 from
$94,592,000  for the fiscal  year  ended July 31,  2004


                                     - 22 -
<PAGE>

("fiscal  2004").  This increase was  attributable to an increase in net patient
revenue of  $6,726,000  resulting  from the  Company's  expansion in New Jersey,
Connecticut  and  Massachusetts,  offset by (i) a decrease  of  $1,431,000  as a
result of fewer hours being  subcontracted  to the Company  from other  Medicare
certified agencies in New York and the Company terminating operations in Suffolk
County,  New York in May 2004,  and (ii) a decrease  of  $1,426,000  in staffing
revenue primarily as a result of the Company terminating its staffing operations
in New York and New Jersey during fiscal 2004. The increase in  Connecticut  was
partially  attributable to increased  Medicaid  reimbursement  rates for certain
nursing  visits  effective  May 1,  2004 and the  acquisition  of On  Duty.  The
increase in New Jersey was partially  attributable to the acquisition of Helping
Hands.

         GROSS PROFIT.  Gross profit  margin  decreased to 33.9% for fiscal 2005
from 34.6% for fiscal 2004.  This decrease is  attributable  to (i) higher wages
paid to home health aides in New York as a result of the union contract that was
effective  May 1, 2004,  (ii) the  increase in the minimum wage in New York that
was effective January 1, 2005, (iii) the increase in Medicaid wages paid to home
health aides in Westchester  County, New York as a result of the living wage law
that was enacted in 2004,  (iv)  increases in direct  payments to all caregivers
and  increased  worker  compensation  costs  and (v) the  retroactive  amount of
$916,000 received in fiscal 2004.

         GENERAL  AND  ADMINISTRATIVE.   General  and  administrative   expenses
increased  $2,662,000,  or 11.3%, to $26,165,000 in fiscal 2005 from $23,503,000
in fiscal  2004.  This  increase  is  primarily  attributable  to (i)  increased
administrative  personnel in Connecticut to cure the deficiencies resulting from
the DPH  survey,  (ii)  increased  legal  and  consulting  fees  in  Connecticut
resulting from the DPH survey,  (iii) increases in administrative  personnel and
occupancy  costs  resulting  from the  expansion of operations in New Jersey and
Massachusetts,  (iv) the  acquisitions  of On Duty  and  Helping  Hands  and (v)
professional fees incurred resulting from the union activities in New Jersey. As
a  percentage  of net  patient  revenue,  general  and  administrative  expenses
increased to 26.6% in fiscal 2005 from 24.8% in fiscal 2004.

         ALLOWANCE FOR POSSIBLE  LOSSES.  The Company  recorded an allowance for
possible losses of $1,280,000 in fiscal 2005 as compared to $1,112,000 in fiscal
2004.  The  Company  had set up  allowances  for  accounts  receivable  balances
relating  to two  Medicare  certified  agencies in fiscal  2004,  as the Company
anticipated  not receiving  certain  payments in accordance with contract terms.
One of these agencies filed for Chapter 11 Bankruptcy  Protection  during fiscal
2005 and the other agency filed for Bankruptcy Protection on September 30, 2005.
The Company has recorded an  allowance  of 75% on these two accounts  receivable
balances.

         AMORTIZATION  OF  INTANGIBLES.  Amortization  of intangibles  increased
$70,000, or 13.7%, to $580,000 in fiscal 2005 from $510,000 in fiscal 2004. This
increase is attributable to the acquisitions of On Duty and Helping Hands.

         INCOME  FROM  OPERATIONS.  As a result of the  foregoing,  income  from
operations  decreased  $2,246,000,  or 29.5%,  to $5,371,000 in fiscal 2005 from
$7,617,000 in fiscal 2004.

         INTEREST  INCOME.  Interest  income  increased  $132,000,  or  92.3% to
$275,000  in fiscal  2005  from  $143,000  in  fiscal  2004.  This  increase  is
attributable  to higher cash balances of the Company  during the fiscal year and
increased interest rates.



                                     - 23 -
<PAGE>

         INCOME TAXES.  The Company's  effective tax rate decreased to 36.80% in
fiscal 2005 as compared to 39.2% in fiscal 2004.  This decrease is  attributable
to an  increase  in work  opportunity  tax  credits  in fiscal  2005 and an over
accrual of taxes recorded in fiscal 2004.

         NET INCOME. Net income decreased  $1,153,000,  or 24.4%, to $3,567,000,
or $.62 per diluted share, in fiscal 2005 from  $4,720,000,  or $.83 per diluted
share, in fiscal 2004.

YEAR ENDED JULY 31, 2004 COMPARED TO YEAR ENDED JULY 31, 2003

         NET  PATIENT  REVENUE.  For the fiscal  year ended July 31,  2004,  net
patient revenue decreased  $2,643,000,  or 2.7%, to $94,592,000 from $97,235,000
for the fiscal year ended July 31,  2003  ("fiscal  2003").  This  decrease  was
primarily attributable to (i) a decrease of $1,879,000 in net patient revenue as
a result of the reduced Medicaid  reimbursement rates for certain nursing visits
in Connecticut  that was effective May 1, 2003, (ii) a decrease of $3,428,000 as
a result of fewer hours being  subcontracted  to the Company from other Medicare
certified  agencies in New York and (iii) a decrease of  $1,246,000  in staffing
revenue primarily as a result of the Company terminating its staffing operations
in New York in December 2003 and in New Jersey in July 2004.  The decline in net
patient  revenue was offset by an increase in net patient  revenue of $3,910,000
from the Company's  expansion in New Jersey and the Company  attaining  Medicare
and Medicaid certification in Massachusetts.

         GROSS PROFIT.  Gross profit  margin  decreased to 34.6% for fiscal 2004
from 35% for fiscal  2003.  This  decrease  was  primarily  attributable  to the
reduced Medicaid  reimbursement  rates for certain nursing visits in Connecticut
and,  to a lesser  extent,  increases  in  direct  payments  to  caregivers  and
increased workers' compensation rates.

         GENERAL  AND  ADMINISTRATIVE.   General  and  administrative   expenses
decreased  $44,000,  or .2%, to $23,503,000  in fiscal 2004 from  $23,547,000 in
fiscal  2003.  This  decrease is primarily  attributable  to the  reductions  in
administrative  personnel  associated  with both the downsizing of the Company's
staffing  operations  and as a  result  of the  Connecticut  reimbursement  rate
reduction in certain  Medicaid  nursing  rates.  As a percentage  of net patient
revenue,  general and administrative  expenses increased to 24.8% in fiscal 2004
from 24.2% in fiscal 2003.

         ALLOWANCE FOR POSSIBLE  LOSSES.  The Company  recorded an allowance for
possible  losses of  $1,112,000 in fiscal 2004 as compared to $300,000 in fiscal
2003. The increase in the allowance for possible  losses is  attributable to the
Company  establishing  allowances for accounts  receivable balances from certain
home health care agencies and other health care  institutions.  As many of these
agencies and institutions have been experiencing financial difficulties and have
not made payments in accordance  with contract  terms,  the Company has reserved
for possible losses. The Company is closely monitoring these accounts receivable
balances.

         AMORTIZATION  OF  INTANGIBLES.  Amortization  of intangibles  decreased
$81,000, or 13.7%, to $510,000 in fiscal 2004 from $591,000 in fiscal 2003. This
decrease  is  attributable  to  previous  acquisitions  that have now been fully
amortized.

         INCOME  FROM  OPERATIONS.  As a result of the  foregoing,  income  from
operations  decreased  $1,924,000,  or 20.2%,  to $7,617,000 in fiscal 2004 from
$9,541,000 in fiscal 2003.



                                     - 24 -
<PAGE>

         INTEREST  INCOME.  Interest income remained flat at $143,000 for fiscal
2004 as compared to fiscal 2003.  Although the Company has generated higher cash
balances  over the fiscal years,  the decline in interest  rates has reduced the
Company's ability to maximize interest income.

         INCOME TAXES.  The Company's  effective tax rate  decreased to 39.2% in
fiscal 2004 as compared to 40.3% in fiscal 2003. This decrease was  attributable
to an over accrual of taxes in fiscal 2003.

         NET INCOME. Net income decreased  $1,063,000,  or 18.4%, to $4,720,000,
or $.83 per diluted share, in fiscal 2004 from $5,783,000,  or $1.01 per diluted
share, in fiscal 2003.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

         Current  assets   decreased   $2,209,000  to  $37,407,000  and  current
liabilities  increased  $231,000 to $4,678,000  at July 31, 2005.  These changes
resulted in a decrease in working  capital of $2,440,000 to  $32,729,000 at July
31, 2005 from $35,169,000 at July 31, 2004. Cash and cash equivalents  decreased
$4,001,000 to  $16,184,000  at July 31, 2005 from  $20,185,000 at July 31, 2004.
The  decrease in cash and cash  equivalents  and working  capital was  primarily
attributable to (i) the acquisitions of On Duty and Helping Hands for $4,249,000
and the (ii) payment of cash dividends of $1,268,000 in fiscal 2005.

         Net cash provided by operating activities was $2,676,000 in fiscal 2005
as compared  with  $5,961,000  in fiscal 2004.  The decrease in cash provided by
operating  activities of $3,285,000,  or 55.1%, is attributable to a decrease in
operating cash flow of $1,056,000,  an increase in operating  assets,  primarily
accounts  receivable,  of $2,074,000 and a decrease in operating  liabilities of
$155,000 over fiscal 2004.

         Investing activities in fiscal 2005 used cash of $5,415,000 as compared
to $383,000 in fiscal 2004. The cash used in investing activities in fiscal 2005
consisted of the purchase of businesses and the purchase of equipment.  The cash
used in  investing  activities  in fiscal  2004  consisted  of the  purchase  of
equipment, offset by the proceeds from the sale of investments.

         Financing activities in fiscal 2005 used cash of $1,262,000 as compared
to cash provided by financing  activities  of $355,000 in fiscal 2004.  The cash
used in  financing  activities  in fiscal  2005  consisted  of the  purchase  of
treasury shares and the payment of cash  dividends,  offset by the proceeds from
the exercise of stock  options.  The cash  provided by financing  activities  in
fiscal 2004 consisted of the proceeds from the exercise of stock options, offset
by the purchase of treasury stock.

         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 75 days
in fiscal 2005, as compared to 74 days in fiscal 2004.

         The  Company  has a  $7,500,000  committed  revolving  line  of  credit
facility (the "credit facility") with its bank. The credit facility provides for
the Company to borrow up to the lesser of $7,500,000 or 80% of eligible accounts
receivable  that are aged less than 120 days at the  bank's  prime rate or LIBOR
plus 2.5%. The credit facility  expires in October 2005 and requires the Company
to meet certain financial  covenants and ratios.  The Company is required to pay
..25% commitment fee on unused amounts, payable quarterly in arrears. At July 31,
2005, there was no outstanding balance under the credit facility. The Company is
negotiating a new credit facility to replace the credit facility.



                                     - 25 -
<PAGE>

         In  September  2005,  the Board of  Directors  extended  the  Company's
program to repurchase its Common Stock for an additional  year.  Purchases of up
to  $3,000,000  will be made from time to time in the open  market  and  through
privately  negotiated   transactions,   subject  to  general  market  and  other
conditions.  The buyback  program will be financed out of existing  cash or cash
equivalents.

         The Company  intends to incur  capital  expenditures  of  approximately
$500,000  during the fiscal year ending  July 31,  2006 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 data input  capability  regarding  services  rendered at certain
locations.   The  Company   believes  that  these   expenditures   will  provide
efficiencies in data organization,  retrieval and analysis,  both for 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.

         In August 2005, the Connecticut  Department of Social Services,  Office
of Quality Assurance (the "Department") performed an audit of Medical Assistance
claims paid to New England  during the period  April 1, 2003  through  March 31,
2005. The audit included a review of relevant  claim  information  maintained by
the  Department  and a review  of the  appropriate  medical  and  administrative
records   maintained  by  New  England.   New  England  received   approximately
$50,000,000 in reimbursement  covered by the audit period. The Company is unable
to quantify the liability that may arise under such audit.

         In the opinion of management,  there will be no material  impact on the
financial  statements  of  the  Company  from  any  recently  issued  accounting
standards.

INFLATION AND SEASONALITY

         The rate of inflation had no material  effect on operations  for fiscal
2005.  The effects of inflation  on personnel  costs in the future could have an
adverse  effect on  operations,  as the Company may not be able to increase  its
charges for services rendered. The Company's business is not seasonal.

CONTRACTUAL OBLIGATIONS

         The Company rents various office facilities through 2009 under terms of
several lease  agreements  that include  escalation  clauses.  At July 31, 2005,
minimum annual rental commitments under  noncancellable  operating leases are as
follows:

<TABLE>
<CAPTION>
----------------------- ---------------------------------------------------------------------------------------------
                                                           Payments due by period
----------------------- ----------------- ---------------- -------------------- ----------------- -------------------
                        Total             Less than 1                                             More than 5
                                          year             1-3 years            3-5 years         years
----------------------- ----------------- ---------------- -------------------- ----------------- -------------------
<S>                     <C>               <C>                   <C>             <C>               <C>
Operating Leases        $2,719,000        $1,097,000            $1,547,000      $75,000           - - - - -
----------------------- ----------------- ---------------- -------------------- ----------------- -------------------
Total                   $2,719,000        $1,097,000            $1,547,000      $75,000           - - - - -
----------------------- ----------------- ---------------- -------------------- ----------------- -------------------
</TABLE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

         None.



                                     - 26 -
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

         The  financial  information  required  by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-31.

ITEM 9.           CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
                  ON ACCOUNTING AND FINANCIAL DISCLOSURE.

         None.

ITEM 9A. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE 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 judgment in assessing the costs
and benefits of such  controls  and  procedures,  which,  by their  nature,  can
provide only reasonable  assurance  regarding  management's  control objectives.
Management  believes that there are reasonable  assurances that our 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 July 31, 2005.  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  consolidated  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 July 31, 2005 that have  materially  affected,  or are  reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.

ITEM 9B. OTHER INFORMATION.

         None.

                                    PART III

         The  information  required  by each of the items of Part III (Items 10,
11,  12,  13 and 14) is  omitted  from  this  Report.  Pursuant  to the  General
Instruction  G(3) to Form 10-K,  the  information  is included in the


                                     - 27 -
<PAGE>

Company's Proxy Statement for its 2005 Annual Meeting of Stockholders to be held
on or about  December 5, 2005,  and is  incorporated  herein by  reference.  The
Company  intends  to file such Proxy  Statement  with the SEC not later than 120
days subsequent to July 31, 2005.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

         (a) The  following  represents a listing of all  financial  statements,
financial statement schedules and exhibits filed as part of this Report:

Pages F-1 through F-31:  Financial  Statements  and  Supplemental  Material (see
index to the consolidated financial statements).

       EXHIBIT
       NUMBER                         DOCUMENT
       ------                         --------

       3.1    Certificate  of  Incorporation.  Incorporated  by reference to the
              Registrant's  Registration  Statement  on Form S-1  (No.  2-86643)
              filed September 20, 1983.

       3.2    Certificate  of  Amendment  to   Certificate   of   Incorporation.
              Incorporated  by reference to the  Registrant's  Annual  Report on
              Form 10-K for the fiscal year ended July 31, 1992.

       3.3    Amended  By-laws.  Incorporated  by reference to the  Registrant's
              Annual  Report on Form 10-K for the  fiscal  year  ended  July 31,
              2004.

       10.1#  1992  Stock  Option  Plan.   Incorporated   by  reference  to  the
              Registrant's  Annual Report on Form 10-K for the fiscal year ended
              July 31, 1993.

       10.2#  1999  Stock  Option  Plan.   Incorporated   by  reference  to  the
              Registrant's  Annual Report on Form 10-K for the fiscal year ended
              July 31, 2000.

       10.3#  Amended and Restated Employment  Agreement dated as of November 1,
              2001 between the Registrant and Frederick H. Fialkow. Incorporated
              by reference to the Registrant's Quarterly Report on Form 10-Q for
              the fiscal quarter ended January 31, 2002.

       10.4#* Employment  Agreement  dated as of  August  1,  2005  between  the
              Registrant and Steven Fialkow.



                                     - 28 -
<PAGE>

       EXHIBIT
       NUMBER                         DOCUMENT
       ------                         --------

       10.5#* Employment  Agreement  dated as of  August  1,  2005  between  the
              Registrant and Robert P. Heller.

       21.1*  List of Subsidiaries.

       23.1*  Consent of Independent Registered Public Accounting Firm.

       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.

----------
#     Management contract or compensatory plan or arrangement.
*     Filed herewith.


                                     - 29 -
<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended,  the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                         NATIONAL HOME HEALTH CARE CORP.

                                                  /s/ Robert P. Heller
                                            ------------------------------------
                                            By:      Robert P. Heller
                                                     Vice President of Finance
                                                     and Chief Financial Officer

Dated:  October 27, 2005

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

--------------------------------------- --------------------------------------------- ----------------------------
              SIGNATURE                                    TITLE                                 DATE
              ---------                                    -----                                 ----
--------------------------------------- --------------------------------------------- ----------------------------
<S>                                     <C>                                           <C>
    /s/ Frederick H. Fialkow            Chairman of the Board of Directors            October 27, 2005
--------------------------------

Frederick H. Fialkow


--------------------------------------- --------------------------------------------- ----------------------------
    /s/ Steven Fialkow                  President, Chief Executive Officer,           October 27, 2005
-----------------------------------     Secretary and Diretor (principal executive

Steven. Fialkow officer)


--------------------------------------- --------------------------------------------- ----------------------------
    /s/ Robert P. Heller                Vice President of Finance, Chief Financial    October 27, 2005
------------------------------------    Officer and Treasurer (principal financial
                                        and accounting officer)

Robert P. Heller
--------------------------------------- --------------------------------------------- ----------------------------



                                     - 30 -
<PAGE>


---------------------------------------------- ------------------------------ ------------------------------------
    /s/ Ira Greifer                            Directors                      October 27, 2005
-------------------------------------------

Ira Greifer, M.D.


---------------------------------------------- ------------------------------ ------------------------------------
    /s/ Bernard Levine                         Director                       October 27, 2005
--------------------------------------------

Bernard Levine, M.D.


---------------------------------------------- ------------------------------ ------------------------------------
    /s/ Robert Pordy                           Director                       October 27, 2005
----------------------------------------


Robert Pordy, M.D.


---------------------------------------------- ------------------------------ ------------------------------------
    /s/ Harold Shulman                         Director                       October 27, 2005
-------------------------------------------

Harold Shulman
</TABLE>







                                     - 31 -
<PAGE>


         NATIONAL HOME HEALTH CARE CORP.
                        AND SUBSIDIARIES


















--------------------------------------------------------------------------------
                                               CONSOLIDATED FINANCIAL STATEMENTS
                                                       AND SUPPLEMENTAL MATERIAL
                                        YEARS ENDED JULY 31, 2005, 2004 AND 2003



<PAGE>


                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                                        CONTENTS




        REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM          F-3

        CONSOLIDATED FINANCIAL STATEMENTS:

           Balance sheets                                                F-4
           Statements of earnings                                        F-5
           Statements of changes in stockholders' equity                 F-6
           Statements of cash flows                                      F-7
           Summary of accounting policies                                F-8-14
           Notes to consolidated financial statements                    F-15-28

        SUPPLEMENTAL MATERIAL:

           Report of Independent Registered Public Accounting
                                 Firm on Schedule II                     F-30

           Schedule II - Valuation and Qualifying Accounts               F-31







                                                                             F-2
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York

We have audited the  accompanying  consolidated  balance sheets of National Home
Health Care Corp. and  Subsidiaries as of July 31, 2005 and 2004 and the related
consolidated  statements of earnings,  changes in stockholders' equity, and cash
flows for each of the three  years in the  period  ended  July 31,  2005.  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 the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material  misstatement.  The Company is not  required to
have,  nor were we engaged to perform,  an audit of its  internal  control  over
financial reporting.  Our audits included consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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 consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of National Home Health
Care Corp. and  Subsidiaries at July 31, 2005 and 2004, and the results of their
operations  and their cash flows for each of the three years in the period ended
July 31, 2005, in conformity with accounting  principles  generally  accepted in
the United States of America.

BDO Seidman, LLP

Valhalla, New York
October 7, 2005


                                                                             F-3
<PAGE>

<TABLE>
<CAPTION>

                                                                                       NATIONAL HOME HEALTH CARE CORP.
                                                                                                      AND SUBSIDIARIES


                                                                                           CONSOLIDATED BALANCE SHEETS
----------------------------------------------------------------------------------------------------------------------

 July 31,                                                                                 2005                   2004
 ------------------------------------------------------------------------ ---------------------- ---------------------
<S>                        <C>                                                    <C>                     <C>
 ASSETS
 CURRENT:
    Cash, (including cash equivalents of $10,589,000 and $15,964,000,
       respectively) (Note 7)                                                     $16,184,000             $20,185,000
    Investments                                                                        19,000                  19,000
    Accounts receivable, less allowance for possible losses of
       $1,866,000 and $1,122,000 respectively  (Note 7)                            19,564,000              18,084,000
    Prepaid expenses and other                                                        805,000                 801,000
    Income taxes receivable                                                           121,000                       -
    Deferred income taxes (Note 6)                                                    714,000                 527,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
            TOTAL CURRENT ASSETS                                                   37,407,000              39,616,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
 Furniture, equipment and leasehold improvements, net
          (Note 1)                                                                  1,860,000               1,083,000
 Goodwill (Note 2)                                                                 14,463,000              10,628,000
 Other intangible assets, net (Note 3)                                              1,384,000               1,589,000
 Deposits and other assets                                                            486,000                 570,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
                                                                                  $55,600,000             $53,486,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
 LIABILITIES AND STOCKHOLDERS' EQUITY
 CURRENT LIABILITIES:
    Accounts payable and accrued expenses (Note 4)                                 $3,771,000              $3,322,000
    Estimated third-party payer settlements                                            72,000                 696,000
    Deferred revenue                                                                  410,000                 402,000
    Dividend payable                                                                  425,000                       -
    Income taxes payable                                                                    -                  27,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
            TOTAL CURRENT LIABILITIES                                               4,678,000               4,447,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
 COMMITMENTS AND CONTINGENCIES (NOTE 9)
 STOCKHOLDERS' EQUITY (NOTE 8) :
    Common stock, $.001 par value, shares authorized - 20,000,000;
       issued 7,125,544 and 7,041,388, respectively                                     7,000                   7,000
    Additional paid-in capital                                                     26,532,000              26,174,000
    Retained earnings                                                              28,216,000              26,342,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
                                                                                   54,755,000              52,523,000
    Less treasury stock (1,461,360 and 1,424,883 shares) - at cost
       (Note 10)                                                                   (3,833,000)             (3,484,000)
 ------------------------------------------------------------------------ ---------------------- ---------------------
            TOTAL STOCKHOLDERS' EQUITY                                             50,922,000              49,039,000
 ------------------------------------------------------------------------ ---------------------- ---------------------
                                                                                  $55,600,000             $53,486,000
 ------------------------------------------------------------------------ ---------------------- ---------------------

                                                                       See accompanying summary of accounting policies
                                                                       and notes to consolidated financial statements.



                                                                                                                   F-4
</TABLE>


<PAGE>

<TABLE>
<CAPTION>

                                                                                         NATIONAL HOME HEALTH CARE CORP.
                                                                                                        AND SUBSIDIARIES

                                                                                     CONSOLIDATED STATEMENTS OF EARNINGS
------------------------------------------------------------------------------------------------------------------------

 Years ended July 31,                                                        2005               2004              2003
 --------------------------------------------------------------- ----------------- ------------------ -----------------
<S>                        <C>                                        <C>                <C>               <C>
 NET PATIENT REVENUE (NOTE 7)                                         $98,461,000        $94,592,000       $97,235,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
 OPERATING EXPENSES:

    Cost of revenue                                                    65,065,000         61,850,000        63,256,000
    General and administrative                                         26,165,000         23,503,000        23,547,000
    Allowance for possible losses                                       1,280,000          1,112,000           300,000
    Amortization of intangibles                                           580,000            510,000           591,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
         TOTAL OPERATING EXPENSES                                      93,090,000         86,975,000        87,694,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
         INCOME FROM OPERATIONS                                         5,371,000          7,617,000         9,541,000
 OTHER INCOME:

    Interest                                                              275,000            143,000           143,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
         INCOME BEFORE INCOME TAXES                                     5,646,000          7,760,000         9,684,000
 PROVISION FOR INCOME TAXES (NOTE 6)                                    2,079,000          3,040,000         3,901,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
 NET INCOME                                                           $ 3,567,000        $ 4,720,000       $ 5,783,000
 --------------------------------------------------------------- ----------------- ------------------ -----------------
 NET INCOME PER COMMON SHARE:

    Basic                                                             $      0.63        $      0.85       $      1.04
          Diluted                                                     $      0.62        $      0.83       $      1.01
 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:

    Basic                                                               5,637,510          5,541,730         5,545,953
    Diluted                                                             5,732,842          5,700,770         5,738,267

 DIVIDENDS DECLARED PER SHARE                                         $      0.30        $         -       $         -
 --------------------------------------------------------------- ----------------- ------------------ -----------------

                                                                         See accompanying summary of accounting policies
                                                                         and notes to consolidated financial statements.



                                                                                                                     F-5
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                                                     NATIONAL HOME HEALTH CARE CORP.
                                                                                                                    AND SUBSIDIARIES

                                                                          CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------

                                                   Common Stock                                                Treasury Stock
                                              -----------------------                                       ----------------------
                                                                          Additional
                                                                           Paid-in       Retained
                                              Shares          Amount       Capital       Earnings            Shares       Amount
 ------------------------------------------------------- --------------- ----------------- ------------- -------------- ----------
<S>                                         <C>         <C>            <C>            <C>                <C>         <C>
Balance, July 31, 2002                      6,902,819   $      7,000   $ 25,552,000   $ 15,839,000       1,329,979   $ (2,719,000)

Net income                                          -              -              -      5,783,000               -              -

Exercise of stock options                       1,000              -          4,000              -               -              -
Acquisition of treasury shares                      -              -              -              -          77,592       (600,000)
-----------------------------------------------------   ------------   ------------   ------------    ------------   ------------
Balance, July 31, 2003                      6,903,819          7,000     25,556,000     21,622,000       1,407,571     (3,319,000)
Net income

                                                    -              -              -      4,720,000               -              -

Exercise of stock options                     137,569              -        520,000              -               -              -

Tax benefit of stock options exercised              -              -         98,000              -               -              -
Acquisition of treasury shares                      -              -              -              -          17,312       (165,000)
-----------------------------------------------------   ------------   ------------   ------------    ------------   ------------
Balance, July 31, 2004                      7,041,388          7,000     26,174,000     26,342,000       1,424,883     (3,484,000)

Net income                                          -              -              -      3,567,000               -              -

Exercise of stock options                      84,156              -        355,000              -               -              -
Tax benefit of stock option exercised               -              -          3,000              -               -              -
Acquisition of treasury shares                      -              -              -              -          36,477       (349,000)
Dividends on common stock                           -              -              -     (1,693,000)              -              -
-----------------------------------------------------   ------------   ------------   ------------    ------------   ------------
BALANCE, JULY 31, 2005                      7,125,544   $      7,000   $ 26,532,000   $ 28,216,000       1,461,360   $ (3,833,000)
-----------------------------------------------------   ------------   ------------   ------------    ------------   ------------

                                                                                     See accompanying summary of accounting policies
                                                                                     and notes to consolidated financial statements.



                                                                                                                                 F-6
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                                                                                         NATIONAL HOME HEALTH CARE CORP.
                                                                                                        AND SUBSIDIARIES

                                                                                   CONSOLIDATED STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------------

 Years ended July 31,                                                         2005             2004              2003
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
<S>                                                                    <C>             <C>               <C>
 CASH FLOWS FROM OPERATING ACTIVITIES:

    Net income                                                         $ 3,567,000     $  4,720,000      $  5,783,000
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
    Adjustments  to  reconcile  net  income to net cash  provided
       by  operating activities:

         Depreciation and amortization                                     986,000          847,000           884,000
         Allowance for possible losses, net of write-offs                  744,000          500,000            69,000
         Loss on sale of assets                                              3,000                -                 -
         Gain on investments                                                     -           (4,000)                -
         Deferred income taxes                                            (187,000)          11,000           272,000
         Unrealized loss on investments                                          -                -            13,000
         Tax benefit realized from the exercise of stock options             3,000           98,000                 -
         Changes in assets and liabilities:
               Accounts receivable                                      (2,224,000)         121,000        (2,392,000)
               Prepaid expenses and other                                   99,000         (172,000)         (118,000)
               Income taxes payable                                       (148,000)        (107,000)          368,000
               Accounts payable and accrued expenses                       449,000           65,000          (324,000)
               Estimated third-party payer settlements                    (624,000)         (60,000)         (156,000)
               Deferred revenue                                              8,000          (58,000)          120,000
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
               NET CASH PROVIDED BY OPERATING ACTIVITIES                 2,676,000        5,961,000         4,519,000
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
 CASH FLOWS FROM INVESTING ACTIVITIES:

    Purchase property, plant and equipment                              (1,166,000)        (390,000)         (306,000)
    Proceeds from sale of investments                                            -            7,000                 -
    Purchase of assets of businesses                                    (4,249,000)               -        (4,706,000)
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
               NET CASH USED IN INVESTING ACTIVITIES                    (5,415,000)        (383,000)       (5,012,000)
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
 CASH FLOWS FROM FINANCING ACTIVITIES:

    Purchase of treasury stock                                           ( 349,000)        (165,000)         (600,000)
    Proceeds from exercise of stock options                                355,000          520,000             4,000
    Payment of dividends                                                (1,268,000)               -                 -
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
               NET CASH (USED IN)  PROVIDED BY FINANCING                (1,262,000)         355,000
                 ACTIVITIES                                                                                  (596,000)
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
 Net increase (decrease) in cash and cash equivalents                   (4,001,000)       5,933,000        (1,089,000)
 Cash and cash equivalents, beginning of year                           20,185,000       14,252,000        15,341,000
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
 Cash and cash equivalents, end of year                                $16,184,000      $20,185,000       $14,252,000
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    Cash paid for:

       Interest                                                        $    24,000   $       21,000    $       20,000
       Income taxes                                                    $ 2,409,000   $    3,037,000    $    3,261,000
    Dividends declared and not paid                                    $   425,000   $            -    $            -
 ------------------------------------------------------------------ ---------------- ----------------- ----------------
                                                                         See accompanying summary of accounting policies
                                                                         and notes to consolidated financial statements.


                                                                                                                    F-7
</TABLE>
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

BUSINESS                          National   Home   Health   Care   Corp.    and
                                  subsidiaries  (the "Company") is a provider of
                                  home health care services,  including  nursing
                                  care, personal care, supplemental staffing and
                                  other  specialized   health  services  in  the
                                  northeastern part of the United States.

PRINCIPLES OF                     The consolidated  financial statements include
CONSOLIDATION                     the  accounts  of  National  Home  Health Care
                                  Corp. and its wholly-owned  subsidiaries.  All
                                  significant    intercompany    balances    and
                                  transactions   have  been  eliminated  in  the
                                  consolidated financial statements.

REVENUE RECOGNITION  AND          Net patient revenues are recorded at estimated
ALLOWANCE FOR POSSIBLE LOSSE      net   realizable   amounts  from  S  patients,
                                  third-party  payers and  others  for  services
                                  rendered.  An allowance for possible losses is
                                  recorded based upon management's evaluation of
                                  current   industry   conditions,    historical
                                  collection   experience   and  other  relevant
                                  factors  which,  in the opinion of management,
                                  require    recognition   in   estimating   the
                                  allowance.

                                  Under    Medicaid,    Medicare    and    other
                                  reimbursement   programs,   the   Company   is
                                  reimbursed  for  services  rendered to covered
                                  program     patients    as    determined    by
                                  reimbursement  formulas  and  regulations.  To
                                  date,  the  Company  has not had any  material
                                  adjustments  to previously  recorded  amounts.
                                  Laws and regulations  governing these programs
                                  are complex and subject to interpretation.

                                  The Company is reimbursed by Medicare based on
                                  episodes  of  care.  An  episode  of  care  is
                                  defined  as a length of care up to sixty  days
                                  with  multiple  continuous  episodes  allowed.
                                  Deferred revenue  represents the unearned cash
                                  received from an episode of care.

                                                                             F-8
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

REVENUE RECOGNITION AND           Approximately  51%, 48% and 47% of net patient
ALLOWANCE FOR  POSSIBLE           revenue  for the fiscal  years  ended July 31,
LOSSES  (CONTINUED)               2005,  2004  and  2003,   respectively,   were
                                  derived  under  federal and state  third-party
                                  reimbursement programs.

CASH AND CASH EQUIVALENTS         For the  purposes  of the  statements  of cash
                                  flows, the Company considers all highly liquid
                                  investment   instruments   purchased   with  a
                                  maturity  of three  months  or less to be cash
                                  equivalents.

FURNITURE, EQUIPMENT              Furniture,     equipment     and     leasehold
AND LEASEHOLD IMPROVEMENTS        improvements are stated at cost.  Depreciation
                                  is being provided on the straight-line  method
                                  over the estimated  useful lives of the assets
                                  (generally five to ten years). Amortization of
                                  leasehold  improvements  is being  provided on
                                  the  straight-line  method  over  the  various
                                  lease  terms or  estimated  useful  lives,  if
                                  shorter.

GOODWILL                          The Company  follows  Statement  of  Financial
                                  Accounting   Standards   ("SFAS")   No.   141,
                                  "Business Combinations" and No. 142, "Goodwill
                                  and Intangible Assets".  SFAS No. 141 requires
                                  the use of the purchase  method of  accounting
                                  and     prohibits     the     use    of    the
                                  pooling-of-interests   method  of  accounting.
                                  SFAS No. 141 also  requires  that the  Company
                                  recognize  acquired  intangible  assets  apart
                                  from  goodwill  if  the  acquired   intangible
                                  assets  meet  certain  criteria.

                                  SFAS No. 142  requires,  among  other  things,
                                  that  companies no longer  amortize  goodwill,
                                  but instead test  goodwill for  impairment  at
                                  least  annually.  In  addition,  SFAS No.  142
                                  requires that the Company  identify  reporting
                                  units for the purpose of  assessing  potential
                                  future  impairments of goodwill,  reassess the
                                  useful  lives  of  other  existing  recognized
                                  intangible  assets and cease  amortization  of
                                  intangible  assets with an  indefinite  useful
                                  life.

                                                                             F-9
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

NET INCOME PER                    Basic net income per common  share is computed
COMMON  SHARE                     by  dividing  net income  available  to common
                                  shareholders by the weighted average number of
                                  common shares  outstanding.  Diluted  earnings
                                  per common share reflect,  in periods in which
                                  they have a  dilutive  effect,  the  impact of
                                  common shares  issuable upon exercise of stock
                                  options.

                                  The  reconciliation  for the years  ended July
                                  31, 2005, 2004 and 2003 is as follows:


Years ended July 31,                          2005         2004          2003
--------------------------------------------------------------------------------
                                             SHARES       Shares        Shares
--------------------------------------------------------------------------------
Average number of shares outstanding       5,637,510     5,541,730     5,545,953
Effect of dilutive securities - common
   stock options                              95,332       159,040       192,314
--------------------------------------------------------------------------------
Diluted shares outstanding                 5,732,842     5,700,770     5,738,267
--------------------------------------------------------------------------------

                                  The number of options that were  anti-dilutive
                                  and excluded from the  computation was 157,500
                                  for the year ended July 31, 2005,  168,000 for
                                  the year ended July 31,  2004 and  183,750 for
                                  the year ended July 31, 2003.

FAIR VALUE OF                     The   carrying   amounts   reported   in   the
FINANCIAL INSTRUMENTS             consolidated balance sheets for cash, accounts
                                  receivable,   accounts   payable  and  accrued
                                  expenses approximate fair value because of the
                                  immediate  or   short-term   maturity  of  the
                                  financial instruments.



                                                                            F-10
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------


ESTIMATED THIRD-PARTY             Company   anticipates   that  the  third-party
PAYER SETTLEMENT                  payers will recoup  these funds in  subsequent
                                  periods.

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
                                  reported  amounts of assets and liabilities at
                                  the date of the financial  statements  and the
                                  reported  amounts  of  revenues  and  expenses
                                  during the reporting  period.  Actual  results
                                  could  differ  from  those   estimates.   Such
                                  estimates   relate   primarily   to  valuation
                                  reserves for accounts receivable.

WORKERS' COMPENSATION             The  Company   self-insures  up  to  specified
                                  limits   certain  risks  related  to  workers'
                                  compensation liability. The estimated costs of
                                  existing and expected  future claims under the
                                  insurance   program  are  accrued  based  upon
                                  historical loss trends and may be subsequently
                                  revised based on developments relating to such
                                  claims.

INCOME TAXES                      The Company accounts for income taxes under an
                                  asset and liability approach that requires the
                                  recognition   of   deferred   tax  assets  and
                                  liabilities   for  the  expected   future  tax
                                  consequences   of   events   that   have  been
                                  recognized   in   the   Company's    financial
                                  statements  or  tax  returns.  The  effect  on
                                  deferred tax assets and liabilities of changes
                                  in tax rates will be  recognized  as income or
                                  expense  in  the  period  that   includes  the
                                  enactment    date.   The   Company   files   a
                                  consolidated  Federal  income tax return  with
                                  its subsidiaries.



                                                                            F-11
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

LONG-LIVED ASSETS                 Long-lived assets,  such as intangible assets,
                                  furniture,     equipment     and     leasehold
                                  improvements,  are  evaluated  for  impairment
                                  when   events  or  changes  in   circumstances
                                  indicate  that  the  carrying  amount  of  the
                                  assets   may   not  be   recoverable   through
                                  estimated  undiscounted future cash flows from
                                  the  use  of  these  assets.   When  any  such
                                  impairment  exists, the related assets will be
                                  written down to fair value.

STOCK-BASED                       As  of  July  31,  2005,  the  Company  has  a
COMPENSATION                      stock-based employee  compensation plan, which
                                  is described in Note 9. As allowed by SFAS No.
                                  148, the Company has elected not to use one of
                                  the   alternative    methods   of   transition
                                  available  for a voluntary  change to the fair
                                  value   based   method   of   accounting   for
                                  stock-based employee compensation.

                                  All  stock   options   have  been  granted  to
                                  employees and non-employees at exercise prices
                                  equal to or in excess of the  market  value of
                                  the underlying stock on the date of the grant.

                                  The   Company   has  elected  to  account  for
                                  stock-based    compensation    following   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 equals the market price
                                  of the underlying  stock on the date of grant,
                                  no compensation expense was recognized.



                                                                            F-12
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

STOCK BASED                       SFAS No. 123  requires  the Company to provide
COMPENSATION (CONTINUED)          pro forma information regarding net income and
                                  net income per share as if  compensation  cost
                                  for the  Company's  stock option plan had been
                                  determined in  accordance  with the fair value
                                  based method  prescribed  in SFAS No. 123. The
                                  Company estimates the fair value of each stock
                                  option  at  the   grant   date  by  using  the
                                  Black-Scholes  option-pricing  model  with the
                                  following  weighted  average  assumptions used
                                  for grants since 1992:
<TABLE>
<CAPTION>

                                  Years ended July 31,                          2005          2004          2003
                                  --------------------------------------------------------------------------------
                                  <S>                                     <C>            <C>            <C>
                                  ASSUMPTIONS
                                     Dividend Yield                                -             -               -
                                     Volatility                                    -             -               -
                                     Risk free interest rate                       -             -               -
                                     Expected lives                                -             -               -
                                  --------------------------------------------------------------------------------

                                  Under the  accounting  provisions  of SFAS No.
                                  123, the  Company's  net income and net income
                                  per share would have been  adjusted to the pro
                                  forma amounts indicated below:

                                  Years ended July 31,                          2005           2004           2003
                                  --------------------------------------------------------------------------------
                                  PRO FORMA RESULTS
                                     Net income:
                                        As reported                       $3,567,000     $4,720,000     $5,783,000
                                        Pro forma                                (a)            (a)            (a)
                                     Income per common share-basic:
                                        As reported                              .63            .85           1.04
                                        Pro forma                                (a)            (a)            (a)
                                     Income per common share-diluted:
                                        As reported                              .62            .83           1.01
                                        Pro forma                                (a)            (a)            (a)
                                  --------------------------------------------------------------------------------
                                  (a) No pro forma since options were not granted.
</TABLE>



                                                                            F-13
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                                  SUMMARY OF ACCOUNTING POLICIES
--------------------------------------------------------------------------------

SEGMENTS                          The   Company's   management   considers   its
                                  business  to  be  a  single   segment  -  Home
                                  Healthcare Services.  Home Healthcare Services
                                  net patient revenue is provided by health care
                                  personnel,  and the  Company's  customers  are
                                  similar   for  all   sources  of  net  patient
                                  revenue.  Management  evaluates  its operating
                                  results on an integrated basis.

RECENT ACCOUNTING                 In the opinion of management, there will be no
PRONOUNCEMENTS                    material impact on the financial statements of
                                  the   Company   from   any   recently   issued
                                  accounting standards.

RECLASSIFICATIONS                 Certain  reclassifications  have  been made in
                                  prior years'  financial  statements to conform
                                  to classifications used in the current year.






                                                                            F-14
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


1.   FURNITURE, EQUIPMENT         Furniture,     equipment     and     leasehold
     AND  LEASEHOLD               improvements   are  stated  at  cost  and  are
     IMPROVEMENTS                 summarized as follows:
<TABLE>
<CAPTION>

                                  July 31,                                              2005                2004
                                  ----------------------------------------- ------------------- ------------------
                                  <S>                                             <C>                 <C>
                                  Furniture and equipment                         $3,869,000          $2,715,000
                                  Leasehold improvements                             497,000             470,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                   4,366,000           3,185,000
                                  Less accumulated depreciation and
                                    amortization                                   2,506,000           2,102,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                  $1,860,000          $1,083,000
                                  ----------------------------------------- ------------------- ------------------
</TABLE>

                                  Depreciation  expense  in 2005,  2004 and 2003
                                  was    $406,000,    $337,000   and   $293,000,
                                  respectively.

2.   GOODWILL                     Changes in goodwill are as follows:

<TABLE>
<CAPTION>
                                  July 31,                                              2005                2004
                                  ----------------------------------------- ------------------- ------------------
                                  <S>                                            <C>                 <C>
                                  Balance, beginning of year                     $10,628,000         $10,628,000
                                  Additions (Note 5)                               3,835,000                   -
                                  ----------------------------------------- ------------------- ------------------
                                  Balance, end of year                           $14,463,000         $10,628,000
                                  ----------------------------------------- ------------------- ------------------
</TABLE>






                                      F-15
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

3.   OTHER INTANGIBLE             Other intangible assets are as follows:
     ASSETS
<TABLE>
<CAPTION>

                                  July 31,                                              2005                2004
                                  ----------------------------------------- ------------------- ------------------
                                  <S>                                            <C>                 <C>
                                  GROSS CARRYING AMOUNT:
                                     Covenants not to compete                     $1,750,000          $1,375,000
                                     Patient and other files                       2,796,000           2,796,000
                                     Contracts                                     1,234,000           1,234,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                   5,780,000           5,405,000
                                  ----------------------------------------- ------------------- ------------------

                                  ACCUMULATED AMORTIZATION:
                                     Covenants not to compete                      1,420,000           1,248,000
                                     Patient and other files                       2,616,000           2,331,000
                                     Contracts                                       360,000             237,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                   4,396,000           3,816,000
                                  ----------------------------------------- ------------------- ------------------
                                  Balance, end of year                            $1,384,000          $1,589,000
                                  ----------------------------------------- ------------------- ------------------
</TABLE>

                                  The  aggregated  amortization  expense for the
                                  years ended July 31,  2005,  2004 and 2003 was
                                  $580,000, $510,000 and $591,000, respectively.

                                  Estimated amortization expense is as follows:

<TABLE>
<CAPTION>
                                  Years ending July 31,
                                  ----------------------------------------- ------------------- ------------------
                                  <S>                                                                <C>
                                  2006                                                              $    392,000
                                  2007                                                                   320,000
                                  2008                                                                   155,000
                                  2009                                                                   123,000
                                  2010                                                                   123,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                                     $ 1,113,000
                                  ----------------------------------------- ------------------- ------------------
</TABLE>



                                                                            F-16
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

3.   OTHER INTANGIBLE             The remaining  weighted  average  amortization
     ASSETS (CONTINUED)           period is as follows:
<TABLE>
<CAPTION>

                                  Year ended July 31,                                                   2005
                                  ----------------------------------------- ------------------- ---------------
                                  <S>                                                                <C>
                                  Covenants not to compete                                         1.02 YEARS
                                  Patient and other files                                          1.09 YEARS
                                  Contracts                                                        7.91 YEARS
                                  ----------------------------------------- ------------------- ---------------
                                                                                                   1.42 YEARS
                                  ----------------------------------------- ------------------- ---------------
</TABLE>

                                  Other  intangible  assets are being  amortized
                                  using the  straight-line  method over a period
                                  of three to ten years.

4.   ACCOUNTS PAYABLE AND         Accounts  payable and accrued  expenses are as
     ACCRUED EXPENSES             follows:

<TABLE>
<CAPTION>

                                  July 31,                                              2005              2004
                                  ----------------------------------------- ------------------- ------------------
                                  <S>                                            <C>                 <C>
                                  Trade accounts payable                         $   152,000         $   174,000
                                  Accrued employee compensation and
                                    benefits                                       2,898,000           2,644,000
                                  Other                                              721,000             504,000
                                  ----------------------------------------- ------------------- ------------------
                                                                                 $ 3,771,000         $ 3,322,000
                                  ----------------------------------------- ------------------- ------------------
</TABLE>




                                                                            F-17
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

5.   ACQUISITIONS                 On  September  3, 2002,  the Company  acquired
                                  certain assets of Medical Resources,  Inc. and
                                  related   entities  for  $2,623,000  in  cash,
                                  including  acquisition  costs of $73,000.  The
                                  assets  purchased  consisted  of  contracts of
                                  $1,235,000, furniture and equipment of $50,000
                                  and  goodwill of  $1,338,000.

                                  On December  14,  2002,  the Company  acquired
                                  certain  assets of Mary  Baker's  Health  Care
                                  Services, Inc. for $434,000 in cash, including
                                  acquisition  costs  of  $14,000.   The  assets
                                  purchased consisted of furniture and equipment
                                  of $20,000 and goodwill of $414,000.

                                  On  March  17,  2003,  the  Company   acquired
                                  certain assets of Professional  Relief Nurses,
                                  Inc.  for   $1,248,000   in  cash,   including
                                  acquisition  costs  of  $98,000.   The  assets
                                  purchased consisted of furniture and equipment
                                  of $89,000 and goodwill of $1,159,000.

                                  On  October  6,  2004,  the  Company  acquired
                                  certain   assets   of  On  Duty   Metropolitan
                                  Connecticut,   LLC  for  $1,078,000  in  cash,
                                  including  acquisition costs of $103,000.  The
                                  assets  purchased  consisted of furniture  and
                                  equipment of $10,000,  covenant not to compete
                                  of $75,000 and  goodwill of  $993,000.

                                  On May 22, 2005, the Company  acquired certain
                                  assets  of  Helping   Hands  Health  Care  for
                                  $3,171,000  in  cash,  including   acquisition
                                  costs  of  $152,000.   The  assets   purchased
                                  consisted  of  furniture   and   equipment  of
                                  $10,000, deferred and other assets of $19,000,
                                  covenant   not  to  compete  of  $300,000  and
                                  goodwill of $2,842,000.

                                  The  above  acquisitions  have  been  recorded
                                  using  the  purchase   method  of  accounting.
                                  Accordingly,  the results of these  operations
                                  have  been   included   in  the   accompanying
                                  consolidated  financial  statements  since the
                                  dates of acquisition.

                                  The effects of each of the above  acquisitions
                                  on the consolidated results of operations were
                                  not significant.

                                                                            F-18
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

6.   INCOME TAXES                 The  provision  for income taxes is summarized
                                  as follows:

<TABLE>
<CAPTION>

                                  Years ended July 31,                    2005           2004            2003
                                  --------------------------------- -------------- --------------- ---------------
                                  <S>                                 <C>            <C>             <C>
                                  Current:

                                     Federal                          $1,741,000     $2,205,000      $2,805,000
                                     State                               525,000        824,000         824,000
                                  --------------------------------- -------------- --------------- ---------------
                                                                       2,266,000      3,029,000       3,629,000
                                  Deferred                              (187,000)        11,000         272,000
                                  --------------------------------- -------------- --------------- ---------------
                                                                      $2,079,000     $3,040,000      $3,901,000
                                  --------------------------------- -------------- --------------- ---------------
</TABLE>

                                  The  deferred   tax  asset   consists  of  the
                                  following:

<TABLE>
<CAPTION>

                                  July 31,                                           2005               2004
                                  --------------------------------------------------------------------------------
                                  <S>                                            <C>                <C>
                                  Current:

                                  Accrued liabilities and reserves               $898,000           $551,000
                                  Fixed assets and intangibles                   (184,000)           (24,000)
                                  --------------------------------------------------------------------------------
                                                                                 $714,000           $527,000
                                  --------------------------------------------------------------------------------
</TABLE>

                                  The  reconciliation  of the statutory tax rate
                                  to the effective tax rate is as follows:

<TABLE>
<CAPTION>

                                  Years ending July 31,                        2005          2004          2003
                                  -------------------------------------- ------------- ------------- -------------
                                  <S>                                          <C>           <C>           <C>
                                  Statutory rate                               34%           34%           34%
                                  State and local taxes
                                    (net of federal tax effect)                  6             7             6
                                  Federal tax credit                            (2)           (1)           (1)
                                  Other                                         (1)           (1)            1
                                  -------------------------------------- ------------- ------------- -------------
                                  Effective rate                                37%           39%           40%
                                  -------------------------------------- ------------- ------------- -------------
</TABLE>


                                                                            F-19
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

7.   CONCENTRATIONS OF            The Company's  business is with  customers who
     CREDIT RISK AND              are  in  the   healthcare   industry  or  with
     MAJOR CUSTOMERS              governmental agencies.

                                  The  Company  provides  temporary  health care
                                  personnel to in-home  patients and  facilities
                                  in  the  New  York  City  metropolitan   area,
                                  Connecticut,  New  Jersey  and  Massachusetts.
                                  Credit    losses    relating   to    customers
                                  historically  have  been  minimal  and  within
                                  management's  expectations.

                                  At  July  31,  2005,  the  Company  maintained
                                  approximately   38%  of  its   cash  and  cash
                                  equivalents  with one  financial  institution.

                                  Under  certain  federal and state  third-party
                                  reimbursement  programs,  the Company received
                                  net   patient    revenue   of    approximately
                                  $50,522,000,  $45,159,000  and $45,565,000 for
                                  the years ended July 31, 2005,  2004 and 2003,
                                  respectively.  At July 31, 2005 and 2004,  the
                                  Company had aggregate outstanding  receivables
                                  from federal and state  agencies of $6,643,000
                                  and $4,852,000, respectively.

8.   STOCK OPTIONS                In 1992, the Company adopted an Employee Stock
                                  Option Plan (the  "Plan")  designed to provide
                                  incentives    to   key    employees   and   to
                                  non-employee  directors  of the  Company.  The
                                  Plan expired in July of 2002.  Options granted
                                  under the Plan  expire not more than ten years
                                  from the date of grant and vested immediately.


                                                                            F-20
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

 8.  STOCK OPTIONS                In 1999, the Company adopted a second Employee
     (CONTINUED)                  Stock Option Plan (the "1999 Plan").  The 1999
                                  Plan was also  designed to provide  incentives
                                  to  key  employees  (including  directors  and
                                  officers  who  are  key   employees)   and  to
                                  non-employee  directors  of the  Company.  The
                                  Plan authorizes the granting of both incentive
                                  and non-qualified stock options to purchase up
                                  to  551,250  shares  of the  Company's  common
                                  stock. As of July 31, 2005,  361,116 shares of
                                  the Company's  common stock have been reserved
                                  for future issuance. Unless sooner terminated,
                                  the 1999 Plan will  expire  in  October  2009.
                                  Options granted under the 1999 Plan expire not
                                  more than ten years from the date of grant and
                                  vest immediately.

                                  A summary of the status of the Company's stock
                                  option  plans  as of July 31,  2005,  2004 and
                                  2003 and  changes for the years ended on those
                                  dates is presented below:

<TABLE>
<CAPTION>
                                                                                                       Weighted
                                                                                                        average
                                                                          Number of     Expiration     exercise
                                                                            shares         date          price
                                  -------------------------------------- ------------- ------------- ------------
                                  <S>                                      <C>          <C>              <C>
                                  Options outstanding at July 31, 2002     532,758      2004-2011        $7.43
                                  Options exercised                         (1,000)       2009           3.84
                                  -------------------------------------- ------------- ------------- ----------

                                  Options outstanding at July 31, 2003     531,758      2004-2011         7.23
                                  Options exercised                       (137,569)     2004-2009         3.77
                                  Options forfeited                        (15,750)       2011          13.58
                                  -------------------------------------- ------------- ------------- ----------

                                  Options outstanding at July 31, 2004     378,439      2004-2011         8.51
                                  Options exercised                        (84,156)     2004-2009         4.22
                                  Options forfeited                        (10,500)       2011           13.58
                                  -------------------------------------- ------------- ------------- ----------

                                  OPTIONS OUTSTANDING AT JULY 31, 2005     283,783      2007-2011        $9.60
                                  -------------------------------------- ------------- ------------- ----------
                                  -------------------------------------- ------------- ------------- ----------
<CAPTION>

                                                            Number         Weighted average
                                   Range of exercise    outstanding and       remaining         Weighted average
                                         price            exercisable      contractual life      exercise price
                                  -------------------- ------------------ ------------------- -------------------
                                  <S>                       <C>               <C>                     <C>
                                  $         3.66             11,024           3.25 years              $  3.66
                                  $         3.84             71,159           3.83 years              $  3.84
                                  $         4.34             44,100           1.42 years              $  4.34
                                  $13.58 - 14.94            157,500           3.91 years               $14.08
                                  -------------------- ------------------ ------------------- -------------------
</TABLE>

                                                                            F-21
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

8.   STOCK OPTIONS                Data summarizing  year-end options exercisable
     (CONTINUED)                  and  weighted  average  fair  value of options
                                  granted  during the years ended July 31, 2005,
                                  2004 and 2003 is shown below:

<TABLE>
<CAPTION>

                                  Options Exercisable                        2005          2004          2003
                                  -------------------------------------- ------------- ------------- -------------
                                  <S>                                      <C>           <C>           <C>
                                  Options exercisable at year-end             283,783       378,439       531,758
                                  Weighted average exercise price              $ 9.60        $ 8.51      $   7.23
                                  Weighted average fair value of
                                    options granted during the year                 -             -             -
                                  Weighted average remaining
                                    contractual life                       3.48 YEARS    5.07 years    6.07 years
                                  -------------------------------------- ------------- ------------- -------------
</TABLE>

9.   COMMITMENTS,                 Employee Savings and Stock Investment Plan
     CONTINGENCIES AND
     OTHER MATTERS                Effective January 1, 1999, the Company amended
                                  and restated  its  Employee  Savings and Stock
                                  Investment Plan organized under Section 401(k)
                                  of  the  Internal   Revenue  Code.  Under  the
                                  amended plan,  employees may  contribute up to
                                  15% of their  salary,  limited to the  maximum
                                  amount    allowable    under    federal    tax
                                  regulations.  The  Company  will match 100% of
                                  the first 3% of employees'  contributions  and
                                  50%   of   the    next   2%   of    employees'
                                  contributions,   provided  that  the  matching
                                  contribution  on behalf of any  employee  does
                                  not exceed 4% of the employee's  compensation.
                                  The   Company   may   also   make   additional
                                  contributions  at its discretion.  An employee
                                  may invest in Company stock and several mutual
                                  funds.  The Company's  matching  contributions
                                  for the years  ended July 31,  2005,  2004 and
                                  2003 were  $785,000,  $676,000,  and $653,000,
                                  respectively.



                                                                            F-22
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

9.   CONTINGENCIES AND OTHER      The Company  has  employment  agreements  with
     MATTERS (CONTINUED)          four executives, which expire through July 31,
                                  2010.  The  aggregate  commitment  for  future
                                  salary, excluding bonuses, is $4,440,000.  One
                                  agreement also provides for increases based on
                                  increases  in the  consumer  price  index  and
                                  additional annual  compensation based on 4% of
                                  pre-tax  income,  as  defined,  in  excess  of
                                  $3,000,000.  Two other agreements  provide for
                                  additional  compensation based on 4% and 1% of
                                  income from operations,  as defined, in excess
                                  of   $5,000,000.

                                  Leases

                                  The Company  rents various  office  facilities
                                  through 2009 under the terms of several  lease
                                  agreements that include escalation clauses.

                                  At  July  31,  2005,   minimum  annual  rental
                                  commitments  under  noncancellable   operating
                                  leases are as follows:

                                  Years ending July 31,

                                  ----------------------------------------------
                                  2006                                $1,097,000
                                  2007                                   864,000
                                  2008                                   683,000
                                  2009                                    75,000
                                  ----------------------------------------------
                                                                      $2,719,000
                                  ----------------------------------------------

                                  Rent  expense  for the  years  ended  July 31,
                                  2005,   2004  and   2003   was   approximately
                                  $1,229,000,    $1,187,000,   and   $1,110,000,
                                  respectively.

                                  One   lease   agreement   is  with  a  company
                                  controlled  by the  Company's  Chairman of the
                                  Board.  Net  rent  expense  under  such  lease
                                  agreement approximates $213,000 per year.


                                                                            F-23
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

9.   COMMITMENTS,                 Litigation
     CONTINGENCIES AND
     OTHER MATTERS                The Company and  certain of its  officers  and
     (CONTINUED)                  directors  (the  "director  defendants")  were
                                  named as  defendants in a  consolidated  class
                                  action    brought   on   behalf   of   certain
                                  shareholders  of  SunStar   Healthcare,   Inc.
                                  ("SunStar"). The lawsuit asserted alleged acts
                                  or  omissions,  which  allegedly  resulted  in
                                  misrepresentations  or  omissions  of material
                                  information concerning the financial condition
                                  of SunStar.  In addition,  the lawsuit alleged
                                  that the Company and the  director  defendants
                                  exercised  control over  SunStar.  In February
                                  2001,  the Court  dismissed  the complaint and
                                  granted  the  plaintiffs  leave to  amend.  In
                                  October   2001,    the   Court   granted   the
                                  defendants'  motion  to  dismiss  the  amended
                                  complaint with  prejudice.  Plaintiffs did not
                                  appeal this decision.

                                  In a related action,  the director  defendants
                                  were named in a case brought by the Department
                                  of  Insurance  of  the  State  of  Florida  as
                                  receiver for SunStar.  The allegations in this
                                  action  were  similar to those  alleged in the
                                  class action lawsuit,  which was  subsequently
                                  dismissed.  Although the Company was not named
                                  in  this   action,   the  Company   agreed  to
                                  indemnify  the  director   defendants  to  the
                                  fullest extent permitted under its by-laws. On
                                  May 7, 2001,  the Court  granted the  director
                                  defendants'  motion to dismiss and granted the
                                  plaintiff  leave  to serve a  further  amended
                                  complaint.  On July 24,  2001,  the  plaintiff
                                  served an amended complaint.  On September 24,
                                  2001, the director  defendants  filed a motion
                                  to dismiss the amended complaint. In September
                                  2002,  the  director  defendants  (and certain
                                  other  defendants)  entered  into a settlement
                                  agreement  with the  plaintiff to resolve this
                                  action.  The settlement  payments were made in
                                  March  2004.  The  Company   indemnified   the
                                  director  defendants  for  their  share of the
                                  settlement  payments.  Because the amount paid
                                  had been previously reserved, the payments had
                                  no  impact  on the  Company's  July  31,  2004
                                  consolidated statements of earnings.

                                                                            F-24
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

9.   COMMITMENTS,                 Litigation (continued)
     CONTINGENCIES AND
     OTHER MATTERS                In October  2003,  the  Company's  Connecticut
     (CONTINUED)                  Home Care subsidiary  received a subpoena from
                                  the  United  States  Attorney's  Office in New
                                  Haven,   Connecticut.   The  subpoena   sought
                                  production of documents in connection  with an
                                  investigation  into  possible   violations  of
                                  certain  federal health care laws. The records
                                  sought   by  the   subpoena   relate   to  the
                                  subsidiary's  psychiatric  nurses. The Company
                                  has  produced  documents  in  response  to the
                                  subpoena  and intends to continue to cooperate
                                  with the  investigation.

                                  Credit Facility

                                  The   Company  has  a   $7,500,000   committed
                                  revolving line of credit facility (the "credit
                                  facility")  with its bank. The credit facility
                                  allows the  Company to borrow up to the lesser
                                  of  $7,500,000  or  80% of  eligible  accounts
                                  receivable  at the bank's  prime rate or LIBOR
                                  plus  2.5%.  The  credit  facility  expires on
                                  October 23, 2005 and  requires  the Company to
                                  meet certain  financial  covenants and ratios.
                                  The   Company  is   required  to  pay  a  .25%
                                  commitment fee on unused amounts.  At July 31,
                                  2005 and 2004 there was no outstanding balance
                                  under the  credit  facility.  The  Company  is
                                  negotiating  a new credit  facility to replace
                                  the credit facility.

                                  Other Matters

                                  In August 2005, the Connecticut  Department of
                                  Social Services,  Office of Quality  Assurance
                                  (the  "Department")   performed  an  audit  of
                                  Medical   Assistance   claims   paid   to  the
                                  Company's  Connecticut  Home  Care  subsidiary
                                  covering  the period of April 1, 2003  through
                                  March 31, 2005. The audit included a review of
                                  relevant claim  information  maintained by the
                                  Department  and a  review  of the  appropriate
                                  medical and administrative  records maintained
                                  by the  subsidiary.  The  subsidiary  received
                                  approximately   $50,000,000  in  reimbursement
                                  during the audit period. The Company is unable
                                  to quantify the liability  that may arise from
                                  this audit.



                                      F-25
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

10.  TREASURY STOCK               In  April   2003,   the  Board  of   Directors
                                  increased its program to repurchase its Common
                                  Stock to $3,000,000.  Purchases  would be made
                                  from  time-to-time  in  the  open  market  and
                                  through  privately  negotiated   transactions,
                                  subject   to   general    market   and   other
                                  conditions.

11.  SUMMARIZED QUARTERLY         Presented  below is a summary of the unaudited
     DATA (UNAUDITED)             consolidated  quarterly financial  information
                                  for the years ended July 31, 2005 and 2004 (in
                                  thousands, except per share data):
<TABLE>
<CAPTION>
                                                                                                  2005
                                  ----------------------------------------------------------------------------------
                                  Quarter                                  First      Second       Third      Fourth
                                  ----------------------------------------------------------------------------------
                                  <S>                                    <C>         <C>         <C>         <C>
                                  Net patient revenue                    $24,177     $24,212     $24,201     $25,871
                                  ----------------------------------------------------------------------------------
                                  Cost of revenue                         15,577      16,206      16,327      16,955
                                  General and administrative expenses      6,102       6,521       6,615       6,927
                                  Amortization of intangibles                133         139         139         169
                                  Allowance for possible losses               85          85          88       1,022(a)
                                  ----------------------------------------------------------------------------------
                                   Total operating expenses               21,897      22,951      23,169      25,073
                                  ----------------------------------------------------------------------------------
                                  Income from operations                   2,280       1,261       1,032         798
                                  Interest income                             48          63          82          82
                                  ----------------------------------------------------------------------------------
                                  Income before income taxes               2,328       1,324       1,114         880
                                  Provision for income taxes                 910         528         353         288
                                  ----------------------------------------------------------------------------------
                                  Net income                             $ 1,418     $   796     $   761     $   592
                                  ----------------------------------------------------------------------------------
                                  Net income per common share:
                                    Basic                                $  0.25     $  0.14     $  0.13     $  0.10
                                    Diluted                              $  0.25     $  0.14     $  0.13     $  0.10
                                  ----------------------------------------------------------------------------------
</TABLE>




                                                                            F-26
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

11.  SUMMARIZED QUARTERLY                                                                       2004
     DATA (UNAUDITED)             -------------------------------------------------------------------------------------
     (CONTINUED)                  Quarter                                  First      Second       Third         Fourth
                                  -------------------------------------------------------------------------------------
                                  <S>                                    <C>         <C>         <C>             <C>
                                  Net patient revenue                    $24,414     $22,869     $23,739(b)      23,570(b)
                                  -------------------------------------------------------------------------------------
                                  Cost of revenue                         16,419      15,105      15,163         15,163
                                  General and administrative expenses      5,887       5,786       5,895          5,935
                                  Amortization of intangibles                127         128         128            127
                                  Allowance for possible losses              105          55         680(c)         272
                                  -------------------------------------------------------------------------------------
                                   Total operating expenses               22,538      21,074      21,866         21,497
                                  -------------------------------------------------------------------------------------
                                  Income from operations                   1,876       1,795       1,873          2,073
                                  Interest income                             25          31          43             44
                                  -------------------------------------------------------------------------------------
                                  Income before income taxes               1,901       1,826       1,916          2,117
                                  Provision for income taxes                 746         693         703            898
                                  -------------------------------------------------------------------------------------
                                  Net income                             $ 1,155     $ 1,133     $ 1,213        $ 1,219
                                  -------------------------------------------------------------------------------------
                                  Net income per common share:
                                    Basic                                $  0.21     $  0.21     $  0.22        $  0.22
                                    Diluted                              $  0.20     $  0.20     $  0.21        $  0.21
                                  -------------------------------------------------------------------------------------
</TABLE>

                                  (a)   includes    $712,000    of    additional
                                        provision for possible losses due to the
                                        bankruptcy of certain  customers  during
                                        the fourth quarter.
                                  (b)   includes     $790,000    and    $126,000
                                        retroactive rate adjustment in the third
                                        and fourth quarters, respectively.
                                  (c)   includes    $600,000    of    additional
                                        provision  for  possible  losses  due to
                                        certain    customers   not   paying   in
                                        accordance with contractual terms.



                                                                            F-27
<PAGE>

                                                 NATIONAL HOME HEALTH CARE CORP.
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

12.  SUBSEQUENT                   On September 28, 2005, the Company's  Board of
     EVENTS                       Directors  declared a cash  dividend of $0.075
                                  per  share on its  Common  Stock,  payable  on
                                  November  4, 2005 to  holders of record of its
                                  outstanding Common Stock on October 18, 2005.
















                                                                            F-28
<PAGE>












                                                           SUPPLEMENTAL MATERIAL












<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
         ON SCHEDULE II

The audits  referred  to in our report  dated  October 7, 2005  relating  to the
financial  statements of National Home Health Care Corp. and Subsidiaries  which
is contained in Item 8 of this Form 10-K,  included the audits of the  financial
statement  schedule listed in the  accompanying  Schedule II for the years ended
July  31,  2005,  2004  and  2003.  This  financial  statement  schedule  is the
responsibility of the Company's management.  Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.

In our  opinion  such  financial  statement  schedule  presents  fairly,  in all
material respects, the information set forth therein.

BDO Seidman, LLP

Valhalla, New York
October 7, 2005





                                                                            F-30
<PAGE>

<TABLE>
<CAPTION>

                                                                                                     NATIONAL HOME HEALTH CARE CORP.
                                                                                                                    AND SUBSIDIARIES

                                                                                       SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------------------------------------------------------------------------------------------

                Column A                             Column B                 Column C                 Column D          Column E
------------------------------------------------------------------------------------------------------------------------------------
                                                                             Additions

                                                                                      Charged
                                                     Balance,         Charged to      to other                           Balance,
                                                     beginning        costs and       accounts        Deductions         end of
              Description                            of period        expenses        describe        describe           period
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>               <C>              <C>            <C>                <C>
    Year ended July 31, 2005
     Allowance deducted from asset account:
        Allowance for possible losses               $1,122,000        $1,280,000       $    -         $536,000(a)        $1,866,000

    Year ended July 31, 2004
     Allowance deducted from asset account:
        Allowance for possible losses                  622,000         1,112,000            -          612,000(a)         1,122,000

    Year ended July 31, 2003
     Allowance deducted from asset account:
        Allowance for possible losses                  691,000           300,000            -          369,000(a)           622,000
------------------------------------------------------------------------------------------------------------------------------------
  (a)   Represents actual write-offs


                                                                                    See accompanying independent accountants' report
                                                                                                           on supplemental material.



                                                                                                                                F-31
</TABLE>

<PAGE>

                                 EXHIBIT INDEX
                                                                          Page
                                                                          ----

3.1      Certificate of  Incorporation.  Incorporated  by reference to      -
         the  Registrant's  Registration  Statement  on Form  S-1 (No.
         2-86643) filed September 20, 1983.

3.2      Certificate  of Amendment to  Certificate  of  Incorporation.      -
         Incorporated by reference to the  Registrant's  Annual Report
         on Form 10-K for the fiscal year ended July 31, 1992.

3.3      Amended   By-laws.   Incorporated   by   reference   to   the      -
         Registrant's  Annual  Report on Form 10-K for the fiscal year
         ended July 31, 2004.

10.1     1992 Stock  Option  Plan.  Incorporated  by  reference to the      -
         Registrant's  Annual  Report on Form 10-K for the fiscal year
         ended July 31, 1993.

10.2     1999 Stock  Option  Plan.  Incorporated  by  reference to the      -
         Registrant's  Annual  Report on Form 10-K for the fiscal year
         ended July 31, 2000.

10.3     Amended  and  Restated  Employment   Agreement  dated  as  of      -
         November 1, 2001  between the  Registrant  and  Frederick  H.
         Fialkow.   Incorporated  by  reference  to  the  Registrant's
         Quarterly  Report on Form 10-Q for the fiscal  quarter  ended
         January 31, 2002.

10.4     Employment  Agreement  dated as of August 1, 2005 between the       68
         Registrant and Steven Fialkow.

10.5     Employment  Agreement  dated as of August 1, 2005 between the       83
         Registrant and Robert P. Heller.

21.1     List of Subsidiaries.                                               98

23.1     Consent of Independent Registered Public Accounting Firm.           99

31.1     Rule 13a-14(a)/15d-14(a) Certification of Principal Executive      100
         Officer.

31.2     Rule 13a-14(a)/15d-14(a) Certification of Principal Financial      102
         Officer.

32.1     Section 1350 Certification of Principal Executive Officer.         104

32.2     Section 1350 Certification of Principal Financial Officer.         105