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


For the fiscal year ended July 31, 1997           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
------------------------------------------                       -----------
 (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  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. [_]

As of October 24, 1997,  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 $14,066,926, calculated on the basis of the average
closing  bid and  asked  prices 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 outstanding of the Registrant's Common Stock on October 24,
1997 was 5,098,821.

Portions of the  Registrant's  Proxy  Statement  for its 1997 Annual  Meeting of
Stockholders are incorporated by reference in Part III hereof.



<PAGE>



                                     PART I

ITEM 1.    BUSINESS

General

           National  Home  Health  Care  Corp.  (the  "Company")  is a  Delaware
corporation  which was  incorporated  on July 27,  1983 under the name of Family
Treatment  Centers of America,  Inc.  Effective  December 14, 1984,  the Company
changed its name to National HMO Corp.  and  effective  December  20, 1991,  the
Company  changed  its name to  National  Home  Health  Care  Corp.  The  Company
completed  its  initial  public  offering  in  December  1983.  The Company is a
provider of home health care services  throughout the New York City metropolitan
area and Long  Island  in the  State of New York and in both  Fairfield  and New
Haven Counties in the State of Connecticut.

           The Company has three operating subsidiaries:

            *     Health Acquisition Corp., formerly Allen Health Care Services,
                  Inc.,  a New York  corporation,  of which  Allen  Health  Care
                  Services ("Allen Health Care") is the sole operating division.

            *     New England Home Care, Inc., a Connecticut  corporation  ("New
                  England"),   which   conducts   business   in  the   State  of
                  Connecticut.

            *     Nurse Care,  Inc., a Connecticut  corporation  ("Nurse Care"),
                  which conducts business in the State of Connecticut.

           In January  1996,  the  outpatient  medical  service  business of the
Company,  formerly known as Brevard Medical Center, Inc. and First Health, Inc.,
was  reorganized  as  SunStar  Healthcare,   Inc.  ("SunStar")  a  newly-formed,
wholly-owned  subsidiary  of the Company.  On May 21, 1996,  the initial  public
offering of common stock by SunStar was consummated, thus reducing the Company's
ownership percentage of SunStar to approximately 37.6%. As a result,  SunStar is
no longer  consolidated with the Company for accounting purposes and the Company
accounts for its investment in SunStar using the equity method of accounting.

Health Acquisition Corp.
------------------------
d/b/a Allen Health Care Services
--------------------------------

           Allen  Health  Care  is a  provider  of  personal  home  health  care
services.  Services are provided by registered nurses, personal care aides, home
health  aides and  homemakers.  The  Company is  licensed  by the Public  Health
Council  of the  State of New York  Department  of  Health.  Allen  Health  Care
maintains  its  principal  administrative  office in  Jamaica,  New York and has
satellite offices in Manhattan,  Farmingdale,  Islandia and Hempstead, New York.
Services  are  provided  in the  following  counties  in the  State of New York:
Nassau, Suffolk, Queens, Kings, New York and the Bronx.


                                       -2-

<PAGE>



           All home health care  personnel are licensed or are agency  certified
under a New York State  approved  program  and can be  engaged  on a  full-time,
part-time or live-in basis. In May 1996, Allen Health Care was resurveyed by the
Joint  Commission of  Accreditation of Health Care  Organizations  (JCAHO),  the
accrediting  body  for  all  health-care   providers.   JCAHO  accreditation  is
associated with providing quality  services.  This status is required by many of
the  certified  home  health care  agencies  that Allen  Health  Care  currently
services.  The resurvey resulted in Allen Health Care extending their accredited
status through the year 1999.

           Reimbursement  for the  company's  services is primarily  provided by
Certified  Home  Health  Care  Agencies  ("CHHAs"),  and  long-term  health care
provider  programs that subcontract their patients to Allen Health Care, as well
as from private  payors and both the Nassau and Suffolk  Counties  Department of
Social  Services   Medicaid   Programs,   for  which  Allen  Health  Care  is  a
participating provider.

           Allen Health Care  provides  home health care services to its clients
twenty-four  hours per day, seven days per week.  Although the company'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 New York  State
Department  of Health  Regulations  and contract  requirements,  visit  patients
regularly  and review the  records of service  which are  completed  by the home
health aide and personal care aides daily. These records are maintained by Allen
Health Care. In addition,  the home care  coordinator  ensures that  appropriate
coverage is  maintained  for all patients  and acts as the liaison  among family
members, aides and the professional staff.

           Allen  Health  Care was  acquired  by the  Company in  October  1986.
Subsequent  to the  acquisition,  the agency has grown its home care business by
securing contracts with CHHAs,  expanding its services and geographical presence
and through acquisitions.

           In March 1997, Allen Health Care completed the acquisition of certain
assets of C.J. Home Care,  Inc. d/b/a Garden City Home Care, a New York licensed
home  health  care agency  that  provides  home  health aide  services in Nassau
County,  New York.  Annual  revenues  for  Garden  City  Home Care  approximated
$2,000,000 in 1996. In May 1997,  Allen Health Care completed the acquisition of
certain assets of Home Health Aides, Inc. and H.H.A.  Aides,  Inc., two New York
licensed  home health care  agencies  that provide home health aide  services in
both Nassau and Suffolk  County,  New York. The two companies  collectively  had
revenues of approximately  $3,400,000 in 1996. The latter  acquisition gives the
Company an entree into the Shared Aide Program in Nassau County. The Shared Aide
Program is a relatively new program for Medicaid patients that brings a group of
home health aides  together to care for patients in one  geographic  area,  thus
increasing operating efficiencies and reducing costs.

           To a large extent,  Allen Health Care's  continued  growth depends on
its ability to recruit and maintain qualified personnel.  The company's training
programs for home health aides and personal care aides have been approved by the
State of New York Department of Health. The company


                                       -3-

<PAGE>



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

New England Home Care
---------------------

           On August 4, 1995, the Company consummated the acquisition of 100% of
the  capital  stock of  Nurse  Care,  the  parent  company  of New  England  for
$3,150,000 in cash.  In addition,  one of the two former  shareholders  of Nurse
Care entered into a one-year  employment  contract as the  Administrator  of New
England with a base salary of $125,000.  Although such contract has expired, the
shareholder continues to be employed by Nurse Care. The other former shareholder
entered  into a one-year  consulting  agreement  to provide  certain  consulting
services  with  respect to the  operations  of New England in  consideration  of
$20,000 in consulting  fees.  During the fiscal year ended July 31, 1996,  Nurse
Care  transferred all of the outstanding  shares of New England to National Home
Health Care Corp.,  whereby New England as well as Nurse Care,  became a direct,
wholly-owned subsidiary of the Company.

           New England is a Medicare  certified  and  licensed  home health care
company in the State of  Connecticut.  In December  1995,  New England  received
JCAHO  accreditation  through  the year  1998.  New  England  provides  services
throughout  Fairfield and New Haven Counties as well as the southern portions of
Litchfield,  Hartford  and  Middlesex  Counties,  in the  State of  Connecticut.
Services include skilled nursing, physical therapy, occupational therapy, speech
therapy, medical social services and home health aide services. In addition, New
England  offers  specialty  programs  consisting  of mental health and wellness,
perinatal/high risk pregnancy,  pediatrics and disease  management.  New England
provides  full-service  home health care  twenty-fours  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.

           New England maintains its principal administrative office in Milford,
Connecticut  and has  branch  offices in  Norwalk,  Hamden  and  Waterbury,  and
satellite  offices in  Danbury  and  Seymour.  Reimbursement  for New  England's
services is primarily  provided by the Federal Medicare Program and the State of
Connecticut  Medicaid Program.  Additional  sources of revenues are from managed
care programs, commercial insurance carriers and private payors.

Nurse Care
----------

           Nurse Care is a licensed  home health  care  company  providing  home
health aide services throughout  Fairfield and New Haven Counties,  Connecticut.
In December 1995, Nurse Care received JCAHO accreditation through the year 1998.
Similar to the  operations  of New England,  Nurse Care  maintains its principal
administrative  office in  Milford,  Connecticut  and has  satellite  offices in
Norwalk, Hamden, Waterbury, Danbury and Seymour.  Reimbursement for Nurse Care's
services is primarily  provided by New England,  which  subcontracts  all of its
home health aide services to Nurse Care,  and from hospices and other  certified
home care agencies.



                                       -4-

<PAGE>



Insurance
---------

           The Company and its subsidiaries  maintain  professional  malpractice
liability  coverage on  professionals  employed in the  rendering of health care
services  providing coverage in an amount of up to $1,000,000 per occurrence and
up to $6,000,000 in the aggregate and coverage for the customary  risks inherent
in the operation of business in general.  Recent market  conditions with respect
to  liability   insurances  have  caused  wide  fluctuations  in  the  cost  and
availability of coverage.  The Company carries directors and officers  liability
with a limit of $2,000,000.  While the Company  believes its insurance  policies
are adequate in the amount and coverage for its current operations, 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 24, 1997, the Company had approximately  1,700 full and
part-time  employees of whom 15 were employed in various  management  capacities
and 5 were employed in marketing capacities.  None of the Company's employees is
represented by a labor organization.  The Company believes its relationship with
its  employees is  satisfactory.  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 the
appropriate authorities.

Competition
-----------

           The home  health  care field is highly  competitive.  The  Company is
competing  with numerous  other  licensed as well as certified  home health care
agencies. 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'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 recruits personnel  principally through referral from existing personnel
and through newspaper advertisements.

Customers
---------

           One or more  customers  have each  accounted for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1997, 1996 and 1995, VNS
Home Care, a non-profit  Medicare  certified home health care agency,  accounted
for 22%, 24% and 40%, respectively;  the State of New York, Department of Social
Services  personal  care aide  program  for the  counties  of Suffolk and Nassau
accounted for 10%, 7%, and 13%, respectively,  of the Company's consolidated net
patient  revenues from continuing  operations;  and the Federal Medicare program
accounted for approximately


                                       -5-

<PAGE>



22%, 21% and 0%, respectively, of net patient revenue for the fiscal years ended
July 31, 1997,  1996 and 1995. The loss of any of the foregoing  customers would
have a material adverse effect on the Company.

Government Regulations 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  profitability  will depend in
part upon the Company obtaining and maintaining all necessary licenses and other
approvals in compliance with applicable health care 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 the
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 the  Department  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 the State of Connecticut.

           Currently, Medicare Part A reimburses providers for certain costs for
certain home health care visits to eligible Medicare beneficiaries.  There is no
limit to the number of home health  visits a  beneficiary  may receive.  Covered
services include intermittent  skilled nursing care,  physical,  occupational or
speech therapy, medical social services,  intermittent services of a home health
aide, and certain medical supplies.

           Under current  Medicare  reimbursement,  home health care  providers,
including  the Company,  are  reimbursed  on a reasonable  cost basis subject to
program-imposed  cost per  visit  limitations  applicable  to each  type of home
health  service.  Medicare  reimbursement  does not  include  a  profit  factor.
Medicare  providers  are subject to  periodic  audits of charges  submitted  for
reimbursement,  which could result in recoupment of payments  previously made to
the provider, or increases in payments due the Medicare provider.

           The Balanced  Budget Act of 1997 (the  "Act"),  which was signed into
law on August 5, 1997  contains  many  sweeping  changes to Medicare home health
reimbursement and coverage.  Under the Act, for cost reporting periods beginning
on or after October 1, 1997,  Medicare  providers  will be  reimbursed  under an
interim payment system,  which will remain in effect for a two year period prior
to the implementation of a prospective payment system. Under the interim payment
system, home


                                       -6-

<PAGE>



health care providers will be reimbursed the lower of (1) actual costs, (2) cost
per visit limits,  or (3) an aggregate per beneficiary limit based on a blending
of  agency-specific  costs and a census region costs for cost reporting  periods
ending during fiscal 1994,  updated by the home health market basket index.  The
prospective  payment  system calls for payments to Medicare  providers  for cost
reporting  periods on or after October 1, 1999 in accordance  with a prospective
payment system to be established by the Secretary. The Company cannot predict at
this  time  with any  certainty  what  impact  these  changes  will  have on the
Company's business.

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.  In July 1991, the federal  government
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.

           Over the past year,  the home health  industry has come under intense
government  scrutiny  regarding   compliance  with  all  applicable   standards.
Operation  Restore Trust,  the  government's  Medicare  anti-fraud  program,  is
expected to blanket all fifty states over the next five year period.

           In September 1997, the Health Care Financing  Administration ("HCFA")
announced  a  moratorium  on the  entry of new  home  health  agencies  into the
Medicare program.  The moratorium  includes new branches of existing home health
agencies. While the moratorium is in effect, HCFA will double the number of home
health agency audits,  implement program safeguards included in the Act and work
on changes in  requirements  with which home health  agencies  must  comply.  An
immediate  change being  implemented  by the HCFA is the  requirement  that home
health agencies  disclose  information  about related  businesses that they own.
Proposed regulations include the requirement that home health agencies re-enroll
in the  Medicare  program  every three years and the posting of surety  bonds to
establish financial stability.

Medicaid
--------

           Approximately  17%, 18% and 13% of net patient revenue for the fiscal
years ended July 31, 1997, 1996 and 1995, respectively, were derived under 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 the State of Connecticut and in both Nassau and
Suffolk County in the State


                                       -7-

<PAGE>



of New York.  Medicaid  reimbursement  rates may be reduced in response to state
economic  and  budgetary  constraints,  as well as in response to changes in the
Medicare program.

ITEM 2.  PROPERTIES.

           The Company, directly or through certain subsidiaries, leases various
office  facilities under lease agreements with various  expiration dates through
the year  2004.  The  following  sets  forth the  location,  approximate  square
footage, use of each office and expiration date of each lease:


                   Approximate                               Expiration Date
    Location       Square Feet          Use                     of Lease

Scarsdale, NY        2,095        Corporate headquarters     October 31, 1998
Queens, NY           7,500        Administrative office      January 31, 1998
Farmingdale, NY      3,519        Satellite office           May 31, 1998
Hempstead, NY        3,800        Satellite office           September 30, 2004
Islandia, NY         2,100        Satellite office           June 30, 2001
Manhattan, NY        1,265        Satellite office           April 30, 1998
Milford, CT          9,600        Administrative office      May 31, 1999
Norwalk, CT          2,772        Branch office              May 31, 1999
Hamden, CT           2,605        Branch office              July 31, 1998
Waterbury, CT        2,000        Branch office              July 31, 2000
Seymour, CT            575        Satellite office           May 31, 1998
Danbury, CT          1,200        Satellite office           Month to Month
                                                    
           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 renew or find adequate  replacement offices for
all leases which will expire in the current fiscal year.

ITEM 3.  LEGAL PROCEEDINGS.

           In the ordinary course of business, the Company is subject, from time
to time, to claims and legal actions.  No material actions are currently pending
against the Company.

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, 1997.




                                       -8-

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR COMPANY'S COMMON STOCK
         AND RELATED STOCKHOLDER MATTERS.

           (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, 1996
and July 31, 1997. These quotations  reflect the  inter-dealer  prices,  without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.


                                                        Market Prices
                                                ----------------------------
                                                  High              Low
Year ended July 31, 1996
------------------------

1st Quarter............................           $4.38            $3.13
2nd Quarter............................            7.13             3.88
3rd Quarter............................            7.00             4.50
4th Quarter............................            7.75             5.50


Year ended July 31, 1997
------------------------

1st Quarter............................           $7.38            $5.88
2nd Quarter............................            6.88             5.38
3rd Quarter............................            6.25             5.00
4th Quarter............................            6.38             5.00

           (B)       Holders

           There were  approximately 149 holders of record of Common Stock as of
October  24, 1997  excluding  shares held by  depository  companies  for certain
beneficial owners.

           (C)       Dividends

           The Company has not declared or paid any cash dividends on its shares
of Common Stock during the last three fiscal years. It anticipates  that for the
foreseeable  future all earnings will be retained for use in its business,  and,
accordingly,  it does not intend to pay cash dividends. On October 21, 1996, the
Board of Directors of the Company  declared a 6% stock dividend payable December
4, 1996 to  stockholders of record on November 8, 1996. On October 10, 1997, the
Board of Directors of the Company  declared a 3% stock dividend payable December
8, 1997 to stockholders of record on November 6, 1997.



                                       -9-

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA.

           The following table,  which presents selected  financial data for the
Company  for each of the last  five  fiscal  years,  has been  derived  from the
Consolidated  Financial  Statements  of the Company,  which have been audited by
Richard A. Eisner & Company, LLP, independent auditors.

           The data set  forth  below  should  be read in  conjunction  with the
Consolidated Financial Statements in Item 8 of this Report.

<TABLE>
<CAPTION>
                                                                     Fiscal Years Ended July 31,
                                           -----------------------------------------------------------------------------------
                                                    1997           1996            1995           1994            1993
                                           -----------------------------------------------------------------------------------
<S>                                            <C>             <C>             <C>            <C>             <C>         
STATEMENT OF OPERATIONS
DATA:

Revenues                                       $ 35,070,000    $ 38,830,000    $ 24,556,000   $ 20,116,000    $ 18,059,000

Operating expenses                               31,770,000      35,564,000      22,414,000     17,982,000      15,795,000

Income from operations                            3,300,000       3,266,000       2,142,000      2,134,000       2,264,000

Other income (loss):
           Gain resulting from
           subsidiary's stock offering                 --         1,548,000            --             --              --

           Interest income                          446,000         412,000         410,000        161,000         116,000

           (Loss) from equity investee             (612,000)        (10,000)           --             --              --

Income from continuing operations
before taxes                                      3,134,000       5,216,000       2,552,000      2,295,000       2,380,000

Provision for income taxes                        1,278,000       1,859,000       1,126,000      1,077,000       1,071,000

Income from continuing operations                 1,856,000       3,357,000       1,426,000      1,218,000       1,309,000

Discontinued operations                                --              --              --       (3,472,000)       (461,000)

Net income (loss)                                 1,856,000       3,357,000       1,426,000     (2,254,000)        848,000

Net income (loss) per share of common stock:
    Continuing operations                              0.35            0.65            0.27           0.24            0.25
           Discontinued operations                     --              --              --            (0.67)          (0.09)
           Net income (loss)                           0.35            0.65            0.27          (0.43)           0.16
</TABLE>

The above  results  include the  operations  of SunStar  through April 30, 1996.
Subsequent thereto,  the operations of SunStar are recorded on the equity method
and are reflected above as loss from equity investee.




                                      -10-

<PAGE>


<TABLE>
<CAPTION>

BALANCE SHEET DATA:
<S>                    <C>          <C>          <C>          <C>          <C>       
Total Assets           25,224,000   24,421,000   18,865,000   17,926,000   20,309,000

Working capital        16,853,000   16,288,000   15,292,000   13,484,000   10,000,000


Retained earnings       5,842,000    4,789,000    3,307,000    1,881,000    4,135,000
Stockholders' equity   23,360,000   21,504,000   17,914,000   16,688,000    18,942,00
</TABLE>


ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.

           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.

           This discussion  contains forward looking statements that are subject
to a number of known and unknown risks that, in additional to general  economic,
competitive  and  other  business   conditions,   could  cause  actual  results,
performance  and  achievements  to differ  materially  from those  described  or
implied in the forward looking statements.

           On March 25, 1997, Health  Acquisition Corp.  ("HAC"), a wholly-owned
subsidiary of the Company,  acquired  certain assets of C.J. Home Care, Inc. and
on May 29, 1997,  HAC acquired  certain  assets of Home Health  Aides,  Inc. and
H.H.A.  Aides,  Inc. All  acquisitions  were from New York State  licensed  home
health care companies that provided home healthcare  services in both Nassau and
Suffolk  Counties,  New York. The acquisitions have been accounted for utilizing
purchase accounting principles.

           On May 21,  1996,  the initial  public  offering  of common  stock by
SunStar was consummated.  SunStar, then a wholly-owned subsidiary of the Company
had comprised the Company's Florida outpatient  medical center  operations.  The
Company currently owns 900,000 shares, or approximately  37.6%, of SunStar.  The
operations  of SunStar  prior to the  offering are  reflected  in the  Company's
financial  statements  as  continuing  operations.  In  the  preparation  of its
financial  information,  the Company has relied upon the financial statements of
SunStar,  which  financial  statements have been audited by other auditors whose
report has been furnished to the Company.

           On August 4, 1995,  the Company  completed the purchase of Nurse Care
and New  England.  During the fiscal year ended July 31, 1996  ("fiscal  1996"),
Nurse  Care  transferred  all of the  outstanding  stock of New  England  to the
Company.  New  England is a  Medicare-certified  and  licensed  home health care
company  providing a wide  variety of skilled  nursing  services in  Connecticut
while Nurse Care is a licensed  home health care company  providing  home health
aide services in Connecticut.


                                      -11-

<PAGE>



RESULTS OF OPERATIONS

           YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996

           For the fiscal year ended July 31, 1997 ("fiscal 1997"),  net patient
revenues were  $35,070,000  as compared with  $38,830,000  in fiscal 1996.  This
decrease is primarily  attributable  to the absence of revenues from  outpatient
medical  services  during  fiscal  1997 as  compared  with the  presence of such
revenues  of  $3,693,000  during  fiscal  1996.  Revenues  from home health care
services decreased $67,000 or .2% from $35,137,000 in fiscal 1996. Revenues from
HAC,  the  subsidiary  providing  home  health  care  services  in the New  York
metropolitan area,  decreased $100,000 or .5% to $20,562,000 in fiscal 1997 from
$20,662,000 in fiscal 1996. This decrease is the result of increased competition
and price  pressures  from the certified home health care agencies with which it
contracts.  Revenues from New England and Nurse Care, the subsidiaries providing
home  health care  services in  Fairfield  and New Haven  Counties,  Connecticut
increased  $33,000 or .2% to  $14,508,000  in fiscal  1997 from  $14,475,000  in
fiscal 1996.

           With the  completion  of the  initial  public  offering of SunStar in
fiscal 1996, the Company is now focused solely on home health care services. The
Company is  optimistic  there will be  increasing  demand for home  health  care
services as health care payors seek to find  cost-effective  alternatives to the
rising costs of  institutional  care. The Company's  acquisitions in both fiscal
years reflect its commitment to devoting significant  resources to the expansion
of its home care services.

           Gross profit margin  percentage in fiscal 1997 was 35% as compared to
36% for fiscal 1996. Excluding  outpatient medical center operations,  the gross
profit margin was 35% in fiscal 1996.

           General and administrative expenses decreased from 27% of revenues in
fiscal 1996 to 25% of  revenues  in fiscal  1997.  This  decrease  is  primarily
attributable  to improved  efficiencies  implemented  in the  operations  of New
England and Nurse Care.

           Amortization of intangibles decreased from $294,000 in fiscal 1996 to
$245,000  in fiscal  1997 as a result of certain  intangible  assets  from prior
acquisitions being fully amortized.

           Interest  income  increased to $446,000 for fiscal 1997 from $412,000
in fiscal 1996.  This  increase of $34,000 or 8% is the result of the  Company's
increased cash flow over fiscal 1996.

           The  Company  recorded a loss from  equity  investee  of  $612,000 in
fiscal 1997 as compared to a loss of $10,000 in fiscal  1996,  representing  the
Company's  share of the net loss  reported by SunStar for the same  periods.  In
addition,  in fiscal  1996,  the  Company  recorded a  one-time  net gain on the
SunStar initial public offering in the amount of $1,024,000.

           The Company's  effective tax rate  increased to 41% in fiscal 1997 as
compared to 36% in fiscal 1996.  This  increase is  attributable  to the Company
utilizing available state net operating loss deductions in fiscal 1996.


                                      -12-

<PAGE>



           As a result of the foregoing, net income for fiscal 1997 decreased to
$1,856,000 from $3,357,000 for fiscal 1996.

           YEAR ENDED JULY 31, 1996 COMPARED TO YEAR ENDED JULY 31, 1995

           Net patient revenues increased by approximately $14,274,000,  or 58%,
from  $24,556,000  for the fiscal  year ended July 31, 1995  ("fiscal  1995") to
$38,830,000 for fiscal 1996. Net patient revenues from home health care services
increased approximately  $15,709,000 or 81%. Approximately $14,475,000 or 92% of
this increase is  attributable to the acquisition of Nurse Care and New England.
HAC, the licensed home health care company  providing  home health care services
in the New York  metropolitan  area,  had revenues  increase by $1,306,000 or 7%
from fiscal 1995. Net patient  revenues  recorded in fiscal 1996 from outpatient
medical operations  decreased  $1,435,000 or 28% from $5,128,000 in fiscal 1995.
This  decrease  is  attributable  to the Company  recording  only nine months of
revenues in fiscal 1996,  due to the change in  ownership in the fourth  quarter
from 100% to approximately 37.6%.

           Gross profit margin  percentage in fiscal 1996 was 36% as compared to
39% in fiscal 1995.  This decrease is  attributable  to the  acquisition  of New
England,  which has a lower  gross  margin  percentage  as a result  of  revenue
generated  from  its  Medicare  patients  being  limited  to cost  reimbursement
principles.

           General and administrative expenses decreased from 29% of revenues in
fiscal 1995 to 27% of revenues in fiscal 1996.  This decrease is attributable to
the increase in revenues being absorbed by existing  general and  administrative
costs.

           Amortization of intangibles  increased  $125,000 or 74% from $169,000
in fiscal 1995 to $294,000 in fiscal 1996.  This increase is attributable to the
acquisition of Nurse Care and New England in August 1995.

           In fiscal  1996,  the  Company  recorded a  one-time  net gain on the
SunStar  initial  public  offering in the amount of  $1,024,000,  adjusting  its
investment  in  SunStar  to  reflect  the book  value of its  approximate  37.6%
interest.  The Company  also  recorded a loss from  equity  investee of $10,000,
representing its share of the SunStar loss for the quarter ended July 31, 1996.

           Interest income increased a nominal $2,000 to $412,000 in fiscal 1996
from $410,000 in fiscal 1995. Cash  equivalents at July 31, 1996 were $8,226,000
as compared to $8,422,000 at July 31, 1995.

           The Company's  effective tax rate  decreased to 36% in fiscal 1996 as
compared to 44% in the previous  fiscal year.  This decrease is  attributable to
the Company  utilizing  available  state net  operating  loss  deductions in the
current fiscal year.



                                      -13-

<PAGE>



           As a result of the foregoing, net income for fiscal 1996 increased to
$3,357,000 from $1,426,000 for fiscal 1995.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

           At July 31, 1997,  the Company had working  capital of $16,853,000 as
compared  to working  capital of  $16,288,000  at July 31,  1996.  Cash and cash
equivalents at July 31, 1996 were $9,324,000 as compared with $8,929,000 at July
31, 1996.

           Net cash provided by operating  activities  was  $2,398,000 in fiscal
1997 as compared  with  $1,066,000  in fiscal 1996.  This  increase is primarily
attributable  to decreases in accounts  receivable  and prepaid  expenses and an
increase in accounts  payable and accrued  expenses as compared to fiscal  1996.
The Company expects to continue to generate  sufficient cash flow from operation
to meet its working capital requirements.

           Investing  activities  in  fiscal  1997 used  cash of  $2,003,000  as
compared to cash used of $2,482,000  in fiscal 1996.  The cash used in investing
activities primarily consisted of acquisitions in both fiscal 1997 and 1996.

           The  proceeds  from the  exercise  of  stock  options  offset  by the
purchase of treasury shares provided no cash from financing activities in fiscal
1997.  Cash provided from  financing  activities in fiscal 1996 was  $1,108,000,
consisting  of cash  received  on notes  receivable  and the  proceeds  from the
exercise of stock  options,  offset by the cash  surrendered  in the  subsidiary
stock offering in fiscal 1996.

           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 on a basis of 90 to 120 days with respect to
contracted  business  and 30 to 45 days with  respect  to  certain  governmental
payors,  such as Medicare  and  Medicaid  programs.  For fiscal  1997,  accounts
receivable  turnover for home health care services was 91 days as compared to 90
days for fiscal 1996.

           The Company has  available a  $2,000,000  secured line of credit with
its bank. In addition, a subsidiary of the Company has a secured advised line of
credit.  The maximum amount that can be borrowed under the secured  advised line
of  credit  may not  exceed  the  lesser  of  eligible  accounts  receivable  or
$2,000,000.   Both  credit  facilities  bear  interest  at  the  alternate  base
commercial  lending rate of the bank and expire  January 30,  1998.  At July 31,
1997, there were no outstanding balances under either line of credit.

           The  Company  intends to meet both its short and long term  liquidity
needs with its current cash balances,  cash flow and available  lines of credit.
The Company  believes that its current cash  balances and available  credit will
also allow it to  continue  to make  acquisitions  in the home health care field
without affecting its liquidity needs.



                                      -14-

<PAGE>



           In July 1997,  the Board of Directors  authorized a stock  repurchase
plan authorizing the Company to repurchase up to $1,000,000 of its Common Stock.
The buyback program will be financed out of existing cash balances.

           Other  than  as  set  forth  herein,  the  Company  has  no  material
commitments for capital expenditures as of July 31, 1997.

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


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-23.

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

           Not applicable.



                                      -15-

<PAGE>



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

           The information  required by each of the items of Part III is omitted
from this Report.  Pursuant to the General  Instruction  G(3) to Form 10-K,  the
information  is included in the  Company's  Proxy  Statement for its 1997 Annual
Meeting of  Stockholders  to be held on  December 8, 1997,  and is  incorporated
herein by reference.  The Company intends to files such Proxy Statement with the
Securities and Exchange  Commission  not later than 120 days  subsequent to July
31, 1997.

                                     PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

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

           (1) FINANCIAL  STATEMENTS  (see index to the  consolidated  financial
statements).

           (2)  FINANCIAL  STATEMENT  SCHEDULES  (see index to the  consolidated
financial statements).

           (3) EXHIBITS



                                      -16-

<PAGE>




Exhibit
Number                      Document
------                      --------
3.1         Certificate of Incorporation (1)
3.2         Certificate of Amendment to Certificate of Incorporation (2)
3.3         By-laws (1)
10.1        1992 Stock Option Plan (3)
10.2        Incentive Stock Option Plan (3)
10.3        Agreement dated January 1, 1994 between Allen Health Care
            Services and VNS Home Care (4)
10.4        Employment Agreement dated August 1993 between the
            Registrant and Steven Fialkow (3)
10.5        First Amendment dated as of July 1, 1996 to Employment
            Agreement dated August 1993 between the Registrant and
            Steven Fialkow (8)
10.6        Employment Agreement dated as of July 1, 1996 between the
            Registrant and Robert P. Heller (8)
10.7        Employment Agreement dated August 1993 between the
            Registrant and Richard Garofalo (3)
10.8        First Amendment dated as of July 1, 1996 to Employment
            Agreement dated August 1993 between the Registrant and
            Richard Garofalo (8)
10.9        Employment Agreement dated August 1993 between the
            Registrant and Thomas Smith (3)
10.10       First Amendment dated as of July 1, 1996 to Employment
            Agreement dated August 1993 between the Registrant and
            Thomas Smith (8)
10.11       Agreement between Division of Social Services of Suffolk
            County and Health Acquisition Corp. (5)
10.12       Agreement between Nassau County Department of Social
            Services and Allen Health Care Services (2)
10.13       Agreement dated January 1, 1994 between Catholic Medical
            Center of Brooklyn and Queens, Inc. (4)


-17-

<PAGE>



Exhibit
Number                      Document
------                      --------

10.14       Letter Agreement dated March 15, 1995 securing a line of
            credit from the Bank of New York (7)
10.15       Letter dated June 1, 1992 from Public Health Council of the
            State of New York Department of Health to Health
            Acquisition Corp. d/b/a Allen Health Care Services (2)
10.16       Letter from Joint Commission on Accreditation of Healthcare
            Organizations awarding accreditation to Allen Health Care,
            dated September 20, 1993                  (3)
10.17       1993 401(k) Plan, as amended on April 1, 1997.
10.18       Letter Agreement between National HMO (New York), Inc.
            and Boro Medical, P.C. dated November 12, 1993 (3)
10.19       Asset Purchase Agreement among National HMO (New
            York), Inc., National HMO Corp. of Elizabeth, Inc., Boro
            Medical, P.C. and Boro Health Care of Union, P.C. dated
            April 30, 1994 (4)
10.20       Agreement for the Purchase of the Stock of Nurse Care, Inc.
            and Related Transactions (6)
10.21       Employment Agreement dated as of August 1, 1995 between
            New England and Aileen O'Connell (6)
10.22       Letter Agreement dated February 20, 1997 providing a
            Secured Advised Line of Credit from the Bank of New York
            to National Home Health Care Corp. (9)
10.23       Letter Agreement dated February 20, 1997 providing a
            Secured Advised Line of Credit from the Bank of New York
            to New England Home Care, Inc. (9)
10.24       Asset Purchase Agreement dated December 24, 1996 by and
            between Health Acquisition Corp. and C.J. Home Care, d/b/a
            Garden City Home Care. (9)
10.25       Asset Purchase Agreement dated February 19, 1997 among
            Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
            Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1        List of Subsidiaries



-18-

<PAGE>



Exhibit
Number                      Document
------                      --------

23.1        Consent of Richard A. Eisner & Co., LLP
23.2        Consent of KPMG Peat Marwick LLP
27          Financial Data Schedule

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

(2)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1992.

(3)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1993.

(4)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1994.

(5)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1991.

(6)   Incorporated  by  reference to the  Registrant's  Report on Form 8-K dated
      August 4, 1995.

(7)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1995.

(8)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1996.

(9)   Incorporated  by reference to the  Registrant's  Quarterly  Report on Form
      10-Q for the quarter ended January 31, 1997.

(10)  Incorporated  by reference to the  Registrant's  Quarterly  Report on Form
      10-Q for the quarter ended April 30, 1997.


           (b) Reports on Form 8-K.  None have been filed during the last fiscal
quarter.


                                      -19-

<PAGE>



                                   SIGNATURES
                                   ----------

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

                                            NATIONAL HOME HEALTH CARE CORP.


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

Dated:  October 27, 1997

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



/s/ Frederick H. Fialkow           Chairman of the Board of Directors &
--------------------------         Chief Executive Officer
Frederick H. Fialkow           


/s/ Steven Fialkow                 President, Chief Operating Officer, 
--------------------------         Director and Secretary
Steven Fialkow                                      


/s/ Robert P. Heller               Vice President of Finance and Chief Financial
--------------------------         Officer (Principal Financial and Accounting 
Robert P. Heller                   Officer)
                                                    


/s/ Ira Greifer                    Director
--------------------------         
Ira Greifer, M.D.                  


/s/ Bernard Levine                 Director
--------------------------         
Bernard Levine, M.D.


/s/ Robert Pordy                   Director
--------------------------         
Robert Pordy, M.D.


<PAGE>



                         NATIONAL HOME HEALTH CARE CORP.

                   Index to Financial Statements and Schedules
            Filed with the Annual Report of the Company on Form 10-K

                                                                            Page
                                                                            ----

Part II Item 8

     Independent Auditors' Report                                            F-2

     Consolidated Financial Statements
         Balance sheets as of July 31, 1997 and 1996                         F-3
         Statements of operations for the years ended 
          July 31, 1997, 1996 and 1995                                       F-4
         Statements of changes in stockholders' equity for 
          the years ended July 1997, 1996 and 1995                           F-5
         Statements of cash flows for the years ended 
          July 31, 1997, 1996 and 1995                                       F-6
         Notes to financial statements                                       F-7

Part IV Item 14

   Independent Auditors' Report on Schedule                                 F-22

     Supplementary Information

         Schedule II Valuation and Qualifying Accounts                      F-23

SCHEDULES OMITTED

Other  schedules have been omitted as the conditions  requiring their filing are
not present or the information  required  therein has been included in the notes
to consolidated financial statements.
















                                       F-1

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.


INDEPENDENT AUDITORS' REPORT

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, 1997 and 1996, and the related
consolidated statements of operations,  changes in stockholders' equity and cash
flows for each of the years in the three-year  period ended July 31, 1997. 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. The financial statements of SunStar Healthcare, Inc., (a corporation
in which the Company has a 37.6% interest),  have been audited by other auditors
whose  report  has been  furnished  to us;  insofar  as our  opinion on the 1997
consolidated   financial   statements  relates  to  data  included  for  SunStar
Healthcare, Inc., it is based solely on their report.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.

In our  opinion,  based  upon our  audits  and,  for 1997,  the  report of other
auditors,  the financial  statements  enumerated  above present  fairly,  in all
material respects,  the consolidated  financial position of National Home Health
Care Corp.  and  subsidiaries  at July 31, 1997 and 1996,  and the  consolidated
results of their  operations and their  consolidated  cash flows for each of the
years in the three-year period ended July 31, 1997, in conformity with generally
accepted accounting principles.

/s/ Richard A. Eisner & Company, LLP

Richard A. Eisner & Company, LLP

New York, New York
September 26, 1997

With respect to Note 1 - Stock Dividend
October 10, 1997




                                       F-2


<PAGE>
KMPG Peat Marwick LLP

           Suite 2700, Independent Square
           One Independent Drive
           P.O. Box 190
           Jacksonville, Fl 32201-0190


                          Independent Auditor's Report
                          ----------------------------

To the Board of Directors
SunStar Healthcare, Inc.:

We  have  audited  the  accompanying  consolidated  balance  sheets  of  SunStar
Healthcare,  Inc. and  Subsidiaries  (the Company) as of July 31, 1996 and 1997,
and the related consolidated statements of operations,  changes in shareholders'
equity,  and cash flows for each of the years in the two-year  period ended July
31, 1997. These consolidated  financial statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated   financial  statements  based  on  our  audits.  The  accompanying
consolidated financial statements of SunStar Healthcare, Inc. for the year ended
July 31, 1995, were audited by other auditors whose report thereon dated October
6, 1995, expresses an unqualified opinion on those statements.

We  conducted  our  audits in  accordance  with  generally  accepted  accounting
principles.  Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of SunStar Healthcare,
Inc. as of July 31, 1996 and 1997,  and the  results of its  operations  and its
cash flows for each of the years in the two-year  period ended July 31, 1997, in
conformity with generally accepted accounting principles.


                                                  /s/ KPMG Peat Marwick LLP

                                                  KMPG Peat Marwick LLP


Jacksonville, Florida
September 16, 1997

                                      F-2a
<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                     July 31,
                                                                            -------------------------
                                                                                1997          1996
                                                                            -----------   -----------
<S>                                                                         <C>           <C>        
ASSETS
Current assets:
    Cash (including cash equivalents of $8,344,000 and $8,226,000)          $ 9,324,000   $ 8,929,000
    Investments - available for sale                                            508,000       528,000
    Accounts receivable (less allowance for doubtful accounts of $327,000
       and $414,000)                                                          8,176,000     8,499,000
    Income taxes receivable                                                                   203,000
    Prepaid expenses and other assets                                           163,000       218,000
    Deferred taxes                                                              230,000       304,000
                                                                            -----------   -----------

          Total current assets                                               18,401,000    18,681,000

    Furniture, equipment and leasehold improvements, net                        378,000       319,000
    Excess of cost over fair value of net assets of businesses acquired       3,350,000     2,557,000
    Other intangible assets                                                     947,000       132,000
    Deposits and other assets                                                   138,000       110,000
    Investment in unconsolidated investee                                     2,010,000     2,622,000
                                                                            -----------   -----------

                                                                            $25,224,000   $24,421,000
                                                                            ===========   ===========

LIABILITIES
Current liabilities:
    Accounts payable and accrued expenses                                   $ 1,331,000   $ 1,315,000
    Income taxes payable                                                         22,000
    Estimated third-party payor settlements                                     195,000     1,078,000
                                                                            -----------   -----------

          Total current liabilities                                           1,548,000     2,393,000

    Deferred tax liability - noncurrent                                         316,000       524,000
                                                                            -----------   -----------

          Total liabilities                                                   1,864,000     2,917,000
                                                                            -----------   -----------

    Commitments, contingencies and other matters

STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; authorized 20,000,000 shares,
    issued 6,208,646 and 6,050,321 shares                                         6,000         6,000
Additional paid-in capital                                                   18,476,000    17,660,000
Retained earnings                                                             5,842,000     4,789,000
                                                                            -----------   -----------
                                                                             24,324,000    22,455,000

Less treasury stock (957,500 and 955,000 shares) - at cost                      964,000       951,000
                                                                            -----------   -----------

          Total stockholders' equity                                         23,360,000    21,504,000
                                                                            -----------   -----------

                                                                            $25,224,000   $24,421,000
                                                                            ===========   ===========
</TABLE>
                        See notes to financial statements


                                       F-3

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                   Year Ended July 31,
                                                      --------------------------------------------
                                                          1997            1996            1995
                                                      ------------    ------------    ------------
<S>                                                   <C>             <C>             <C>         
Net patient revenue                                   $ 35,070,000    $ 38,830,000    $ 24,556,000
                                                      ------------    ------------    ------------

Operating expenses:
    Cost of revenue                                     22,905,000      24,798,000      15,032,000
    General and administrative                           8,620,000      10,472,000       7,213,000
    Amortization of intangibles                            245,000         294,000         169,000
                                                      ------------    ------------    ------------

       Total operating expenses                         31,770,000      35,564,000      22,414,000
                                                      ------------    ------------    ------------

Income from operations                                   3,300,000       3,266,000       2,142,000
Other income:
    Gain resulting from subsidiary's stock offering                      1,548,000
    Interest income                                        446,000         412,000         410,000
    (Loss) from equity investee                           (612,000)        (10,000)
                                                      ------------    ------------    ------------

Income before income taxes                               3,134,000       5,216,000       2,552,000
Provision for income taxes                               1,278,000       1,859,000       1,126,000
                                                      ------------    ------------    ------------

Net income                                            $  1,856,000    $  3,357,000    $  1,426,000
                                                      ============    ============    ============

Net income per share of common stock                  $        .35    $        .65    $        .27
                                                      ============    ============    ============
</TABLE>







                        See notes to financial statements



                                       F-4

<PAGE>
                         NATIONAL HOME HEALTH CARE CORP.

           Consolidated Statements of Changes in Stockholders' Equity

[PART 1 OF 2]
<TABLE>
<CAPTION>
                                                            Common Stock                        
                                                     ------------------------                   
                                                                                  Additional
                                                     Number of                      Paid-In     
                                                      Shares        Amount          Capital     
                                                     ---------   ------------    ------------   
<S>                                                  <C>         <C>             <C>            
BALANCE AT JULY 31, 1994                             5,670,075   $      6,000    $ 15,544,000   
Net income                                                                                      
Acquisition of treasury shares, $3.25 per share                                                 
Exercise of common stock options                         3,000                          8,000
                                                     ---------   ------------    ------------   

BALANCE AT JULY 31, 1995                             5,673,075          6,000      15,552,000   
Net income                                                                                      
Stock dividend declared on October 21, 1996            288,414                      1,875,000   
Exercise of common stock options                        88,832                        233,000
                                                     ---------   ------------    ------------   

BALANCE AT JULY 31, 1996                             6,050,321          6,000      17,660,000   
Net income                                                                                      
Acquisition of treasury shares, $5.32 per share                                                 
Stock dividend declared on October 10, 1997            153,025                        803,000   
Exercise of common stock options                         5,300                         13,000
                                                     ---------   ------------    ------------   


BALANCE AT JULY 31, 1997                             6,208,646   $      6,000    $ 18,476,000   
                                                     =========   ============    ============   
</TABLE>

[PART 2 OF 2]
<TABLE>
<CAPTION>
                                                                               Treasury Stock
                                                                           ----------------------
                                                     
                                                         Retained         Number of
                                                         Earnings           Shares        Cost
                                                       ------------        -------   ------------ 
<S>                                                    <C>                 <C>       <C>          
BALANCE AT JULY 31, 1994                               $  1,881,000        891,000   $   (743,000)
Net income                                                1,426,000
Acquisition of treasury shares, $3.25 per share                             64,000       (208,000)
Exercise of common stock options                     
                                                       ------------        -------   ------------ 

BALANCE AT JULY 31, 1995                                  3,307,000        955,000       (951,000)
Net income                                                3,357,000
Stock dividend declared on October 21, 1996              (1,875,000)
Exercise of common stock options                     
                                                       ------------        -------   ------------ 

BALANCE AT JULY 31, 1996                                  4,789,000        955,000       (951,000)
Net income                                                1,856,000
Acquisition of treasury shares, $5.32 per share                              2,500        (13,000)
Stock dividend declared on October 10, 1997                (803,000)
Exercise of common stock options                     
                                                       ------------        -------   ------------ 


BALANCE AT JULY 31, 1997                               $  5,842,000        957,500   $   (964,000)
                                                       ============        =======   ============ 
</TABLE>

                        See notes to financial statements

                                       F-5
<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                             Year Ended July 31,
                                                                                   -----------------------------------------
                                                                                       1997           1996           1995
                                                                                   -----------    -----------    -----------
<S>                                                                                <C>            <C>            <C>        
Cash flows from operating activities:
    Net income                                                                     $ 1,856,000    $ 3,357,000    $ 1,426,000
    Adjustments to reconcile net income
       to net cash provided by operating activities:
          Depreciation and amortization                                                355,000        454,000        329,000
          Settlement for state income taxes                                                                         (300,000)
          Provision for doubtful accounts                                                             123,000        173,000
          Deferred tax                                                                (133,000)       410,000        120,000
          Gain on subsidiary's stock offering                                                      (1,548,000)
          Loss from equity investee                                                    612,000         10,000
          Changes in:
             Accounts receivable                                                       323,000       (544,000)      (688,000)
             Prepaid expenses and other assets                                          27,000        (65,000)      (130,000)
             Accounts payable, accrued expenses
                and other liabilities                                                   16,000       (337,000)        13,000
             Income taxes receivable/payable                                           225,000        207,000      2,553,000
             Estimated third-party payor settlements                                  (883,000)    (1,001,000)
                                                                                   -----------    -----------    -----------

                Net cash provided by operating activities                            2,398,000      1,066,000      3,496,000
                                                                                   -----------    -----------    -----------

Cash flows from investing activities:
    Purchase of furniture, equipment and leasehold
       improvements                                                                   (134,000)      (172,000)       (94,000)
    Proceeds of investments                                                             20,000        285,000      1,000,000
    Purchase of assets of businesses                                                (1,889,000)                     (225,000)
    Purchase of Nurse Care, Inc., net of cash acquired                                             (2,595,000)
                                                                                   -----------    -----------    -----------

                Net cash (used in) provided by investing activities                 (2,003,000)    (2,482,000)       681,000
                                                                                   -----------    -----------    -----------

Cash flows from financing activities:
    Decrease in notes receivable                                                                    1,039,000        243,000
    Purchase of treasury shares                                                        (13,000)                     (208,000)
    Proceeds from exercise of stock options                                             13,000        233,000          8,000
    Cash of subsidiary at date of stock offering                                                     (164,000)
                                                                                   -----------    -----------    -----------

                Net cash provided by financing activities                                - 0 -      1,108,000         43,000
                                                                                   -----------    -----------    -----------

Net increase (decrease) in cash and cash equivalents                                   395,000       (308,000)     4,220,000
Cash and cash equivalents - beginning of year                                        8,929,000      9,237,000      5,017,000
                                                                                   -----------    -----------    -----------

Cash and cash equivalents - end of year                                            $ 9,324,000    $ 8,929,000    $ 9,237,000
                                                                                   ===========    ===========    ===========

Supplemental  disclosures  of cash flow  information:  
    Cash paid during the year for:
       Interest                                                                    $    11,000    $    14,000    $    13,000
       Taxes                                                                       $ 1,584,000    $ 1,677,000    $   618,000
</TABLE>

SUPPLEMENTAL  DISCLOSURE OF NONCASH  INVESTING  AND  FINANCING  ACTIVITIES - SEE
NOTES 5 AND 6.

                        See notes to financial statements


                                       F-6

<PAGE>


                        NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT  ACCOUNTING  POLICIES AND
         ACQUISITION

NATURE OF BUSINESS:

National Home Health Care Corp. and  subsidiaries  (the "Company") is a provider
of home health care services,  including  nursing care,  personal care and other
specialized  therapies.  Up until May 1996,  the Company  was also  engaged as a
provider of outpatient medical services, see Note 5.

PRINCIPLES OF CONSOLIDATION:

The  consolidated  financial  statements  include the accounts of National  Home
Health  Care  Corp.  and  its  wholly  owned   subsidiaries.   All   significant
intercompany  accounts and transactions have been eliminated in the consolidated
financial  statements.  During the fourth  quarter of fiscal 1996, the Company's
interest in its previously  wholly owned subsidiary,  which provided  outpatient
medical  services,  was  reduced  to  37.6%.  Accordingly,   the  Company  began
accounting for this entity using the equity method.

REVENUE RECOGNITION:

Net patient  revenue is recorded at the  estimated  net  realizable  amount from
third-party payors and patients.

Under  Medicare  and  Medicaid  cost  reimbursement  programs,  the  Company  is
reimbursed  for services  rendered to covered  patients.  Revenues  derived form
these  programs  are based in part,  on cost  reimbursement  principles  and are
subject to  examination  and  retroactive  adjustment.  Management  continuously
evaluates  the  outcome  of  these   reimbursement   examinations  and  provides
allowances  for  any  potential  adjustments.  In  the  opinion  of  management,
retroactive adjustments, if any, would not be material to the financial position
or results of operations of the Company.

Approximately 39%, 39% and 13% of net patient revenue for the fiscal years ended
July 31, 1997, 1996 and 1995, respectively, were derived under federal and state
third-party reimbursement programs.

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 AND LEASEHOLD IMPROVEMENTS:

Furniture, equipment and leasehold 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.

EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF BUSINESS ACQUIRED:

The  excess of cost over the fair  value of net assets  acquired  (goodwill)  is
being  amortized  over a  period  of 20 to 40 years  on a  straight-line  basis.
Goodwill is  evaluated  periodically  and adjusted if  necessary,  if events and
circumstances  indicate  that a  permanent  decline in value  below the  current
unamortized historical cost has occurred.


                                       F-7

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.


NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995

EARNINGS (LOSS) PER COMMON SHARE:

Earnings (loss) per common share are computed using the weighted  average number
of common shares and dilutive  common stock  equivalents  (options)  outstanding
during  each  period  after  giving  retroactive  effect to the  stock  dividend
declared  in October  1997.  During the three  years  ended July 31,  1997,  the
options  were  not  materially  dilutive.  The  number  of  shares  used  in the
calculation  of earnings  (loss) per share are 5,250,242 for the year ended July
31, 1997,  5,186,985 for the year ended July 31, 1996 and 5,202,144 for the year
ended July 31, 1995.

INVESTMENTS:

The Company's  investments  are accounted  for in accordance  with  Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity  Securities"  which  requires that,  except for debt  securities
classified  as  "held-to-maturity  securities",  investments  in debt and equity
securities be reported at fair value.

Investment  securities  available  for  sale at  July  31,  1997  and  1996  are
summarized as follows:


                                                            1997       1996
                                                               Amortized
                                                                Cost (1)
                                                          --------   --------
Floating rate debentures issued by New York State, 
     maturing in one to five years                        $160,000   $160,000
Floating rate debentures issued by New York State, 
     maturing in five to ten years                         160,000    170,000
Floating rate debentures issued by New York State, 
     maturing after ten years                              170,000    180,000
Other                                                       18,000     18,000
                                                          --------   --------
                                                          $508,000   $528,000
                                                          ========   ========


(1)   Amortized  cost  approximates  market  value.  Accordingly,  there  is  no
      unrealized holding gain or loss.


                                       F-8

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.


NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 1 - NATURE OF BUSINESS  AND SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES 
         (CONTINUED)

RECLASSIFICATIONS:

Certain items in the 1995 and 1996 financial  statements have been  reclassified
to conform to the 1997 presentation.

FAIR VALUE OF FINANCIAL INSTRUMENTS:

The  carrying  amount  reported  in the  consolidated  balance  sheets for cash,
accounts receivable,  accounts payable and accrued liabilities approximates fair
value  because  of  the  immediate  or  short-term  maturity  of  the  financial
instruments.

RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS:

In March 1995 and October 1995, the Financial  Accounting Standards Board issued
Statement of Financial  Accounting  Standards No. 121 ("SFAS 121"),  "Accounting
for the  Impairment  of Long Lived  Assets  and for the Long Lived  Assets to be
Disposed  of", and  Statement of Financial  Accounting  Standards No. 123 ("SFAS
123"),  "Accounting for  Stock-Based  Compensation",  respectively.  The Company
adopted SFAS 121 and SFAS 123 in fiscal  1997.  Adoption did not have a material
impact on its  financial  statements.  The Company will  continue to account for
employee stock-based compensation in accordance with Accounting Principles Board
Opinion No. 25,  "Accounting  for Stock  Issued to  Employees"  using  intrinsic
values with  appropriate  disclosures  in conformity  with the fair values based
method of SFAS 123.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

In February 1997, the Financial  Accounting  Standards Board issued Statement of
Financial  Accounting Standard No. 128 ("SFAS 128"),  "Earnings per Share". SFAS
128 is effective for financial  statements issued for interim and annual periods
ending after  December 15,  1997.  Earlier  application  is not  permitted.  The
Company  believes  adoption  of SFAS 128 will not have a material  impact on its
financial statements.

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  goodwill,  depreciable  assets  and  valuation
reserves for accounts receivable and deferred tax assets.



                                       F-9

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.


NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 1 - NATURE OF BUSINESS  AND SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES 
        (CONTINUED)

WORKERS COMPENSATION:

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

STOCK DIVIDEND:

On October  21,  1996,  the  Company's  Board of  Directors  declared a 6% stock
dividend  payable on December 4, 1996 for  shareholders of record as of November
8, 1996.  A total of 288,414  shares of common  stock were issued in  connection
with  the  dividend.  All  stock  related  data  in the  consolidated  financial
statements reflect the stock dividend for all periods presented.

On October  10,  1997,  the  Company's  Board of  Directors  declared a 3% stock
dividend  payable on December 8, 1997 for  shareholders of record as of November
6, 1997. A total of 153,025  shares of common stock will be issued in connection
with  the  dividend.  All  stock  related  data  in the  consolidated  financial
statements reflect the stock dividend for all periods presented.

                                      F-10

<PAGE>

                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 2 - FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Furniture,  equipment  and  leasehold  improvements  are  stated at cost and are
summarized as follows:


                                                                  July 31,
                                                           ---------------------
                                                             1997         1996
                                                           --------     --------
Equipment, furniture and fixtures                          $753,000     $614,000
Leasehold improvements                                      159,000      130,000
                                                           --------     --------
                                                            912,000      744,000

Less accumulated depreciation and amortization              534,000      425,000
                                                           --------     --------

    Balance                                                $378,000     $319,000
                                                           ========     ========


The net book value of furniture and equipment held under capital leases was $-0-
and  $20,000  at July 31,  1997 and July 31,  1996,  respectively.  Depreciation
expense includes depreciation on assets held under capital leases.


NOTE 3 - EXCESS OF COST OVER FAIR VALUE

Changes  in the  excess  of cost  over fair  value of net  assets of  businesses
acquired during the three years ended July 31, 1997 are as follows:

<TABLE>
<CAPTION>
                                                                     Year Ended
                                                                      July 31,
                                                    -----------------------------------------
                                                        1997           1996           1995
                                                    -----------    -----------    -----------
<S>                                                 <C>            <C>            <C>        
Balance - beginning of year                         $ 2,557,000    $ 1,036,000    $ 1,073,000
Consideration for acquisition                           929,000      2,049,000
Reduction from subsidiary stock offering (Note 5)                     (392,000)
Amortization                                           (136,000)      (136,000)       (37,000)
                                                    -----------    -----------    -----------

Balance - end of year                               $ 3,350,000    $ 2,557,000    $ 1,036,000
                                                    ===========    ===========    ===========
</TABLE>



                                      F-11

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 4 - OTHER INTANGIBLE ASSETS

Other intangible assets are as follows:


                                                                July 31,
                                                        -----------------------
                                                           1997         1996
                                                        ----------   ----------
            Covenants not to compete                    $  775,000   $  400,000
            Personnel files                                678,000      478,000
            Patient files                                  352,000        2,000
                                                        ----------   ----------
                                                      
                                                         1,805,000      880,000
                                                      
            Less accumulated amortization                  858,000      748,000
                                                        ----------   ----------
                                                      
                                                        $  947,000   $  132,000
                                                        ==========   ==========
                                          

                                      F-12

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 4 - OTHER INTANGIBLE ASSETS  (CONTINUED)

Other  intangible  assets  increased  during  fiscal 1997 as a result of certain
acquisitions  and  decreased  during  fiscal 1996 as a result of the  subsidiary
stock  offering.   Other  intangible   assets  are  being  amortized  using  the
straight-line method over a period of 3 to 10 years.


NOTE 5 - SUBSIDIARY STOCK OFFERING

In January 1996,  the  outpatient  medical  service  business of the Company was
reorganized as SunStar  Healthcare,  Inc.  ("SunStar"),  a newly-formed,  wholly
owned subsidiary of the Company. The Company reduced its ownership percentage of
SunStar to 37.6%  through a public  offering of  1,495,000  shares at a price of
$5.00  per  share,  aggregating  approximately  $6,083,000,   net  of  expenses.
Subsequent to the  offering,  the Company is  accounting  for its  investment in
SunStar using the equity method of  accounting.  In  connection  with  SunStar's
public  stock  offering,  the Company  recorded a gain before tax of  $1,548,000
representing  the net  increase  in book value of the  Company's  investment  in
SunStar at that date.  Deferred  income taxes of $524,000  have been provided on
the gain.

Summarized financial data of SunStar for the years ended July 31 are as follows:


                                                     1997           1996 
                                                 -----------    -----------
      Total current assets                       $ 5,105,000    $ 6,403,000
      Total assets                                 6,371,000      7,499,000
      Total current liabilities                      881,000        505,000
      Total liabilities                              989,000        522,000
      Total revenues                               4,729,000      5,080,000
      Net (loss)                                  (1,631,000)      (222,000)
      Market value of the Company's investment     4,500,000*     4,233,000*

-------------
*    The market  value of the  Company's  investment  is based on quoted  market
     prices and does not  necessarily  represent the amount that may be realized
     upon disposition of the investment.

NOTE 6 - ACQUISITIONS

On March 25, 1997, the Company  acquired certain assets of C.J. Home Care, Inc.,
d/b/a Garden City Home Care, for approximately  $677,000,  including acquisition
costs of $27,000. The assets purchased consisted of personnel files of $100,000,
patient files of $50,000,  furniture and equipment of $10,000,  covenants not to
compete of $200,000 and goodwill of $317,000.

On May 29, 1997, the Company acquired certain assets of Home Health Aides,  Inc.
and H.H.A.  Aides,  Inc., for approximately  $1,212,000,  including  acquisition
costs of $77,000. The assets purchased consisted of personnel files of $100,000,
patient files of $300,000,  furniture and equipment of $25,000,  covenant not to
compete of $175,000 and goodwill of $612,000.

The above  acquisitions  have been accounted for utilizing  purchase  accounting
principles.  Accordingly,  the results of these operations have been included in
the  accompanying   consolidated   financial   statements  since  the  dates  of
acquisition.

Had the  operations of the above  acquisitions  been acquired on August 1, 1995,
there would have been no material effect on the  consolidated  operations of the
Company for the years ended July 31, 1997 and July 31, 1996.


                                      F-13

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995

NOTE 6 - ACQUISITIONS - (CONTINUED)

On August 4, 1995, the Company acquired all of the outstanding  common shares of
Nurse Care,  Inc.,  the parent  company of New  England  Home Care,  Inc.  ("New
England").  New England is a licensed  and Medicare  certified  home health care
agency  providing  services in Fairfield and New Haven  counties in the State of
Connecticut. The purchase price of $3,150,000 was generated from internal funds.
The  acquisition  was accounted for as a purchase and the excess of the purchase
price over the fair value of the assets acquired,  $2,049,000,  was allocated to
goodwill.

The  following   unaudited  pro  forma  consolidated   statement  of  operations
information  gives effect to the  acquisition  described  above as though it had
occurred  on  August 1,  1994,  after  giving  effect  to  certain  adjustments,
including  amortization of goodwill of $102,000,  decrease in interest income of
$189,000,  elimination of former shareholder  compensation of $250,000,  benefit
from  additional  third-party  reimbursement  of  $200,000  and income  taxes of
$104,000.  The unaudited pro forma  financial  information  may not  necessarily
reflect the results of operations  that would have occurred had the  acquisition
occurred on August 1, 1994:


                     Net patient revenue      $ 40,547,000
                     Operating expenses        (37,777,000)

                     Income from operations   $  2,770,000
                                              ============

                     Net income               $  1,632,000
                                              ============

                     Net income per share         $    .34
                                                  ========

In March 1995, the Company purchased certain assets of a company engaged in home
health  care  services  for  an  aggregate  purchase  price  of  $250,000.   The
acquisition was accounted for as a purchase;  $25,000 was allocated to furniture
and  equipment,  $200,000 to a covenant  not to compete and $25,000 to personnel
files.  Had the  operations  of the company been  acquired as of August 1, 1994,
there would have been no material effect on the  consolidated  operations of the
Company for the year ended July 31, 1995.


NOTE 7 -  INCOME TAXES

The provision for income taxes is summarized as follows:


                                                     Year Ended
                                                      July 31,
                                  ----------------------------------------------
                                      1997              1996             1995
                                  -----------       -----------      -----------
Current:
    Federal                       $ 1,156,000       $ 1,340,000      $   515,000
    State and local                   255,000           109,000          491,000
                                  -----------       -----------      -----------
                                    1,411,000         1,449,000        1,006,000
Deferred                             (133,000)          410,000          120,000
                                  -----------       -----------      -----------

                                  $ 1,278,000       $ 1,859,000      $ 1,126,000
                                  ===========       ===========      ===========



                                      F-14
<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 7 -  INCOME TAXES  (CONTINUED)

Deferred  income taxes reflect the tax impact of temporary  differences  between
the amounts of assets and liabilities for financial  reporting purposes and such
amounts as measured by tax laws and  regulations.  The principal items making up
the deferred income tax expense (benefit) are as follows:


                                                          Year Ended
                                                           July 31,
                                             -----------------------------------
                                                1997         1996         1995
                                             ---------    ---------    ---------
Loss from equity investee                    $(208,000)
State tax net operating loss carryforwards      75,000    $(114,000)   $ 120,000
Tax on gain from sale of subsidiary stock                   524,000
                                             ---------    ---------    ---------

                                             $(133,000)   $ 410,000    $ 120,000
                                             =========    =========    =========


The deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
                                                         July 31,
                                          -----------------------------------------
                                                1997                  1996
                                          -------------------   -------------------
                                          Assets  Liabilities   Assets  Liabilities
                                          ------  -----------   ------  -----------
<S>                                      <C>                   <C>              
Accrued liability and reserves           $191,000       --     $190,000       --
State net operating loss carryforwards     39,000       --      114,000       --
Investment in unconsolidated investee        --     $316,000       --     $524,000
                                         --------   --------   --------   --------
                                          230,000    316,000    304,000    524,000
Valuation allowance                         - 0 -       --        - 0 -       --
                                         --------   --------   --------   --------
                                         $230,000   $316,000   $304,000   $524,000
                                         ========   ========   ========   ========
</TABLE>


One  subsidiary  of the Company has incurred  losses which can be used to offset
state taxable  income  through  2012. At July 31, 1997 total net operating  loss
carryforward as applicable to Connecticut amounted to approximately $550,000.


                                      F-15

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995

NOTE 7 - INCOME TAXES (CONTINUED)

The  reconciliation  of the statutory tax rate to the effective tax rate for the
three years ended July 31, 1997 is as follows:


                                                    1997    1996    1995
                                                    ----    ----    ----
Statutory rate                                       34%     34%     34%
State and local taxes (net of federal tax effect)     5       1      12
Federal tax credit                                   (2)             (5)
Other                                                 4       1       3
                                                    ---     ---     ---

Effective rate                                       41%     36%     44%
                                                    ===     ===     ===


NOTE 8 - CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS

Most of the  Company's  business  is with  customers  who are in the health care
industry and with governmental agencies.

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

At July 31, 1997, the Company maintained  approximately 49% of its cash and cash
equivalents with one financial institution.

Under certain federal and state third-party  reimbursement programs, the Company
received  net  patient  revenues  approximating  $13,610,000,   $15,211,000  and
$3,125,000  for the years ended July 31, 1997,  July 31, 1996 and July 31, 1995,
respectively.  The Company also received net patient  revenues of  approximately
$7,624,000,  $9,275,000 and  $9,933,000 for the years ended July 31, 1997,  July
31, 1996 and July 31, 1995,  respectively,  from a private company.  At July 31,
1997, the Company had an aggregate  outstanding  receivable from the federal and
state  reimbursement  programs of $2,206,000  and an  outstanding  receivable of
$1,989,000 from the private company.


NOTE 9 - STOCK OPTION PLAN

In 1992, the stockholders  approved the 1992 Stock Option Plan (the "1992 Plan")
designed to provide an  incentive  to key  employees  (including  directors  and
officers who are key  employees)  and to Directors  who are not employees of the
Company.   The  1992  Plan   authorizes  the  granting  of  both  incentive  and
nonqualified  stock  options to purchase up to 500,000  shares of the  Company's
common stock.

The 1992  Plan is  administered  by the  Compensation  Committee  which  has the
authority to determine when options are granted, the term during which an option
may be  exercised  (provided  no option has a term  exceeding  ten  years),  the
exercise price and the exercise  period.  The exercise price shall generally not
be less  than the fair  market  value on the date of  grant.  No  option  may be
granted under the 1992 Plan after August 16, 2002.

During 1995,  283,502 options previously granted under another stock option plan
were cancelled upon  termination of that plan and replaced with 283,502  options
granted under the 1992 Plan.

At July 31,  1997,  432,868  shares  of the  Company's  common  stock  have been
reserved for future issuance pursuant to the 1992 Plan.


                                      F-16

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 9 - STOCK OPTION PLAN (CONTINUED)

The Company applies APB Opinion 25 and related Interpretations in accounting for
its options. Accordingly, no compensation cost has been recognized for its stock
option grants.  Had compensation cost for the Company's stock option grants been
determined based on the fair value at the grant dates for awards consistent with
the method of SFAS 123, the  adjustment to the Company's net income and earnings
per share would not be material.


                                      F-17

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 9 - STOCK OPTION PLAN (CONTINUED)

A summary of the status of the Company's stock options as of July 31, 1997, 1996
and 1995 and changes during the years ending on those dates is presented below:

<TABLE>
<CAPTION>
                                        1997                      1996                    1995
                               ---------------------      -------------------      -----------------
                                            Weighted-                 Weighted-              Weighted-
                                             Average                   Average                Average
                                            Exercise                   Exercise               Exercise
                Options        Shares         Price        Shares       Price      Shares      Price
               ---------       -------       -------       ------      -------     ------     ------
<S>                            <C>           <C>           <C>        <C>          <C>        <C>  
Outstanding at beginning of                                                       
    year                       203,982       $2.85(1)      295,502    $2.77        300,502    $3.22
Granted                                                     12,000    $6.25        286,502    $2.69
Exercised                      (5,300)       $2.47         (88,832)   $2.63         (3,000)   $2.63
Forfeited                                                  (26,234)   $2.91       (288,502)   $2.72
                               -------                    --------                --------
Outstanding at end of year     198,682       $2.86         192,436    $3.03        295,502    $2.77
Options exercisable at                                                            
    year-end                   198,682       $2.86         192,436    $3.03        295,502    $2.77
Weighted-average fair value                                                   
    of options granted during
    the year                                                          $2.53
</TABLE>


(1)  Adjusted for 6% stock dividend declared in October 1996.

The following table summarizes  information  about stock options  outstanding at
July 31, 1997:


                                  Options Outstanding and Exercisable
                                  -----------------------------------
                            Shares           Weighted-          Weighted -
                          Outstanding          Average            Average
     Range                    at             Remaining           Exercise
Exercise Prices          July 31, 1997    Contractual Life         Price
---------------          -------------    -----------------    ------------
$2.47 - $2.71                175,362           2 years             $2.58
$3.88                         10,600           5 years             $3.88
$5.88                        12,720            9 years             $5.88
                           ---------           -------             -----
                             198,682           3 years             $2.86


                                      F-18

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 10 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS

[a]   Effective  April 1, 1997 the Company  amended and restated  the  Company's
      Employee  Savings and Stock Investment Plan organized under Section 401(k)
      of the Internal Revenue Code. Under the new plan, employees may contribute
      up to 15% of their  salary into the plan,  limited to the  maximum  amount
      allowable  under federal tax  regulations.  The Company will match 100% of
      employees  contributions;  provided,  that in no event shall the  matching
      contributions  on behalf of any  employee  exceed 2.5% of each  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 each of the years ended
      July 31, 1997, July 31, 1996 and July 31, 1995 were  $135,000,$122,000 and
      $59,000, respectively.

[b]   The Company has an employment  agreement  with an officer which expires in
      April 1998. The aggregate commitment for future salary, excluding bonuses,
      under the agreement is $213,750. The agreement also provides for increases
      based on increases in the consumer price index and additional compensation
      of up to $150,000 based on 5% of pre-tax income, as defined,  in excess of
      $3,000,000.

[c]   The Company rents various office  facilities  through 2000 under the terms
      of several lease agreements which include escalation clauses.

      At July 31, 1997, minimum annual rental  commitments under  noncancellable
      operating leases are as follows:


                     Year Ending        
                      July 31,                
                      --------                
                        1998                   $326,000
                        1999                    156,000
                        2000                     80,000
                                               --------
                                               $562,000
                                               ========
                                            
      Rent expense for the years ended July 31, 1997, July 31, 1996 and July 31,
      1995 was approximately $435,000, $655,000 and $584,000, respectively.

      One lease is with a company  controlled by the Company's  Chief  Executive
      Officer. Rent expense under such lease approximates $123,000 per year.

[d]   The  Company  has a line of  credit  with its bank  totalling  $2,000,000.
      Advances  against the line are to be  collateralized  by the assets of the
      Company.  In addition,  a subsidiary  of the Company has a secured line of
      credit.  The maximum amount that can be borrowed under the secured line of
      credit  shall not exceed the lesser of  eligible  accounts  receivable  or
      $2,000,000.  Both credit  facilities  bear interest at the alternate  base
      commercial  lending rate of the bank and expire January 30, 1998 . At July
      31, 1997, there were no outstanding balances under either line of credit.


NOTE 11 - SEGMENT INFORMATION

The Company's operations are in home health care services and, through May 1996,
outpatient medical services.  Home health care services are performed in the New
York  metropolitan  area and in the  State of  Connecticut.  Outpatient  medical
services were performed in Brevard and Volusia  County,  Florida.  Subsequent to
the Company's sale of its majority

                                      F-19

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


ownership in SunStar Healthcare, Inc., during the fourth quarter of fiscal 1996,
such operations are not consolidated and,  accordingly,  are not included in the
following segment information.









                                      F-20

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.


NOTES TO FINANCIAL STATEMENTS
July 31, 1997, 1996 and 1995


NOTE 11 - SEGMENT INFORMATION  (CONTINUED)

Revenue,  operating  expenses  and  income  from  operations  pertaining  to the
Company's operations are as follows:


                                                       Year Ended
                                                        July 31,
                                         ---------------------------------------
                                             1997          1996          1995
                                         -----------   -----------   -----------
Net patient revenue:
    Home health care services            $35,070,000   $35,137,000   $19,428,000
    Outpatient medical services                          3,693,000     5,128,000
                                         -----------   -----------   -----------
                                          35,070,000    38,830,000    24,556,000
                                         -----------   -----------   -----------
Operating expenses:
    Home health care services             31,720,000    31,968,000    17,379,000
    Outpatient medical services                          3,596,000     5,035,000
                                         -----------   -----------   -----------
                                          31,720,000    35,564,000    22,414,000
                                         -----------   -----------   -----------
Income from operations:
    Home health care services              3,350,000     3,241,000     2,049,000
    Outpatient medical services                             25,000        93,000
                                         -----------   -----------   -----------

                                         $ 3,350,000   $ 3,266,000   $ 2,142,000
                                         ===========   ===========   ===========



                                      F-21

<PAGE>



INDEPENDENT AUDITORS' REPORT ON SCHEDULE



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


The  audits  referred  to  in  our  report  dated  September  26,  1997  on  the
consolidated  financial  statements  of  National  Home  Health  Care Corp.  and
subsidiaries,  which appears in Part II, also  included  Schedule II for each of
the years in the  three-year  period ended July 31, 1997.  This  schedule is the
responsibility of the Company's management.  Our responsibility is to express an
opinion based on our audits. In our opinion,  the financial  statement  schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole,  presents fairly in all material  respects the information set
forth therein,  in compliance with the applicable  accounting  regulation of the
Securities and Exchange Commission.



/s/  Richard A. Eisner & Company, LLP

New York, New York
September 26, 1997

                                      F-22

<PAGE>


                         NATIONAL HOME HEALTH CARE CORP.

SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
<CAPTION>
                COLUMN A                                   COLUMN B               COLUMN C             COLUMN D        COLUMN E
----------------------------------------------------------------------------------------------------------------------------------
                                                                                 Additions
                                                                          -------------------------
                                                                               (1)        (2)
                                                            Balance       -------------------------
                                                               at                       Charged to                    Balance
                                                           beginning      Charged to      other                         at
                                                               of          costs and    accounts -   Deductions -     end of
                                                             period        expenses      describe      describe       period
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                                         <C>          <C> <C>      
Description 
  Year ended July 31, 1997:
    Reserve and allowance deducted from asset account
     and allowance for uncollectible accounts             $  414,000                                  $   (87,000) (1) $ 327,000
                                                          ==========                                  ===========      ========
  Year ended July 31, 1996:
    Reserve and allowance deducted from asset account
     and allowance for uncollectible accounts             $  439,000  (2)   $ 123,000                 $  (148,000) (1) $ 414,000
                                                          ==========        =========                 ===========      ========
  Year ended July 31, 1995:
    Reserve and allowance deducted from asset account
     and allowance for uncollectible accounts             $   84,000        $ 173,000                 $  (158,000) (1) $  99,000
                                                          ==========        =========                 ===========      =========
(1)  Represents actual write-offs.
(2)  Includes $340,000 acquired in acquisition of Nurse Care, Inc.

</TABLE>







See accompanying notes to financial statements

                                      F-23
<PAGE>



Exhibit                                                                    Page
Number                           Document                                 Number
------                           --------                                 ------

3.1       Certificate of Incorporation (1)
3.2       Certificate of Amendment to Certificate of Incorporation (2)
3.3       By-laws (1)
10.1      1992 Stock Option Plan (3)
10.2      Incentive Stock Option Plan (3)
10.3      Agreement dated January 1, 1994 between Allen Health Care
          Services and VNS Home Care (4)
10.4      Employment Agreement dated August 1993 between the
          Registrant and Steven Fialkow (3)
10.5      First Amendment dated as of July 1, 1996 to Employment
          Agreement dated August 1993 between the Registrant and
          Steven Fialkow (8)
10.6      Employment Agreement dated as of July 1, 1996 between the
          Registrant and Robert P. Heller (8)
10.7      Employment Agreement dated August 1993 between the
          Registrant and Richard Garofalo (3)
10.8      First Amendment dated as of July 1, 1996 to Employment
          Agreement dated August 1993 between the Registrant and
          Richard Garofalo (8)
10.9      Employment Agreement dated August 1993 between the
          Registrant and Thomas Smith (3)
10.10     First Amendment dated as of July 1, 1996 to Employment
          Agreement dated August 1993 between the Registrant and
          Thomas Smith (8)
10.11     Agreement between Division of Social Services of Suffolk
          County and Health Acquisition Corp. (5)
10.12     Agreement between Nassau County Department of Social
          Services and Allen Health Care Services (2)
10.13     Agreement dated January 1, 1994 between Catholic Medical
          Center of Brooklyn and Queens, Inc. (4)




<PAGE>



Exhibit                                                                    Page
Number                           Document                                 Number
------                           --------                                 ------

10.14     Letter Agreement dated March 15, 1995 securing a line of
          credit from the Bank of New York (7)
10.15     Letter dated June 1, 1992 from Public Health Council of the
          State of New York Department of Health to Health
          Acquisition Corp. d/b/a Allen Health Care Services (2)
10.16     Letter from Joint Commission on Accreditation of Healthcare
          Organizations awarding accreditation to Allen Health Care,
          dated September 20, 1993                  (3)
10.17     1993 401(k) Plan, as amended on April 1, 1997.
10.18     Letter Agreement between National HMO (New York),
          Inc. and Boro Medical, P.C. dated November 12, 1993 (3)
10.19     Asset Purchase Agreement among National HMO (New
          York), Inc., National HMO Corp. of Elizabeth, Inc., Boro
          Medical, P.C. and Boro Health Care of Union, P.C. dated
          April 30, 1994 (4)
10.20     Agreement for the Purchase of the Stock of Nurse Care, Inc.
          and Related Transactions (6)
10.21     Employment Agreement dated as of August 1, 1995 between
          New England and Aileen O'Connell (6)
10.22     Letter Agreement dated February 20, 1997 providing a
          Secured Advised Line of Credit from the Bank of New York
          to National Home Health Care Corp. (9)
10.23     Letter Agreement dated February 20, 1997 providing a
          Secured Advised Line of Credit from the Bank of New York
          to New England Home Care, Inc. (9)
10.24     Asset Purchase Agreement dated December 24, 1996 by and
          between Health Acquisition Corp. and C.J. Home Care, d/b/a
          Garden City Home Care. (9)
10.25     Asset Purchase Agreement dated February 19, 1997 among
          Home Health Aides, Inc., H.H.A. Aides, Inc., and Health
          Acquisition Corp. d/b/a Allen Health Care Services. (10)
21.1      List of Subsidiaries




<PAGE>



Exhibit                                                                    Page
Number                           Document                                 Number
------                           --------                                 ------

23.1      Consent of Richard A. Eisner & Co., LLP
23.2      Consent of KPMG Peat Marwick LLP
27        Financial Data Schedule

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

(2)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1992.

(3)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1993.

(4)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1994.

(5)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1991.

(6)   Incorporated  by  reference to the  Registrant's  Report on Form 8-K dated
      August 4, 1995.

(7)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1995.

(8)   Incorporated by reference to the  Registrant's  Annual Report on Form 10-K
      for the fiscal year ended July 31, 1996.

(9)   Incorporated  by reference to the  Registrant's  Quarterly  Report on Form
      10-Q for the quarter ended January 31, 1997.

(10)  Incorporated  by reference to the  Registrant's  Quarterly  Report on Form
      10-Q for the quarter ended April 30, 1997.