SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X]  Annual Report  Pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended May 31, 1997

[_]  Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange Act of 1934 for the transition period from _______ to _______

                         Commission File Number 1-10751

                         STAR MULTI CARE SERVICES, INC.
                  (Name of small business issue in its charter)

            New York                                            11-1975534
(State or other jurisdiction of                              (I.R.S. Employer
-------------------------------                              ----------------
 incorporation or organization)                              Identification No.)

99 Railroad Station Plaza, Hicksville, New York                    11801
-----------------------------------------------                    -----
   (Address of principal executive office)                       (Zip Code)

Issuer's telephone number, including area code:               (516) 938-2016
                                                              --------------

Securities registered pursuant to Section 12(b) of the Exchange Act:

       Title of Each Class             Name of each exchange on which registered

Common Stock, par value $.001 per share   Nasdaq National Market System
---------------------------------------   -------------------------------------

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

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Securities  Exchange  Act  during the past 12 months (or for
such shorter period that the registrant was required to file such reports),  and
(2) has been subject to such filing requirement for the past 90 days. 
Yes [X] No [_]

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-K contained in this form, and no disclosure  will 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. [_]

On August 27, 1997 the aggregate  market value of the Common Stock of Star Multi
Care Services,  Inc. held by non-affiliates  (2,580,790  shares) was $12,323,272
(based upon the average bid and asked prices of the Common
Stock on such date on the Nasdaq National Market System).

As of August 27,  1997,  the  Registrant  had  4,112,478  shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the issuer's  Definitive Proxy Statement for the 1997 Annual Meeting
of  Shareholders  of the Company are  incorporated  by  reference  into Part III
hereof.




<PAGE>



                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS
-------------------------------

GENERAL

           Star Multi Care Services,  Inc. (the "Company") is in the business of
providing  placement  services of registered and licensed nurses and home health
aides to  patients  for care at home  ("Home  Care")  and,  to a lesser  extent,
temporary  health care  personnel  recruiting  to  hospitals  and nursing  homes
("Hospital  Staffing").   In  addition,  the  Company  maintains  registries  of
registered  nurses,  licensed  practical nurses,  nurses' aides,  certified home
health  aides and  certified  personal  care workers  from which  personnel  are
recruited on a per diem basis to meet the requirements of the Company's clients.

           Prior to its acquisition by present management in 1987, the Company's
business  related  primarily  to  providing  private  duty nurses to patients in
hospitals and staffing to hospitals.  Under its current management,  the Company
expanded its Hospital  Staffing  arrangements  to nursing  homes and  additional
hospitals to provide  licensed  nurses on a per diem basis for general staff. In
1988, the Company  further  extended its Hospital  Staffing  business to include
providing  licensed  practical  nurses and nurses'  aides.  In 1989, the Company
began  providing  Home Care services in New York City pursuant to a license from
the New York State Health  Department.  In 1990,  the Company  expanded its Home
Care  services to include  transportation  of patients  from hospital to home in
ambulettes,  arrangements to purchase and supply equipment and  pharmaceuticals,
as prescribed by the patients' physicians,  and home infusion care. In 1991, the
Company was  licensed by the New York State  Department  of Health to operate an
office in Nassau County, New York.

           In 1992, the Company expanded its existing Home Care business through
the acquisition of certain assets from Unity Healthcare  Holding  Company,  Inc.
and its subsidiaries  ("Unity"),  including contract rights to provide Home Care
services through various hospitals,  community agencies and other  institutional
health care  providers.  These contract  rights  complemented  the existing home
health care  businesses  of the Company in areas such as New Jersey and New York
where the Company already operated. In addition, in these locations, the Company
obtained from Unity client referral lists to further expand existing operations.

           In addition to expanding the Company's  existing  regional  business,
the Unity acquisition added new operations to the Company in new locations.  The
Company acquired  Unity's Florida  operations,  which included  certification to
receive  reimbursement  from Medicare and Medicaid in Broward and Dade Counties.
Most of such  Medicare and Medicaid  reimbursed  operations  are located in Dade
County. The Company also acquired the assets representing  Unity's operations in
Florida that do not have Medicare and Medicaid certification,  but which operate
under state license.

           In 1993, the Company further expanded its existing Home Care business
through the  acquisition  of certain  assets of DSI Health Care  Services,  Inc.
("DSI") including  contract rights to provide Home Care services through various
hospitals,  community  agencies and other  institutional  health care providers.
These contract rights  complimented the Company's  existing Home Care businesses
in the Long Island, New York area.

           In May 1995,  the  Company  acquired  certain  assets of Long  Island
Nursing  Registry,  Inc.  ("LINR")  thereby  further  expanding  its  Home  Care
business. LINR provided nursing and other skilled health care services with both
Medicaid and non-Medicaid reimbursement eligibility compatible with the business
of the Company.  LINR  maintains  offices and does business  under the Company's
name in the Long Island area and as Comprehensive  Care America in the Syracuse,
New York area. The acquired assets included all of the fixed


                                       -2-

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assets,  certain of the contract and intellectual property rights and all of the
records, lists, files and books (including certain customer and personnel lists)
with  respect to or in  connection  with the health care  business  conducted by
LINR. The  acquisition  expanded the Company's New York market area into Suffolk
County,  augmented its presence in Nassau County and gave it significant  market
share in central New York.

           During the fiscal years ended May 31, 1995,  1996 and 1997,  62%, 59%
and 59%, respectively,  of the Company's revenues were attributable to Medicare,
Medicaid  and other  state and  federal  government  payments.  Historically,  a
greater  portion of the  Company's  revenues  have been  derived  from Home Care
services and a lesser  portion of such  revenues have been derived from Hospital
Staffing.  The Company  believes  that this is a result of  changing  social and
economic attitudes toward the de-institutionalization of patients as well as the
Company's changing customer base.

           In August 1996,  the Company and AMSERV  HEALTHCARE  INC.  ("Amserv")
consummated a merger whereby the Company  acquired  control of Amserv and Amserv
became  a  wholly-owned   subsidiary  of  the  Company.  Amserv  operates  in  a
one-industry segment as a health care service company. Amserv provides Home Care
services to individuals from its six branch offices in New Jersey and Ohio. Home
Care services  provided by Amserv include personal care, such as assistance with
the activities of daily living (e.g., eating, walking and grooming), and skilled
nursing services, such as wound care and assistance with medications, injections
and patient education.

           The  following  table sets forth the  Company's net revenues for Home
Care and  Hospital  Staffing  services  for the fiscal years ended May 31, 1995,
1996 and 1997:

                                        Fiscal Year Ended May 31,
                              --------------------------------------------
                                  1997           1996            1995
                              ------------   -------------   -------------

Net Revenue
     Home Care                  52,022,482    $47,897.228     $36,744,824
     Hospital Staffing             940,783      1,265,706       1,685,211

Percentage of Net Revenues
     Home Care                         98%            97%             96%
     Hospital Staffing                  2%             3%              4%


ACQUISITION OF EXTENDED FAMILY CARE CORPORATION

           On January 3, 1997,  an  Agreement  and Plan of Merger  (the  "Merger
Agreement"),  between  the  Company  and EFCC,  providing  for the  merger  (the
"Merger") of EFCC Acquisition Corp. ("Merger Sub"), a New York corporation and a
wholly-owned  subsidiary of the Company,  with EFCC,  with EFCC merging with and
into  Merger  Sub  and the  cessation  of  EFCC's  separate  existence,  and the
transactions  contemplated  thereby. Upon consummation of the Merger, each share
of EFCC Common Stock, par value $.01 per share (the "EFCC Common Stock"),  which
is issued and outstanding  immediately prior to the effective time of the Merger
(the  "Effective  Time"),  except those held by shareholders of EFCC who validly
and properly demand and perfect  dissenters'  rights under the New York Business
Corporation  Law (the "BCL"),  will be  converted  into the right to receive the
following  consideration  (the "Merger  Consideration"):  (a) cash equal to: (i)
$2,400,000  divided by (ii) the number of shares of EFCC Common Stock issued and
outstanding  immediately prior to the Effective Time increased by that number of
additional  shares  of EFCC  Common  Stock  that  would  have to be  issued  and
outstanding   immediately   prior  to  the  Effective   Time  assuming  that  no
shareholders of TPC Home Care Services, Inc. ("TPC"), an 83% owned subsidiary of
EFCC, validly and properly demand and perfect, pursuant to the BCL,


                                       -3-

<PAGE>



dissenters' rights in the proposed merger of the Company with and into EFCC (the
"EFCC Share Number"), which EFCC Share Number shall not be less than 37,600,000;
and (b) an amount of shares of Common  Stock of the  Company  equal to: (i) such
number of shares of the Company's Common Stock as has an aggregate market price,
calculated  in  accordance  with the  terms of the  Merger  Agreement,  equal to
$4,850,000; divided by (ii) the EFCC Share Number.

           In conjunction with the Merger  Agreement,  the Company and EFCC have
entered into a consulting  agreement  pursuant to which the Company has rendered
to EFCC,  by and  through  such of its  officers,  employees  and  agents as the
Company,  in its sole  discretion,  designates  from  time to  time,  consulting
services with respect to the management and operation of EFCC.

           The Company and EFCC have also entered  into a  management  agreement
pursuant to which the Company has agreed to act as manager of EFCC.

HOME CARE SERVICES

           A substantial  portion of the revenues  from the Company's  Home Care
business  relates to services  provided  to patients  referred to the Company by
physicians,  county medical services,  community organizations,  hospital social
service workers, nurses, insurance companies and health maintenance organization
networks  ("HMOs").  Other  patients  are  referred  through such sources as the
patient's family. The remaining revenues attributable to the Company's Home Care
business are received as a result of subcontracting  arrangements with certified
home health  agencies  ("primary  contractors")  that are  authorized to receive
reimbursement from Medicare and Medicaid in the States of New York and Florida.

           The  Company   provides  Home  Care  nurses  and   paraprofessionals,
including  registered nurses,  licensed practical nurses,  certified home health
aides,  certified  personal care workers and companions.  These  individuals are
temporary  employees  of the Company  who work for the Company as needed.  As of
August  22,  1997,  the  Company's  roster  of  Home  Care  personnel   included
approximately 3,000 nurses and health care paraprofessionals.

           It is the  Company's  policy  that all of its Home  Care  nurses  and
paraprofessionals meet certain licensing,  certification and other requirements.
Upon registering with the Company for temporary  employment,  the Company's Home
Care nurses and paraprofessionals are required to attend inservice classes given
by the Company.  The Company conducts ongoing inservice  training for its nurses
and  paraprofessionals  both to meet New York State Department of Health and New
York State Licensing Board continuing education  requirements and to fulfill the
Company's own additional  quality  assurance  goals. The Company is implementing
similar requirements in Florida. These classes and inservice trainings,  each of
which typically  lasts three hours,  are offered  bi-weekly.  They are taught by
health care  professionals  selected by the Company for their expertise in their
fields,  including nurses, physical therapists,  social workers and occasionally
physicians.

           When the  Company  admits a new patient for  service,  the  Company's
Director of Nursing  confers with the patient's  physician and other medical and
health care professionals  (collectively,  the patient's "health care team") to:
obtain  physician's  orders;  acquire a detailed  description  of the  patient's
medical problem;  determine the patient's  specific Home Care  requirements (the
"protocol"),  including  the  plan of  treatment  and  pharmaceutical  services,
products  and  equipment  which  will  be  needed;  and  determine  the  type of
personnel,  the number of hours and shifts  required.  The  Director  of Nursing
and/or a nursing  supervisor  first  visits  the  patient  to conduct a personal
examination and assessment in order both to verify all information received from
the referral  source and to select the  appropriate  Home Care personnel to care
for the patient.



                                       -4-

<PAGE>



           In a typical Home Care case, the Company's nurse or  paraprofessional
assigned to the case visits the patient on a prescribed  schedule to  administer
the protocol and to provide other  general care to the patient.  Often the nurse
or paraprofessional spends the entire day with the patient. All of the Home Care
cases are supervised by a nursing  supervisor to ascertain  whether any problems
have arisen in connection  with the services.  Home Care services  provided on a
subcontracting basis for a primary contractor are supervised only by the primary
contractor.  The  Company's  personnel  are  instructed  to remain in continuous
contact with the patient's health care team.

           The Company has contracted with the Departments of Social Services in
Nassau,  Suffolk and Onondaga  Counties in New York to provide and be reimbursed
for custodial  services  under  Medicaid.  The Company is a direct  provider for
skilled nursing services through Medicaid in New York State.

           Approximately  37% of the Company's  revenues from Home Care services
are paid by insurance  carriers.  Payments for the Company's  Home Care services
typically are made by assignment of insurance benefits from the patient,  by the
primary contracting organization or by the patient. Once a claim is submitted to
an insurer,  the insurer  generally is required to act upon that claim within 60
days.  The Company  typically  receives  payments  from 60 to 180 days after its
services  are  rendered,   although  such  time  period  is  sometimes  greater.
Accordingly,  the Company is often  required to carry accounts  receivable  over
substantial  periods of time and to utilize a line of credit to meet its ongoing
expenses.  Medicaid  claims are billed  weekly and are usually  paid in 60 to 90
days.

           The Company was surveyed by the Joint  Commission on Accreditation of
Healthcare  Organizations ("JCAHO") and, in February 1996, was found to meet the
requirements  for  accreditation.  JCAHO,  which  is the  accrediting  body  for
hospitals,  is  associated  with  the  provision  of  quality  services  and its
accreditation  is vital to the  Company's  contractual  business.  The Company's
accreditation  expires  in  February  1999,  at which time the  Company  must be
resurveyed for the following three-year term.

HOSPITAL STAFFING

           The Company  provides  temporary  (or "per diem")  nursing  placement
services  to  hospitals,   nursing  homes,   clinics  and  other  health-related
institutions that make use of supplemental  staffing for emergencies,  vacations
and peak periods.  These personnel are supervised  directly by the institutions,
with the Company acting solely as an employment agency matching the requirements
of the  institutions  with  the  names  and  skills  of  persons  listed  in its
registries.

           The personnel  placed by the Company with  hospitals and other health
and medical institutions  include registered nurses,  licensed practical nurses,
nurses' aides and other health care paraprofessionals.  The Company's nurses and
nurses'  aides  placed  in  hospitals  must  meet  the  competency  requirements
determined by the Company and by the facility.  Temporary  health care personnel
are  recruited  in the local  market in which the Company  offers its  temporary
personnel services.

           Some of the  hospitals  in New  York  City  that  have  utilized  the
Company's  Hospital Staffing services include Methodist  Hospital and Maimonides
Medical Center.

COMPETITION

           The temporary health care personnel  market is highly  fragmented and
significant  competitors are often localized in particular  geographic  markets.
The Company's largest competitors include the Olsten Company and Staff Builders.
Management of the Company  believes that, given the high current level of demand
for the  types of  services  provided  by the  Company,  significant  additional
competition can be expected to develop in the future.


                                       -5-

<PAGE>



Some  of  the  companies  with  which  the  Company   presently   competes  have
substantially  greater  financial  and other  resources  than the  Company.  The
Company  also  competes  with many  other  smaller  temporary  medical  staffing
agencies.  The Company expects that it will compete with other temporary  health
care  services  providers  in the  future if and when they  enter the  Company's
existing geographic markets, as well as in any new geographic market the Company
may enter.

           The Company's success to date has depended,  to a significant degree,
on its ability to recruit qualified  personnel.  These persons may be registered
with, and may accept placements from or through competitors of the Company.  The
Company  periodically  experiences  intense  competition from other companies in
recruiting  qualified  health  care  personnel  for its  temporary  health  care
operations  because the United  States  health care  industry,  at times,  faces
shortages of  qualified  personnel.  The Company  believes it is able to compete
successfully  for  personnel  by  aggressive   recruitment   through   newspaper
advertisements,   flexible   work   schedules   and   competitive   compensation
arrangements.  There can be no assurance, however, that the Company will be able
to continue to attract and retain qualified  personnel.  The inability to either
attract or retain such qualified  personnel would have a material adverse effect
on the Company's business.

MARKETING AND SALES

           Prior to its recently completed acquisition of Amserv, which expanded
the geographic area serviced by the Company,  the Company marketed its temporary
health care  services in the New York  metropolitan  area,  the central New York
area and in Broward and Dade Counties,  Florida.  As a result of the acquisition
of Amserv,  these  marketing  activities  also include New Jersey and Ohio.  The
Company's  services  are  marketed  by a team of  personnel  headed by the Chief
Operating  Officer of the Company.  The Company  promotes  its services  through
print  advertising,  direct mail efforts focused on health care institutions and
field sales calls.  The Company  makes  periodic  mailings to  approximately  50
hospitals  and 75  nursing  homes in the New York  City  metropolitan  area.  In
addition,  in the New York metropolitan area and in Florida,  representatives of
the Company  periodically  visit or telephone medical facilities to establish or
maintain   relationships   with  individuals  in  those   institutions  who  are
responsible for staffing,  discharge of patients and personnel recruitment.  The
Company's  representatives  also attend health care functions and trade shows to
further enhance the Company's marketing efforts. The Company intends to continue
these  marketing  programs and to increase its marketing  staff in the future as
its  business  so  requires,  especially  in view of the recent  acquisition  of
Amserv.

           The  Company  has  acquired  the  necessary  expertise,  through  its
acquisition of LINR, to provide  Shared Aide Services  ("Shared  Aide").  Shared
Aide, which is a task-oriented,  patient-specific care plan designed to condense
the amount of hours  caregivers  must  devote to  patients,  has  recently  been
adopted  as a cost  cutting  mechanism  by New York  State.  The New York  State
Department  of  Social  Services,  in  consultation  with  the  New  York  State
Department  of Health,  has  developed  agency  specific  cost  savings for each
certified home health  agency.  A portion of the cost savings are to be achieved
through development and implementation of Shared Aide.

           The Company believes it is one of the few providers in New York State
with the expertise and experience required to offer Shared Aide. To date, Shared
Aide has not constituted a material portion of the Company's business.  However,
the Company  intends to market this  service in an effort to generate  increased
revenues from this developing area of home health care.

CUSTOMERS

           The Company has four types of customers:  public assistance agencies,
other third party payers, insurance companies and private pay customers.


                                       -6-

<PAGE>



           During the fiscal  years ended May 31, 1995 1996 and 1997,  62%,  59%
and 59%, respectively,  of the Company's revenues were attributable to Medicare,
Medicaid  and other state and federal  government  payments.  A number of states
have reduced  funding for health care services or have placed  certain limits on
reimbursable  expenses.   There  can  be  no  assurance  that  additional  state
legislatures  and Congress will not further reduce funding or impose  additional
limits on reimbursements, particularly with respect to expenses to be reimbursed
through  Medicaid.  Such reductions in funding and limits on  reimbursement,  if
enacted,  could  have a  material  adverse  effect  on the  Company's  operating
results.  The Company's  business in Nassau County,  Suffolk County and Onondaga
County New York are tied  directly  to a contract  between  the  Company and the
Department of social services in each of these respective counties. A portion of
the  Company's  business  would  be  lost  should  any  of  these  contracts  be
terminated.  The contracts are renewable on an annual basis.  The contracts with
Nassau,  Suffolk and Onondaga  Counties  have been in existence  for 5, 13 and 3
years,  respectively.  The  Company  has no reason to believe  that any of these
contracts will not be renewed in the future, however, there is no assurance that
the contract will be renewed.

           In New Jersey, unlike New York, the New Jersey Department of Medicaid
will grant a Medicaid  contract to any accredited  home health care agency.  New
business is obtained through referrals from physicians, county medical services,
community  organizations,  hospital social service  workers,  nurses,  insurance
companies and the patient's family.

           Other third party  payers,  such as  hospitals  and other health care
institutions, provided 22%, 22% and 20% of total Company revenues, in 1997, 1996
and 1995, respectively.  The third party payor subcontracts with the Company for
Home Care services. These contracts are generally non-exclusive.

           The  insurance   segment  of  The  Company's   business   represented
approximately 16%, 15% and 14% of The Company's total revenues in 1997, 1996 and
1995,  respectively.  This business is dependent upon the insurer's  decision to
enter into various  preferred  provider  networks  ("PPO")  HMOs.  The insurance
segment has become more  closely  linked to  associations  with various PPOs and
HMOs.  Therefore,  the Company will have to develop alliances with such networks
or risk the loss of business.

           Private pay customers  represented  approximately 1% of the Company's
revenues in 1997, 1996 and 1995. These customers have determined,  for a variety
of reasons, including ineligibility of public assistance, or insurance benefits,
to  personally  pay for the Home Care  services  provided by the Company.  These
customers are referred to the Company from a variety of sources.

GOVERNMENT REGULATIONS AND LICENSING

           The  Company's  business  is subject to  substantial  and  frequently
changing  regulations by Federal,  state and local  authorities  which imposes a
significant compliance responsibilities on the Company. The Company, among other
things,  must  comply  with state  licensing  and  certificate  of need  ("CON")
requirements   as  well  as  Federal  and  state   eligibility   standards   for
certification  as a Medicare  and  Medicaid  provider.  The  imposition  of more
stringent regulatory  requirements or the denial or revocation of any license or
permit necessary for the Company to operate in a particular  market could have a
material adverse effect on the Company's  operations.  In addition,  the Company
will be required to comply, to the extent applicable,  with the licensing and/or
CON requirements and other  regulations in any jurisdiction in which it may plan
to provide services in the future.

           The  Company,  as a  provider  of  services  under the  Medicare  and
Medicaid  programs  is  required  by the Health  Care  Financing  Administration
("HCFA") to receive  reimbursement  for services from Medicare and Medicaid.  In
order  for one to  participate  as a home  health  agency  in the  Medicare  and
Medicaid program,  HCFA requires,  among other things, the preparation of annual
budgets and capital expenditure plans. The health


                                       -7-

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regulatory  agencies  of the  states  in  which  the  Company  operates  require
satisfaction  of certain  standards  with  respect to  personnel,  services  and
supervision and the establishment of a professional advisory group that includes
at least one physician,  one  registered  nurse and other  representatives  from
related  disciplines  or  consumer  groups.   Applicable  state  "anti-kickback"
regulations,  in general, provide that the Company may not make certain payments
in order to receive referrals of patients. In addition,  Federal "anti-kickback"
regulations provide similar restrictions for health care providers to the extent
they are certified to  participate  in the Medicare and Medicaid  programs.  The
Company  does not believe  that  compliance  with  applicable  state and Federal
"anti-kickback"  regulations has a material impact on the Company's business and
operations.

           The Company is  licensed  to provide  home  healthcare  services  and
durable  medical  equipment  in the  five  boroughs  of New York  City,  Nassau,
Suffolk,  Westchester,  Oswego, Oneida, Onondaga, Cayuga, Madison, Jefferson and
Herkimer  Counties  in New York  State and in the state of  Florida.  It is also
licensed in the  aforementioned  locations as a temporary  help services firm to
provide  personnel  on a per diem  basis  for  hospital  staffing.  The  Company
believes that it has all licenses necessary to operate its business as currently
conducted in New York and Florida. In Broward and Dade Counties in Florida,  the
Company also  maintains a Certified  Home Health Agency which allows the Company
to  participate  in both the  Medicare  and  Medicaid  programs.  Amserv is also
licensed to provide  health care services in New Jersey and Ohio,  with the Ohio
office also maintaining certification to provide Medicare reimbursed services.

           New York State  requires the approval by the Public Health Council of
the  New  York  State  Department  of  Health  ("NYPHC")  of any  change  in the
"controlling person" of an operator of a licensed health care services agency (a
"LHCSA"). Control of an entity is presumed to exist if any person owns, controls
or holds the power to vote 10% or more of the voting  securities of such entity.
To the extent the  Company may seek to acquire  control of a LHCSA,  the Company
would have to be granted the approval of the NYPHC prior to  exercising  control
over such LHCSA.  The NYPHC  approved the  application  to permit the  Company's
control over EFCC pursuant to the Merger Agreement on June 27, 1997.

           Under current reimbursement  regulations under Medicare and Medicaid,
funds received  under  Medicare and Medicaid  programs are subject to audit with
respect to proper  application of the various payment  formulas and regulations.
These audits can result in  retroactive  adjustment  of payments  received  from
these  programs,  resulting in either amounts due to the government  agency from
the Company or amounts due to the Company from the governmental agency.

           The Company is subject to surveys and audits by various  governmental
agencies.

           The Company has a Medicaid  audit pending with the State of New York.
The Company does not anticipate  that any material  adjustment  will result form
such audit, however,  there can be no assurance that this audit will be resolved
satisfactorily in favor of the Company.  In addition,  the Company has agreed to
submit its books and record to a voluntary  survey to be  performed by the State
of New York with respect to Medicaid  patients.  There can be no assurance  that
this voluntary review will be resolved satisfactorily in favor of the Company.

           In May 1997, the Company was advised that an audit of American Health
Care Services  ("American"),  the Company's  Medicare  agency,  by the Office of
Audit Services,  Office of Inspector  General of the United States Department of
Health and Human Services which had been forwarded to the Medicare  intermediary
assigned to  administer  Medicare  payments in Florida has been  referred to the
Civil  Division  of the United  States  Attorney  for the  Southern  District of
Florida.  The Company has been advised by its regulatory  counsel that they have
been in contact  with the  Assistant  United  States  Attorney  assigned  to the
matter, and they do not know at this time the extent of the Company's liability,
if any. Regulatory counsel has also advised the Company that the Company


                                       -8-

<PAGE>



could pursue claims  against third parties  (e.g.,  subcontractors  and licensed
home health agencies) for a portion of any liability of the Company.  Management
anticipates that this matter should be satisfactorily
resolved.

           In December 1996, a survey by state and federal  regulatory  agencies
was conducted at American.  The findings of the initial survey  indicated that a
follow-up survey was warranted.  The findings of the survey, held in March 1997,
were favorable,  and the Company was orally advised that only minor deficiencies
existed. The final written report,  confirming the surveyor's findings, has been
received by the Company and confirmed the surveyor's verbal representations.

LIABILITY INSURANCE

           The Company's  employees and independent  contractors  routinely make
decisions  which can have  significant  medical  consequences to the patients in
their care. As a result, the Company is exposed to substantial  liability in the
event of  negligence or wrongful acts of its  personnel.  The Company  maintains
medical  professional  liability  insurance  providing for coverage in a maximum
amount of $1,000,000 per claim,  subject to a limitation of $10,000,000  for all
claims  in any  single  year.  In  addition,  the  Company  requires  that  each
independent  contractor  it  refers  to  institutions  for  employment  supply a
certificate  of  insurance   evidencing  that  such  person  maintains   medical
professional  liability  insurance  providing  for  coverage  of  no  less  than
$1,000,000 per claim. There can be no assurance,  however, that the Company will
be able to maintain  its  existing  insurance  at an  acceptable  cost or obtain
additional insurance in the future, as required. Although, to date, no claim has
been asserted against the Company,  there can be no assurance that the Company's
insurance will be sufficient to cover liabilities resulting from claims that may
be  brought in the  future.  A  partially  or  completely  uninsured  claim,  if
successfully  asserted  and of  significant  magnitude,  could  have a  material
adverse effect on the Company and its financial condition.

EMPLOYEES

           As of August 22, 1997,  the Company had  approximately  190 permanent
employees.  The  Company  also  has  a  roster  of  temporary  professional  and
paraprofessional  employees  (including  registered  nurses,  licensed practical
nurses, certified home health aides, certified personal care workers and nurses'
aides). In the past, certain of the Company's registered nurses were compensated
on an independent  contractor basis.  However, the Company currently treats such
persons  as  employees.  The  Company  has no  union  contracts  with any of its
employees and believes that its relationship  with its employees and independent
contractors is good.  The Company pays its temporary  employees at rates that it
believes are competitive.


ITEM 2.  DESCRIPTION OF PROPERTY
--------------------------------

           The  Company  leases a total of 19  facilities  in four  states.  The
Company believes that its existing leases will be renegotiated as they expire or
that alternative  properties can be leased on acceptable terms. The Company also
believes that its present facilities are well maintained and are suitable for it
to continue its existing
operations.

           The following table describes the location and current use of each of
the company's leased facilities as of August 22, 1997:



                                       -9-

<PAGE>




           LOCATION                                 DESCRIPTION
           --------                                 -----------

New York Facilities
   New York City (two facilities)      Nursing and Paraprofessional Services
   Nassau County (two facilities)      Corporate Offices and Nursing and
                                             Paraprofessional Services
   Suffolk County (three facilities)   Nursing and Paraprofessional Services
   Upstate (three facilities)          Nursing and Paraprofessional Services
New Jersey Facilities
   Edison                              Administration and Nursing and 
                                             Paraprofessional Services
   Elizabeth                           Nursing and Paraprofessional Services
   Fairlawn                            Nursing and Paraprofessional Services
   South Orange                        Nursing and Paraprofessional Services
   Union City                          Nursing and Paraprofessional Services
Florida Facilities
   Palm Beach                          Nursing and Paraprofessional Services
   Broward                             Nursing and Paraprofessional Services
   Dade                                Administration and Nursing and
                                             Paraprofessional Services

Ohio Facility
   Mansfield                           Nursing and Paraprofessional Services


ITEM 3.  LEGAL PROCEEDINGS
--------------------------

           A lawsuit was filed on November 14, 1996 in San Diego  Superior Court
(Case No.  705475),  by Eugene J. Mora  against  Amserv,  the  Company,  William
Fellerman and Stephen Sternbach.  Mr. Mora alleges that he was the President and
Chief  Executive  Officer of Amserv at the time of the merger between Amserv and
the Company and that his  employment  contract  with Amserv was breached when he
was terminated by Amserv and the Company following the Merger.

           The complaint, which is for an aggregate of $2,500,000,  alleges that
pursuant to his employment  contract,  upon  termination he would be entitled to
five years of continued  salary at $298,000 per year; an annual car allowance of
$450 per month for the five year period;  payment for  unutilized  vacation days
for a total  of  $112,000;  the  cash  value  of a  whole  life  policy  of life
insurance,  which premiums had been paid by Amserv,  for an approximate value of
$350,000; and approximately $48,000 in various fringe benefits. Mr. Mora further
alleges  that he had a  contract  which  would  result in him  being  hired as a
consultant upon  termination and this too was breached.  Under this  allegation,
Mr. Mora seeks damages for two years  consulting  fee at $129,200 per year.  Mr.
Mora also seeks  punitive  damages,  penalties and  reimbursement  of attorneys'
fees.

           The  Company  does not  believe  that this  matter  will  result in a
material adverse impact on it.

           Except as  otherwise  provided  in this  Annual  Report on Form 10-K,
there are no legal  proceedings  to which the Company is currently a party or to
which  any of its  property  is  subject,  and the  Company  knows  of no  legal
proceeding  pending or threatened  against either the Company or any director or
officer of the Company in his or her capacity as such.




                                      -10-

<PAGE>



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

           No matters were submitted to a vote of the Company's security holders
during the fourth  quarter of the fiscal  year ended May 31,  1997  through  the
solicitation of proxies or otherwise.




                                      -11-

<PAGE>



                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
-----------------------------------------------------------------

           The Company's  Common Stock is quoted on the Nasdaq  National  Market
under the symbol "SMCS". Until June 7, 1996, the Company's Common Stock was also
listed on the Pacific Stock Exchange.

           The  following  table  sets  forth the high and low sales  prices per
share for the Common Stock during the periods  indicated on the Nasdaq  National
Market.


              PERIOD                      HIGH                         LOW
              ------                      ----                         ---

Year ended May 31, 1996 
           First Quarter                 $4.375                      $3.500
           Second Quarter                 7.375                       4.188
           Third Quarter                  8.125                       5.500
           Fourth Quarter                 7.500                       5.125
    Year ended May 31, 1997
           First Quarter                $10.938                      $5.938
           Second Quarter                 7.250                       5.813
           Third Quarter                  7.000                       5.500
           Fourth Quarter                 6.000                       4.250
Year ended May 31, 1998
           First Quarter                 $6.000                      $4.500


           As of August 27,  1997,  the Company had  4,112,478  shares of Common
Stock outstanding and 503 shareholders of record.

           The Company did not pay cash  dividends  on its Common  Stock  during
either of the two years ended May 31, 1997 and 1996. It is the present policy of
the Company to retain earnings, if any, to finance the development and growth of
its  business.  In  addition,  the  Company's  agreement  with its  bank  lender
prohibits the payment of cash dividends without the bank's prior consent.




                                      -12-

<PAGE>



ITEM 6.  SELECTED FINANCIAL DATA
--------------------------------

           The statement of operations  for the years ended May 31, 1997,  1996,
1995, 1994 and 1993 and balance sheet data as of May 31, 1997,  1996, 1995, 1994
and 1993 as set  forth  below  have  been  derived  from the  audited  financial
statements of the Company and should be read in conjunction with those financial
statements  and notes thereto  included  elsewhere in this Annual Report on Form
10-K. In addition,  the selected  financial  data should be read in  conjunction
with  "Description  of Business -- General"  and  "Management's  Discussion  and
Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
                                                                    Year Ended
                                             ---------------------------------------------------------------
                                                                      May 31
                                             ---------------------------------------------------------------
                                               1997        1996      1995(2)(3)      1994(4)        1993(5)
                                             --------    --------    --------       --------       --------
                                                    (IN THOUSANDS EXCEPT RATIO AND PER SHARE AMOUNTS)
<S>                                          <C>         <C>         <C>            <C>            <C>     
STATEMENT OF OPERATIONS DATA
(1)
Net Revenues                                 $ 52,963    $ 49,163    $ 38,430       $ 29,694       $ 23,428
Income from Operations                          3,180       1,832       1,251            576            118
Other Income (Expense)                           (159)       (120)        (21)            67            130
Merger Transaction Costs                       (2,808)         __          __             __             __
Income (Loss) from Continuing Operations          126       1,143         758            358            135
Income (Loss) from Discontinued Operations       --          --          --             (711)          (359)
Gain (Loss) on Disposal of Discontinued          --          --            30         (1,168)          --
Operations
Cumulative Effect of Change in Accounting        --          --            24(6)          65(7)        --
Principle
Net Income (Loss)                                 126    $  1,143    $    812       $ (1,456)      $   (224)
Income Per Share
Income (Loss) from Continuing Operations     $    .03    $   0.27    $   0.19       $   0.10       $   0.04
Income (Loss) from Discontinued Operation        --          --          --            (0.19)         (0.10)
Gain (Loss) on Disposal of Discontinued          --          --          0.01          (0.32)          --
Operations
Cumulative Effect of Change in Accounting        --          --          0.01           0.02           --
Principle
Net Income                                   $    .03    $   0.28    $   0.22       $  (0.41)      $  (0.06)

Shares Used in Computing Per Share              4,217       4,212       3,989          3,705          3,802
Amounts
BALANCE SHEET DATA: (1)
Cash and Cash Equivalents                    $    139    $  1,882    $  1,497       $  1,069       $  2,334
Working Capital                                 9,545       9,415       6,774          5,525          6,650
Total Assets                                   20,360      19,369      16,798         14,196         13,436
Total  Long-Term Obligations                    2,945       3,604       2,156            832            115
Redeemable Preferred Stock                       --           341         683           --             --
Shareholders' Equity                           13,071      12,045      10,622          9,577         11,201
Current Ratio                                    3.23        3.79        3.03           2.46           4.14

Cash Dividend Declared Per Common Share      $   --      $   --      $   --         $   --         $   --
</TABLE>

                                      -13-
<PAGE>

(1)  In August 1996, STAR acquired AMSERV HEALTHCARE  SERVICES,  INC. ("Amserv")
     in a transaction accounted for as a pooling-of-interests,  accordingly, all
     periods presented have been restated to include the accounts and operations
     of Amserv for the periods prior to the acquisition.

(2)  In May 1995, STAR acquired certain assets of Long Island Nursing  Registry,
     Inc. in a transaction accounted for as a purchase.

(3)  In June 1994, STAR acquired certain assets of North Central Personnel, Inc.
     in a transaction accounted for as a purchase.

(4)  In November 1993, STAR acquired certain assets of DSI Health Care Services,
     Inc. in a transaction accounted for as a purchase.

(5)  In August  1992,  STAR  acquired  certain  assets of Unity  Care  Services,
     Inc.-New  York  Medicaid  Operations  in a  transaction  accounted for as a
     purchase.

(6)  Effective  July 1994,  STAR adopted SFAS No. 115,  "Accounting  for Certain
     Investments in Debt and Equity  Securities."  See Note 3 of STAR's Notes to
     Consolidated Financial Statements.

(7)  Effective June 1, 1993,  STAR adopted SFAS No. 109,  "Accounting for Income
     Taxes." See Note 9 of STAR's Notes to Consolidated Financial Statements.




                                      -14-

<PAGE>



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

           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 thereto appearing elsewhere herein.

           This discussion contains forward-looking  statements that are subject
to a number of known and unknown  risks that,  in addition 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.

RESULTS OF OPERATIONS

           On August 23,  1996,  the Company  completed  a merger  (the  "Amserv
Merger"),  accounted for as a pooling of interests, with AMSERV HEALTHCARE, INC.
("Amserv"),  a health care service  company that  provides  home care  services,
including  personal care, such as assistance with the activities of daily living
(e.g.,  eating,  walking and grooming),  and skilled nursing  services,  such as
wound care and assistance with medications, injections and patient education, in
New Jersey and Ohio. In  accordance  with the terms of the Amserv  Merger,  each
share of common stock of Amserv,  outstanding  immediately prior to consummation
of the Amserv Merger, was converted into .4090 shares of common stock of STAR. A
total of 1,410,731 shares of STAR Common Stock were issued upon  consummation of
the Amserv Merger.  The Company also assumed all  outstanding  options and other
rights to acquire  Amserv stock.  The following  results of combined  operations
include the operations of both the Company and Amserv.

Year Ended May 31, 1997 Compared to Year Ended May 31, 1996

           Net revenues increased $3,800,331 or 8% to 52, 963,265 for the fiscal
year ended May 31,  1997 over net  revenues of  $49,162,934  for the fiscal year
ended May 31, 1996.  The increase was due to a general  upward trend in the Home
Care  business.  Net revenues from Home Care increased by $4,125,254 or 9% while
net revenues  from Hospital  Staffing  decreased by 324,923 or 3%. The Company's
decreased  revenues from Hospital  Staffing  resulted from a general  decline in
demand for these services.

           The  Company's  decided  shift  towards  Home Care mirrors a changing
social and economic attitude toward the de-institutionalization of patients. Due
to the long hospital stays of some terminally ill patients and the greater costs
associated with  institutional  treatment  plans,  the Company believes that the
industry (i.e., hospitals,  insurance companies and home care agencies) trend is
to find ways to care for patients in the home.  The Company  continues to devote
its resources toward the growth in Home Care and believes this upward trend will
continue in the future. Home Care revenues represented approximately 98% of 1997
net revenues  and Hospital  Staffing  represented  approximately  2% of 1997 net
revenues.

           Gross profit  margin  percentages  for the fiscal years ended May 31,
1997 and 1996 were 35%.

           Selling, General and Administrative expenses ("SG&A") as a percentage
of net  revenues  28% in 1997 as  compared  with 30% in 1996.  Such  decrease is
principally attributable to the increase revenues from Home Care, being absorbed
by existing back office overhead.

           Income from  operations  increased by $1,347,666 or 74% to $3,179,953
for the fiscal year ended May 31, 1997 over $1,832,287 for the fiscal year ended
May 31, 1996. Such increase is primarily attributable to increased
revenues and stabilization of costs, mainly back office overhead.



                                      -15-

<PAGE>



           The Company  incurred a one-time charge of $2,808,224 for acquisition
costs, legal fees and restructuring  expenses associated with the Amserv Merger,
which  contributed  to a net income for the  fiscal  year ended May 31,  1997 of
$125,619  compared to net income of $1,143,259 for the fiscal year ended May 31,
1996.

           The Company's  effective tax rate for 1997 was 41% as compared to 33%
in 1996.  The increase in effective tax rate is due to the reversal of valuation
allowances or deferred tax assets in 1996 that reduced the  Company's  effective
tax rate in 1996 below statutory rates.

Year Ended May 31, 1996 Compared to Year Ended May 31, 1995

           Net revenues  increased  $10,732,899  or 28% to  $49,162,934  for the
fiscal year ended May 31, 1996 over net revenues of  $38,430,035  for the fiscal
year  ended  May 31,  1995.  Approximately  53% of the  increase  was due to the
acquisition of certain assets of Long Island Nursing Registry ("LINR") (see Note
2 to the Consolidated  Financial  Statements included elsewhere in this report).
LINR was  exclusively  involved in the  business  of  providing  Home Care.  The
remainder of the increase  was due to a general  upward trend in Home Care.  Net
revenues from Home Care  increased by $11,152,404 or 30% while net revenues from
Hospital Staffing decreased by $419,505 or 25%.

           The Company's decreased revenues from temporary health care personnel
recruiting to hospitals and nursing homes ("Hospital  Staffing") resulted from a
general decline in demand for these services.

           Home Care revenues represented approximately 97% of 1996 net revenues
and Hospital Staffing represented approximately 3% of 1996 net revenues.

           Gross profit  margin  percentages  for the fiscal years ended May 31,
1996 and 1995 were 35%.

           SG&A as a percentage of net revenues were 30% in both 1996 and 1995.

           Net income  increased by $331,238 or 41% to $1,143,259 for the fiscal
year ended May 31,  1996 over net income of  $812,021  for the fiscal year ended
May 31, 1995. The increase occurred  primarily because of the increased revenues
from Home Care.

           The Company's  effective tax rate for 1996 was 33% as compared to 38%
in 1995.  The decrease in the  effective  tax rate is due to the reversal of the
valuation  allowance that fully reversed net deferred tax assets at May 31, 1995
that is now judged more likely than not to be realized.

Year Ended May 31, 1995 Compared to Year ended May 31, 1994

           Net  revenues  increased  $8,735,857  or 29% to  $38,430,035  for the
fiscal year ended May 31, 1995 over net revenues of  $29,694,178  for the fiscal
year ended May 31,  1994.  Approximately  20% of the  increase was due to a full
year of operations of the Company's North Central  division,  which was acquired
in June 1994. (See Note 2 to the Supplemental  Consolidated Financial Statements
included elsewhere in this report). Approximately 20% of the increase was due to
the  acquisition of certain assets of DSI Health Care Services in November 1993.
(See Note 2 to the Consolidated  Financial Statements included elsewhere in this
report).  The remaining  increase was due to a general  upward trend in the Home
Care  business  which  required  the  opening  of new  locations  which  were in
operation for all of fiscal 1995 and 1994. Net revenues from Home Care increased
$9,923,240  or 37%  while net  revenues  from  Hospital  Staffing  decreased  by
$1,187,383 or 41%.

           The Company's decreased revenues from Hospital Staffing resulted from
a general decline in demand for these services.


                                      -16-

<PAGE>



           Home Care revenues represented approximately 96% of 1996 net revenues
and Hospital Staffing represented approximately 4% of 1995 net revenues.

           The Gross profit margin percentage for each of the fiscal years ended
May 31, 1995 and 1994 was 35%.

           SG&A as a percentage of net revenues was 30% in both 1995 and 1994.

           Income from  continuing  operations  increased by $400,490 or 112% to
$758,036  for the fiscal year ended May 31,  1995 over  income  from  continuing
operations  of $357,546  for the fiscal year ended May 31,  1994.  The  increase
occurred primarily because of the increased revenues from Home Care.

           During  fiscal  1994,  the  Company  discontinued  operation  of  its
temporary  nursing services for hospital  staffing  business and recorded a loss
from  discontinued   operations  of  $710,636  and  an  after-tax  loss  on  the
anticipated  disposal of  discontinued  operations of $1,167,949.  During fiscal
1995, the temporary nursing services for hospital staffing business was sold and
after  recognizing  the  1994  writedown,  an  after-tax  gain  of  $30,302  was
recognized.  The 1995 gain resulted from the  difference  between the actual and
estimated  loss  on  the  disposal.  See  Note 8 of the  Notes  to  Consolidated
Financial Statements included elsewhere in this report for additional details.

           The Company's  effective tax rate for 1995 was 38% as compared to 44%
in 1994.  The decrease in the effective tax rate is due to the result of the tax
benefit from measuring cumulative  temporary  differences in connection with the
disposal of the temporary  nursing  services  business  which reversed in fiscal
1995,  and growth of the  Company's  business in Florida  which has a lower rate
than New York, as well as the use of certain federal tax credits.

LIQUIDITY AND CAPITAL RESOURCES

           As of May 31,  1997,  cash  and cash  equivalents  were  $139,400  as
compared with  $1,881,979 at May 31, 1996. The decrease is  attributable  to the
Company's  repayment of a portion of its  revolving  credit line,  redemption of
Class B preferred shares and significant purchases of property and equipment.

           The nature of the Company's  business requires weekly payments to its
personnel  at the time they  render  services,  while it  receives  payment  for
services  rendered  over an extended  period of time (60 to 180 days or longer),
particularly  when the payor is an insurance  company,  medical  institution  or
governmental  unit.  At May 31, 1997 and May 31, 1996,  the  Company's  accounts
receivable balances were $11,260,446 and 9,611,169,  respectively,  representing
21% and 22% of the Company's net revenues for each of the respective  years then
ended.  Accounts receivable represent a substantial portion of current and total
assets at May 31, 1997 and May 31, 1996.  During fiscal 1997 and 1996,  accounts
receivable turnover was approximately 71 days .

           Borrowings  under the Company's  revolving  line of credit  decreased
$658,000 during the year ended May 31, 1997. The Company currently has available
a revolving  credit  line with a bank which  allows for  maximum  borrowings  of
$8,000,000.  This  revolving  credit  line  expires on October  31,  1998 and is
subject to renewal.  However,  as the  Company's  business  expands,  additional
financing may be required.  Outstanding  borrowings  under the revolving  credit
line at May 31, 1997 were $2,622,000 as compared to $3,280,000 at May 31, 1996.

           As a result,  the Company feels that its current financial  condition
is sufficient in order to permit the Company to meet its financial  requirements
for at least the ensuing twelve months.

           The Company  intends to meet its  long-term  liquidity  needs through
available cash, cash flow and, if necessary,  the Company's bank line of credit.
To the extent that such sources are inadequate, the Company will be


                                      -17-

<PAGE>



required to seek additional financing.  In such event, there can be no assurance
that  additional  financing  will be  available  to the Company on  satisfactory
terms.

           On January 3, 1997, the Company entered into an Agreement and Plan of
Merger (the"Merger Agreement"), as amended on April 6, 1997, to acquire Extended
Family Care Corporation  ("EFCC"),  a health care service company which provides
home care services in New Jersey, New York and Pennsylvania.  In accordance with
the  Merger  Agreement,  subject  to the vote on and  appointment  of the Merger
Agreement,  each share of Common Stock of EFCC outstanding  immediately prior to
the consummation of the Merger will be converted into approximately .0287 shares
of Common  Stock of the Company.  In  addition,  the Company will pay $.0638 per
share (rounded to the nearest ten thousandth of a share) of Common Stock of EFCC
outstanding  immediately prior to the Merger (assuming 37,600,000 shares of EFCC
common stock are outstanding immediately prior to effectiveness of the merger).

           Other  than  the  matters  described  above,  the  Company  does  not
anticipate any extraordinary  material  commitments for capital expenditures for
the Company's current fiscal year. The Company believes that cash generated from
operations,  together  with  borrowings  available  under its  existing  line of
credit, will be sufficient to meet its short-term and long-term liquidity needs.

           The  Company  is  continually   exploring  possible  acquisitions  of
compatible  companies in the health care business.  If any such acquisition were
to be made with available cash, the Company's long-term liquidity would
depend to a greater extent on cash flow and the line of credit.

INFLATION AND SEASONALITY

           The rate of inflation was insignificant during the year ended May 31,
1997. In the past, the effects of inflation on personnel  costs have been offset
by the  Company's  ability to increase  its charges for services  rendered.  The
Company  anticipates  that it will be  able  to  continue  to do so in the  near
future. The Company  continually reviews its costs in relation to the pricing of
its services.

           The Company's business is not seasonal.





                                      -18-

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------

           The  Financial   Statements  of  the  Company  identified  below  are
contained in this Report on the pages indicated:

                         STAR MULTI CARE SERVICES, INC.


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



                                                                            Page
                                                                            ----

Report  of  Holtz  Rubenstein  &  Co.,  LLP,   Independent                   F-2
   Certified Public Accountants 

Report of Ernst & Young LLP, Independent Certified Public Accountants        F-3

Consolidated balance sheets as of May 31, 1997 and 1996                      F-4

Consolidated statements of income for the three years ended May 31, 1997     F-5

Consolidated statement of shareholders' equity                               F-6
   for the three years ended May 31, 1997                                    

Consolidated statements of cash flows for the three years ended
   May 31, 1997                                                              F-7

Notes to consolidated financial statements                            F-8 - F-20



                                       F-1

<PAGE>



                          Independent Auditors' Report



Board of Directors and Stockholders
Star Multi Care Services, Inc.
Hicksville, New York

We have audited the  accompanying  balance  sheets of Star Multi Care  Services,
Inc.  as of May 31,  1997 and 1996 and the related  consolidated  statements  of
operations,  shareholders'  equity and cash flows for each of the three years in
the period ended May 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.  We did not audit the financial
statements of AMSERV  HEALTHCARE,  INC., which  statements  reflect total assets
constituting 34% in 1996, and total revenues constituting 26% in 1996 and 30% in
1995 of the related  consolidated totals. Those statements were audited by other
auditors whose report has been  furnished to us, and our opinion,  insofar as it
relates to data  included for AMSERV  HEALTHCARE,  INC.,  is based solely on the
report of the other auditors.

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

In our  opinion,  based upon our audits  and the report of other  auditors,  the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Star Multi Care Services, Inc. at
May 31,
1997 and 1996, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended May 31, 1997, in conformity with
generally accepted accounting principles.




                                                 /s/ HOLTZ RUBENSTEIN & CO., LLP
                                                 -------------------------------
                                                 HOLTZ RUBENSTEIN & CO., LLP

Melville, New York
July 18, 1997



                                       F-2

<PAGE>

               Report of Ernest & Young LLP, Independent Auditors


The Board of Directors and Shareholders AMSERV HEALTHCARE INC.

We  have  audited  the  accompanying   consolidated  balance  sheets  of  AMSERV
HEALTHCARE  INC.  as of May  31,  1996  and  June  24,  1995,  and  the  related
consolidated  statements of operations,  shareholders' equity and cash flows for
the period from June 25, 1995 to May 31, 1996 and the year ended June 24,  1995.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits. The financial statements of AMSERV HEALTHCARE,  INC. for the year
ended June 30, 1994,  were audited by other  auditors whose report dated October
7, 1994, expressed an unqualified opinion on those statements.

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

In our opinion, the May 31, 1996 and June 24, 1995 financial statements referred
to above present fairly, in all material  respects,  the consolidated  financial
position of AMSERV  HEALTHCARE  INC. at May 31, 1996 and June 24, 1995,  and the
consolidated  results of its  operations  and its cash flows for the period from
June  25,  1995 to May 31,  1996  and for the  year  ended  June  24,  1995,  in
conformity with generally accepted accounting principles.



                                                   /s/   ERNST & YOUNG LLP
                                                       ERNST & YOUNG LLP

San Diego, California
August 8, 1996
except for Note 6 and 13, as to which the date is
August 23, 1996



                                       F-3

<PAGE>



                         STAR MULTI CARE SERVICES, INC.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                             May 31,
                                                                   ----------------------------
                                                                       1997            1996
                                                                   ------------    ------------
<S>                                                                <C>             <C>         
           ASSETS
           ------
CURRENT ASSETS:
   Cash and cash equivalents                                       $    139,400    $  1,881,979
   Short-term investments (Note 3)                                         --           100,000
   Accounts receivable, net of allowance for doubtful
         accounts of $650,000 and $808,000 at May 31,
         1997 and 1996, respectively (Note 15)                       11,260,466       9,611,169
   Prepaid expenses and other current assets (Notes 4 and 21)         1,406,328         800,665
      Income taxes receivable                                            73,738            --
      Deferred income taxes (Note 10)                                   950,015         400,015
                                                                   ------------    ------------
        Total current assets                                         13,829,947      12,793,828
PROPERTY AND EQUIPMENT, net (Note 5)                                  1,200,018         766,480
NOTES RECEIVABLE FROM OFFICER (Note 13)                                  93,353         100,517
INTANGIBLE ASSETS, net (Note 6)                                       4,954,334       5,197,778
OTHER ASSETS                                                            222,805         510,487
                                                                   ------------    ------------
                                                                   $ 20,300,457    $ 19,369,090
                                                                   ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
   CURRENT LIABILITIES:
   Accrued payroll and related expenses                            $  3,017,009    $  1,608,480
   Accounts payable                                                     958,312       1,022,165
   Accrued expenses                                                     184,293         229,319
   Net liabilities of discontinued operations (Note 8)                     --            98,081
   Income taxes payable (Note 10)                                          --           295,647
   Current maturities of long-term debt                                 125,000         125,000
                                                                   ------------    ------------
        Total current liabilities                                     4,284,614       3,378,692
                                                                   ------------    ------------
LONG-TERM LIABILITIES:
   Revolving credit line (Note 7)                                     2,622,000       3,280,000
   Long-term debt                                                       125,000         250,000
   Deferred income taxes (Note 10)                                         --            39,909
   Other long-term liabilities                                          197,795          33,970
                                                                   ------------    ------------
        Total long-term liabilities                                   2,944,795       3,603,879
                                                                   ------------    ------------
REDEEMABLE PREFERRED STOCK (Note 9)                                        --           341,436
                                                                   ------------    ------------
COMMITMENTS AND CONTINGENCY (Notes 7, 16 and 17)
   SHAREHOLDERS' EQUITY:  (Notes 2, 11, 12, and 13)
   Preferred stock, $1.00 par value, 5,000,000 shares authorized           --              --
   Common stock, $.001 par value, 10,000,000 shares authorized;
      4,214,335 and 3,820,358 shares issued, respectively                 4,214           3,820
   Additional paid-in capital                                        15,431,833      13,288,607
   Subscription receivable                                             (397,782)       (397,782)
   Unrealized (loss) on short-term investments                             --            (6,000)
   Deficit                                                           (1,688,295)       (564,640)
Treasury stock, 137,500 common shares
      at May 31, 1997 and 1996                                         (278,922)       (278,922)
                                                                   ------------    ------------
        Total shareholders' equity                                   13,071,048      12,045,083
                                                                   ------------    ------------
                                                                   $ 20,300,457    $ 19,369,090
                                                                   ============    ============
</TABLE>

                 See notes to consolidated financial statements


                                       F-4

<PAGE>

                         STAR MULTI CARE SERVICES, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
                                                                  Years Ended
                                                                    May 31,
                                                  --------------------------------------------
                                                      1997            1996            1995
                                                  ------------    ------------    ------------
<S>                 <C>                           <C>             <C>             <C>         
REVENUES, net (Note 15)                           $ 52,963,265    $ 49,162,934    $ 38,430,035
                                                  ------------    ------------    ------------
OPERATING EXPENSES (Notes 13, 17 and 18)
   Costs of revenues                                34,532,140      31,943,356      24,854,524
   Selling, general and administrative              14,594,798      14,634,533      11,569,405
   Depreciation and amortization                       656,374         752,758         755,449
                                                  ------------    ------------    ------------
                                                    49,783,312      47,330,647      37,179,378
                                                  ------------    ------------    ------------


   OPERATING INCOME                                  3,179,953       1,832,287       1,250,657
   INTEREST EXPENSE, net                              (159,110)       (120,184)        (20,583)
MERGER TRANSACTION COSTS                            (2,808,224)           --              --
                                                  ------------    ------------    ------------

INCOME FROM CONTINUING OPERATIONS
   BEFORE PROVISION FOR INCOME TAXES                   212,619       1,712,103       1,230,074
PROVISION FOR INCOME TAXES (Note 10)                    87,000         568,844         472,038
                                                  ------------    ------------    ------------
INCOME FROM CONTINUING OPERATIONS                      125,619       1,143,259         758,036
DISCONTINUED OPERATIONS:  (Note 8)
   Gain on disposal of discontinued operatio
      net of income taxes of $168,211 in 199              --              --            30,302
                                                  ------------    ------------    ------------
INCOME BEFORE CUMULATIVE EFFECT OF
   CHANGE IN ACCOUNTING PRINCIPLE                      125,619       1,143,259         788,338

   CUMULATIVE EFFECT OF CHANGE IN
   ACCOUNTING PRINCIPLE (Note 3)                          --              --            23,683
                                                  ------------    ------------    ------------
NET INCOME                                        $    125,619    $  1,143,259    $    812,021
                                                  ============    ============    ============
NET INCOME PER COMMON SHARE:
   Primary:
      Income from continuing operations           $        .03    $        .27    $        .19
      Gain on disposal of discontinued
        operations                                        --              --               .01
      Cumulative effect of change in
        accounting principle                              --              --               .01
                                                  ------------    ------------    ------------
        Net income                                $        .03    $        .27    $        .21
                                                  ============    ============    ============
   Assuming full dilution:
      Income from continuing operations           $        .03    $        .27    $        .19
      Gain on disposal of discontinued
        operations                                        --              --               .01
      Cumulative effect of change in
        accounting principle                              --              --               .01
                                                  ------------    ------------    ------------
           Net income                             $        .03    $        .27    $        .21
                                                  ============    ============    ============
WEIGHTED AVERAGE NUMBER OF
   SHARES OUTSTANDING:
      Primary                                        4,205,547       4,196,843       3,961,572
                                                  ============    ============    ============
      Assuming full dilution                         4,216,985       4,212,078       3,988,510
                                                  ============    ============    ============
</TABLE>
                 See notes to consolidated financial statements


                                       F-5

<PAGE>



                         STAR MULTI CARE SERVICES, INC.

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

TABLE 1 OF 3
<TABLE>
<CAPTION>
                                                                      Common Stock            
                                                               ---------------------------   Additional                     
                                                                                  Par         Paid-in       Subscription    
                                                                  Shares         Value         Capital       Receivable     
                                                               ------------   ------------   ------------   ------------    
<S>                                                               <C>         <C>            <C>            <C>             
Balance, May 31, 1994, as previously reported                     2,167,500   $      2,168   $  4,841,790   $       --      

Pooling of interest with Amserv Healthcare, Inc. (Note 2)         1,204,311          1,204      6,107,556           --      
                                                               ------------   ------------   ------------   ------------    

Balance, May 31, 1994, as adjusted                                3,371,811          3,372     10,949,346           --      

Purchase of treasury stock                                             --             --             --             --      
Exercise of stock options                                            19,000             19         36,145           --      
Exercise of stock options on pooled company
   including income tax benefit                                      84,892             85        416,018       (198,440)   
Stock dividend                                                      128,347            128        481,173           --      
Cumulative effect of change in accounting principle (Note 3)           --             --             --             --      
Change in unrealized loss on short-term investments                    --             --             --             --      
Net income                                                             --             --             --             --      
                                                               ------------   ------------   ------------   ------------    

Balance, May 31, 1995                                             3,604,050          3,604     11,882,682       (198,440)   

Adjustment to conform fiscal year of
   AMSERV Healthcare, Inc. (Note 2)                                    --             --             --             --      
Exercise of stock options                                            17,287             17         40,611           --      
Exercise of stock options on pooled company
   including income tax benefit                                      62,931             63        293,741       (199,342)   
Stock dividend                                                      136,090            136      1,071,573           --      
Change in unrealized loss on short-term investments                    --             --             --             --      
Net income                                                             --             --             --             --      
                                                               ------------   ------------   ------------   ------------    

Balance, May 31, 1996                                             3,820,358          3,820     13,288,607       (397,782)   

Shares issued under Employee Stock Purchase Plan                     12,119             12         72,702           --      
Exercise of stock options including income tax benefit              184,837            185        767,447           --      
Issuance of stock for services                                        8,451              8         53,992           --      
Stock dividend                                                      188,570            189      1,249,085           --      
Change in unrealized loss on short-term investments                    --             --             --             --      
Net income                                                             --             --             --             --      
                                                               ------------   ------------   ------------   ------------    

Balance, May 31, 1997                                             4,214,335   $      4,214   $ 15,431,833   $   (397,782)   
                                                               ============   ============   ============   ============    
</TABLE>



TABLE 2 OF 3
<TABLE>
<CAPTION>
                                                               
                                                                Unrealized       Retained            Treasury Stock         
                                                                (Loss) on        Earnings      ---------------------------  
                                                                Investments      (Deficit)        Shares         Value      
                                                               ------------    ------------    ------------   ------------  
<S>                                                            <C>             <C>                  <C>       <C>           
Balance, May 31, 1994, as previously reported                  $       --      $    657,618         135,000   $   (272,985) 

Pooling of interest with Amserv Healthcare, Inc. (Note 2)              --        (1,760,790)           --             --    
                                                               ------------    ------------    ------------   ------------  

Balance, May 31, 1994, as adjusted                                     --        (1,103,172)        135,000       (272,985) 

Purchase of treasury stock                                             --              --             2,500         (5,937) 
Exercise of stock options                                              --              --              --             --    
Exercise of stock options on pooled company
   including income tax benefit                                        --              --              --             --    
Stock dividend                                                         --          (481,301)           --             --    
Cumulative effect of change in accounting principle (Note 3)        (23,683)           --              --             --    
Change in unrealized loss on short-term investments                   9,119            --              --             --    
Net income                                                             --           812,021            --             --    
                                                               ------------    ------------    ------------   ------------  

Balance, May 31, 1995                                               (14,564)       (772,452)        137,500       (278,922) 

Adjustment to conform fiscal year of
   AMSERV Healthcare, Inc. (Note 2)                                    --           136,262            --             --    
Exercise of stock options                                              --              --              --             --    
Exercise of stock options on pooled company
   including income tax benefit                                        --              --              --             --    
Stock dividend                                                         --        (1,071,709)           --             --    
Change in unrealized loss on short-term investments                   8,564            --              --             --    
Net income                                                             --         1,143,259            --             --    
                                                               ------------    ------------    ------------   ------------  

Balance, May 31, 1996                                                (6,000)       (564,640)        137,500       (278,922) 

Shares issued under Employee Stock Purchase Plan                       --              --              --             --    
Exercise of stock options including income tax benefit                 --              --              --             --    
Issuance of stock for services                                         --              --              --             --    
Stock dividend                                                         --        (1,249,274)           --             --    
Change in unrealized loss on short-term investments                   6,000            --              --             --    
Net income                                                             --           125,619            --             --    
                                                               ------------    ------------    ------------   ------------  

Balance, May 31, 1997                                          $       --      $ (1,688,295)        137,500   $   (278,922) 
                                                               ============    ============    ============   ============  
</TABLE>


TABLE 3 OF 3
                                                               
                                                                 Total
                                                              Shareholders'
                                                                 Equity
                                                              ------------

Balance, May 31, 1994, as previously reported                 $  5,228,591

Pooling of interest with Amserv Healthcare, Inc. (Note 2)        4,347,970
                                                              ------------

Balance, May 31, 1994, as adjusted                               9,576,561

Purchase of treasury stock                                          (5,937)
Exercise of stock options                                           36,164
Exercise of stock options on pooled company
   including income tax benefit                                    217,663
Stock dividend                                                        --
Cumulative effect of change in accounting principle (Note 3)       (23,683)
Change in unrealized loss on short-term investments                  9,119
Net income                                                          12,021
                                                              ------------

Balance, May 31, 1995                                           10,621,908

Adjustment to conform fiscal year of
   AMSERV Healthcare, Inc. (Note 2)                                136,262
Exercise of stock options                                           40,628
Exercise of stock options on pooled company
   including income tax benefit                                     94,462
Stock dividend                                                        --
Change in unrealized loss on short-term investments                  8,564
Net income                                                       1,143,259
                                                              ------------

Balance, May 31, 1996                                           12,045,083

Shares issued under Employee Stock Purchase Plan                    72,714
Exercise of stock options including income tax benefit             767,632
Issuance of stock for services                                      54,000
Stock dividend                                                        --
Change in unrealized loss on short-term investments                  6,000
Net income                                                         125,619
                                                              ------------

Balance, May 31, 1997                                         $ 13,071,048
                                                              ============

                 See notes to consolidated financial statements


                                       F-6

<PAGE>

                         STAR MULTI CARE SERVICES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                     Years Ended
                                                                                        May 31,
                                                                      -----------------------------------------
                                                                          1997           1996           1995
                                                                      -----------    -----------    -----------
<S>                                                                   <C>            <C>            <C>        
CASH FLOW FROM OPERATING ACTIVITIES:
   Net income                                                         $   125,619    $ 1,143,259    $   812,021
                                                                      -----------    -----------    -----------
   Adjustments to reconcile net income to net cash
     (used in) provided by operating activities:
        Provision for doubtful accounts                                   479,640        511,736        196,309
        Depreciation and amortization                                     656,374        722,609        755,449
        Deferred income taxes                                            (589,909)      (200,106)       (12,765)
        AMSERV fiscal year conversion                                        --          136,262           --
        Loss on disposal of equipment                                        --             --           47,286
        Gain on disposal of discontinued operations                          --             --          (30,302)
        Cumulative effect of change in accounting principles                 --             --          (23,683)
        Changes in operating assets and liabilities:
           (Increase) decrease in assets:
             Accounts receivable                                       (2,128,937)    (3,406,998)      (357,874)
             Prepaid expenses and other assets                           (263,981)      (584,290)       122,811
             Income tax receivable                                        (73,738)          --             --
             Valuation allowance                                             --          (16,902)          --
           Increase (decrease) in liabilities:
             Accounts payable and accrued payroll and expenses          1,299,650        257,250        369,760
             Income taxes payable                                        (295,647)        (4,793)       104,903
             Other liabilities                                            163,825        (14,544)       238,812
                                                                      -----------    -----------    -----------
        Total adjustments                                                (752,723)    (2,599,776)     1,410,706
                                                                      -----------    -----------    -----------
        Net cash (used in) provided by operating activities              (627,104)    (1,456,517)     2,222,727
                                                                      -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of short-term investments                                        --         (992,999)    (1,586,285)
   Proceeds from sale of short-term investments                           106,000      2,310,486        880,000
   Purchase of intangibles                                               (179,763)       (82,403)       (14,829)
   Repayment on note receivable from officer                                7,164          9,200         15,506
   Purchase of property and equipment                                    (666,705)      (307,547)      (398,332)
   Business acquisitions                                                     --             --       (1,215,770)
   Payment of costs related to discontinued operations                    (98,081)      (293,689)      (508,587)
   Proceeds from sale of discontinued operations                             --             --          813,941
   Cash received on notes receivable                                         --             --           50,411
   Proceeds from sale of property and equipment                              --             --           31,851
   Payment of earnout advance                                                --             --         (500,000)
                                                                      -----------    -----------    -----------
        Net cash (used in) provided by investing activities              (831,385)       643,048     (2,432,094)
                                                                      -----------    -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Net (payments) proceeds from revolving credit line                    (658,000)     1,530,000        800,000
   Repayment of long-term debt                                           (125,000)      (125,000)      (166,666)
   Proceeds from the issuance of stock under option plans                 840,346        135,090        253,827
   Redemption of preferred shares                                        (341,436)      (341,434)      (170,718)
   Repayment of note payable                                                 --             --          (73,349)
   Purchase of treasury stock                                                --             --           (5,937)
                                                                      -----------    -----------    -----------
        Net cash (used in) provided by financing activities              (284,090)     1,198,656        637,157
                                                                      -----------    -----------    -----------
NET (DECREASE) INCREASE IN CASH
   AND CASH EQUIVALENTS                                                (1,742,579)       385,187        427,790
CASH AND CASH EQUIVALENTS, beginning of year                            1,881,979      1,496,792      1,069,002
                                                                      -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, end of year                                $   139,400    $ 1,881,979    $ 1,496,792
                                                                      ===========    ===========    ===========
SUPPLEMENTAL DISCLOSURE:
   Income taxes paid                                                  $   604,000    $   858,932    $   526,784
                                                                      ===========    ===========    ===========
   Interest paid                                                      $   235,000    $   280,000    $   117,289
                                                                      ===========    ===========    ===========
</TABLE>
                 See notes to consolidated financial statements


                                       F-7

<PAGE>


                         STAR MULTI CARE SERVICES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                         THREE YEARS ENDED MAY 31, 1997

1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

        a.   Nature of operations

             The Company is principally  engaged in providing  temporary  health
care  personnel,   including  registered  nurses,   licensed  practical  nurses,
certified  home  health  aides,  nurses'  aides and  respiratory  therapists  to
hospitals,  nursing  homes,  extended care  facilities  and in-home  patients in
Florida,  Ohio, New Jersey,  upstate New York and the New York City metropolitan
area.

        b.   Principles of consolidation

             The consolidated  financial statements include the accounts of Star
Multi Care Services, Inc. and its subsidiaries (the "Company"), all of which are
wholly-owned.  All significant intercompany  transactions and accounts have been
eliminated.

        c.   Revenue recognition and allowance for doubtful accounts

             Net revenue is recorded at the estimated net realizable amount from
patients,  third-party payors and others for services rendered.  A provision for
doubtful  accounts  is made for revenue  estimated  to be  uncollectible  and is
adjusted  periodically  based upon  management's  evaluation of current industry
conditions,  historical  collection experience and other relevant factors which,
in the opinion of  management,  deserve  recognition in estimating the allowance
for doubtful accounts.

             Under  Medicare,   Medicaid  and  other  cost-based   reimbursement
programs,  the Company is reimbursed  for services  rendered to covered  program
patients as  determined  by  reimbursement  formulas.  The  differences  between
established  billing  rates and the amounts  reimbursable  by the  programs  and
patient  payments  are recorded as  contractual  adjustments  and deducted  from
revenues.

             Retroactively  calculated third-party  contractual  adjustments are
accrued on an estimated  basis in the period the related  services are rendered.
Revisions to estimated contractual adjustments are recorded based upon audits by
third-party payors, as well as other communications with third-party payors such
as desk reviews,  regulation charges and policy statements.  These revisions are
made in the year such amounts are determined.

        d.   Investments in debt and equity securities

             The  Company  has   classified   its   investment   securities   as
available-for-sale  and has recorded  unrealized  holding  gains and losses as a
separate component of stockholders'  equity. The cumulative effect of the change
in  accounting  principle  resulted  in an  after-tax  increase  to  income  for
unrealized losses of $23,683 at June 1, 1994.

        e.   Property and equipment

             Property and equipment are recorded at cost. The carrying amount of
assets and related  accumulated  depreciation  and amortization are removed from
the accounts when such assets are disposed of, and the resulting gain or loss is
included in operations.  Depreciation  is computed by the  straight-line  method
over the  estimated  useful  lives of the  assets.  Leasehold  improvements  are
amortized over the shorter of the remaining life of the lease or the life of the
improvements.



                                       F-8

<PAGE>


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONT'D)

        f.   Intangible assets

             Intangible  assets  are  stated at  acquisition  cost and are being
amortized on a straight-line basis over their estimated useful lives.

        g.   Cash equivalents

             For  purposes of the  consolidated  statements  of cash flows,  the
Company  considers all highly liquid  financial  instruments  with a maturity of
three months or less when purchased to be cash equivalents.

        h.   Income taxes

             Deferred  tax  assets  and  liabilities  are  determined  based  on
differences between financial reporting and tax bases of assets and liabilities,
and are  measured  using the  enacted  tax rates and laws that will be in effect
when  the  differences  are  expected  to  reverse.  Temporary  differences  and
carryforwards  giving rise to deferred taxes  primarily  relate to the allowance
for  doubtful   accounts,   depreciation   and  subsidiary  net  operating  loss
carryforwards.

        i.   Stock-based compensation

             The  Company applies APB Opinion No. 25 and related interpretations
in accounting for stock-based  compensation to employees.  Stock compensation to
non-employees  is accounted for at fair value in accordance  with FASB Statement
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").

        j.   Net income per share

             Net income per share has been  computed by  dividing  net income by
the  weighted  average  number of  common  stock and  common  stock  equivalents
outstanding during each period. Common stock equivalents represents the dilutive
effect of the assumed exercise of certain outstanding options and warrants.

        k.   Derivative financial instruments

             Derivative  financial  instruments  are  utilized by the Company in
order to reduce the impact of changes in interest  rates.  The Company  does not
hold or issue derivative financial instruments for trading purposes.  Income and
expenses  are  recorded in the same  category as that  arising  from the related
asset or liability being hedged.  Gains realized on termination of interest rate
swap  contracts  are  deferred and  amortized  over the  remaining  terms of the
original swap agreement. Costs of interest rate cap contracts are amortized over
the lives of the contracts.

        l.   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 and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the period. Actual results may differ from those estimates.

        m.   Impairment accounting

             In  fiscal  1997,  the  Company  adopted   Statement  of  Financial
Accounting  Standards  ("SFAS")  No.  121,  "Accounting  for the  Impairment  of
Long-Lived  Assets and for Long-Lived  Assets to be Disposed of." This Statement
requires  that  certain  assets be reviewed  for  impairment  and, if  impaired,
remeasured at fair value, whenever events or


                                       F-9

<PAGE>


1.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONT'D)

changes in circumstances indicate that the carrying amount of the assets may not
be  recoverable.  The  adoption  of SFAS No. 121 had no  material  impact on the
Company's financial position or results of operations.

        n.   New standards

             In February  1997,  the FASB issued  Statement  128,  "Earnings Per
Share"  ("Statement 128"), which simplifies the standards for computing earnings
per share previously used and makes them comparable to international  standards.
The Statement is effective for financial  statements  issued for periods  ending
after December 15, 1997, and earlier  application is not permitted.  The Company
does not believe that the adoption of this Statement will have a material effect
to its financial statements.

        o.   Reclassifications

             Certain  reclassifications  have  been  made  to the  prior  years'
financial statements to conform with the classifications used in 1997.

2.      MERGERS AND ACQUISITIONS:

        a.   Merger

             On August 23,  1996,  pursuant to an  agreement  and plan of merger
(the "Agreement"),  AMSERV Healthcare,  Inc. ("AMSERV") was merged with and into
the Company. Under terms of the Agreement, each share of AMSERV common stock was
exchanged  for .4090  shares of the  Company's  common  stock.  The Company also
assumed  the  obligations  under all  outstanding  options  and other  rights to
acquire AMSERV stock.  Approximately  1,411,000  shares of the Company's  common
stock were  exchanged  for all of the  outstanding  stock of AMSERV.  The merger
qualified as a tax-free  reorganization  and was  accounted  for as a pooling of
interests,  and  accordingly,  the accompanying  financial  statements have been
restated to include the accounts and  operations of AMSERV for all periods prior
to the merger.

             AMSERV  changed its year end to May 31 for fiscal 1996 and utilized
a 52/53 week fiscal year end for fiscal 1995.  AMSERV's statements of operations
for the year ended June 24, 1995 has been  combined  with Star's  statements  of
operations for the fiscal year ended May 31, 1995. In order to conform  AMSERV's
year end to Star's fiscal year end, the consolidated  statement of operation for
fiscal year 1996  includes four weeks (June 1, 1995 to June 24, 1995) for AMSERV
which are also  included in the  consolidated  statement of operation for fiscal
year ended  1995.  Accordingly,  an  adjustment  has been made in fiscal 1996 to
retained  earnings for the  duplication  of net loss of ($136,262) for such four
week period.  Other  results of  operations  for such four week period of AMSERV
include net revenues of $1,411,000,  depreciation  and  amortization of $30,149,
loss before taxes of ($199,624) and income tax benefit of $63,362.




                                      F-10

<PAGE>


2.      Mergers and Acquisitions: (Cont'd)

             Separate  approximated  net revenues and net income  amounts of the
merged entities for the period prior to the merger are as follows:

                                                 Two Months   
                                                    Ended           Year Ended
                                                July 31, 1996      May 31, 1996
                                                 ------------     --------------
        Net revenues:
           Star Multi Care Services, Inc.        $  6,183,000     $   36,339,000
           AMSERV HEALTHCARE, INC.                  2,363,000         12,823,000
                                                 ------------     --------------

                                                 $  8,546,000     $   49,162,000
                                                 ============     ==============
        Net income:
           Star Multi Care Services, Inc.        $     90,000     $    1,046,000
           AMSERV HEALTHCARE, INC.                     61,000             97,000
                                                 ------------     --------------

                                                 $    151,000     $    1,143,000
                                                 ============     ==============

        b.   Acquisitions

             In May 1995,  the Company  acquired  certain  assets of Long Island
Nursing  Registry,  Inc.  ("LINR")  for  approximately   $1,716,000,   including
acquisition costs of approximately  $100,000.  The assets purchased consisted of
customers and patient lists of  $1,156,000,  nurses lists of $250,000,  covenant
not-to-compete  of  $150,000,  furniture  and office  equipment  of $25,000  and
goodwill of $35,000.

             In June 1994, the Company acquired substantially all the assets and
property of North Central Personnel, Inc. ("North Central"). The acquisition had
an initial  purchase  price of  $1,553,835.  The  Company  paid  $553,835 of the
purchase  price with cash,  and the  balance of  $1,000,000  was  financed  by a
promissory  note payable to the seller.  The final purchase price was contingent
on an earnout, of which $500,000 was earned in 1995, $100,000 was earned in 1996
and the final payment of $100,000 was earned in 1997. The excess of the purchase
price  over  the   valuation  of  tangible   assets  was  assigned  to  goodwill
($1,147,000) and a non-competition agreement ($25,000).

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

3.      SHORT-TERM INVESTMENTS:

        Short-term investments are recorded at estimated fair market values. The
following table summarizes available-for-sale securities:
                                                  May 31, 1996
                               -------------------------------------------------
                                                     Gross           Estimated
                                                  Unrealized           Fair
                                    Cost            Losses             Value
                               -------------      ------------     -------------
        Common stock           $     110,000      $     10,000     $     100,000
                               =============      ============     =============

        As a result of the  adoption  of SFAS No.  115 during the year ended May
31, 1995, the Company  records net unrealized  holding gains and losses,  net of
income tax effects, as a separate component of shareholders' equity. Previously,
unrealized losses had been charged to operations.  The cumulative effect of this
change in accounting  principle resulted in an after-tax  adjustment to earnings
of $23,683 at June 1, 1994.



                                      F-11

<PAGE>


3.      SHORT-TERM INVESTMENTS:  (CONT'D)

        A net realized loss of $10,098 was  recognized in the year ended May 31,
1996. A net  realized  gain of $2,413 was  recognized  in the year ended May 31,
1995.

4.      PREPAID EXPENSES AND OTHER CURRENT ASSETS:

        Prepaid expenses and other current assets consists of the following:

                                                           May 31,
                                                  -----------------------
                                                      1997         1996
                                                  ----------   ----------

        Prepaid insurance                         $  330,809   $  156,998
        Deferred acquisition costs                   514,086      254,625
        Other                                        561,433      389,042
                                                  ----------   ----------

                                                  $1,406,328   $  800,665
                                                  ==========   ==========

5.      PROPERTY AND EQUIPMENT:

        Property and equipment consists of the following:
                                                         May 31,
                                                  -----------------------
                                                     1997         1996
                                                  ----------   ----------

        Furniture and fixtures                    $  592,270   $  533,882
        Computer equipment                         1,363,230      741,615
        Leasehold improvements                        57,691       57,665
        Other                                        130,338      140,136
                                                  ----------   ----------
                                                   2,143,529    1,473,298
        Less accumulated depreciation                943,511      706,818
                                                  ----------   ----------

                                                  $1,200,018   $  766,480
                                                  ==========   ==========

6.      Intangible Assets:

        Intangible assets are as follows:
                                        Amortization            May 31,
                                           Period         1997           1996
                                         ----------    ----------     ----------
         Goodwill                          25 - 37     $2,942,000     $2,989,000
         Customer contracts                11 - 15      2,225,000      2,225,000
         Covenants not-to-compete          2 - 8          385,000      1,100,000
         Nurses' list                      9 - 15         703,000        703,000
         Other                             2 - 10         135,000        127,000
                                                       ----------     ----------
                                                        6,390,000      7,144,000
         Less accumulated amortization                  1,436,000      1,946,000
                                                       ----------     ----------
                                                       $4,954,000     $5,198,000
                                                       ==========     ==========



                                      F-12

<PAGE>



7.      REVOLVING CREDIT LINE:

        The  Company has a $8.0  million  line of credit with a bank which bears
interest at 1/4% above the bank's  prime  lending  rate (8 1/2% at May 31, 1997)
and matures on October 31, 1998, at which time it may be converted  into a three
year term loan which will bear  interest at 1/2% above the bank's prime  lending
rate.  The facility  requires the Company to meet certain  financial  ratios and
covenants,  including  minimum tangible net worth,  debt to equity and cash flow
coverage. All loans under the line of credit are collateralized by all assets of
the  Company.  The Company  can borrow  against the line to the extent of 80% of
eligible accounts receivable.

        Under the line of credit  agreement,  the  Company can from time to time
borrow at a rate based on the bank's  money  market rate (5.69% at May 31, 1997)
plus 2 3/4% for a period no less than three months. At May 31, 1997,  $1,500,000
was at the money market rate and the remainder of the outstanding credit line of
$1,122,000 was at prime plus 1/4%.

8.      DISCONTINUED OPERATIONS:

        On November 9, 1994, the Company sold substantially all of the fixed and
intangible  assets of its  temporary  nursing  services  for  hospital  staffing
business for $814,000.  The  consolidated  statements of operations for the year
ended May 31,  1995,  excludes  sales and  expenses  for its  temporary  nursing
services for hospital staffing  business from captions  applicable to continuing
operations.  Revenues from the  discontinued  operation  during fiscal 1995 were
$3,988,696.

9.      REDEEMABLE PREFERRED STOCK:

        In April 1995,  the Company  issued 426,794 shares of its voting Class A
Redeemable  Preferred Stock, which had a redemption value of $2.00 per share, in
exchange for a promissory  note payable in connection with the purchase of North
Central and related accrued  interest which totaled  $853,588 on the date of the
exchange.  The  preferred  shares paid no dividends and could be redeemed at the
option of the holder,  in  specified  installments  for cash.  On May 29,  1995,
85,359 shares were redeemed for $170,718. On July 6, 1995, the remaining 341,435
Class  A  Redeemable  Preferred  Shares  were  exchanged  for  260,141  Class  B
Redeemable  preferred Shares, with a redemption price of $2.625 per share and an
aggregate  redemption  value of $682,870.  During  fiscal  1996,  130,070 of the
shares were redeemed for $341,434,  and the remaining  130,071  shares have been
redeemed in fiscal 1997 for $341,436.

10.     INCOME TAXES:

        The provision for income taxes from  continuing  operations  consists of
the following:

                                         Years Ended May 31,
                                -----------------------------------
                                   1997         1996         1995
                                ---------    ---------    ---------
           Current:
              Federal           $ 605,093    $ 551,758    $ 314,781
              State and local      71,816      217,192      170,022
                                ---------    ---------    ---------
                                  676,909      768,950      484,803
                                ---------    ---------    ---------
           Deferred:
              Federal            (431,641)    (197,498)      (8,765)
              State              (158,268)      (2,608)      (4,000)
                                ---------    ---------    ---------
                                 (589,909)    (200,106)     (12,765)
                                ---------    ---------    ---------

                                $  87,000    $ 568,844    $ 472,038
                                =========    =========    =========



                                      F-13

<PAGE>


10.     INCOME TAXES: (CONT'D)

        The components of the net deferred tax assets are as follows:

                                                        May 31,
                                                 ----------------------
                                                    1997         1996
                                                 ---------    ---------
        Deferred tax assets:
           Allowance for doubtful accounts       $ 209,715    $ 296,772
           Reserve for discontinued operations        --         35,099
           Accrued expenses                        714,127      111,811
           Tax credits                                --         71,973
           Net operating loss carryforward           8,756       11,440
           Other                                    17,417       19,313
                                                 ---------    ---------
                                                   950,015      546,408
                                                 ---------    ---------
        Deferred tax liabilities:
           Depreciation and amortization              --       (143,322)
           Prepaid expenses                           --        (42,980)
                                                 ---------    ---------
                                                      --       (186,302)
                                                 ---------    ---------

        Net deferred tax assets                  $ 950,015    $ 360,106
                                                 =========    =========

        A reconciliation  between the actual income tax expense and income taxes
computed by applying  the  statutory  federal  income tax rate to income  before
taxes is as follows:

                                                    Years Ended May 31,
                                            -----------------------------------
                                               1997         1996         1995
                                            ---------    ---------    ---------
Computed federal income tax at
   statutory rates                          $  72,290    $ 582,115    $ 419,035
State taxes, net of federal benefit            13,608      158,200      108,015
Items without tax benefit                      76,500      103,856       51,552
Adjustments to prior years' tax liability     (76,200)        --           --
Valuation allowance                              --       (335,764)     (77,687)
Other, net                                        802       60,437      (28,877)
                                            ---------    ---------    ---------

                                            $  87,000    $ 568,844    $ 472,038
                                            =========    =========    =========

11.     SHAREHOLDERS' EQUITY:

        a.  Preferred stock

            On November  23,  1993,  shareholders  voted to amend the  Company's
Certificate of  Incorporation  to create five million shares of preferred stock,
$1.00 par value,  which the Board of Directors  has authority to issue from time
to time in series.  The Board of Directors also has the authority to fix, before
the  issuance  of each  series,  the  number of shares  in each  series  and the
designation,  preferences,  rights and  limitations of each series.  To date, no
shares of preferred stock have been issued.

        b.  Stock dividend

            On September 3, 1996,  the Company's  Board of Directors  approved a
stock dividend on November 4, 1996 for  shareholders of record as of October 11,
1996. A total of 188,570 shares of common stock were issued in connection with
the dividend.


                                      F-14

<PAGE>


12.     STOCK OPTION PLANS:  (CONT'D)

        On December 5, 1995, the Company's  Board of Directors  approved a stock
dividend  payable on January 12, 1996 for  shareholders of record as of December
22,  1995. A total of 136,090  shares of common stock were issued in  connection
with the dividend.

        On April 24, 1995,  the  Company's  Board of Directors  approved a stock
dividend  payable on May 30, 1995 for shareholders of record as of May 15, 1995.
A total of 128,347  shares of common  stock were issued in  connection  with the
dividend.

        For all stock  dividends,  common  stock has been  adjusted  for the par
value of the shares issued.  Additional  paid-in  capital and retained  earnings
have been adjusted for the difference  between the fair market value and the par
value of the
shares.
            All  references  in the  accompanying  financial  statements  to the
number of common  shares and per share  amounts for all periods  presented  have
been restated to reflect the stock dividends.

12.     STOCK OPTION PLANS:

        The Company has adopted the disclosure-only  provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation."  Accordingly, no compensation expense
has been  recognized  for the  stock  option  plans.  Had the  Company  recorded
compensation  expense for the stock options based on the fair value at the grant
date for awards in the years  ended May 31,  1997 and 1996  consistent  with the
provisions  of SFAS No. 123, the  Company's  net income and net income per share
would have been reduced to the following pro forma amounts.

                                                           Years Ended
                                                             May 31,
                                                       --------------------
                                                       1997            1996
                                                       ----            ----

  Net income, as reported                           $ 125,619     $ 1,143,259
  Net income, pro forma                                92,541       1,093,197
  Primary earning per share, as reported                  .03             .27
  Primary earnings per share, pro forma                   .02             .26
  Fully diluted earnings per share, as reported           .03             .27
  Fully diluted earnings per share, pro forma             .02             .26

        Because the SFAS No. 123 method of  accounting  has not been  applied to
options granted prior to June 1, 1995, the resulting pro forma compensation cost
may not be representative of that to be expected in future years.

        The fair value of each option  grant is  estimated  on the date of grant
using the  Black  Scholes  option  pricing  model  with the  following  range of
weighted-average  assumptions  used for grants in years  ended May 31,  1997 and
1996;  expected  volatility of 58%; risk free interest rate averaging  5.5%; and
expected lives of 2 to 6 years.

        The Company has two stock option  plans (the  "Plans") as adopted and as
adjusted for stock dividends. Participants may be granted either Incentive Stock
Options or  Non-Qualified  Stock Options to purchase shares of common stock. The
purpose of the Plans is to  promote  the  overall  financial  objectives  of the
Company and its shareholders by motivating those persons selected to participate
in the Plans to achieve  long-term  growth in shareholder  equity in the Company
and by retaining the association of those  individuals  who are  instrumental in
achieving  this growth.  Such options become  exercisable  at various  intervals
based upon vesting  schedules as determined by the Compensation  Committee.  The
options expire between November 1997 and May 2005.



                                      F-15

<PAGE>


12.     STOCK OPTION PLANS: (CONT'D)

        The incentive  stock options may be granted to employees and consultants
of the  Company  at a price not less than the fair  market  value on the date of
grant.  All such options are  authorized and approved by the Board of Directors,
based on recommendations of the Compensation Committee.

        Information as to options granted is summarized as follows:

                                                              Exercise
                                             Shares             Price
                                             ------             -----
        Outstanding, May 31, 1994            845,648        $1.38 - $14.86
           Granted                            35,355
           Exercised                        (110,285)
           Canceled and expired              (48,421)
                                           ---------
        Outstanding, May 31, 1995            722,297        $1.38 - $14.86
           Granted                           103,217
           Canceled and expired              (18,861)
           Exercised                         (84,229)
                                           ---------
        Outstanding, May 31, 1996            722,424        $1.38 - $7.28
           Granted                            29,500
           Canceled and expired              (41,414)
           Exercised                        (184,837)
                                           ---------
        Outstanding, May 31, 1997            525,673        $1.38 - $6.55
                                           =========
        Exercisable                          513,766
                                           =========

        Shares  reserved for future  issuance at May 31,
        1997 are comprised of the following:

        Shares issuable upon exercise of stock
           options under the plans                             699,458
        Shares issuable under the Company's
           employee stock purchase plan                        321,781
                                                             ---------
                                                             1,021,239
                                                             =========

        In November  1995,  the Company  adopted an Employee Stock Purchase Plan
whereby  certain  employees can purchase shares of common stock at the lesser of
85% of fair market  value of the stock at the  beginning  or end of the calendar
year. Since inception of this Plan, a total of 12,119 shares were issued.


                                      F-16

<PAGE>




13.     RELATED PARTY TRANSACTIONS:

        a.  Notes receivable from officer

            Notes receivable from officer of $93,353  represents  amounts loaned
by the Company and/or  subsidiaries  of the Company to the Company's  President.
These notes bear interest at 6% and mature August 1, 1998. All interest has been
paid through May 31, 1997.

        b.  Stock subscription receivable

            On April 20, 1995, the Company  accepted a  non-recourse  promissory
note from the former Chief Executive  Officer of AMSERV,  Eugene J. Mora, in the
original  principal  amount of $198,440,  bearing  interest at a rate of 10% per
annum and maturing in April 2000, and $1,100 in cash for the exercise of options
for 44,990 shares of the Company's  common stock. The promissory note is secured
by 72,623 shares of the Company's common stock owned by Mr. Mora. On January 16,
1996,  the  promissory  note was amended to become a recourse  promissory  note,
secured by 44,990  shares of common stock owned by Mr. Mora,  with interest at a
rate of 5.73% per annum.  Also on January  16,  1996,  the  Company  accepted an
additional  recourse  promissory  note from Mr. Mora in the  original  principal
amount of $199,342,  bearing  interest at a rate of 5.73% per annum and maturing
in January  2001,  and  $1,105 in cash for the  exercise  of options  for 45,194
shares of the Company's common stock.

        c.  Services

            A director provides  accounting services to the Company for which he
was compensated approximately $129,000 in 1997 and $100,000 in each of the years
1996 and 1995.

            A former director of AMSERV,  provided certain legal services to the
Company.  The Company  incurred legal fees with such firm of $7,027 and $114,208
for fiscal years 1996 and 1995, respectively.

14.     FAIR VALUE OF FINANCIAL INSTRUMENTS:

        The  methods  and  assumptions  used to  estimate  the fair value of the
following classes of financial instruments were:

        Current  Assets and Current  Liabilities:  The carrying  amount of cash,
        current receivables and payables and certain other short-term  financial
        instruments approximate their fair value.

        Long-Term  Debt:  The  fair  value  of  the  Company's  long-term  debt,
        including the current  portions,  was estimated  using a discounted cash
        flow  analysis,  based on the Company's  assumed  incremental  borrowing
        rates for similar types of borrowing  arrangements.  The carrying amount
        of variable  and fixed rate debt at May 31,  1997 and 1996  approximates
        its fair value.

15.     CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:

        Financial   instruments   which   potentially   expose  the  Company  to
concentrations of credit risk consist  principally of trade accounts  receivable
and temporary cash investments.

        The Company  provides  temporary  health care  personnel  to  hospitals,
nursing homes,  extended care facilities and in-home patients in Florida,  Ohio,
New Jersey, upstate New York and the New York City metropolitan area. At May 31,
1997 and 1996,  approximately 36% and 30%, respectively,  of accounts receivable
was due from Medicaid and  approximately  9% and 8%,  respectively,  of accounts
receivable  was  due  from  Medicare.   Credit  losses   relating  to  customers
historically have not been significant and within management's expectations.



                                      F-17

<PAGE>


15.     CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:(CONT'D)

        The  Company  places its  temporary  cash  investments  with high credit
quality financial institutions.

16.     CONTINGENCIES:

        The Company is a defendant  in a lawsuit  filed on November  14, 1996 in
San Diego  Superior  Court,  by Eugene J. Mora the former  President  and CEO of
AMSERV for alleged  breach of  contract.  The suit asks for damages  aggregating
approximately  $2,500,000.  The Company has  accrued  approximately  $1,670,000,
included in "Accrued  Payroll and Related  Expenses,"  in  connection  with this
matter.  The amount accrued is based upon information  which has been learned to
date. As this case is in the early stages, additional information may be learned
in the future, which would require the Company to modify this amount. Management
does not believe  that this matter  will have a material  adverse  impact on the
Company.

        In May 1997,  the Company was advised  that an audit of American  Health
Care  Services,  Inc.,  the Company's  Medicare  agency,  by the Office of Audit
Services,  Office of Inspector General of the United States Department of Health
and  Human  Services  which  had been  forwarded  to the  Medicare  intermediary
assigned to  administer  Medicare  payments in Florida had been  referred to the
Civil  Division  of the United  States  Attorney  for the  Southern  District of
Florida. The Company's Regulatory Counsel has been in contact with the Assistant
United  States  Attorney  assigned to the  matter,  but is unable to predict the
ultimate  costs,  if any,  that may be  incurred  by the  Company.  As such,  no
provision has been made in the  accompanying  financial  statements.  Regulatory
Counsel has also  advised the  Company  that it is likely the Company  will have
claims  against  third  parties  (i.e.  subcontractors  and licensed home health
agencies)  for a portion  of any  liability.  Management  anticipates  that this
matter will be satisfactorily resolved.

17.     COMMITMENTS:

        a.  Employment agreements

            The Company has an employment agreement, as amended, with an officer
which expires in December  2000.  The aggregate  commitment  for future  salary,
excluding bonuses,  under the agreement is $929,000. The agreement also provides
for increases based on increases in the consumer price index and certain bonuses
based upon annual pretax income. The Company has an employment agreement with an
employee that expires in May 1999.  The aggregate  commitment for future salary,
excluding bonuses, is $235,000.  The agreement also provides for certain bonuses
based on the Company's annual pre-tax income.  The aggregate minimum  commitment
for future salaries under the agreements is as follows:

                            Years Ending
                               May 31,

                                1998                      $     383,000
                                1999                            383,000
                                2000                            265,000
                                2001                            133,000
                                                          -------------
                                                           $  1,164,000

        b.  Leases

            The Company  conducts its operations  from leased office space under
various operating leases which expire at various dates through 2002.  Management
expects  that in the normal  course of business  these leases will be renewed or
replaced by other leases.



                                      F-18

<PAGE>


17.     COMMITMENTS: (CONT'D)

        As of May 31, 1997 future net minimum rental  payments  under  operating
leases having  initial or remaining  noncancellable  terms in excess of one year
are as follows:

               1998                      $    846,000
               1999                           639,000
               2000                           380,000
               2001                           288,000
               2002                           183,000
                                         ------------
                                         $  2,336,000
                                         ============

        Rental  expenses for operating  leases for fiscal years ended 1997, 1996
and 1995 were approximately $805,000, $731,000 and $519,000, respectively.

        c.  Guaranty

            In connection  with the sale of a business in 1992,  the Company has
guaranteed  certain  lease  payments.   The  amount  of  future  lease  payments
guaranteed  by the  Company  totaled  $166,192  at May 31,  1997 and are payable
through September 1998.

18.     RETIREMENT PLANS:

        The Company  adopted a 401(k)  savings plan in January 1995 covering all
eligible  employees.  Employees may defer up to 15% of their  compensation.  The
Company will match 10% of employees'  contributions up to 8%.  Contributions for
the  years  ended  May 31,  1997  and 1996  approximated  $20,000  and  $17,000,
respectively.

        A  division  of the  Company  has a  deferred  fringe  benefits  welfare
compensation plan covering substantially all of its employees.  Contributions to
the plan are discretionary and are based on employee compensation.  The plan was
amended in November  1995 to increase the vesting  period of new  entrants.  New
entrants  vest fully after 10 years of service,  and  participants  prior to the
amendment vest fully after three years of service. Contributions to the plan for
1997, 1996 and 1995 approximated $313,000, $233,000 and $264,000, respectively.

19.     SUPPLEMENTARY INFORMATION - STATEMENT OF CASH FLOWS:

        During the years ended May 31, 1997,  1996 and 1995,  the Company issued
stock  dividends   which  amounted  to  $1,249,274,   $1,071,709  and  $481,301,
respectively.  During the year ended May 31,  1997,  the Company  issued  common
stock in exchange for  services in the amount of $54,000.  During the year ended
May 31, 1996, the Company issued common stock upon the exercise of stock options
in exchange  for notes  receivable  in the amount of  $199,342.  During the year
ended May 31, 1995,  the Company  issued a note payable of $500,000 to finance a
portion of the  acquisitions  mentioned in Note 2. During the year ended May 31,
1995,  the Company  issued  $853,588 of Class A  redeemable  preferred  stock in
exchange for a note payable and related accrued interest.

20.     FINANCIAL INSTRUMENTS:

        On March 20, 1996, the Company  entered into a two year notional  amount
of $1,500,000  interest rate swap with a bank, whereby the Company pays interest
at a fixed  rate of  6.16%  and  receives  interest  at the  three-month  London
Interbank  Offered Rate ("LIBOR").  The Company is exposed to credit loss in the
event of  non-performance by the bank, however the Company does not anticipate a
loss  resulting  from  this  credit  risk.  The  fair  value  of this  financial
instrument at May 31, 1997 approximates $10,000.


                                      F-19

<PAGE>




21.     EFCC MERGER:

        On January 3, 1997,  the  Company  entered to an  agreement  and plan of
merger (the "EFCC Merger  Agreement")  to acquire (the "EFCC  Merger")  Extended
Family Care Corporation  ("EFCC"),  a health care service company which provides
home care  services in New Jersey,  New York and  Pennsylvania.  Pursuant to the
terms of the EFCC Merger, the Company will pay $2,400,000 in cash and $4,850,000
in stock.

        In  connection  with the EFCC Merger,  the Company and EFCC have entered
into a consulting  agreement,  pursuant to which the Company will render to EFCC
consulting and advisory  services in connection with the  management,  operation
and supervision of EFCC. In consideration  for the consulting  services rendered
by the Company,  EFCC will pay $25,000 per month  payable (a) $15,000 in arrears
on the last day of each month and (b) the  remaining  $10,000 on the  earlier of
the closing  date or  termination  of the EFCC Merger  Agreement.  As of May 31,
1997,  $80,000 due from EFCC is included in prepaid and other current assets The
EFCC Merger is subject to approval by the  shareholders  of both the Company and
EFCC, as well as the satisfaction of certain other conditions and is expected to
be consummated on or before September 15, 1997.




                                      F-20

<PAGE>




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

        None.

                                    PART III



ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
           COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT

        The information  required by this item is incorporated by reference from
the Company's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.


ITEM 11.   EXECUTIVE COMPENSATION

        The information  required by this item is incorporated by reference from
the Company's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.


ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information  required by this item is incorporated by reference from
the Company's Definitive Proxy Statement
to be filed pursuant to Regulation 14A.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information  required by this item is incorporated by reference from
the Company's Definitive Proxy Statement to be filed pursuant to Regulation 14A.



                                      -19-

<PAGE>




ITEM 14.   EXHIBITS AND REPORTS ON FORM 8-K

           (a)        Documents filed as part of this Report:

           1.         Financial Statements

                      The  following  financial  statements  of the  Company are
contained in Item 8 of this Report on the pages indicated:

                                                                            Page
                                                                            ----
Index to Consolidated Financial Statements                                   F-1

Report of Holtz Rubenstein & Co., LLP, Independent
 Certified Public Accountants                                                F-2

Report of Ernst & Young LLP, Independent Certified Public Accountants        F-3

Consolidated balance sheets as of May 31, 1997 and 1996                      F-4

Consolidated statements of income for the three years ended May 31, 1997     F-5

Consolidated statement of shareholders' equity
   for the three years ended May 31, 1997                                    F-6

Consolidated statements of cash flows for the three years 
ended May 31, 1997                                                           F-7

Notes to consolidated financial statements                            F-8 - F-20

           2.         Financial Statement Schedules

           None.


           3.         Exhibits:  The  following  Exhibits are filed as a part of
                      this Report:


Exhibit No.          Description

     2.               (a)        Agreement  and Plan of Merger  Among Star Multi
                                 Care Services, Inc., EFCC Acquisition Corp. and
                                 EXTENDED FAMILY CARE  CORPORATION,  dated as of
                                 January 3, 1997.  Incorporated  by reference to
                                 Exhibit  2(a)  to  the  Company's  Registration
                                 Statement  on Form  S-4  dated  July  29,  1997
                                 (Registration No. 333-32171).
                      (b)        First Amendment to Agreement and Plan of Merger
                                 among the Company,  EFCC Acquisition  Corp. and
                                 Extended Family Care  Corporation,  dated as of
                                 April 6, 1997.  Incorporated  by  reference  to
                                 Exhibit  2(a)  to  the  Company's  Registration
                                 Statement  on Form  S-4  dated  July  29,  1997
                                 (Registration No. 333-32171).

     3.              (a)    *    The   Company's  Certificate  of  Incorporation
                                 filed April 25, 1961.
                     (b)    *    The   Company's  Certificate  of  Amendment  to
                                 Certificate of Incorporation filed February 22,
                                 1989.
                     (c)    *    The   Company's  Certificate  of  Amendment  to
                                 Certificate of Incorporation filed  December 4,
                                 1990.


                                      -20-

<PAGE>


       Exhibit No.             Exhibit

                      (d)        The  Company's   Certificate  of  Amendment  to
                                 Certificate of Incorporation  filed February 3,
                                 1994.  (Incorporated  by reference to Exhibit 3
                                 (d) to the  Company's  Annual  Report  on  Form
                                 10-KSB for the fiscal year ended May 31, 1994.)
                      (e)        The Company's Certificate of Change filed March
                                 2, 1995.  (Incorporated by reference to Exhibit
                                 3(e) to the  Company's  Annual  Report  on Form
                                 10-KSB for the fiscal year ended May 31, 1995.)
                      (f)        The Company's  By-Laws,  as amended on November
                                 18, 1992 and September 13, 1993.  (Incorporated
                                 by reference to Exhibit 3 (e) to the  Company's
                                 Annual  Report on Form  10-KSB  for the  fiscal
                                 year ended May 31, 1994.)
     9.               (a)        Sternbach Proxy
                      (b)        Voting  Trust  Agreement  dated  as of June 20,
                                 1996 by and among EFCC, Coss, Arbor, the Voting
                                 Trustee of the Issuer and Kaufman.
    10.               (a)   *    Form  of  Indemnification Agreement between the
                                 Company and Stephen Sternbach.
                      (b)        Employment  Agreement,  dated as of December 3,
                                 1995 between the Company and Stephen Sternbach.
                                 (Incorporated by reference to Exhibit 10.(x) to
                                 the Company's  Quarterly  Report on Form 10-QSB
                                 for the  quarterly  period  ended  February 29,
                                 1996.)
                      (c)   *    The Company's 1991 Incentive Stock Option Plan
                      (d)        The Company's 1992 Incentive  Stock Option Plan
                                 (as amended and restated  September  13, 1993).
                                 (Incorporated by reference to Exhibit 10 (h) to
                                 the Company's  Annual Report on Form 10-KSB for
                                 the fiscal year ended May 31, 1994.)
                      (e)        Amendment  No. 1 to the  Company's  1992  Stock
                                 Option  Plan.  (Incorporated  by  reference  to
                                 Exhibit  10.(z)  to  the  Company's   Quarterly
                                 Report on Form 10-QSB for the quarterly  period
                                 ended February 29, 1996.)
                      (f)        The Company's  Employee Stock Purchase Plan, as
                                 amended on December 15, 1995.  (Incorporated by
                                 reference  to Exhibit  10.(y) to the  Company's
                                 Quarterly   Report  on  Form   10-QSB  for  the
                                 quarterly period ended February 26, 1996.)
                      (g)        Form  of  Incentive   Stock   Option   Contract
                                 (Incorporated  by reference to Exhibit 10(j) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1993.)
                      (h)   *    Agreement  relating  to purchase of the Company
                                 among Stephen Sternbach,  Renee the Company and
                                 Leonard Taubenblatt dated December 31, 1986.
                      (i)   *    New  York  State Department of Consumer Affairs
                                 Employment Agency License.
                      (j)   *    New  York  State  Health  Department  Home Care
                                 License.
                      (k)   *    New Jersey Employment agency License.
                      (l)        Form of  Indemnification  Agreement between the
                                 Company    and    directors    and    officers.
                                 (Incorporated  by reference to Exhibit 10(k) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1992.)
                      (m)        Asset Purchase  Agreement  dated as of November
                                 1, 1991 by and among Unity Care Services, Inc.,
                                 Unity Healthcare Holding Company,  Inc. and the
                                 Company.  (Incorporated by reference to Exhibit
                                 10 (l) to the  Company's  Annual Report on Form
                                 10-K for the fiscal year ended May 31, 1992.)
                      (n)        Asset Purchase Agreement dated January 30, 1992
                                 by and among Unity Healthcare  Holding Company,
                                 Inc.,   Unity  Care  Services,   Inc.  and  the
                                 Company.  (Incorporated by reference to Exhibit
                                 10.1 to the  Company's  Current  Report on Form
                                 8-K dated May 26, 1992.)
                      (o)        Asset Purchase Agreement dated January 30, 1992
                                 by and between Unity Home Care of Florida, Inc.
                                 and the Company.  (Incorporated by reference to
                                 Exhibit 10.2 to the Company's Current Report on
                                 Form 8-K dated May 26, 1992.)
                      (p)        Employment  Agreement  dated February 15, 1990,
                                 between  Alan  Spector  and  the  Company,   as
                                 assignee  of Unity Home Care of  Florida,  Inc.
                                 (Incorporated  by reference to Exhibit 10(o) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1992.)


                                      -21-

<PAGE>


       Exhibit No.             Exhibit

                      (q)        Asset Purchase Agreement dated November 8, 1993
                                 by and between DSI Health Care  Services,  Inc.
                                 and Star Multi Care  Services  of Long  Island,
                                 Inc., a wholly owned subsidiary of the Company.
                                 (Incorporated  by  reference to Exhibit 10.1 to
                                 the Company's  Current Report on Form 8-K dated
                                 November 22, 1993.)
                      (r)        Asset Purchase Agreement dated as of January 6,
                                 1995,  as amended,  by and between  Long Island
                                 Nursing   Registry,   Inc.   and  the  Company.
                                 (Incorporated by reference to Exhibit 21 to the
                                 Company's  Current Report on Form 8-K dated May
                                 19, 1995.)
                      (s)        Employment  Agreement dated May 19, 1995 by and
                                 between  the   Company  and  Gregory   Turchan.
                                 (Incorporated  by  reference to Exhibit 99.1 to
                                 the Company's  Current Report on Form 8-K dated
                                 May 19, 1995.)
                      (t)        Loan  Agreement  dated  November 1, 1995 by and
                                 between the Company and Chase  Manhattan  Bank,
                                 N.A.  (Incorporated  by  reference  to  Exhibit
                                 10.(w)  to the  Company's  Quarterly  Report on
                                 Form  10-QSB  for the  quarterly  period  ended
                                 November 30, 1995.)
   16.                (a)        Letter dated April 25, 1995,  as amended,  from
                                 Deloitte  & Touche  LLP to the  Securities  and
                                 Exchange Commission. (Incorporated by reference
                                 to EFCC's  Current  Report on Form 8-K/A  dated
                                 March 21, 1995.)
   21.                     **    List of subsidiaries.
   23.                (a)  **    Consent of Holtz Rubenstein & Co., LLP.
                      (b)  **    Consent of Ernst & Young LLP.
   27.                (a)  **    Financial Data Schedule.

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

*    Incorporated by reference to the Company's  Registration  Statement on Form
     S-18 dated May 14, 1991. (Registration No. 33-39697-NY)

           (b)        Reports on Form 8-K.

           During the last  quarter of the period  covered by this  report,  the
Company filed a report on Form 8-K on April 29, 1997.


                                      -22-

<PAGE>



                                   SIGNATURES

           In  accordance  with  Section  13 or  15(d) of the  Exchange  Act the
Registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.


Date  August 29, 1997                         STAR MULTI CARE SERVICES, INC.


                                              By /s/ Stephen Sternbach
                                                -----------------------------
                                                Stephen Sternbach, President



           In  accordance  with the  Exchange  Act,  this Report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated:

      Signature                        Capacity                       Date
      ---------                        --------                       ----


/s/ Stephen Sternbach            President, Chairman of the      August 29, 1997
-------------------------        Board of Directors and Chief 
Stephen Sternbach                Executive Officer



/s/ William Fellerman            Principal Financial and         August 29, 1997
-------------------------        Accounting Officer, Director
William Fellerman                



                                 Director                        
-------------------------
John P. Innes, II



/s/ Matthew Solof                Director                        August 29, 1997
-------------------------
Matthew Solof



/s/ Charles Berdan               Director                        August 29, 1997
-------------------------
Charles Berdan



/s/ Melvin Katten                Director                        August 29, 1997
-------------------------
Melvin Katten



/s/ Gary L. Weinberger           Director                        August 29, 1997
-------------------------
Gary L. Weinberger



                                      -23-

<PAGE>



                                  EXHIBIT INDEX
                                  -------------

Exhibit No.                               Exhibit
-----------                               -------

     2.               (a)        Agreement  and Plan of Merger  Among Star Multi
                                 Care Services, Inc., EFCC Acquisition Corp. and
                                 EXTENDED FAMILY CARE  CORPORATION,  dated as of
                                 January 3, 1997.  Incorporated  by reference to
                                 Exhibit  2(a)  to  the  Company's  Registration
                                 Statement  on Form  S-4  dated  July  29,  1997
                                 (Registration No. 333-32171).
                      (b)        First Amendment to Agreement and Plan of Merger
                                 among the Company,  EFCC Acquisition  Corp. and
                                 Extended Family Care  Corporation,  dated as of
                                 April 6, 1997.  Incorporated  by  reference  to
                                 Exhibit  2(a)  to  the  Company's  Registration
                                 Statement  on Form  S-4  dated  July  29,  1997
                                 (Registration No. 333-32171).
     3.               (a)   *    The   Company's  Certificate  of  Incorporation
                                 filed April 25, 1961.
                      (b)   *    The   Company's  Certificate  of  Amendment  to
                                 Certificate of Incorporation filed February 22,
                                 1989.
                      (c)   *    The   Company's  Certificate  of  Amendment  to
                                 Certificate of Incorporation filed  December 4,
                                 1990.
                      (d)        The  Company's   Certificate  of  Amendment  to
                                 Certificate of Incorporation  filed February 3,
                                 1994.  (Incorporated  by reference to Exhibit 3
                                 (d) to the  Company's  Annual  Report  on  Form
                                 10-KSB for the fiscal year ended May 31, 1994.)
                      (e)        The Company's Certificate of Change filed March
                                 2, 1995.  (Incorporated by reference to Exhibit
                                 3(e) to the  Company's  Annual  Report  on Form
                                 10-KSB for the fiscal year ended May 31, 1995.)
                      (f)        The Company's  By-Laws,  as amended on November
                                 18, 1992 and September 13, 1993.  (Incorporated
                                 by reference to Exhibit 3 (e) to the  Company's
                                 Annual  Report on Form  10-KSB  for the  fiscal
                                 year ended May 31, 1994.)
     9.               (a)        Sternbach Proxy
                      (b)        Voting  Trust  Agreement  dated  as of June 20,
                                 1996 by and among EFCC, Coss, Arbor, the Voting
                                 Trustee of the Issuer and Kaufman.
    10.               (a)   *    Form  of  Indemnification Agreement between the
                                 Company and Stephen Sternbach.
                      (b)        Employment  Agreement,  dated as of December 3,
                                 1995 between the Company and Stephen Sternbach.
                                 (Incorporated by reference to Exhibit 10.(x) to
                                 the Company's  Quarterly  Report on Form 10-QSB
                                 for the  quarterly  period  ended  February 29,
                                 1996.)
                      (c)   *    The Company's 1991 Incentive Stock Option Plan
                      (d)        The Company's 1992 Incentive  Stock Option Plan
                                 (as amended and restated  September  13, 1993).
                                 (Incorporated by reference to Exhibit 10 (h) to
                                 the Company's  Annual Report on Form 10-KSB for
                                 the fiscal year ended May 31, 1994.)
                      (e)        Amendment  No. 1 to the  Company's  1992  Stock
                                 Option  Plan.  (Incorporated  by  reference  to
                                 Exhibit  10.(z)  to  the  Company's   Quarterly
                                 Report on Form 10-QSB for the quarterly  period
                                 ended February 29, 1996.)
                      (f)        The Company's  Employee Stock Purchase Plan, as
                                 amended on December 15, 1995.  (Incorporated by
                                 reference  to Exhibit  10.(y) to the  Company's
                                 Quarterly   Report  on  Form   10-QSB  for  the
                                 quarterly period ended February 26, 1996.)
                      (g)        Form  of  Incentive   Stock   Option   Contract
                                 (Incorporated  by reference to Exhibit 10(j) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1993.)
                      (h)   *    Agreement  relating  to purchase of the Company
                                 among Stephen Sternbach,  Renee the Company and
                                 Leonard Taubenblatt dated December 31, 1986.
                      (i)   *    New  York  State Department of Consumer Affairs
                                 Employment Agency License.
                      (j)   *    New  York  State  Health  Department  Home Care
                                 License.
                      (k)   *    New Jersey Employment agency License.
                      (l)        Form of  Indemnification  Agreement between the
                                 Company    and    directors    and    officers.
                                 (Incorporated  by reference to Exhibit 10(k) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1992.)
                      (m)        Asset Purchase  Agreement  dated as of November
                                 1, 1991 by and among Unity Care Services, Inc.,
                                 Unity Healthcare Holding Company,  Inc. and the
                                 Company.  (Incorporated by reference to Exhibit
                                 10 (l) to the  Company's  Annual Report on Form
                                 10-K for the fiscal year ended May 31, 1992.)
                      (n)        Asset Purchase Agreement dated January 30, 1992
                                 by and among Unity Healthcare  Holding Company,
                                 Inc.,   Unity  Care  Services,   Inc.  and  the
                                 Company.  (Incorporated by reference to Exhibit
                                 10.1 to the  Company's  Current  Report on Form
                                 8-K dated May 26, 1992.)


                                      -24-

<PAGE>



                      (o)        Asset Purchase Agreement dated January 30, 1992
                                 by and between Unity Home Care of Florida, Inc.
                                 and the Company.  (Incorporated by reference to
                                 Exhibit 10.2 to the Company's Current Report on
                                 Form 8-K dated May 26, 1992.)
                      (p)        Employment  Agreement  dated February 15, 1990,
                                 between  Alan  Spector  and  the  Company,   as
                                 assignee  of Unity Home Care of  Florida,  Inc.
                                 (Incorporated  by reference to Exhibit 10(o) to
                                 the  Company's  Annual  Report on Form 10-K for
                                 the fiscal year ended May 31, 1992.)
                      (q)        Asset Purchase Agreement dated November 8, 1993
                                 by and between DSI Health Care  Services,  Inc.
                                 and Star Multi Care  Services  of Long  Island,
                                 Inc., a wholly owned subsidiary of the Company.
                                 (Incorporated  by  reference to Exhibit 10.1 to
                                 the Company's  Current Report on Form 8-K dated
                                 November 22, 1993.)
                      (r)        Asset Purchase Agreement dated as of January 6,
                                 1995,  as amended,  by and between  Long Island
                                 Nursing   Registry,   Inc.   and  the  Company.
                                 (Incorporated by reference to Exhibit 21 to the
                                 Company's  Current Report on Form 8-K dated May
                                 19, 1995.)
                      (s)        Employment  Agreement dated May 19, 1995 by and
                                 between  the   Company  and  Gregory   Turchan.
                                 (Incorporated  by  reference to Exhibit 99.1 to
                                 the Company's  Current Report on Form 8-K dated
                                 May 19, 1995.)
                      (t)        Loan  Agreement  dated  November 1, 1995 by and
                                 between the Company and Chase  Manhattan  Bank,
                                 N.A.  (Incorporated  by  reference  to  Exhibit
                                 10.(w)  to the  Company's  Quarterly  Report on
                                 Form  10-QSB  for the  quarterly  period  ended
                                 November 30, 1995.)
   16.                (a)        Letter dated April 25, 1995,  as amended,  from
                                 Deloitte  & Touche  LLP to the  Securities  and
                                 Exchange Commission. (Incorporated by reference
                                 to EFCC's  Current  Report on Form 8-K/A  dated
                                 March 21, 1995.)
   21.                     **    List of subsidiaries.
   23.                (a)  **    Consent of Holtz Rubenstein & Co., LLP.
                      (b)  **    Consent of Ernst & Young LLP.
   27.                (a)  **    Financial Data Schedule.

-------------------
*    Incorporated by reference to the Company's  Registration  Statement on Form
     S-18 dated May 14, 1991. (Registration No. 33-39697-NY)

**   Filed herewith.



                                      -25-