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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) of
the SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------------------------------------------------
|For the fiscal year ended June 30, 2004                                             

Commission file number 1-10875

J. L. HALSEY CORPORATION(Exact name of registrant as specified in its charter)

|DELAWARE(State of incorporation)                                                                                   |  | 01-0579490(I.R.S. Employer Identification No.)
|------------------------------------------------------------------------------------------------------------------ |  | ----------------------------------------------
|103 Foulk Rd, Suite 205Q
Wilmington, DE(Address of principal executive office)                                     |  | 19803(Zip Code)                               
|Registrant's telephone number, including area code:(302) 691-6189                                                 
|Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par Value $.01 Per Share(Title of class)

Indicate
by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý    No o

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

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes o    No ý

As of December 31, 2003, the aggregate market value of the shares of common stock held by non-affiliates was approximately $10,566,638.
(Determination of stock ownership by non-affiliates was made solely for the purpose of responding to this requirement and the Registrant is not bound by this determination for any other
purpose.)

There
were 82,193,063 shares of the Registrant's common stock outstanding as of September 13, 2004.

DOCUMENTS
INCORPORATED BY REFERENCE

None



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J. L. HALSEY CORPORATION AND SUBSIDIARIES

FORM 10-KFISCAL YEAR ENDED JUNE 30, 2004

Contents and Cross Reference Sheet
Furnished Pursuant to General Instruction G(4) of Form 10-K



|Item No.   |  | Description                                                                           |  | Page
Number
|---------- |  | ------------------------------------------------------------------------------------- |  | -----------
|           |  |                                                                                       |  |            
|PART I    
|Item 1.    |  | Business                                                                              |  | 1          
|           |  | Company                                                                               |  | 1          
|           |  | Discontinued Operations                                                               |  | 1          
|           |  | Risk Factors                                                                          |  | 2          
|           |  | Insurance                                                                             |  | 3          
|           |  | Employees                                                                             |  | 4          
|Item 2.    |  | Properties                                                                            |  | 4          
|Item 3.    |  | Legal Proceedings                                                                     |  | 4          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                   |  | 5          
|PART II   
|Item 5.    |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 6          
|Item 6.    |  | Selected Financial Data                                                               |  | 6          
|Item 7.    |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 8          
|           |  | Overview                                                                              |  | 8          
|           |  | Year Ended June 30, 2004 Compared with the Year Ended June 30, 2003                   |  | 9          
|           |  | Year Ended June 30, 2003 Compared with the Year Ended June 30, 2002                   |  | 10         
|           |  | Quarterly Financial Information                                                       |  | 11         
|           |  | Liquidity and Capital Resources                                                       |  | 11         
|           |  | Off-Balance Sheet Arrangements                                                        |  | 12         
|           |  | Long-Term Contractual Obligations                                                     |  | 12         
|           |  | Cautionary Statement                                                                  |  | 13         
|           |  | Critical Accounting Policies and Estimates                                            |  | 13         
|Item 7A.   |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 14         
|Item 8.    |  | Financial Statements and Supplementary Data                                           |  | 15         
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |  | 32         
|Item 9A.   |  | Controls and Procedures                                                               |  | 32         
|PART III  
|Item 10.   |  | Directors and Executive Officers of the Registrant                                    |  | 33         
|Item 11.   |  | Executive Compensation                                                                |  | 34         
|Item 12.   |  | Security Ownership of Certain Beneficial Owners                                       |  | 35         
|Item 13.   |  | Certain Relationships and Related Transactions                                        |  | 36         
|Item 14.   |  | Principal Accountant Fees and Services                                                |  | 37         
|PART IV   
|Item 15.   |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                       |  | 37         
|Signatures |  | 38                                                                                   

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PART I

ITEM 1. BUSINESS

Company

Overview

J. L. Halsey Corporation, together with its subsidiaries ("Halsey" or the "Company", sometimes referred to as "we" or "us"), is a company in transition. In
response to substantial cuts in reimbursement under the Medicare program in the late 1990's, Halsey's predecessor sold all four of its operating businesses to raise cash and succeeded in fully
repaying all of its creditors. Halsey has no operating units, and the Company's principal assets include approximately $29 million in cash and net operating loss carryforwards ("NOLs") of
approximately $184 million. The Company has considered several asset redeployment strategies, including the possible acquisition of an operating business. Our management has recommended to our
board of directors (the "board") and our board has concurred, that the Company should pursue the acquisition of an operating business as the best way to attempt to increase the value of our existing
assets.

Discontinued Operations

Halsey is the successor to NovaCare, Inc. ("NovaCare"), which was a national leader in physical rehabilitation services, orthotics and prosthetics and
employee services. The changes to Medicare reimbursement in the late 1990's had deleterious effects on NovaCare and its competitors and customers. The prior operating business most affected by the
Medicare changes was the long-term care services segment in which NovaCare provided therapists to skilled nursing facilities. This business was disposed of in fiscal 1999 with the shutdown
of certain of its operations in the Western United States during the third fiscal quarter and the sale of the remaining operations on June 1, 1999. NovaCare's former outpatient services segment
was disposed of through the sales of its orthotics & prosthetics (O&P) and physical rehabilitation and occupational health (PROH) businesses. The O&P business was sold to Hangar Orthopedic
Group, Inc. in July of 1999 and the PROH business was sold to Select Medical Corporation in November of 1999. The Company's former employee services segment was disposed of through NovaCare's
sale of its interest in NovaCare Employee Services ("NCES") in October of 1999 to a subsidiary of Plato Holdings, Inc. as part of a tender offer by Plato for all of NCES's outstanding shares.
With cash raised from the sales of its businesses, the Company repaid all of its bank debt in the summer of 1999, and in January of 2000, the Company retired its publicly-traded subordinated debt.

Recent
and Current Activities

NovaCare
sold its name as part of the sale of the PROH business and subsequently changed its name to NAHC, Inc. ("NAHC"). On June 18, 2002, in a transaction approved by
NAHC's stockholders at a special meeting, NAHC merged with and into Halsey, its wholly-owned subsidiary. As used herein, the "Company" refers to Halsey, NAHC and NovaCare. The purpose of the merger
between NAHC and Halsey was to implement transfer restrictions on the Company's common stock in order to preserve the Company's net operating losses.

For
the past several years, the Company has tried to maximize the assets that it has retained, including old accounts receivable, Medicare receivables and appeals, and tax items and to
minimize liabilities retained after the sales of the operating businesses. The Company has made significant progress on these matters. The Company has collected virtually all of its receivables other
than amounts which are the subject of litigation or arbitration. A subsidiary of the Company has retained five employees and two consultants to carry out the general and administrative functions
specified above. These resources have been supplemented with outside financial, tax, legal and systems resources

1

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when
required by management and the board. No members of the current board were members prior to the Company selling its operating businesses.

The
Company has reflected substantially all of its results of operations and cash flows, for the current and all prior periods as discontinued operations except for its remaining general
and administrative activities, which are treated as continuing operations. All of the Company's financial assets are in cash items as defined under the Investment Company Act of 1940 (the "40 Act"),
which, the Company believes, should exclude it from the definition of an investment company.

Risk Factors

The stock transfer restrictions implemented in the merger of NAHC, Inc. and J. L. Halsey Corporation may delay or prevent takeover
bids by third parties and may delay or frustrate any attempt by stockholders to replace or remove the current management.

The
shares of common stock issued by the Company in the merger are subject to the transfer restrictions that, in general, prevent any individual stockholder or group of stockholders from
acquiring in excess of 5% of the outstanding common stock of the Company. The types of acquisition transactions that the Company may undertake therefore will be limited unless the Board of Directors
waives the transfer restrictions. The transfer restrictions also may make it more difficult for stockholders to replace current management because no single stockholder may cast votes for more than 5%
of the Company's outstanding shares of common stock, unless that stockholder held more than 5% of our common stock before the merger.



The Company's ability to become profitable depends on management's ability to find and execute on a profitable asset redeployment strategy. The Company incurred
substantial net losses from continuing operations in the previous three fiscal years ended June 30, 2004, 2003 and 2002. The Company has reported net income for the fiscal years ended
June 30, 2004, 2003 and 2002; however, the Company currently has no operations and thus there can be no assurance that it will be profitable in future periods. Net income in fiscal year 2004
was due to gains on discontinued operations primarily related to federal income tax refunds. Net income in fiscal year 2003 was primarily due to gains on discontinued operations including changes in
receivable reserves, the reversal of liability accruals and the release of reserves no longer necessary as a result of the settlement of various lawsuits and settlements with some state tax
authorities. The net income in fiscal year 2002 was primarily due to the realization of certain receivables in excess of book value, the release of reserves no longer necessary as a result of the
settlement of various lawsuits and a settlement with the Internal Revenue Service.



Our ability to use our potential tax benefits in future years will depend upon the amount of our otherwise taxable income. If we do not redeploy our assets in a
manner that generates profits and sufficient taxable income in future years, the NOLs will not be needed or used and therefore will provide no benefit to the Company. If the Company experiences a
change of ownership within the meaning of Section 382 of the Internal Revenue Code, the Company will not be able to realize the benefit of its net operating loss, capital loss and tax credit
carryforwards.



The Company continues to manage a relatively small number of legacy assets and liabilities remaining from the period prior to the discontinuance of its
operations. These remaining legacy assets consist of old receivables that are the subject of litigation or arbitration, and appeals of Medicare billing denials. The Company has established significant
reserves against these assets because of the

2

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uncertainty
regarding their collectability. The Medicare changes in the late 1990's had deleterious effects on the entire industry, including the financial status of companies that owe us money. Also,
the companies and Medicare have asserted defenses to our claims.

The
Company is defending two remaining suits against it. (See Item 3). Our management believes that we should prevail on each of these claims against us. However, there is uncertainty
and cost related to the claims. If possible, the Company may try to settle the remaining claims. The outcome of these matters is not possible to predict and the current reserves include only estimates
of potential settlements of certain material lawsuits and/or the costs of litigating, but do not reflect the possibility of a settlement, an adverse ruling or a judgment against the Company



The 40 Act requires registration as an investment company for companies that are engaged primarily in the business of investing, reinvesting, owning, holding or
trading securities. Unless an exclusion or safe harbor applies, a company may be deemed to be an investment company if it owns "investment
securities" with a value exceeding 40% of the value of its total assets on an unconsolidated basis, excluding government securities and cash items. A general exclusion is provided for companies that
are engaged primarily in a business other than investing.

From
the time of its public offering until November 19, 1999, the Company continued to operate one or more of its healthcare or professional employment businesses and, therefore,
was not an investment company because it was primarily engaged in a business other than investing. Since November 1999, the Company has been engaged in litigation (managing significant claims
for and against the Company), arbitration and other activities as part of winding down the various liabilities and assets from its former operating businesses. The Company believes it has been
involved primarily in a business other than investing since November 1999. There is a risk that the Securities and Exchange Commission ("SEC") may take a contrary view.

The
Company believes that there are several exclusions from the definition of an investment company available to it. First, the Company does not meet the 40% test with respect to the
composition of its assets. Fewer than 40% of its assets are in categories that the Company believes could be considered to be "investment securities." Second, the Company has placed assets that could
be considered "investment securities" into "cash items." All of the Company's holdings are in cash items. Cash items are excluded from the calculation to determine whether a company meets the 40%
test.

In
the event that the SEC disagrees with the Company's analysis, the Company may be required to register as an investment company under the Investment Company Act of 1940 or seek an
exemption from the SEC that would exclude the Company from the definition of an investment company.

This report contains forward-looking statements

This Annual Report on Form 10-K contains forward-looking statements based on management's current expectations about the Company. These
forward-looking statements can be identified by the use of words such as "expect," "anticipate," "estimate" and other similar expressions. The Company's actual results will likely differ materially
from those anticipated by these forward-looking statements as a result of factors described in these "Risk Factors" and elsewhere in this report.

Insurance

Although the Company purchased professional liability tail coverage insurance for periods prior to the sales of its respective businesses, the insurer, Phico
Insurance Company, has been declared insolvent and is no longer able to pay claims on behalf of the Company (see "Legal Proceedings"). The

3

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Company
currently purchases a small "all risk" insurance policy to cover the liability and property risks arising out of the current administrative operations.

Employees

At June 30, 2004, subsidiaries of the Company had five employees. The Company's employees are not represented by any labor union and the Company is not
aware of any current activity to organize any of its employees.

ITEM 2. PROPERTIES

Halsey's principal office is located at 103 Foulk Rd, Suite 205Q, Wilmington, DE 19803 where Halsey leases approximately 112 square feet of office space. A
subsidiary of Halsey leases approximately 2,600 square feet of office space in King of Prussia, PA, which expires in March 2005. See Note 6 of Notes to Consolidated Financial Statements
for information concerning the Company's leases.

ITEM 3. LEGAL PROCEEDINGS

Walmsley and Sullivan v. NAHC, Inc. et. al.During the third quarter of fiscal 2002, this action was filed in the
Court of Common Pleas for the County of Philadelphia, PA by Walmsley and Sullivan, two former employees against the Company and its officer and directors. The suit seeks damages in excess of
$3 million as a result of alleged breaches of contracts to pay certain bonuses, and other claims. The Company strongly disagrees with the allegations in the complaint and intends to vigorously
defend this action. The Company has sued both Walmsley and Sullivan in federal court in Arizona. This suit claims damages related to bonuses paid to Walmsley and Sullivan. During the third quarter of
fiscal 2004 several depositions were completed in this case and more are expected in the near future. The Company now believes that there is a strong possibility that this case will go to trial and
the Company has accrued for the estimated costs to defend this case in accordance with the Company's policies. The Company estimates that a potential trial in the Arizona action will occur sometime in
2005. A trial in the Pennsylvania action will likely not occur for several years after 2005 and there is still significant discovery to undertake in that action. The outcomes of these actions are not
possible to predict and the Company has reserved estimates of the costs of litigating both of these actions, but we have not recorded a liability to reflect the possibility of an adverse ruling or a
judgment against the Company or a settlement.

NovaCare v. Stratford Nursing Home.The Company filed this collection lawsuit over three years ago to collect on a receivable
of approximately $145,000, which the Company has full reserved. Stratford counter-claimed with numerous theories asserting that the Company instead owed Stratford money. Although Stratford's principal
claims were thrown out by the court, Stratford in the last quarter of fiscal year 2003 has quantified its remaining counter-claims at approximately $1 million. The Company believes that the
theories on which these damages are based are inconsistent with the contract between the parties and with the conduct of each party. This case is pending in the U.S. District Court for the Southern
District of New Jersey (Camden).

Uninsured Professional Liability Claims.The Company is a defendant in eight professional liability claims and had previously
purchased professional liability insurance policies from PHICO Insurance Company. On February 2, 2002, a Pennsylvania court authorized state insurance regulators to liquidate the insolvent
PHICO Insurance Company, which had provided professional liability insurance policies to the Company. As a result, PHICO will not be permitted to pay any claims on behalf of the Company. The Company
believes, however, that various state insurance guaranty funds will pay most of the claims on the Company's behalf. Based on its discussion with the state guaranty funds and its review of claims
during the third quarter of 2004, the Company now believes that a payment may be

4

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required
to settle one professional liability claim that may exceed the amount available to the Company under the applicable state guaranty fund limits. The Company recorded an accrual and related
expense in the third quarter of 2004 equal to the estimated cost to settle the claim less the amount that would be paid by the state guaranty fund. The Company believes that no other claims will
exceed the amounts available to the Company under the applicable state guaranty fund limits. There is no assurance, however, that each claim will settle within those limits and there is no excess
insurance policy in place that would pay settlements or awards in excess of those limits. Therefore, in the event that the Company's current assessment is incorrect, and the amounts required to pay on
these claims are in excess of any amounts paid by guaranty funds, the Company will be required to fund these claims. The Company's management does not believe that any of these claims are material.

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

At the Annual Meeting of the Company's stockholders held on March 25, 2004, (the "Annual Meeting"), the following nominee was elected to serve on Halsey's
Board of Directors as a Class II Director until the Annual Meeting of the Company's Stockholders in 2006 or until his earlier death, resignation or removal from office.

Name

Votes For

Votes WithheldDavid R. Burt

66,604,651

652,562


5

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the Over-the-Counter Bulletin Board ("OTCBB") under the symbol JLHY. Trading of the Company's
common stock on OTCBB commenced on December 3, 1999. The Company's common stock was traded on the New York Stock Exchange (the "NYSE") under the symbol NOV until November 22, 1999. The
Company's common stock traded on the OTCBB under the symbol NAHC until June 17, 2002. On July 27, 2004 there were 1,409 holders of record of common stock.

The
following table sets forth the high and low bids per share of common stock on the OTCBB for the relevant periods, and reflect inter-dealer prices, without retail mark-up,
mark-down or commission and thus may not necessarily represent actual transactions.

High

LowYear Ended June 30, 2004:First Quarter

$
0.20

$
0.11Second Quarter


0.29


0.16Third Quarter


0.31


0.19Fourth Quarter


0.44


0.26Year Ended June 30, 2003:First Quarter

$
0.06

$
0.03Second Quarter


0.16


0.04Third Quarter


0.17


0.09Fourth Quarter


0.13


0.08


With
the exception of 2-for-1 stock splits of common stock affected in the form of stock dividends in June 1987 and July 1991, no other dividends
have been paid or declared on common stock since the Company's initial public offering on November 5, 1986. The Company does not expect to declare any cash dividends on common stock in the
foreseeable future.

EQUITY COMPENSATION PLAN INFORMATION

The Company currently has no equity compensation plans.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the Company's consolidated financial statements and the accompanying notes presented
elsewhere herein.

The
Company has disposed of all of its operating segments. The Company's remaining activities consist of managing the legal proceedings against the Company, attempting to realize its
assets, general administrative matters and searching for potential acquisition candidates. Accordingly, the accompanying selected financial data reflect all the Company's assets and liabilities and
results of operations as discontinued operations, except for its remaining general and administrative activities which are treated as continuing operations.

6

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J. L. HALSEY CORPORATION AND SUBSIDIARIES
FIVE YEAR FINANCIAL SUMMARY

|                              |                                                                | Years Ended June 30, |  
|----------------------------- | -------------------------------------------------------------- | -------------------- | -
|
|Statement of Operations Data: |                                                                |                      |  
|                              | Loss from continuing operations                                |                      | $
|                              | Gain (loss) on disposal of discontinued operations, net of tax |                      |  
|                              | Net income (loss)                                              |                      |  
|                              | Loss per share from continuing operations                      |                      |  
|                              |                                                                | Basic and diluted    |  
|                              | Net income (loss) per share:                                   |                      |  
|                              |                                                                | Basic and diluted    |  

|                    |                      | As of June 30,
|------------------- | -------------------- | --------------
|
|Balance Sheet Data: |                      |               
|                    | Total assets         |               
|                    | Shareholders' equity |               

7

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

J. L. HALSEY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

J. L. Halsey Corporation, together with its subsidiaries ("Halsey" or the "Company", sometimes referred to as "we" or "us"), is a company in transition. In
response to substantial cuts in reimbursement under the Medicare program in the late 1990's, Halsey's predecessor sold all four of its operating businesses to raise cash and succeeded in fully
repaying all of its creditors. Halsey has no operating units, and the Company's principal assets include approximately $29 million in cash and net operating loss carryforwards ("NOLs") of
approximately $184 million. The Company has considered several asset redeployment strategies, including the possible acquisition of an operating business. Our management has recommended to our
board of directors (the "board") and our board has concurred, that the Company should pursue the acquisition of an operating business as the best way to attempt to increase the value of our existing
assets.

Discontinued
Operations

Halsey
is the successor to NovaCare, Inc. ("NovaCare"), which was a national leader in physical rehabilitation services, orthotics and prosthetics and employee services. The
changes to Medicare reimbursement in the late 1990's had deleterious effects on NovaCare and its competitors and customers. The prior operating business most affected by the Medicare changes was the
long-term care services segment in which NovaCare provided therapists to skilled nursing facilities. This business was disposed of in fiscal 1999 with the shutdown of certain of its
operations in the Western United States during the third fiscal quarter and the sale of the remaining operations on June 1, 1999. NovaCare's former outpatient services segment was disposed of
through the sales of its orthotics & prosthetics (O&P) and physical rehabilitation and occupational health (PROH) businesses. The O&P business was sold to Hangar Orthopedic Group, Inc.
in July of 1999 and the PROH business was sold to Select Medical Corporation in November of 1999. The Company's former employee services segment was disposed of through NovaCare's sale of its interest
in NovaCare Employee Services ("NCES") in October of 1999 to a subsidiary of Plato Holdings, Inc. as part of a tender offer by Plato for all of NCES's outstanding shares. With cash raised from
the sales of its businesses, the Company repaid all of its bank debt in the summer of 1999, and in January of 2000, the Company retired its publicly-traded subordinated debt.

Recent
and Current Activities

NovaCare
sold its name as part of the sale of the PROH business and subsequently changed its name to NAHC, Inc. ("NAHC"). On June 18, 2002, in a transaction approved by
NAHC's stockholders at a special meeting, NAHC merged with and into Halsey, its wholly-owned subsidiary. As used herein, the "Company" refers to Halsey, NAHC and NovaCare. The purpose of the merger
between NAHC and Halsey was to implement transfer restrictions on the Company's common stock in order to preserve the Company's net operating losses.

For
the past several years, the Company has tried to maximize the assets that it has retained, including old accounts receivable, Medicare receivables and appeals, and tax items and to
minimize liabilities retained after the sales of the operating businesses. The Company has made significant progress on these matters. The Company has collected virtually all of its receivables other
than amounts which are the subject of litigation or arbitration. A subsidiary of the Company has retained five employees and two consultants to carry out the general and administrative functions
specified above. These resources have been supplemented with outside financial, tax, legal and systems resources

8

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when
required by management and the board. No members of the current board were members prior to the Company selling its operating businesses.

The
Company has reflected substantially all of its results of operations and cash flows, for the current and all prior periods as discontinued operations except for its remaining general
and administrative activities, which are treated as continuing operations. All of the Company's financial assets are in cash items as defined under the Investment Company Act of 1940 (the "40 Act"),
which, the Company believes, should exclude it from the definition of an investment company.

Year Ended June 30, 2004 Compared with the Year Ended June 30, 2003

Continuing Operations

Continuing Operations.Continuing operations consist of general and administrative expenses and interest income. General and
administrative expenses consist primarily of compensation for personnel, professional services, which include consultants, legal fees and accounting, audit and tax fees, and administrative expenses
associated with operating as a public company.

The
loss before income taxes from continuing operations was $2.2 million for the year ended June 30, 2004 compared to $3.2 million for the prior year. The primary
reason for the decrease in the loss was a decrease in general and administrative costs of approximately $1.1 million, offset by a reduction in interest and other income of approximately
$100,000. The decrease in general and administrative expenses include reductions in salaries and wages of $637,000, document storage related costs of $137,000, legal expenses of $481,000, office rent
of $50,000 and professional and consulting fees of $48,000 offset by a $250,000 recovery of legal fees from the Company's directors and officers insurance carrier. The decrease in salaries and wages
includes a reduction of $574,000 of non-cash compensation that was recorded in fiscal year 2003. The decrease in general and administrative costs was primarily due to the settlement of
legal matters and the general reduction of costs to operate the Company. The non-cash compensation charge was the result of a transaction between a principal stockholder and an officer of
the Company.

There
is no provision for or benefit from income taxes for the years ended June 30, 2004 and 2003, as the Company could not utilize, for financial reporting or income tax
purposes, the loss incurred in the periods. The Company has NOLs of approximately $184 million as of June 30, 2004. The ultimate amount of the NOLs that may be utilized is dependent on
future results and it is reasonably possible that the actual amount may differ from the amount noted above. The Company will not recognize an income statement benefit for any previously incurred or
future operating losses or future tax deductions until such time as management believes it is more likely than not that the Company's future operations will generate sufficient taxable income to be
able to realize such benefits. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets at June 30, 2004.

Discontinued Operations

Discontinued Operations.Discontinued operations consist of gains or losses as a result of adjustments to the
$374.1 million loss on disposal of discontinued operations which was originally recorded in fiscal year 2000. Gains primarily include amounts received in excess of book value for trade accounts
receivable and Medicare related indemnification receivables which were owed to the Company prior to the disposition of the Company's long-term care services business in 1999 as well as
gains related to federal income tax refunds. Losses primarily include expenses incurred or adjustments to liabilities which were owed by the Company prior to the disposition of the Company's
long-term care services business in fiscal year 2000.

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The
gain on disposal of discontinued operations was $4.9 million, compared to $4.1 million for the prior year. These gains reflect adjustments to the $374.1 million
loss on disposal of discontinued operations that was recorded in fiscal year 2000. The gain in fiscal year 2004 of $4.9 million, primarily relates to income tax related refunds totaling
$6 million and decreases in reserves for certain receivables totaling $600,000 principally due to recovery of previously reserved receivables offset by increases in expense accruals of
$1.7 million, to reflect additional legal costs, collection costs, and to adjust other liabilities remaining from our discontinued operations. The $6 million of income tax refunds
consist of Federal Income tax carryback claims filed by the Company in July 2003 for the tax years ended June 1993 and 1996 as a result of the amendment of our 2001 tax year return. The
Company received the tax refunds in the fourth quarter of the fiscal year 2004. The gain in fiscal year 2003 of $4.1 million, primarily relates to the realization of certain receivables in
excess of book value totaling $2.7 million and the reversal of accruals of $1.4 million, net, to reflect the settlement of tax claims, lawsuits and to adjust other liabilities remaining
from our discontinued operations.

Year Ended June 30, 2003 Compared with the Year Ended June 30, 2002

Continuing Operations

The loss before income taxes from continuing operations was $3.2 million for the year ended June 30, 2003 compared to $3.1 million for the
prior year. The primary reason for the increase in the loss was a decrease in general and administrative costs of approximately $500,000, offset by a reduction in the credit provision for
restructuring in the amount of $213,000 and by a reduction in interest and other income of approximately $360,000. Reductions in legal expenses of $463,000, taxes and licenses of $229,000 and
insurance expense of $250,000, offset by $570,000 of non-cash compensation in fiscal year 2003, accounted for the vast majority of the decrease in general and administrative costs. The
decrease in general and administrative costs was primarily due to the settlement of legal matters and the general reduction of costs to operate the Company. The non-cash compensation
charge was the result of a transaction between a principal stockholder and an officer of the Company. General and administrative expenses consisted primarily of employee wages and benefits, legal
expenses, accounting, audit, tax and other professional services.

There
is no provision for or benefit from income taxes for the years ended June 30, 2003 and 2002, as the Company could not utilize, for financial reporting or income tax
purposes, the loss incurred in the periods. The Company had NOLs of approximately $209 million as of June 30, 2003. The Company will not recognize an income statement benefit for any
previously incurred or future operating losses or future tax deductions until such time as management believes it is more likely than not that the Company's future operations will generate sufficient
taxable income to be able to realize such benefits. Accordingly, the Company has provided a full valuation allowance against the net deferred tax assets at June 30, 2003.

Discontinued Operations

The gain on disposal of discontinued operations was $4.1 million, compared to $21.3 million for the prior year. These gains reflect adjustments to
the $374.1 million loss on disposal of discontinued operations that was recorded in fiscal year 2000. The gain in fiscal year 2003 of $4.1 million, primarily relates to the realization
of certain receivables in excess of book value totaling $2.7 million and the reversal of accruals of $1.4 million, net, to reflect the settlement of lawsuits, tax claims, and to adjust
other liabilities remaining from our discontinued operations. The gain in fiscal year 2002 of $21.3 million primarily relates to a tax claim settlement with the Internal Revenue Service in the
amount of $13 million, the realization of certain receivables in excess of book value totaling $8.1 million, and the reversal of accruals of $0.2 million, net, to reflect the
settlement of a lawsuit and to adjust other liabilities remaining from our discontinued operations.

10

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Quarterly Financial Information (unaudited)

|                          |                                                                              | First
Quarter     |   | Second
Quarter |         | Third
Quarter |          | Fourth
Quarter |  
|------------------------- | ---------------------------------------------------------------------------- | ----------------- | - | -------------- | ------- | ------------- | -------- | -------------- | -
|Year Ended June 30, 2004: |                                                                              |                   |   |                |         |               |          |                |  
|                          | Loss from continuing operations                                              |                   | $ | (643,275       | )       | $             | (489,971 | )              | $
|                          | Gain (loss) on disposal of discontinued operations, net of tax               |                   |   | 618,039        |         |               | 234,444  |                |  
|                          |                                                                              |                   |   |                |         |               |          |                |  
|                          |                                                                              | Net (loss) income |   | $              | (25,236 | )             | $        | (255,527       | )
|                          | Loss per share from continuing operations basic and diluted                  |                   | $ | (0.01          | )       | $             | (0.01    | )              | $
|                          | Gain (loss) per share on the disposal of discontinued operations, net of tax |                   | $ | 0.01           |         | $             | 0.01     |                | $
|                          | Net (loss) income per sharebasic and diluted                                |                   | $ | (0.00          | )       | $             | (0.00    | )              | $

|                          |                                                                       | First
Quarter |   | Second
Quarter |   | Third
Quarter
(Restated) |            | Fourth
Quarter |  
|------------------------- | --------------------------------------------------------------------- | ------------- | - | -------------- | - | ------------------------ | ---------- | -------------- | -
|Year Ended June 30, 2003: |                                                                       |               |   |                |   |                          |            |                |  
|                          | Loss from continuing operations                                       |               | $ | (27,669        | ) | $                        | (1,061,015 | )              | $
|                          | Gain (loss) on disposal of discontinued operations, net of tax        |               |   | 1,358,909      |   |                          | (179,551   | )              |  
|                          |                                                                       |               |   |                |   |                          |            |                |  
|                          | Net income (loss)                                                     |               | $ | 1,331,240      |   | $                        | (1,240,566 | )              | $
|                          | Loss per share from continuing operations basic and diluted           |               | $ | (0.00          | ) | $                        | (0.01      | )              | $
|                          | Gain per share on the disposal of discontinued operations, net of tax |               | $ | 0.02           |   | $                        | 0.00       |                | $
|                          | Net income (loss) per sharebasic and diluted                         |               | $ | 0.02           |   | $                        | (0.01      | )              | $

Liquidity and Capital Resources

Liquidity and Cash Flows

At June 30, 2004, cash and cash equivalents totaled approximately $28.9 million compared to approximately $23.2 million at June 30,
2003. The increase in cash was mainly attributable to a refund collected from the Internal Revenue Service ("IRS") in the third quarter of approximately $6 million (including interest of
approximately $729,000).

In
fiscal year 2003, the Company purchased 2 million shares of its own common stock at $0.12 per share and 200 shares at $0.11 per share for a total purchase price of $240,022.
Both stock purchases by the Company were made at fair market value at the time of each transaction. This amount has been recorded as Treasury Stock in the equity section of the Company's balance
sheet.

Our
primary source of cash in fiscal year 2004 was income tax refunds from the IRS, collection of old accounts receivables, Medicare receivables and appeals and interest income generated
by our investment of cash and cash equivalents. We currently have invested our cash and cash equivalents in interest bearing accounts in banks. We expect to continue to have similar holdings
exclusively until we acquire an operating business.

11

---



We
have concentrated our efforts on conserving our cash while considering our strategic alternatives. However, our use of cash has fluctuated significantly from quarter to quarter and we
anticipate that this pattern may continue.

Our
primary use of cash to date has been for costs in pursuit of the collection of accounts receivables, Medicare receivables and appeals as well as general and administrative expenses
for operations and in evaluating and implementing strategic alternatives.

We
expect our current cash will fund our current operations for the foreseeable future. In the event that we decide to purchase an operating business, our capital requirements may exceed
our current resources. In such a case, we would have to seek additional debt or equity financing from private or public sources. To the extent we raise additional capital by issuing equity securities,
ownership dilution to existing stockholders will result, and future investors may be granted rights superior to those of existing stockholders. To the extent that we borrow funds, the lenders of such
funds will have claims to our assets before there can be any distribution to our stockholders. There can be no assurance, however, that additional financing, either debt or equity, will be available
from any source or, if available, will be available on terms acceptable to us.

In
July 2004, the Company received notification that a former customer had filed for Bankruptcy protection under the US Bankruptcy Code Chapter 11. The Company may or may not have
to return some or all of the amounts that it has collected from this former customer over the past two years. The total amount collected by the Company over the past two years was $2 million.
The Company has not recorded a liability at this time since it is not possible to determine if a potential liability is probable based on the information available to us at this time. If in fact the
Company is notified in the future by the Bankruptcy Court that an amount must be repaid to the former customer, we believe that we may have legal defenses to support the retention of payments
collected from our former customer.

Legal and Tax Claims

The Company is currently defending two lawsuits (Walmsley and Sullivan v. NAHC, Inc. and NovaCare v. Stratford, see Item 3) and management believes
the Company will prevail in both instances. The Company has accrued for the potential costs of litigating these claims, but the Company does not, and has not, accrued for the payments that could
result from an adverse ruling, judgment or a settlement of these claims until the Company believes that it is probable that such a payment will be made.

The
Company has settled a matter with the IRS in the amount of $25,000 in the second quarter of the current fiscal year and the amount was paid by the Company in the third quarter of the
current fiscal year.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Long-Term Contractual Obligations

The Company has no long-term contractual obligations other than the run off of workers compensation insurance and professional liability insurance for
its legacy businesses described below.



The Company is a defendant in eight professional liability claims and had previously purchased professional liability insurance policies from PHICO Insurance
Company. On February 2, 2002, a Pennsylvania court authorized state insurance regulators to liquidate the insolvent PHICO Insurance Company, which had provided professional liability insurance
policies to the Company. As a result,

12

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PHICO
will not be permitted to pay any claims on behalf of the Company. The Company believes, however, that various state insurance guaranty funds will pay most of the claims on the Company's behalf.
Based on its discussion with the state guaranty funds and its review of claims during the third quarter of 2004, the Company now believes that a payment may be required to settle one professional
liability claim that may exceed the amount available to the Company under the applicable state guaranty fund limits. The Company recorded an accrual and related expense of $100,000 in the third
quarter of 2004 equal to the estimated cost to settle the claim less the amount that would be paid by the state guaranty fund. The Company believes that no other claims will exceed the amounts
available to the Company under the applicable state guaranty fund limits. There is no assurance, however, that each claim will settle within those limits and there is no excess insurance policy in
place that would pay settlements or awards in excess of those limits. Therefore, in the event that the Company's current assessment is incorrect, and the amounts required to pay on these claims are in
excess of any amounts paid by guaranty funds, the Company will be required to fund these claims. The Company's management does not believe that any of these claims are material individually or in
aggregate.



During the first quarter of fiscal year 2003, the NovaCare workers' compensation insurance carrier notified the Company that the purchaser of NCES ("the
Purchaser") who is responsible for making certain claim payments required by NovaCare's insurance policy deductibles has defaulted on those payment obligations. The Purchaser has funds that have been
prepaid to this insurance carrier for claim payments under deductibles on the NovaCare policies as well as other unrelated workers' compensation policies of the Purchaser. In management's opinion, the
deposits held by the insurance carrier are sufficient to pay deductible obligations on the unrelated workers' compensation policies as well as the NovaCare policies.

Cautionary Statement

Except for historical information, matters discussed above including, but not limited to, statements concerning litigation against the Company, are
forward-looking statements that are based on management's estimates, assumptions and projections. Important factors that could cause results to differ materially from those expected by management
include the outcome and costs of pending legal actions against the Company, and the Company's ability to identify potential acquisition targets and to successfully complete potential acquisitions.

Critical Accounting Policies and Estimates

The Company has identified the accounting principles critical to our business and results of operations. We determined the critical principles to be those that
involve the most complex or subjective decisions or assessments. We believe our most critical accounting policies include the following:

Reserves

The Company maintains allowances for the collection of receivables remaining from discontinued operations. These allowances are the result of the inability or
unwillingness of many of the Company's former customers to make payments. Several of the key industries in which the Company operated have been severely impacted by the Balanced Budget Act of 1997. As
a result of the provisions of this Act, many of the Company's former customers went bankrupt and many are nearly insolvent. Currently, the Company has outstanding receivables from a few of its
customers and has recorded 100% allowances against these receivables. The Company is pursuing collection from two of its former customers through litigation.

13

---



On
a quarterly basis, the Company reviews the value of the reserves and adjusts the net value of the receivables to the estimated amount that management expects to realize. When facts
and circumstances indicate that an account has been impaired below its current carrying value, the Company will adjust the reserve accordingly. When a customer files for bankruptcy or other facts and
circumstances dictate that the associated receivable will not be collectible at any future period, the Company fully reserves the receivable. Generally when there has been a significant change in
facts or circumstances and it is reasonably assured collectibility of a receivable, the Company will release the associated reserves to support the Company's change in estimate.

There
are currently a few accounts that make up the Company's total receivables, all of which are fully reserved because it is highly unlikely that we will collect the money that it is
owed. As a result it is inherently difficult to estimate the amount that the Company will realize upon collection.

Legal Fees

The Company accrues an estimate of the legal costs necessary to defend the Company against legal claims. The costs of litigation are difficult to estimate because
of the high variability of possible outcomes. As a result, the actual costs could differ significantly from these estimates.

Income Taxes

The Company has net operating loss carryforwards. The realization of any benefit of these loss carryforwards is dependent on future results and the actual amount
of these loss carryforwards may change over time. The Company does not recognize any benefit on its financial statements for any previously incurred losses and will not until it determines that it is
more likely than not that it will have taxable income to realize these benefits. Although the Company has reported net income in each of the last three years, it has not generated taxable income since
1996 and does not expect to generate significant taxable income until and unless it executes on an acquisition of a profitable operating business. The Company records income tax receivables only when
the Company believes the collection is reasonably assured.

Loss Contingencies

The Company records estimated loss contingencies when information is available that indicates that it is probable that an asset has been impaired or a liability
has been incurred and the amount of the loss can be reasonably estimated. When no accrual is made for a loss contingency because one or both of these conditions are not met, or if an exposure to loss
exists in excess of the amount accrued, the Company discloses such contingencies when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. Determining
the likelihood of incurring a liability and estimating the amount of the liability involves significant judgement. If we had used different assumptions, the amount of loss contingencies recorded could
have differed materially. In particular, the Company has estimated that the Walmsley case will not result in a judgment against the Company. If the outcome of the litigation is more adverse to the
Company than management currently expects, then the Company may have to record additional charges in the future and such charges could be significant.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not engage in trading market risk sensitive instruments and does not purchase as investments, as hedges or for purposes "other than trading,"
instruments that are likely to expose the Company to market risk, whether it be from interest rate, foreign currency exchange, or commodity price risk. The Company has entered into no forward or
futures contracts, purchased no options and entered into no swap arrangements.

14

---





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

J. L. HALSEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                     |                                                                            | June 30,                                                                                                                      |                                           
|------------------------------------ | -------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------
|
|ASSETS                               |                                                                            |                                                                                                                               |                                           
|Current assets:                      |                                                                            |                                                                                                                               |                                           
|                                     | Cash and cash equivalents                                                  |                                                                                                                               | $                                         
|                                     | Accounts and notes receivables remaining from discontinued operations, net |                                                                                                                               |                                           
|                                     | Deferred income taxes                                                      |                                                                                                                               |                                           
|                                     | Prepaid expenses                                                           |                                                                                                                               |                                           
|                                     | Prepaid expenses related to discontinued operations                        |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total current assets                      
|                                     | Restricted cash related to discontinued operations                         |                                                                                                                               |                                           
|                                     | Fixed assets, net                                                          |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total assets                              
|                                     |                                                                            |                                                                                                                               |                                           
|LIABILITIES AND STOCKHOLDERS' EQUITY |                                                                            |                                                                                                                               |                                           
|Current liabilities:                 |                                                                            |                                                                                                                               |                                           
|                                     | Accounts payable and accrued expenses                                      |                                                                                                                               | $                                         
|                                     | Accrued expenses remaining from discontinued operations                    |                                                                                                                               |                                           
|                                     | Taxes payable related to discontinued operations                           |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total current liabilities                 
|                                     | Deferred income taxes                                                      |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total liabilities                         
|                                     | Commitments and contingencies (Note 9)                                     |                                                                                                                               |                                           
|                                     | Stockholders' equity:                                                      |                                                                                                                               |                                           
|                                     |                                                                            | Common stock, $.01 par value; authorized 200,000,000 shares; issued 89,522,280 shares at June 30, 2004 and 2003, respectively |                                           
|                                     |                                                                            | Additional paid-in capital                                                                                                    |                                           
|                                     |                                                                            | Accumulated deficit                                                                                                           |                                           
|                                     |                                                                            | Treasury stock (at cost), 7,329,217 shares at June 30, 2004 and 2003                                                          |                                           
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total stockholders' equity                
|                                     |                                                                            |                                                                                                                               |                                           
|                                     |                                                                            |                                                                                                                               | Total liabilities and stockholders' equity
|                                     |                                                                            |                                                                                                                               |                                           

The
accompanying notes are an integral part of the consolidated financial statements.

15

---



J. L. HALSEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                            |                                                                 | Years Ended June 30, |          
|------------------------------------------- | --------------------------------------------------------------- | -------------------- | ---------
|
|General and administrative expenses         |                                                                 | $                    | 2,424,307
|(Credit) provision for restructure          |                                                                 |                      |         
|                                            |                                                                 |                      |          
|                                            | Loss from operations                                            |                      |          
|Interest income                             |                                                                 |                      | 238,059  
|Interest expense                            |                                                                 |                      |         
|Other income                                |                                                                 |                      |         
|                                            |                                                                 |                      |          
|                                            | Loss from continuing operations                                 |                      |          
|Gain on disposal of discontinued operations |                                                                 |                      | 4,940,828
|                                            |                                                                 |                      |          
|                                            | Net income                                                      |                      | $        
|                                            |                                                                 |                      |          
|                                            | Loss per share from continuing operationsbasic and diluted     |                      | $        
|                                            |                                                                 |                      |          
|                                            | Net income per sharebasic and diluted                          |                      | $        
|                                            |                                                                 |                      |          
|                                            | Weighted average number of shares outstandingbasic and diluted |                      |          
|                                            |                                                                 |                      |          

The
accompanying notes are an integral part of the consolidated financial statements.

16

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J. L. HALSEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

|                                                     |  | Common Stock |  |   |         |  |   | Treasury Stock |   |   |             
|---------------------------------------------------- |  | ------------ |  | - | ------- |  | - | -------------- | - | - | ------------
|
|
|Balance at June 30, 2001                             |  | 68,672,280   |  | $ | 686,723 |  | $ | 274,646,494    |   | $ | (227,786,968
|                                                     |  |              |  |   |         |  |   |                |   |   |             
|Issued in connection with conversion of note payable |  | 20,850,000   |  |   | 208,500 |  |   | (156,375       | ) |   |            
|Net income                                           |  |             |  |   |        |  |   |               |   |   | 18,189,284  
|                                                     |  |              |  |   |         |  |   |                |   |   |             
|Balance at June 30, 2002                             |  | 89,522,280   |  |   | 895,223 |  |   | 274,490,119    |   |   | (209,597,684
|Treasury stock purchase                              |  |             |  |   |        |  |   |               |   |   |            
|Stock based compensation                             |  |             |  |   |        |  |   | 573,792        |   |   |            
|Net income                                           |  |             |  |   |        |  |   |               |   |   | 877,517     
|                                                     |  |              |  |   |         |  |   |                |   |   |             
|Balance at June 30, 2003                             |  | 89,522,280   |  |   | 895,223 |  |   | 275,063,911    |   |   | (208,720,167
|Net income                                           |  |             |  |   |        |  |   |               |   |   | 2,754,580   
|                                                     |  |              |  |   |         |  |   |                |   |   |             
|Balance at June 30, 2004                             |  | 89,522,280   |  | $ | 895,223 |  | $ | 275,063,911    |   | $ | (205,965,587
|                                                     |  |              |  |   |         |  |   |                |   |   |             

The accompanying notes are an integral part of the consolidated financial statements.

17

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J. L. HALSEY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                             |                                                                                                           | For the Years Ended June 30,                                                          |                                                
|-------------------------------------------- | --------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -----------------------------------------------
|
|Cash Flow from Operating Activities:         |                                                                                                           |                                                                                       |                                                
|                                             | Net income                                                                                                |                                                                                       | $                                              
|                                             | Adjustments to reconcile net income to net cash flows from operating activities of continuing operations: |                                                                                       |                                                
|                                             |                                                                                                           | Gain on disposal of discontinued operations, net of tax                               |                                                
|                                             |                                                                                                           | Credit provision for restructure                                                      |                                                
|                                             |                                                                                                           | Stock based compensation                                                              |                                                
|                                             |                                                                                                           | Depreciation and amortization                                                         |                                                
|                                             |                                                                                                           | Reversal of income tax payable                                                        |                                                
|                                             |                                                                                                           | Income from restricted cash                                                           |                                                
|                                             |                                                                                                           | Changes in assets and liabilities, net of effects from acquisitions and dispositions: |                                                
|                                             |                                                                                                           |                                                                                       | Prepaid expenses                               
|                                             |                                                                                                           |                                                                                       | Accounts payable and accrued expenses          
|                                             |                                                                                                           |                                                                                       | Current income taxes                           
|                                             |                                                                                                           |                                                                                       |                                                
|                                             |                                                                                                           | Net cash flows used in continuing operations                                          |                                                
|                                             |                                                                                                           | Net cash flows provided by discontinued operations                                    |                                                
|                                             |                                                                                                           |                                                                                       |                                                
|                                             |                                                                                                           |                                                                                       | Net cash flows provided by operating activities
|                                             |                                                                                                           |                                                                                       |                                                
|Cash Flows from Investing Activities:        |                                                                                                           |                                                                                       |                                                
|                                             | Continuing operations:                                                                                    |                                                                                       |                                                
|                                             |                                                                                                           | Additions to property and equipment                                                   |                                                
|                                             | Discontinued operations:                                                                                  |                                                                                       |                                                
|                                             |                                                                                                           | Release of restricted cash                                                            |                                                
|                                             |                                                                                                           |                                                                                       |                                                
|                                             |                                                                                                           | Net cash flows (used in) provided by investing activities                             |                                                
|                                             |                                                                                                           |                                                                                       |                                                
|Cash Flows from Financing Activities:        |                                                                                                           |                                                                                       |                                                
|                                             | Continuing operations:                                                                                    |                                                                                       |                                                
|                                             |                                                                                                           | Payment for purchase of treasury stock                                                |                                                
|                                             | Discontinued operations:                                                                                  |                                                                                       |                                                
|                                             |                                                                                                           | Payment of note payable                                                               |                                                
|                                             |                                                                                                           |                                                                                       |                                                
|                                             | Net cash flows used in financing activities                                                               |                                                                                       |                                                
|                                             |                                                                                                           |                                                                                       |                                                
|Net increase in cash and cash equivalents    |                                                                                                           |                                                                                       | 5,660,583                                      
|Cash and cash equivalents, beginning of year |                                                                                                           |                                                                                       | 23,219,618                                     
|                                             |                                                                                                           |                                                                                       |                                                
|Cash and cash equivalents, end of year       |                                                                                                           | $                                                                                     | 28,880,201                                     
|                                             |                                                                                                           |                                                                                       |                                                

The
accompanying notes are an integral part of the consolidated financial statements.

18

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J. L. HALSEY CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2004

1. Summary of Significant Accounting Policies

Nature of Operations:J. L. Halsey Corporation, together with its subsidiaries ("Halsey" or the "Company", sometimes referred
to as "we" or "us"), is a company in transition. In response to substantial cuts in reimbursement under the Medicare program in the late 1990's, Halsey's predecessor sold all four of its operating
businesses to raise cash and succeeded in fully repaying all of its creditors. Halsey has no operating units, and the Company's principal assets include approximately $29 million in cash and
net operating loss carryforwards ("NOLs") of approximately $184 million. The Company has considered several asset redeployment strategies, including the possible acquisition of an operating
business. Our management has recommended to our board of directors (the "board") and our board has concurred, that the Company should pursue the acquisition of an operating business as the best way to
attempt to increase the value of our existing assets.

The
Company has disposed of all of its operating segments. The Company's activities consist of searching for one or more established businesses to acquire and managing the Company's
remaining assets and liabilities. Accordingly, the accompanying consolidated financial statements reflect all the Company's assets and liabilities, results of operations and cash flows as discontinued
operations, except for its remaining general and administrative activities which are treated as continuing operations. For the past several years, the Company has tried to maximize the assets that it
has retained, including old accounts receivable, Medicare receivables and appeals, and tax items and to minimize liabilities
retained after the sales of the operating businesses. The Company has made significant progress on these matters. The Company continues to minimize the few remaining claims against the Company.

Principles of Consolidation:The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been eliminated.

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 and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates. Management also uses estimates to report assets and liabilities remaining
from discontinued operations. The Company estimates reserves against potential assets from discontinued operations as well as in the reporting of potential liabilities from discontinued operations.
The Company adjusts these estimates as facts and circumstances require.

Cash and Cash Equivalents:The Company's holdings consist of cash in banks. These holdings are recorded on the Company's
balance sheet at current value, which includes cost plus earned interest. The Company maintains cash balances with banks in excess of FDIC insured limits. The Company limits credit risk by maintaining
accounts with financial institutions of high credit standing.

Restricted
cash balances consist of the following:

|                                                                         |  | June 30, 2004 |           | June 30, 2003
|------------------------------------------------------------------------ |  | ------------- | --------- | -------------
|Cash balance in support of self-insured workers compensation liabilities |  | $             | 2,385,844 |              
|                                                                         |  |               |           |              

The
increase in the restricted cash balance represents interest income of $8,397.

19

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Accounts and Notes Receivables Remaining from Discontinued Operations:At June 30, 2004, the accounts and notes
receivables remaining from discontinued operations primarily consist of trade accounts receivable and Medicare related receivables which were owed to the Company prior to the disposition of the
Company's operating segments in 1999. The Company has reserved these receivables at 100% to reduce these assets to their net realizable value of zero as the Company believes that it is not likely to
collect any of these amounts. Adjustments to reserves are charged or credited to gain (loss) on discontinued operations, net of tax.

VALUATION AND QUALIFYING ACCOUNTS  Years Ended June 30, 2004, 2003 and 2002

|Description                          |  | Balance At
Beginning of
Period |            | Charged To
Costs and
Expenses |   | Other |   | Deductions |      | Balance At
End of Period
|------------------------------------ |  | ------------------------------ | ---------- | ----------------------------- | - | ----- | - | ---------- | ---- | ------------------------
|Year ended June 30, 2004:            |  |                                |            |                               |   |       |   |            |      |                         
|Allowance for uncollectible accounts |  | $                              | 2,386,252  |                               |  |       | $ | (553,477   | )(2) | $                       
|Year ended June 30, 2003:            |  |                                |            |                               |   |       |   |            |      |                         
|Allowance for uncollectible accounts |  | $                              | 8,479,118  |                               |  |       | $ | (1,924,011 | )(2) | $                       
|Year ended June 30, 2002:            |  |                                |            |                               |   |       |   |            |      |                         
|Allowance for uncollectible accounts |  | $                              | 25,764,707 |                               |  |       | $ | (7,936,298 | )(2) | $                       

---

Accrued Expenses Remaining from Discontinued Operations:At June 30, 2004, the accrued expenses remaining from
discontinued operations primarily consist of liabilities which arose prior to or as a result of the disposition transactions. These liabilities include workers compensation, uninsured professional
liability claims and credit and collection expenses. The Company adjusts these accrual amounts based on current information available to management and these adjustments are charged or credited to
gain (loss) on discontinued operations, net of tax.

Legal Fees:The Company accrues for total estimated legal fees to defend itself in lawsuits.

Income Taxes:The Company records deferred tax assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. Valuation allowances are provided against deferred tax assets which are unlikely to be realized as of the end of relevant
reporting period.

Net Income (Loss) Per Share:Basic net income (loss) per share ("EPS") is calculated using the weighted average number of
common shares outstanding during each period. Diluted net income (loss)

20

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per
share is calculated using basic EPS adjusted for the effects of stock options and convertible debt if such instruments are dilutive.

Stock-Based Compensation:Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires that companies either recognize compensation expense for grants of stock, stock options, and other equity instruments based on fair value, or provide pro
forma disclosure of net income or loss and earnings or loss per share in the notes to the financial statements. The Company follows the disclosure provisions of SFAS 123 and applies Accounting
Principles Board Opinion No. 25 ("APB 25") and related interpretations in accounting for its plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates as calculated in accordance with SFAS 123, the Company's net income
and income per share for the years ended June 30, 2004, 2003 and 2002 would not be material to the company's financial statements.

Comprehensive Income (Loss):For fiscal years 2004, 2003 and 2002 the Company's comprehensive income or loss consists only of
net income or loss.

2. Discontinued Operations

At June 30, 2004 and 2003, assets and liabilities from discontinued operations consisted of:

|                                                                           |                                                      | June 30, 2004 |           | June 30, 2003
|-------------------------------------------------------------------------- | ---------------------------------------------------- | ------------- | --------- | -------------
|Accounts and notes receivables remaining from discontinued operations, net |                                                      | $             |          |              
|Restricted cash in support of workers compensation liabilities             |                                                      |               | 2,385,844 |              
|Prepaid expenses pertaining to insurance deposits                          |                                                      |               | 216,625   |              
|                                                                           |                                                      |               |           |              
|                                                                           | Total assets related to discontinued operations      |               |           | 2,602,469    
|                                                                           |                                                      |               |           |              
|Accrued expenses remaining from discontinued operations                    |                                                      |               | 4,205,732 |              
|Taxes payable related to discontinued operations                           |                                                      |               |          |              
|                                                                           |                                                      |               |           |              
|                                                                           | Total liabilities related to discontinued operations |               | $         | 4,205,732    
|                                                                           |                                                      |               |           |              

The
accounts receivables remaining from discontinued operations as of June 30, 2003 consisted primarily of trade accounts receivable and Medicare related receivables which were
owed to the Company prior to the disposition of the Company's long-term care services business in 1999. At June 30, 2004, the Company believes that the probability of collecting
these receivables is low and the Company will most likely cease its collection efforts in the next few quarters, therefore the Company has fully reserved these receivables to reduce their net
realizable value to zero. If any of these receivables are collected, the Company will record a gain in the period of collection. The accrued expenses remaining from discontinued operations primarily
consist of liabilities, which arose prior to or as a result of the disposition transactions. These liabilities include costs for litigation, workers compensation claims, professional liability claims,
and other liabilities.

The
$4.9 million gain on disposal of discontinued operations recorded in fiscal year 2004 relates to adjustments to the $374.1 million loss on disposal of discontinued
operations which was originally

21

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recorded
in fiscal year 2000. The adjustments consist of income tax related refunds totaling $6 million and decreases in reserves for certain receivables totaling $600,000 principally due to
recovery of previously reserved receivables offset by increases in expense accruals of $1.7 million, to reflect additional costs related to collections, legal costs, lawsuits (See
Note 9), and to adjust other liabilities remaining from our discontinued operations. The $6 million of income tax refunds consist of Federal Income tax carryback claims filed by the
Company in July 2003 for the tax years ended June 1993 and 1996 as a result of the amendment of our 2001 tax year return. The Company received the tax refunds in the fourth quarter of
the fiscal year 2004.

The
$4.1 million gain on disposal of discontinued operations recorded in fiscal year 2003 relates to adjustments to the $374.1 million loss on disposal of discontinued
operations which was originally
recorded in fiscal year 2000. The adjustments consist of the realization of certain receivables in excess of book value totaling $2.7 million and the reversal of accruals of
$1.4 million, net, to reflect the settlement of lawsuits, tax claims, and to adjust other liabilities remaining from our discontinued operations.

The
$21.3 million gain on disposal of discontinued operations recorded in fiscal year 2002 relates to adjustments to the $374.1 million loss on disposal of discontinued
operations which was originally recorded in fiscal year 2000. The adjustments consist of a tax claim settlement with the Internal Revenue Service in the amount of $13 million, the realization
of certain receivables in excess of book value totaling $8.1 million, and the reversal of accruals of $0.2 million, net, to reflect the settlement of a lawsuit and to adjust other
liabilities remaining from our discontinued operations.

3. Net Income Per Share

The following table sets forth the computation and reconciliation of net income per sharebasic and net income per sharediluted:

|                                                                          |            | Years Ended June 30, |           
|------------------------------------------------------------------------- | ---------- | -------------------- | ----------
|
|Loss from continuing operations                                           |            | $                    | (2,186,248
|Gain on disposal of discontinued operations                               |            |                      | 4,940,828 
|                                                                          |            |                      |           
|                                                                          | Net income |                      | $         
|                                                                          |            |                      |           
|Weighted average shares outstanding: basic and diluted                    |            |                      | 82,193,063
|                                                                          |            |                      |           
|Loss per share from continuing operationsbasic and diluted               |            | $                    | (0.03     
|Income per share on disposal of discontinued operationsbasic and diluted |            |                      | 0.06      
|                                                                          |            |                      |           
|Net income per sharebasic and diluted                                    |            | $                    | 0.03      
|                                                                          |            |                      |           

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4. Fixed Assets, net

Fixed assets consists of the following at June 30:

|                         |                   | As of June 30, |        
|------------------------ | ----------------- | -------------- | -------
|
|Office equipment         |                   | $              | 22,934 
|Accumulated depreciation |                   |                | (12,920
|                         |                   |                |        
|                         | Fixed assets, net |                | $      
|                         |                   |                |        

Depreciation
expense for the years ended June 30, 2004, 2003 and 2002 was $10,702, $2,218, and $0, respectively. Depreciation is based on the straight-line method over
the estimated useful life of the assets of 2 years.

5. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses are summarized as follows:

|                                  |       | As of June 30,
|--------------------------------- | ----- | --------------
|
|Accounts payable                  |       | $             
|Accrued compensation and benefits |       |               
|                                  |       |               
|                                  | Total |               
|                                  |       |               

6. Operating Leases

Halsey's principal office is located at 103 Foulk Rd, Suite 205Q, Wilmington, DE 19803, where it leases approximately 112 square feet of office space. A
subsidiary of Halsey leases approximately 2,600 square feet of office space in King of Prussia, PA, under a lease which expires in March 2005. A subsidiary of the Company also leases space in
North Andover, MA on a month to month basis. Total rent expense charged to operations was $96,227, $146,176 and $102,463 in fiscal 2004, 2003 and 2002, respectively. Total minimum lease payments under
these leases as of June 30, 2004 are approximately $50,000.

23

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7. Income Taxes

The components of net deferred tax assets (liabilities) as of June 30, 2004 and 2003 were as follows:

|                                                                |  | As of June 30, |            
|--------------------------------------------------------------- |  | -------------- | -----------
|
|Accruals and reserves not currently deductible for tax purposes |  | $              | 2,322,282  
|Net operating loss, capital loss and tax credit carryforwards   |  |                | 87,221,106 
|                                                                |  |                |            
|Gross deferred tax assets                                       |  |                | 89,543,388 
|Valuation allowance                                             |  |                | (89,449,826
|                                                                |  |                |            
|Net deferred tax assets                                         |  |                | 93,562     
|                                                                |  |                |            
|Other, net                                                      |  |                | (93,562    
|                                                                |  |                |            
|Gross deferred tax liabilities                                  |  |                | (93,562    
|                                                                |  |                |            
|Net deferred tax asset (liability)                              |  | $              |           
|                                                                |  |                |            

The
Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets which relate to Federal and state net operating loss carry forwards, in excess of
amounts carried back to prior years, and tax credit carryforwards that may not be realized.

The
Company has Federal net operating loss carryforwards of approximately $184 million and a capital loss carryforward of approximately $48 million to offset future taxable
income and taxable gains. The net operating loss carryforwards expire principally in 2018. The capital loss carryforwards expire in 2005, 2007, 2008 and 2009. In addition, the Company has state net
operating loss carryforwards of approximately $32 million, which begin to expire in 2018. The Company has adjusted its deferred tax asset and respective valuation allowance to eliminate state
net operating loss carryforwards that are no longer available to the Company. If the Company experiences a change of ownership within the meaning of Section 382 of the Internal Revenue Code,
the Company will not be able to realize the benefit of its net operating loss, capital loss and tax credit carryforwards.

The
reconciliation of the expected tax (benefit) expense (for income from continuing operations before income taxes) to actual tax (benefit) expense was as follows:

|                                                                |  | Years Ended June 30, |         
|--------------------------------------------------------------- |  | -------------------- | --------
|
|Expected federal income tax expense (benefit) at statutory rate |  | $                    | (765,187
|State income taxes, net of federal benefit                      |  |                      | (56,777 
|Nondeductible stock-based compensation                          |  |                      |        
|Effect of valuation allowance on current year losses            |  |                      | 821,964 
|                                                                |  |                      |         
|                                                                |  | $                    |        
|                                                                |  |                      |         

The
amount of income taxes refunded during fiscal 2004, 2003 and 2002 amounted to $5,865,651, $13,374,065, and $0 respectively.

The
amount of income taxes paid during fiscal 2004 and 2003 totaled $38,040 and $45,300, respectively. There were no income taxes paid during fiscal 2002.

24

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8. Benefit Plans

Stock Option Plans

All of the Company's stock option plans were terminated by the Company's Board of Directors on April 17, 2003. The Company's stock option plans prior to
termination, as amended, provided for issuance of options to purchase up to 8,600,000 shares of common stock to employees, officers and directors. Under the plans, substantially all options were
granted for a term of up to 10 years at prices equal to the fair market value at the date of grant and vest ratably over five years. In fiscal year 2003 the last two option holders sold their
outstanding options back to the Company for $2,800 concurrent with the termination of the plans. The Company used the black-scholes method for determining the fair value of these options at $2,800 and
recorded this amount in the statement of operations as a component of general and administrative expenses.

The
following summarizes the activity of the stock option plans:
(in thousands, except per share amounts)

|                                                                    |                                  | Years Ended June 30, |  
|------------------------------------------------------------------- | -------------------------------- | -------------------- | -
|
|Options:                                                            |                                  |                      |  
|                                                                    | Outstanding at beginning of year |                      |  
|                                                                    | Granted                          |                      |  
|                                                                    | Exercised                        |                      |  
|                                                                    | Canceled                         |                      |  
|                                                                    |                                  |                      |  
|Outstanding at end of year                                          |                                  |                      | 
|                                                                    |                                  |                      |  
|                                                                    | Option price per share ranges:   |                      |  
|                                                                    | Outstanding at beginning of year |                      | $
|                                                                    | Canceled                         |                      | $
|                                                                    | Outstanding at end of year       |                      | $
|Options exercisable at end of year                                  |                                  |                      | 
|Exercisable option price ranges                                     |                                  | $                    | 
|Options available for grant at end of year under stock option plans |                                  |                      | 

25

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Other Stock Awards

The following summarizes the other stock award activity:

|                                   |  | Years Ended June 30,
|---------------------------------- |  | --------------------
|
|Options:                           |  |                     
|Outstanding at beginning of year   |  |                     
|Granted                            |  |                     
|Exercised                          |  |                     
|Canceled                           |  |                     
|                                   |  |                     
|Outstanding at end of year         |  |                     
|                                   |  |                     
|Option price per share ranges:     |  |                     
|Outstanding at beginning of year   |  | $                   
|Canceled                           |  |                     
|Outstanding at end of year         |  | $                   
|Options exercisable at end of year |  |                     
|Exercisable option price ranges    |  | $                   

In
September 2002, an officer and principal stockholder of the Company granted an option to a director and principal stockholder of the Company to purchase 4,170,000 shares of
common stock of the J. L. Halsey Corporation from the officer for $0.04 per share. Under the guidance provided by the AICPA Accounting Interpretation No. 1 to APB 25, such transaction is viewed
to be a transaction of the Company and would require the Company to record a charge for the excess, if any, of the market price of the shares over the exercise price of the options. At the time of the
grant, the exercise price of the options equaled the market price of the shares and, therefore this transaction had no effect on the Company's results of operations.

In
January 2003, the same two individuals entered into a transaction whereby the director directly purchased 4,170,000 shares of common stock from an officer and principal
stockholder of the Company. Pursuant to Interpretation No. 1 to APB 25, this is treated as a transaction of the Company and, as a result, the excess of the purchase price over the market value,
as measured by the quoted market price on the date of transaction, is recorded as stock-based compensation expense. On the date of the transaction, the Company's market price per share was $0.13 per
share and the officer paid $0.2676 per share. Accordingly, the Company recorded $574,000 of non-cash, stock-based compensation expense and a corresponding increase in additional
paid-in capital for this transaction.

Retirement Plans

The Company has a defined contribution 401(k) plan covering substantially all of its employees. The Company does not provide any matching contributions under the
terms of the plan.

9. Commitments and Contingencies

Walmsley and Sullivan v. NAHC, Inc. et. al.During the third quarter of fiscal 2002, this action was filed in the
Court of Common Pleas for the County of Philadelphia, PA by Walmsley and Sullivan, two former employees against the Company and its officer and directors. The suit seeks damages in excess of
$3 million as a result of alleged breaches of contracts to pay certain bonuses, and other claims. The Company strongly disagrees with the allegations in the complaint and intends to vigorously
defend this action. The Company has sued both Walmsley and Sullivan in federal court in Arizona. This suit claims

26

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damages
related to bonuses paid to Walmsley and Sullivan. During the third quarter of fiscal 2004 several depositions were completed in this case and more are expected in the near future. The Company
now believes that there is a strong possibility that this case will go to trial and the Company has accrued for the estimated costs to defend this case in accordance with the Company's policies. The
Company estimates that a potential trial in the Arizona action will occur sometime in 2005. A trial in the Pennsylvania action will likely not occur for several years after 2005 and there is still
significant discovery to undertake in that action. The outcomes of these actions are not possible to predict and the Company has reserved estimates of the costs of litigating both of these actions,
but these estimates do not reflect the possibility of an adverse ruling or a judgment against the Company or a settlement.

NovaCare v. Stratford Nursing Home.The Company filed this collection lawsuit over three years ago to collect on a receivable
of approximately $145,000, which the Company has fully reserved. Stratford counter-claimed with numerous theories asserting that the Company instead owed Stratford money. Although Stratford's
principal claims were thrown out by the court, Stratford in the last quarter of fiscal year 2003 has quantified its remaining counter-claims at approximately $1 million. The Company believes
that the theories on which these damages are based are inconsistent with the contract between the parties and with the conduct of each party. This case is pending in the U.S. District Court for the
Southern District of New Jersey (Camden).



Ronald Shostack v. Wasserstein, et. al.Shostack has sued several former directors of the Company who were also directors of
NCES, as well as other NCES officers and directors. Several of these individuals have notified the Company that they believe that the Company is legally obligated to indemnify them against any costs
or liability as a result of this suit. The Company believes this analysis is incorrect and has not agreed to indemnify those individuals. In fiscal year 2004, the Company did however agree to pay
Shostack $45,000 as a settlement on behalf of some of the Company's former directors. This amount was recorded as a liability and a related expense by the Company as of June 30, 2004 and was
paid in July 2004.

Miscellaneous Claims.The Company has recorded reserves to pay several dozen small claims (most will be $50,000 or less) that
it has identified related to two of its previous operating businesses.



The Company is a defendant in eight professional liability claims and had previously purchased professional liability insurance policies from PHICO Insurance
Company. On February 2, 2002, a Pennsylvania court authorized state insurance regulators to liquidate the insolvent PHICO Insurance Company, which had provided professional liability insurance
policies to the Company. As a result, PHICO will not be permitted to pay any claims on behalf of the Company. The Company believes, however, that various state insurance guaranty funds will pay most
of the claims on the Company's behalf. Based on its discussion with the state guaranty funds and its review of claims during the third quarter of 2004, the Company now believes that a payment may be
required to settle one professional liability claim that may exceed the amount available to the Company under the applicable state guaranty fund limits. The Company recorded an accrual and related
expense of $100,000 in the third quarter of 2004 equal to the estimated cost to settle the claim less the amount that would be paid by the state guaranty fund. The Company believes that no other
claims will exceed the amounts available to the Company under the applicable state guaranty fund limits. There is no assurance, however, that each claim will settle within those limits and there is no
excess insurance policy in place that would pay

27

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settlements
or awards in excess of those limits. Therefore, in the event that the Company's current assessment is incorrect, and the amounts required to pay on these claims are in excess of any
amounts paid by guaranty funds, the Company will be required to fund these claims. The Company's management does not believe that any of these claims are material.



During the first quarter of fiscal year 2003, the NovaCare workers' compensation insurance carrier notified the Company that the purchaser of NCES ("the
Purchaser") who is responsible for making certain claim payments required by NovaCare's insurance policy deductibles has defaulted on those payment obligations. The Purchaser has funds that have been
prepaid to this insurance carrier for claim payments under deductibles on the NovaCare policies as well as other unrelated workers' compensation policies of the Purchaser. In management's opinion, the
deposits held by the insurance carrier are sufficient to pay deductible obligations on the unrelated workers' compensation policies as well as the NovaCare policies.



Effective as of May 5, 2000, the Company entered into an employment agreement with David R. Burt, to serve as the Company's Chief Executive Officer. The
term of the agreement continues through May 5, 2005, subject to certain extensions. Pursuant to the agreement, Mr. Burt receives an annual base salary of $250,000 and an annual
performance bonus of not less than $20,000. The agreement requires Mr. Burt to devote at least 50% of his business time and attention to the performance of the duties and responsibilities of
Chief Executive Officer, in as much as Mr. Burt also served, until December 2003, as president, chief executive officer and a director of Ergo Science Corporation. Mr. Burt
resigned from all positions with Ergo in December 2003 and now devotes all of his business time to his duties as an officer and director of the Company.

10. Quarterly Results (Unaudited)

The following table sets forth unaudited selected financial information for the periods indicated. This information has been derived from unaudited consolidated
financial statements, which, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments)

28

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necessary
for a fair presentation of such information. The results of operations for any quarter are not necessarily indicative of the results to be expected for any future period.

|                          |                                                                              | First
Quarter     |   | Second
Quarter |         | Third
Quarter |          | Fourth
Quarter(1) |  
|------------------------- | ---------------------------------------------------------------------------- | ----------------- | - | -------------- | ------- | ------------- | -------- | ----------------- | -
|Year Ended June 30, 2004: |                                                                              |                   |   |                |         |               |          |                   |  
|                          | Loss from continuing operations                                              |                   | $ | (643,275       | )       | $             | (489,971 | )                 | $
|                          | Gain (loss) on disposal of discontinued operations, net of tax               |                   |   | 618,039        |         |               | 234,444  |                   |  
|                          |                                                                              |                   |   |                |         |               |          |                   |  
|                          |                                                                              | Net (loss) income |   | $              | (25,236 | )             | $        | (255,527          | )
|                          | Loss per share from continuing operations basic and diluted                  |                   | $ | (0.01          | )       | $             | (0.01    | )                 | $
|                          | Gain (loss) per share on the disposal of discontinued operations, net of tax |                   | $ | 0.01           |         | $             | 0.01     |                   | $
|                          | Net (loss) income per sharebasic and diluted                                |                   | $ | (0.00          | )       | $             | (0.00    | )                 | $

|                          |                                                                       | First
Quarter |   | Second
Quarter |   | Third
Quarter
(Restated) |            | Fourth
Quarter (2) |  
|------------------------- | --------------------------------------------------------------------- | ------------- | - | -------------- | - | ------------------------ | ---------- | ------------------ | -
|Year Ended June 30, 2003: |                                                                       |               |   |                |   |                          |            |                    |  
|                          | Loss from continuing operations                                       |               | $ | (27,669        | ) | $                        | (1,061,015 | )                  | $
|                          | Gain (loss) on disposal of discontinued operations, net of tax        |               |   | 1,358,909      |   |                          | (179,551   | )                  |  
|                          |                                                                       |               |   |                |   |                          |            |                    |  
|                          | Net income (loss)                                                     |               | $ | 1,331,240      |   | $                        | (1,240,566 | )                  | $
|                          | Loss per share from continuing operations basic and diluted           |               | $ | (0.00          | ) | $                        | (0.01      | )                  | $
|                          | Gain per share on the disposal of discontinued operations, net of tax |               | $ | 0.02           |   | $                        | 0.00       |                    | $
|                          | Net income (loss) per sharebasic and diluted                         |               | $ | 0.02           |   | $                        | (0.01      | )                  | $

29

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11. Subsequent Events

In July 2004, the Company received notification that a former customer had filed for Bankruptcy protection under the US Bankruptcy Code Chapter 11. The
Company may or may not have to return some or all of the amounts that it has collected from this former customer over the past two years. The total amount collected by the Company over the past two
years was $2 million. The Company has not recorded a liability at this time since it is not possible to determine if a potential liability is probable based on the information available to us
at this time. If in fact the Company is notified in the future by the Bankruptcy Court that an amount must be repaid to the former customer, we believe that we may have legal defenses to support the
retention of payments collected from our former customer.

30

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To
the Board of Directors and Stockholders of J.L. Halsey Corporation:

In
our opinion, the accompanying consolidated balance sheets and the related consolidated results of operations and their cash flows present fairly, in all material respects, the financial position of
J.L. Halsey Corporation and its subsidiaries at June 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended June 30,
2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/
PRICEWATERHOUSECOOPERS LLP

Boston,
Massachusetts
September 8, 2004

31

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

The Registrant has had no changes in or disagreements with its independent accountants.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

Based on an evaluation as of the end of the period covered by this annual report on Form 10-K, the Company's principal executive officer and
acting principal financial officer has concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective in timely providing management with material information required to be disclosed by the Company in its filings under the Exchange Act.

Changes in internal controls

There have been no significant changes in the Company's internal controls or in other factors that have materially affected, or are reasonably likely to
materially affect, its internal controls since the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

32

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The directors and executive officers of the Company are as follows:

|Name                     |  | Position                                                                                              |  | Age
|------------------------ |  | ----------------------------------------------------------------------------------------------------- |  | ---
|                         |  |                                                                                                       |  |    
|William T. Comfort, III  |  | Chairman of the Board of Directors and Director                                                       |  | 38 
|David R. Burt            |  | Chief Executive Officer, President, Acting Chief Financial Officer, Secretary, Treasurer and Director |  | 41 
|Andrew Richard Blair     |  | Director                                                                                              |  | 71 
|Nicolas De Santis Cuadra |  | Director                                                                                              |  | 38 

No
family relationships exist among any of the directors or executive officer of the Company. Executive officers serve at the discretion of the Company's Board of Directors.

William T. Comfort, IIIhas been a director of the Company since June 2002, and Chairman of the Board since November 12,
2002. He was a private equity investor with CVC Capital Partners, a leading private equity firm based in London, England, from February 1995 until December 2000. He also served as a
consultant to Citicorp Venture Capital. Mr. Comfort has served as a member of the board of Ergo Science Corporation, a Delaware corporation, since January 2001, and has served on the
boards of directors of other public and private companies. Mr. Comfort received his J.D. and L.L.M. in tax from New York University School of Law.

David R. Burthas been our Chief Executive Officer, President, Acting Chief Financial Officer and Secretary since May 4, 2000, and
Treasurer since January 14, 2002, and a director since June 7, 2000. Mr. Burt was the President, Chief Executive Officer, Secretary, and a director of Ergo Science Corporation, a
biopharmaceutical company from 1999 to 2003. He joined Ergo Science Corporation as Vice President, Corporate Development, in March 1993, was appointed Secretary in March 1997, and in
March 1999 was appointed President, Chief Executive Officer and director.

Andrew Richard Blairhas been a director of the Company since November 12, 2002. He is a founder of Freimark Blair &
Company, Inc., a broker-dealer research boutique. Mr. Blair has served as the President, Chief Executive Officer, Chief Financial Officer and as a director of Freimark Blair since
January 1983.

Nicolas De Santis Cuadrahas been a director of the Company since January 16, 2003. Mr. De Santis has served since
January 2003 as the chief executive officer of London-based Twelve Stars Communications, an international brand business consulting firm which Mr. De Santis founded in 1994. He
previously served as the chief executive officer of Twelve Star from 1994 until December 1998. From December 2000 until January 2003, Mr. De Santis served as the marketing
director of OPODO Ltd., an online travel portal owned by several European-based airlines. From January 1999 until December 2000, Mr. De Santis served as senior vice
president and chief marketing officer of Beenz.com. Mr. De Santis received a degree in economics from Kensington University of Los Angeles, California, in 1988.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company's directors, executive officers and holders of more than 10% of its shares of common stock to file
with the SEC initial reports of ownership of shares of common stock and reports of changes in such ownership. The SEC's rules require such persons to furnish the Company with copies of all
Section 16(a) reports that they file. Based on a review of these reports and on written representations from the reporting persons that no other reports

33

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were
required, the Company believes that the applicable Section 16(a) reporting requirements were complied with for all transactions which occurred in the fiscal year ended June 30,
2004.

Code of Ethics

On September 25, 2003, the Company adopted a Code of Conduct applicable to all employees, including the principal executive officer, principal financial
officer and principal accounting officer. A copy of the Code of Conduct was included as an exhibit in the Company's 2003 Form 10K as filed with the Securities and Exchange Commission and is
incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information for the fiscal years ended June 30, 2002, 2003 and 2004 concerning the compensation of the Company's
Chief Executive Officer and certain other executive officers. These individuals are referred to herein as "Named Executive Officers."

Summary Compensation Table

|                                                                                    |  |                |  | Annual Compensation     | 
|----------------------------------------------------------------------------------- |  | -------------- |  | ----------------------- | 
|
|
|David R. Burt
Chief Executive Officer, President, Secretary, Treasurer and Director |  | 2004
2003
2002 |  | 250,000
250,000
250,000 | 

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Option Grants In Last Fiscal Year

The Company terminated its stock option plan in fiscal year 2003, therefore, no options were granted to any Named Executive Officer during the fiscal year ended
June 30, 2003 or 2004.

Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values

No options were exercised during, and no options were held by, any Named Executive Officer at the end of the fiscal year ended June 30, 2003 or 2004.

Compensation of Directors of Halsey

The Company provides each non-employee director with an annual retainer of $25,000. Each director receives a fee of $1,000 per meeting attended, plus
out-of-pocket expenses. In addition, members of board committees receive a fee of $1,000, plus out-of-pocket expenses, for each
non-telephonic committee meeting attended that is not scheduled in conjunction with a meeting of the full board, and a fee of $500, plus out-of-pocket expenses, for
each non-telephonic committee meeting attended in conjunction with a meeting of the full board and for each telephonic meeting of any committee of the board. Executive officers of the
Company do not receive additional compensation for

34

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serving
on the board of directors. William T. Comfort, III, the Company's Chairman of the Board has waived all retainers and fees for his services.

Employment Agreements

Effective as of May 5, 2000, the Company entered into an employment agreement with David R. Burt, to serve as the Company's Chief Executive Officer. The
term of the agreement continues through May 5, 2005, subject to certain extensions. Pursuant to the agreement, Mr. Burt receives an annual base salary of $250,000 and an annual
performance bonus of not less than $20,000. The agreement requires Mr. Burt to devote at least 50% of his business time and attention to the performance of the duties and responsibilities of
Chief Executive Officer, in as much as Mr. Burt also served, until December 2003, as president, chief executive officer and a director of Ergo Science Corporation. Mr. Burt
resigned from all
positions with Ergo in December 2003 and now devotes all of his business time to his duties as an officer and director of the Company. As consideration for, among other things, his efforts in
obtaining settlements on certain disputes in July 2000, the Company granted Mr. Burt a convertible promissory note in the principal amount of $60,000. Mr. Burt subsequently
transferred the note to a family limited partnership controlled by him. On or about May 28, 2002, the holder of the note converted $52,125 of principal on the note into 20,850,000 shares of
Common Stock. The remaining $7,875 in principal and $9,500 in accrued interest were redeemed by the Company. On September 19, 2002, the family limited partnership granted an option to purchase
4,170,000 shares of the Common Stock acquired upon conversion of the note to Mr. William T. Comfort III, a director of the Company, at $0.04 per share which was later exercised. On
January 8, 2003, the partnership sold an additional 4,170,000 shares to LDN Stuyvie Partnership, of which Mr. Comfort is the sole general partner, for $0.2676 per share.
Mr. Burt's employment agreement also provides him certain registration rights with respect to the shares acquired upon conversion of the note. Because the exercise price of the options and the
selling price of the shares were at or above market price in effect at the time of the transactions, there was no effect on the Company's results of operations.

The
Company and James T. Walmsley, our former Vice President, are currently engaged in litigation with respect to (i) the Company's claim that Mr. Walmsley received amounts
he was not entitled to and (ii) amounts that Mr. Walmsley claims the Company owes to him. See Note 9.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee of the Company during 2004 consisted of William T. Comfort, III, who serves as chairman and Charles E. Finelli. Mr. Finelli
resigned from the Board of Directors on December 16, 2003. No executive officer of the Company serves as a member of the compensation committee or board of directors of another company of which
an executive officer serves on the Compensation Committee of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information with respect to the beneficial ownership of the Company's common stock as of July 29, 2004 by:



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The
Company has determined beneficial ownership in accordance with the rules of the Securities and Exchange Commission. Unless otherwise indicated, the persons included in this table
have sole voting and investment power with respect to all the shares of common stock beneficially owned by them, subject to applicable community property laws. The Company has no options outstanding
for inclusion in the calculation of beneficial ownership.

|Name of Beneficial Owner (a)                  |  | Amount and Nature of
Beneficial Ownership |     | Percentage of
Outstanding Shares |  
|--------------------------------------------- |  | ----------------------------------------- | --- | -------------------------------- | -
|LDN Stuyvie Partnership                       |  | 15,216,955                                | (b) | 18.5                             | %
|William T. Comfort III                        |  | 19,386,955                                | (c) | 23.6                             | %
|David R. Burt                                 |  | 12,510,000                                | (d) | 15.2                             | %
|Andrew Richard Blair                          |  |                                          |     |                                 |  
|Nicolas De Santis Cuadra                      |  |                                          |     |                                 |  
|Directors and Officers as a group (5 persons) |  | 31,896,955                                |     | 38.8                             | %

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On or about May 28, 2002, a family limited partnership controlled by David Burt, our Chief Executive Officer, converted $52,125 of the $60,000 note
originally issued to Mr. Burt in September 2000 for 20,850,000 shares of Common Stock. The remaining $7,875 of principal and $9,500 of interest accrued on the note was redeemed by the
Company at the time of the conversion. On September 19, 2002, the family limited partnership granted an option to purchase 4,170,000 shares of the Common Stock acquired upon conversion of the
note to Mr. William T. Comfort III, a director of the Company, at $0.04 per share, which was later exercised. On January 8, 2003, the partnership sold an additional 4,170,000 shares to
LDN Stuyvie Partnership, of which Mr. Comfort is the sole general partner, for $0.2676 per share.

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

|Fee Type             |  | Fiscal Year
2004 |         | Fiscal Year
2003
|-------------------- |  | ---------------- | ------- | ----------------
|Audit fees (1)       |  | $                | 165,974 |                 
|Audit-related fees   |  |                  |        |                 
|Tax preparation fees |  |                  |        |                 
|All other fees (2)   |  | $                | 21,580  |                 
|                     |  |                  |         |                 
|Total                |  | $                | 187,554 |                 
|                     |  |                  |         |                 

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Board
of Directors Pre-Approval Policy

Our
Audit Committee has adopted a policy to pre-approve all audit, audit-related, tax and other services proposed to be provided by our independent auditor prior to engaging
the auditor for that purpose. Consideration and approval of such services generally will occur at the Audit Committee's regularly scheduled quarterly meetings.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K



|    |  |                                                                                                             |  | Page
Number
|--- |  | ----------------------------------------------------------------------------------------------------------- |  | -----------
|(1) |  | Financial Statements:                                                                                       |  |            
|    |  | Consolidated Balance Sheets at June 30, 2004 and 2003                                                       |  | 15         
|    |  | Consolidated Statements of Operations for the years ended June 30, 2004, 2003 and 2002                      |  | 16         
|    |  | Consolidated Statements of Changes in Stockholders' Equity for the years ended June 30, 2004, 2003 and 2002 |  | 17         
|    |  | Consolidated Statements of Cash Flows for the years ended June 30, 2004, 2003 and 2002                      |  | 18         
|    |  | Notes to Consolidated Financial Statements                                                                  |  | 19         
|    |  | Report of Independent Registered Accounting Firm                                                            |  | 31         
|(2) |  | Exhibits (Numbered in Accordance with Item 601 of Regulation S-K):                                          |  |            
|    |  | The exhibits required to be filed are listed in the index to exhibits                                       |  | 39         



None.

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POWER OF ATTORNEY

The Registrant and each person whose signature appears below hereby appoint David R. Burt as attorney-in-fact with full power of
substitution, to execute in the name and on behalf of the Registrant and each such person, individually and in each capacity stated below, one or more amendments to the annual report which amendments
may make such changes in the report as the attorney-in-fact acting in the premises deems appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. Dated: September 28, 2004

| |  | J. L. HALSEY CORPORATION, INC.
| |  | ------------------------------
| |  | By:                           

Pursuant
to the requirements of the Securities Exchange Act of 1934, 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                                             |  | Title                                                                            |  | Date              
|----------------------------------------------------- |  | -------------------------------------------------------------------------------- |  | ------------------
|                                                      |  |                                                                                  |  |                   
|/s/WILLIAM T. COMFORT, IIIWILLIAM T. COMFORT, III     |  | Chairman of the Board and Director                                               |  | September 28, 2004
|/s/DAVID R. BURT(DAVID R. BURT)                       |  | Chief Executive Officer, Principal Financial and Accounting Officer and Director |  | September 28, 2004
|/s/ANDREW RICHARD BLAIR(ANDREW RICHARD BLAIR)         |  | Director                                                                         |  | September 28, 2004
|/s/NICOLAS DE SANTIS CUADRA(NICOLAS DE SANTIS CUADRA) |  | Director                                                                         |  | September 28, 2004

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EXHIBIT INDEX

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                   |  |  
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|2(a)(i)     |  | Stock Purchase Agreement dated as of April 2, 1999 by and among NovaCare, Inc., NC Resources, Inc., Hanger Orthopedic Group, Inc. and HPO Acquisition Corp. (incorporated by reference to
Exhibit 2(a) to the Company's Current Report on Form 8-K dated July 1, 1999).                       |  | 
|2(a)(ii)    |  | Amendment No. 1 to Stock Purchase Agreement made as of May 19, 1999 by and among NovaCare, Inc., NC Resources, Inc., Hanger Orthopedic Group, Inc. and HPO Acquisition Corp. (incorporated by reference to the Exhibit 2 (b)
to the Company's Current Report on Form 8-K dated July 1, 1999). |  | 
|2(a)(iii)   |  | Amendment No. 2 to Stock Purchase Agreement made as of June 30, 1999 by and among NovaCare, Inc., NC Resources, Inc., Hanger Orthopedic Group, Inc. and HPO Acquisition Corp. (incorporated by reference to Exhibit 2(c) to the
Company's Current Report on Form 8-K dated July 1, 1999).     |  | 
|2(b)(i)     |  | Stock Purchase Agreement dated as of June 1, 1999 by and among NovaCare, Inc., NC Resources, Inc. and Chance Murphy, Inc. (incorporated by reference to Exhibit 2(a) to the Company's Current Report on Form 8-K dated
June 1, 1999).                                                         |  | 
|2(b)(ii)    |  | Amendment No. 1 to Stock Purchase Agreement made as of June 1, 1999 by and among NovaCare, Inc., NC Resources, Inc. and Chance Murphy, Inc. (incorporated by reference to Exhibit 2(b) to the Company's Current Report on
Form 8-K dated June 1, 1999).                                       |  | 
|2(c)        |  | Stockholder Agreement dated as of September 8, 1999 among Plato Holdings, Inc., New Plato Acquisition, Inc., NC Resources, Inc. and NovaCare, Inc. (incorporated by reference to Exhibit 2((a) to the Company's Current
Report on Form 8-K dated October 14, 1999).                           |  | 
|2(d)(i)     |  | Stock Purchase Agreement dated as of October 1, 1999 by and among NovaCare, Inc. NC Resources, Inc. and Select Medical Corporation (incorporated by reference to Exhibit 2(b) to the Company's Current Report on Form 8-K dated
October 14, 1999).                                            |  | 
|2(d)(ii)    |  | First Amendment dated November 19, 1999 to the Stock Purchase Agreement dated October 1, 1999 among NovaCare, Inc., NC Resources, Inc. and Select Medical Corporation (incorporated by reference to Exhibit 2(b) to the Company's
Current Report on Form 8-K dated December 6, 1999).         |  | 
|2(d)(iii)   |  | Opinion of Warburg Dillon Read LLC dated as of October 1, 1999 (incorporated by reference to Exhibit 99(a) to the Company's Current Report on Form 8-K dated October 14, 1999).                                                                                                               |  | 
|3(a)(i)     |  | Certificate of Incorporation of the Company, as amended (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-4 filed with the Securities and Exchange Commission on February 5, 2002, file
no. 333-82154).                                             |  | 
|3(a)(ii)    |  | Certificate of Ownership and Merger of NAHC, Inc. with and into J. L. Halsey Corporation (incorporated by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on February 5, 2002, file no. 333-82154).            |  | 
|3(b)        |  | First Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3(b) to the Company's Annual Report on Form 10-K for the year ended June 30, 2002).                                                                                                                    |  | 
|            |  |                                                                                                                                                                                                                                                                                               |  |  

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|4(a)(ii)  |  | Amendment No. 2 to 1986 Stock Option Plan (incorporated by reference to Exhibit 4(a)(ii) to the Company's Annual Report on Form 10-K for the year ended June 30, 2002).                                                                                                                                                                    |  |  
|--------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -
|4 (b)*    |  | Form of Indenture dated as of January 15, 1993 between the Company and Pittsburgh National Bank relating to 51/2% Convertible Subordinated Debentures Due 2000 (incorporated by reference to Exhibit 4 to Registration
Statement on Form S-3 No. 33-55710).                                                                                |  | 
|4(c)(i)   |  | 1998 Stock Option Plan (incorporated by reference to Exhibit 4 to Registration Statement Form S-8 filed with the Securities and Exchange Commission on January 15, 1999, File No. 333-70653).                                                                                                                                              |  | 
|4(c)(ii)  |  | Amendment No. 1 to 1998 Stock Option Plan (incorporated by reference to Exhibit 4(c)(ii) to the Company's Annual Report on Form 10-K for the year ended June 30, 2002).                                                                                                                                                                    |  |  
|4(d)      |  | J. L. Halsey Corporation Executive Stock Option Plan (incorporated by reference to Exhibit 4(d) to the Company's Annual Report on Form 10-K for the year ended June 30, 2002).                                                                                                                                                             |  |  
|10(a)     |  | Stock Purchase Agreement dated as of May 1, 1997 between NovaCare Employee Services, Inc. and James W. McLane (incorporated by reference to Exhibit10(i) to the Company's Annual Report on Form 10-K for the year ended June 30,
1998).                                                                                                    |  | 
|10(b)     |  | Subscriber Services Agreement dated as of July 1, 1999 between NovaCare, Inc. and NovaCare Employee Services, Inc. (incorporated by reference to Exhibit 10(b) to the Company's Current Report on Form 8-K dated November 2,
1999).                                                                                                        |  | 
|10(c)     |  | Amended and Restated Employment Agreement dated as of September 27, 2000 between the Company and David R. Burt (incorporated by reference to Exhibit 10(k)(i) to the Company's Annual Report on Form 10-K for the year ended
June 30, 2000).                                                                                               |  | 
|10(d)     |  | Convertible Subordinated Note dated as of September 27, 2000 issued by the Company to David R. Burt (incorporated by reference to Exhibit 10(k)(ii) to the Company's Annual Report on Form 10-K for the year ended June 30,
2000).                                                                                                         |  | 
|10(f)(i)  |  | Indemnification Agreement, dated May 4, 2000, by and between NAHC, Inc. and David R. Burt (the "Burt Indemnification Agreement") (incorporated by reference to Exhibit 10(f)(i) to the Company's Annual Report on Form 10-K for
the year ended June 30, 2002).                                                                             |  | 
|10(f)(ii) |  | Assignment and Assumption Agreement, dated as of June 1, 2002, by and between NAHC, Inc. and J. L. Halsey Corporation, assigning the obligations of NAHC under the Burt Indemnification Agreement to Halsey (incorporated by reference to
Exhibit 10(f)(ii) to the Company's Annual Report on Form 10-K for the year ended June 30, 2002). |  | 
|10(g)     |  | Form of Indemnification Agreement entered into by and between the Company and each of Charles E. Finelli, William T. Comfort, III and Andrew Richard Blair (incorporated by reference to Exhibit 10(g) to the Company's Annual Report
on Form 10-K for the year ended June 30, 2002).                                                      |  | 
|10(h)     |  | Stock Purchase Agreement by and between the Company and the University of Chicago Law School.                                                                                                                                                                                                                                              |  |  
|14        |  | Code of Business Conduct and Ethics, adopted by the Company on September 25, 2003 (incorporated by reference to Exhibit 14 to the Company's Annual Report on Form 10-K for the year ended June 30, 2003).                                                                                                                                  |  |  

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|21   |  | Subsidiaries of the Company (incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended June 30, 2000). |  | 
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------- |  | -
|24   |  | Power of Attorney (see "Power of Attorney" in Form 10-K)                                                                                            |  | 
|31.1 |  | Rule 13a-14(a)/15d-14(a) Certification                                                                                                              |  |  
|32.1 |  | Section 1350 Certification                                                                                                                          |  |  

Copies
of the exhibits filed with this Annual Report on Form 10-K or incorporated by reference herein do not accompany copies hereof for distribution
to stockholders of the Company. The Company will furnish a copy of any of such exhibits to any stockholder requesting the same.

Exhibits
denoted by an asterisk were filed prior to the Company's adoption of filing via EDGAR

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