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                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                     FOR THE FISCAL YEAR ENDED JUNE 30, 2002

                         Commission file number 1-10875
                            J. L. HALSEY CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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              DELAWARE                                    01-0579490
      (STATE OF INCORPORATION)             (I.R.S. EMPLOYER IDENTIFICATION NO.)

      2325-B RENAISSANCE DRIVE
              SUITE 21
           LAS VEGAS, NV                                               89119
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                              (ZIP CODE)
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       Registrant's telephone number, including area code: (702) 966-4246

           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 X NO

         INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. |_|

         AS OF AUGUST 26, 2002, 84,214,280 SHARES OF COMMON STOCK WERE
OUTSTANDING, AND THE AGGREGATE MARKET VALUE OF THE SHARES OF COMMON STOCK HELD
BY NON-AFFILIATES WAS APPROXIMATELY $1,863,916. (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.)

                       DOCUMENTS INCORPORATED BY REFERENCE

         PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED
PURSUANT TO REGULATION 14A OF THE SECURITIES EXCHANGE ACT OF 1934 IN CONNECTION
WITH THE REGISTRANT'S 2002 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED
HEREIN BY REFERENCE.

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                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                   FORM 10-K - FISCAL YEAR ENDED JUNE 30, 2002

                       CONTENTS AND CROSS REFERENCE SHEET
           FURNISHED PURSUANT TO GENERAL INSTRUCTION G(4) OF FORM 10-K

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                                                                                                          PAGE
ITEM NO.                                             DESCRIPTION                                          NUMBER

                                                       PART I
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Item 1.         Business.....................................................................................1
                      The Company............................................................................1
                      Discontinued Operations................................................................2
                      General and Administrative Activities..................................................2
                      Risk Factors...........................................................................2
                      Insurance..............................................................................5
                      Employees..............................................................................5

Item 2.         Properties...................................................................................5

Item 3.         Legal Proceedings............................................................................5

Item 4.         Submission of Matters to a Vote of Security Holders..........................................8

                                                       PART II

Item 5.         Market for Registrant's Common Equity and Related Stockholder Matters.........................9

Item 6.         Selected Financial Data......................................................................10

Item 7.         Management's Discussion and Analysis of Financial Condition and Results of Operations........11
                      Overview...............................................................................11
                      Year Ended June 30, 2002 Compared with the Year Ended June 30, 2001....................12
                      Year Ended June 30, 2001 Compared with the Year Ended June 30, 2000....................13
                      Liquidity and Capital Resources........................................................14
                      Cautionary Statement...................................................................16
                      Critical Accounting Policies and Estimates.............................................16

Item 7A.        Quantitative and Qualitative Disclosures about Market Risk...................................17

Item 8.         Financial Statements and Supplementary Data..................................................18

Item 9.         Changes in and Disagreements with Accountants on Accounting and Financial Disclosures........38

                                                      PART III

Item 10.        Directors and Executive Officers of the Registrant...........................................38

Item 11.        Executive Compensation.......................................................................38

Item 12.        Security Ownership of Certain Beneficial Owners..............................................38

Item 13.        Certain Relationships and Related Transactions...............................................38

Item 14.        Controls and Procedures......................................................................38

                                                       PART IV

Item 15.        Exhibits, Financial Statement Schedules and Reports on Form 8-K..............................39

Signatures...................................................................................................40
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                                     PART I

ITEM 1. BUSINESS

COMPANY

OVERVIEW

         J. L. Halsey Corporation, together with its subsidiaries, ("Halsey") is
the successor to NovaCare, Inc. ("NovaCare"), which was a national leader in
physical rehabilitation services and employee services prior to the sale of all
of its operating segments. In connection with the sale of its operating
segments, NovaCare changed its name to NAHC, Inc. ("NAHC"). On June 18, 2002, in
a transaction previously approved by NAHC's stockholders at a special meeting
held for that purpose, 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.

         In order to satisfy its indebtedness, the Company sold each of its
operating segments in a series of divestiture transactions commencing June 1,
1999 and ending on November 19, 1999. As a result, the Company has no operating
business.

         Halsey is a company in transition, attempting to manage its liabilities
and realize its remaining assets. Any investment in the Company should be
considered extremely speculative and risky. The Company's current estimate of
net proceeds available for distribution per share upon liquidation of the
Company is between $0.08 and $0.24. See "Liquidity and Capital Resources -
Liquidation Analysis and Estimates."

         On July 1, 1999, the Company completed the sale of its orthotic and
prosthetic ("O&P") business to Hanger Orthopedic Group, Inc. ("Hanger"). On
September 21, 1999, the stockholders of the Company approved three proposals
submitted as part of a Special Meeting of Stockholders. The first proposal
recommended the sale of the Company's Physical Rehabilitation and Occupational
Health ("PROH") division, the second proposal recommended the sale of the
Company's 64% interest in NovaCare Employee Services, Inc. ("NCES") and the
third proposal recommended the adoption of a plan to restructure the Company.
Under the third proposal, a Plan of Restructuring was adopted whereby if, by the
designated liquidation date, currently December 31, 2003, the Company is unable
to find suitable acquisition candidates to reinvest any remaining net assets, it
will liquidate, unless the Board of Directors, in its discretion, determines
otherwise.

         On October 19, 1999, the Company completed the sale of its 64% interest
in NCES to a subsidiary of Plato Holdings, Inc. as part of a tender offer by
Plato for all of NCES's outstanding shares. On November 19, 1999, the Company
completed the sale of the PROH business to Select Medical Corporation.

         The Company's former long-term care services segment was disposed in
fiscal 1999 with the closing 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. The Company's former employee services segment was disposed
through the Company's sale of its interest in NCES. The Company's former
outpatient services segment was disposed through the sales of O&P and PROH.

         As a result of these transactions, the Company has disposed of all of
its operating segments. The Company's remaining activities consist of managing
the litigation against the Company, attempting to realize its remaining assets,
general administrative matters and the preparation for potential liquidation or
redeployment of assets.

         Accordingly, 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, which should exclude the Company from the definition of an investment
company.

                                       1

<PAGE>

PLAN OF RESTRUCTURING

         Pursuant to a Plan of Restructuring (the "Plan") adopted by the
Company's stockholders at a Special Meeting of Stockholders held on September
21, 1999, as amended by the Board of Directors on September 27, 2000, May 9,
2001, January 14, 2002 and September 19, 2002, the Board of Directors has the
authority to commence a liquidation of the Company if a suitable redeployment of
asset opportunities are not identified by the Company by December 31, 2003 (the
"Liquidation Date"). The Plan also affords the Board the discretion to adjust
the Liquidation Date to a date earlier or later than December 31, 2003, if it
determines such action to be appropriate. In evaluating whether to reinvest the
Company's remaining assets, if any, or to liquidate the Company, a critical
factor for the Board to consider is the value of the Company's remaining assets
after satisfaction of all actual and contingent liabilities. The Company's
remaining liabilities include, among others, contingent liabilities that have
arisen (and may arise) from pending legal actions against the Company or for
which the Company may be held responsible. The Company is unable to determine
the value of net assets, if any, that may be available for a potential
redeployment until these legal proceedings are settled or concluded. There is a
significant risk that there will be little or no assets to reinvest or
distribute to stockholders in liquidation. During the period prior to the
Liquidation Date, the Company will continue its efforts to realize its remaining
assets and to resolve its outstanding liabilities.

DISCONTINUED OPERATIONS

         As discussed above in "The Company - Overview", the Company's former
long-term care services segment was disposed 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. The Company's
former employee services segment was disposed of through the Company's sale of
its interest in NCES. The Company's former outpatient services segment was
disposed of through the sales of O&P and PROH. As a result of these
transactions, the Company has disposed of all of its operating segments and the
Company's remaining activities consist of managing the legal proceedings against
the Company, attempting to realize on its remaining assets, general
administrative matters and the preparation for potential liquidation or
redeployment of its assets. Accordingly, the Company has reflected substantially
all of its assets and liabilities, results of operations and cash flows, for the
current and all prior periods as discontinued operations in the consolidated
financial statements, schedule and notes thereto in Parts II and IV below.
Except for its remaining general and administrative activities which are treated
as continuing operations, the Company exited or sold all of its businesses as of
June 30, 2000. Therefore, the remainder of "Item 1-Business" describes the
Company's remaining general and administrative activities.

GENERAL AND ADMINISTRATIVE ACTIVITIES

         The Company's remaining general and administrative activities consist
primarily of (i) managing litigation, including defending significant lawsuits
against the Company, and realization of assets, primarily delinquent accounts
and notes receivable pertaining to the Company's former long-term care services
business, (ii) compliance with regard to general corporate governance matters,
(iii) financial, tax and Medicare program reporting for internal and external
regulatory purposes, and (iv) preparation for potential liquidation or
redeployment of its assets.

         The Company has retained seven employees and three consultants to carry
out the general and administrative functions specified above. These resources
have been supplemented with outside financial, tax, legal and systems resources
when required by management and the Board of Directors.

RISK FACTORS

         THE AMOUNT OF NET ASSETS, IF ANY, AVAILABLE FOR INVESTMENT OR
DISTRIBUTION IN LIQUIDATION IS EXTREMELY UNCERTAIN.

         Since the Company first made estimates of its liquidation value in its
proxy statement dated August 13, 1999, management has from time to time
materially changed those estimates, and there can be no assurance that such
estimates, including those estimates contained in this report, will not be
materially changed in the future. The range of the estimate, currently $.08 and
$.24 per share of common stock, reflects the inherent uncertainty of the
Company's liquidation value. This uncertainty is due, in general, to the nature
of the Company's assets and its contingent liabilities. Some of the Company's
assets consist of delinquent or disputed accounts receivable which the Company
is attempting to collect through litigation. Counterclaims have been filed
against the Company in many of

                                       2
<PAGE>

these actions. The results of these collection actions are inherently uncertain.
Furthermore, the Company is a defendant in multiple significant litigation
matters. See "Legal Proceedings." The outcome of these matters is not possible
to predict and the current minimum estimate includes only estimates of potential
settlements of material lawsuits, but does not include estimates of an adverse
ruling or judgment against the Company in any lawsuit. If the Company suffers an
adverse ruling or judgment in any of these these cases, the Company may have
little or no assets to distribute or may be forced to seek bankruptcy law
protection.

CASH FLOW MAY BE INSUFFICIENT TO SATISFY OBLIGATIONS.

         The Company's cash position will vary based on the timing and amount of
cash inflows and outflows. Cash inflows primarily consist of collections from
litigation related to receivables and Medicare-related receivables, as well as
the tax settlement described below. Cash outflows are principally related to
legal proceedings and claims against the Company and general and administrative
expenses. The outcome of litigation and arbitration proceedings is extremely
uncertain. Due to the uncertainty of the amount and timing with regard to cash
flows, there can be no assurance that the Company will have sufficient cash flow
in the future to satisfy possible adverse judgments if any were to occur. Under
those circumstances, the Company may seek short-term financing, negotiate lower
settlement amounts with regard to its obligations or seek protection under the
bankruptcy laws. If the Company's liabilities exceed its assets or the Company
is unable to pay its liabilities as they become due, the Company may be forced
to seek protection under bankruptcy laws. The Company may be forced to liquidate
under this circumstance, with the stockholders of the Company receiving no
proceeds in such liquidation.

THERE IS A RISK THE COMPANY WILL BE FORCED TO SEEK BANKRUPTCY LAW PROTECTION.

         If the Company's liabilities exceed its assets or the Company is unable
to pay its liabilities as they become due, the Company may be forced to seek
protection under bankruptcy laws. This may occur if the Company cannot settle
the lawsuits against it and there are one or more adverse judgments entered
against the Company, with the stockholders of the Company receiving little or no
proceeds in such liquidation.

THE COMPANY'S PROFESSIONAL LIABILITY INSURER FILED FOR BANKRUPTCY.

         The Company is a defendant in many significant malpractice lawsuits.
The Company purchased malpractice insurance from PHICO Insurance Company.
PHICO has been determined to be insolvent by the insurance commissioner and a
state court. On August 16, 2001, the Insurance Commissioner of the
Commonwealth of Pennsylvania filed a Petition for Rehabilitation against the
Company's professional liability insurance carrier, PHICO Insurance Company.
The Order of Rehabilitation gave the Insurance Commissioner statutory control
of PHICO in order for the Commissioner to thoroughly analyze, evaluate and
oversee PHICO's finances. During the rehabilitation process, the Commissioner
determined that PHICO is insolvent. On February 2, 2002, a Pennsylvania court
authorized state insurance regulators to liquidate PHICO Insurance Company.
As a result, PHICO will not be permitted to pay any claims on the Company's
behalf. The Company is working with state insurance guarantee funds to
determine the extent to which these funds can be used to pay claims on the
Company's behalf. Management is continuing to assess the effect of the PHICO
liquidation on the Company.

THE COMPANY MAY NOT EVER BE PROFITABLE FROM OPERATIONS.

         The Company incurred substantial net losses in each of the previous
three fiscal years prior to the fiscal year ended June 30, 2002. Although the
Company has recorded net income for the year ended June 30, 2002, the Company
currently has no operations and thus there can be no assurance that it will
be profitable in future periods. The net income in fiscal 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 Tax Division of the U.S.
Department of Justice. The Company's ability to become profitable depends on
(1) there being sufficient net assets to re-deploy and (2) management's
ability to find a suitable business opportunity to purchase. There can be no
assurance that there will be any, or sufficient, assets to re-deploy or that
management will identify such an investment opportunity, or if identified,
that the Company will be able to reach an agreement and complete such an
investment. Furthermore, there can be no assurance that any redeployment made
by the Company will be profitable.

                                       3
<PAGE>

THE COMPANY MAY BE CONSIDERED AN INVESTMENT COMPANY.

         The Investment Company Act of 1940 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 (defending significant claims against
the Company), arbitration and other activities as part of winding down the
various liabilities and assets from its 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
financial assets 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.

THE CURRENT MANAGEMENT TEAM HAS ONLY LIMITED KNOWLEDGE OF THE COMPANY'S
OPERATING HISTORY.

         The financial constraints under which the Company is operating have
made it difficult to retain management personnel, virtually all of which were
replaced subsequent to the disposal of the Company's operating business
segments. This high rate of management turnover, and the resultant loss of
institutional knowledge, makes it more difficult to both defend claims being
made against the Company and assert claims on its behalf.

EXTENSION OF LIQUIDATION DATE MAY INCREASE EXPENSES AND FURTHER REDUCE
LIQUIDATION VALUE.

         The Plan of Restructuring approved by the Company's stockholders gave
the Board of Directors discretion to extend the Company's search for possible
acquisition candidates or other investment opportunities, and thus delay the
Liquidation Date. The Board has exercised this discretion several times, and it
is now expected that the Company's liquidation will not occur, if at all, until
December 31, 2003. The Board may exercise its discretion to extend the
Liquidation Date in the future. The decision to extend the Liquidation Date
could result in the further depletion of proceeds available to stockholders
should the Board later decide to proceed with the liquidation of the Company.

LIQUIDATION WILL RESULT IN LOSS OF NOLS.

         If the Board of Directors decides to move forward with the Company's
liquidation, any potential benefit of the Company's net operating loss
carryforwards ("NOLs") for income tax purposes will be lost.

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.

                                       4
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INSURANCE

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

EMPLOYEES

         At June 30, 2002, the Company had seven 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 2325-B Renaissance Drive, Suite
21, Las Vegas, Nevada 89119, where Halsey leases approximately 150 square feet
of office space. A subsidiary of Halsey also has a lease on approximately 3,500
square feet of office space in King of Prussia, PA, which expires in December
2002. The subsidiary signed a new 18-month lease in September of 2002 on
approximately 2,600 square feet of office space in King of Prussia, PA. See Note
10 of Notes to Consolidated Financial Statements for information concerning the
Company's leases.

ITEM 3. LEGAL PROCEEDINGS

         Halsey is party to certain claims, suits and complaints, which have
arisen in the ordinary course of business and in the course of selling its
operating businesses. Described below are certain claims, suits or complaints,
which, in the opinion of management, could have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
Collectively, the damages sought to be recovered from the Company in these cases
are in the hundreds of millions of dollars.

         BRADY V. NAHC, INC., ET AL., in the United States District Court for
the Eastern District of Pennsylvania. This is a purported class action case
filed on behalf of all persons who purchased the common stock of the Company
during the period between April 5, 1999 through and including November 22, 1999.
Five similar actions have been filed in the Eastern District of Pennsylvania,
including one that alleges a class period from May 20, 1998 through November 22,
1999. They have been consolidated into a single action. PricewaterhouseCoopers
LLP is named as a defendant in the case.

         The case is subject to the provisions of the Private Securities
Litigation Reform Act of 1995 ("PSLRA").

         The Plaintiffs asserted that the Company and certain of its directors
and officers violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 by making false and misleading statements and
omissions regarding the prospects of the Company's business and the Company's
liquidation value and by failing timely to disclose the impact of the Balanced
Budget Act of 1997 on the long term care services business. The Plaintiffs
allege that these statements and omissions artificially inflated the value of
the Company's stock during the class period. The Plaintiffs also assert a
violation of Section 14(a) of the Exchange Act and Rule 14a-9 against the
Company and individual Defendants as well as against Wasserstein Perella & Co.
in connection with the Company's proxy statements dated August 13, 1999, as
amended through September 10, 1999. The Plaintiffs allege that the Defendants
were negligent in disseminating the proxy statements, which allegedly contained
materially false and misleading statements. Wasserstein Perella & Co. has
notified the Company that it will seek indemnification from the Company in
connection with this action, pursuant to its engagement agreement with the
Company.

         The Company has notified its insurance carriers of this action. If the
Defendants suffer an adverse judgment which the Company is required to pay, it
will likely result in there being no assets for acquisition of a business or
liquidation; in such event, the Company may file for bankruptcy law protection.

         On October 17, 2001, the U.S. District Court for the Eastern
District of Pennsylvania dismissed the Brady case against the Company and
PricewaterhouseCoopers LLP with prejudice. The plaintiff has appealed this
decision.

                                       5
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         HEALTHSOUTH CORPORATION V. NOVACARE, INC. AND NC RESOURCES, INC.,
Montgomery County Court of Common Pleas, No. 99-17155 (filed September 28,
1999). The complaint in this action alleges that, pursuant to a February 3,
1995 stock purchase agreement involving the sale of the Company's medical
rehabilitation hospital subsidiary Rehab Systems Company ("RSC") to
Healthsouth Corporation ("Healthsouth"), the Company agreed to reimburse
Healthsouth for any payments that Healthsouth was obligated to pay Medicare,
Medicaid or other cost-based reimbursement systems as a result of RSC's
indebtedness to such payors. The Healthsouth litigation settled during the
second quarter of fiscal 2002, the effect of which has been included in these
financial statements. The agreement is subject to confidentiality.

         PIACENTILE V. NAHC, INC. During the second quarter of fiscal 2002, the
Company was served with this qui tam suit. The relator/plaintiffs in this
suit allege violations of the federal False Claims Act by the Company. The
complaint alleges that the Company submitted false or fraudulent bills in
connection with the provision of physical therapy to individuals covered by
various health insurance programs that were provided to certain employees of the
United States government. The complaint seeks to recover, on behalf of the
federal government, treble damages for each violation of the False Claims Act
and a civil penalty of $5,000 to $10,000 for each violation, plus attorneys'
fees, experts' fees and costs of the suit. The Company has completed its initial
review of this case and plans to vigorously defend this matter.

         UNITED STATES OF AMERICA, EX REL., SAUL EPSTEIN V. NOVACARE, INC.,
ET AL., CIVIL ACTION NO. 98-CV-4185. This qui tam action was filed on or
about August 10, 1998 by Saul R. Epstein on behalf of the United States
government, in camera and under seal in the United States District Court for
the Eastern District of Pennsylvania, asserting claims against the Company
for violations of the False Claims Act. On October 12, 1999, the United
States Attorney for the Eastern District of Pennsylvania elected not to
intervene in the matter and not to prosecute the complaint on behalf of the
United States. On October 21, 1999 the complaint was unsealed. On November
26, 1999 an amended complaint was filed and subsequently served on the
Company. The amended complaint alleges that the Company submitted false or
fraudulent bills in connection with the provision of physical therapy to
individuals covered by various health insurance programs that were provided
to certain employees of the United States government. The complaint seeks to
recover, on behalf of the federal government, treble damages for each
violation of the False Claims Act and a civil penalty of $5,000 to $10,000
for each violation, plus attorneys' fees, experts' fees and costs of the
suit. Pursuant to the purchase and sale agreement for the sale of the
Company's PROH division to Select, the Company has, in certain circumstances,
indemnified Select and the PROH subsidiaries acquired by Select for damages
relating to those entities arising from this action relating to conduct prior
to the sale to Select. This action has been re-sealed in the district court.
During the second quarter of fiscal 2002, an order relating to this case was
filed in the district court. The effect of this order has been reflected
within these financial statements. The Company expects that it will not incur
any additional financial liability as a result of this case.

         SABOLICH, INC., SABOLICH PROSTHETICS CENTER OF WICHITA, INC., SABOLICH
TRI-STATE PROSTHETICS, INC., SABOLICH OF FLORIDA, INC. AND JOHN A. SABOLICH V.
NOVACARE, INC. AND NOVACARE ORTHOTICS AND PROSTHETICS EAST, INC. THIS ACTION WAS
FILED ON MAY 18, 1999 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF OKLAHOMA, CASE NO. CIV-99-670-T. The complaint alleges that the
defendants breached a 1994 Agreement of Purchase and Sale involving the
acquisition of the plaintiffs' orthotics and prosthetics business. Plaintiffs
allege that the defendants breached the agreement by failing to pay certain sums
allegedly due them under the agreement. Plaintiffs also allege that defendants
tortiously breached an alleged implied covenant of good faith and fair dealing
in the agreement. Plaintiffs have claimed $5 million of compensatory damages and
$5 million for punitive damages. As part of the Company's Stock Purchase
Agreement, dated as of April 2, 1999 and amended May 19, 1999 and June 30, 1999,
with Hanger Orthopedic Group, Inc. ("Hanger") for the sale of the Company's
orthotics and prosthetics business, the Company and Hanger agreed that each
entity would be responsible for 50% of any damages arising from this action,
including all costs and expenses associated with the matter. This matter
currently is in discovery.

         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 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.

         NAHC, INC. V. UNITED STATES. In this case, the Company seeks a refund
of taxes paid. The Company originally filed this action in the United States
Court of Federal Claims in 1996 to seek a refund of approximately

                                       6
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$35 million paid by the Company to the IRS/United States as a result of two
transactions: first, the purchase of Rehab Systems Corporation in 1992 and
second, the subsequent sale of that business and related businesses to
Healthsouth in 1995. In 1998, each of Halsey and the IRS/United States moved
for summary judgment on the record. A hearing was held on these motions in
September 2000. In March 2002, the judge issued an order denying summary
judgment to both parties. Since that time, the parties have been involved in
significant discussions concerning a compromise settlement that might be
acceptable to both parties. The Company was recently notified by the Tax
Division of the U.S. Department of Justice that a settlement in the amount of
$8.7 million, plus interest, was accepted. The interest amount is expected to
total approximately $3 - $4 million. The U.S. Department of Justice has
reserved the right to deduct from the amount due any other tax or other
payment that it determines is otherwise due. The IRS is conducting an audit
of one of the Company's benefit plans. The Company does not believe that the
results of this audit will have a material impact on its financial statements
and expects to receive the tax refund, plus interest and less any possible
deduction (the "Tax Refund Payment"), in the second quarter of fiscal year
2003.

         SIGNIFICANT POTENTIAL MALPRACTICE LIABILITY

         The Company is a defendant in many significant malpractice lawsuits.
The Company purchased malpractice insurance from PHICO Insurance Company. PHICO
has been determined to be insolvent by the insurance commissioner and a state
court. On August 16, 2001, the Insurance Commissioner of the Commonwealth of
Pennsylvania filed a Petition for Rehabilitation against the Company's
professional liability insurance carrier, PHICO Insurance Company. The Order of
Rehabilitation gave the Insurance Commissioner statutory control of PHICO in
order for the Commissioner to thoroughly analyze, evaluate and oversee PHICO's
finances. During the rehabilitation process, the Commissioner determined that
PHICO is insolvent. On February 2, 2002, a Pennsylvania court authorized state
insurance regulators to liquidate PHICO Insurance Company. As a result, PHICO
will not be permitted to pay any claims on the Company's behalf. The Company is
working with state insurance guarantee funds to determine the extent to which
these funds can be used to pay claims on the Company's behalf. Management is
continuing to assess the effect of the PHICO liquidation on the Company.

         The Company is a defendant in a number of additional legal actions
seeking monetary damages, which singularly, and in the aggregate, may have a
material adverse effect on the Company's business, financial condition, results
of operations and liquidity if such actions are adversely concluded. Also, in
connection with many of the collection actions brought by the Company against
third parties to collect outstanding accounts receivable, counterclaims
(including counterclaims in the millions of dollars) have been made against the
Company, which in many cases, exceed the amount sought by the Company in the
underlying actions.



                                       7
<PAGE>

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

         At the Annual Meeting of the Company's stockholders held on March 19,
2002, (the "Annual Meeting"), the following nominees were elected to serve on
NAHC's board of directors for a term of one year and until his successor is duly
elected and qualified or his earlier removal or resignation:

<TABLE>
<CAPTION>
NAME                       VOTES FOR       VOTES WITHHELD
<S>                        <C>             <C>
John H. Foster             55,723,190      2,274,662
David R. Burt              55,194,688      2,803,164
Charles E. Finelli         55,205,347      2,792,505
Timothy E. Foster          55,837,273      2,160,579
Stephen E. O'Neil          55,202,413      2,795,439
</TABLE>

         In addition, the following proposal was approved by the stockholders at
the Annual Meeting on March 19, 2002:

               o  a motion submitted to the stockholders to postpone or adjourn
                  the annual meeting to another time and place, as determined by
                  the chairman of the meeting, for the purpose of obtaining
                  additional proxies to approve and adopt a certificate of
                  ownership and merger.

<TABLE>
<CAPTION>
                  VOTES FOR              VOTES AGAINST       ABSTENTIONS
                  <S>                    <C>                 <C>
                  54,843,046             2,734,772           420,034
</TABLE>

         The Annual Meeting subsequently was adjourned three times, to April 17,
May 15 and June 13, 2002. On June 13, 2002, the following proposal was approved
by the stockholders:

               o  the certificate of ownership and merger whereby NAHC would
                  merge with and into Halsey in order to implement transfer
                  restrictions on the common stock of the Company.

<TABLE>
<CAPTION>

                  VOTES FOR           VOTES AGAINST        ABSTENTIONS
                  <S>                 <C>                  <C>
                  33,088,343          3,911,733            263,118
</TABLE>

         On June 18, 2002, NAHC merged with and into Halsey. The merger
agreement provided that the board of directors of Halsey prior to the merger
would continue as the board of directors of the Company. The Company's new
certificate of incorporation, adopted pursuant to the merger, provides for a
classified board of directors, with directors elected to serve three-year
staggered terms. Messrs. John H. Foster and Timothy E. Foster are in the
first class of directors with terms expiring at the Company's annual meeting
following the fiscal year ended June 30, 2002, Messrs. Stephen E. O'Neil and
Charles E. Finelli are included in the second class of directors with terms
expiring at the Company's annual meeting following the fiscal year ending
June 30, 2003, and Messrs. David R. Burt and William T. Comfort, III, are
included in the third class of directors with terms expiring at the Company's
annual meeting following the fiscal year ending June 30, 2004.

                                       8
<PAGE>

                                     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 August 26, 2002 there were 1,400 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.

<TABLE>
<CAPTION>
                                                   HIGH       LOW
<S>                                           <C>         <C>
YEAR ENDED JUNE 30, 2002:
First Quarter..............................   $   0.004   $  0.003
Second Quarter.............................       0.004      0.003
Third Quarter..............................       0.017      0.002
Fourth Quarter.............................       0.100      0.010

YEAR ENDED JUNE 30, 2001:
First Quarter..............................   $   0.055   $  0.010
Second Quarter.............................       0.015      0.003
Third Quarter..............................       0.008      0.004
Fourth Quarter.............................       0.005      0.001
</TABLE>

         With the exception of 2-for-1 stock splits of common stock effected 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, except for any liquidating
dividends in connection with the possible liquidation of the Company.




                                       9
<PAGE>

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 the preparation for potential liquidation or redeployment of assets.
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.

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES
                           FIVE YEAR FINANCIAL SUMMARY
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                      YEARS ENDED JUNE 30,
                                           -----------------------------------------------------------------------------
                                               2002             2001           2000            1999           1998
                                           ------------    --------------  -------------  -------------  ---------------
<S>                                        <C>               <C>            <C>             <C>            <C>
STATEMENT OF OPERATIONS DATA:
   Net revenues.....................       $       --        $       --     $       --      $       --     $       --
   Gross profit.....................               --                --             --              --             --
   Loss from continuing operations
     before extraordinary item......           (3,065)           (4,576)       (23,953)        (83,224)       (65,549)
   Gain (loss) on disposal of
     discontinued operations,
     net of tax.....................           21,255             3,745       (374,122)        (30,838)            --
   Loss per share from continuing
     operations before
     extraordinary item:
       Basic and assuming dilution..            (0.05)            (0.07)         (0.38)          (1.32)         (1.06)
   Net income (loss) per share:
       Basic and assuming dilution..             0.28             (0.01)         (6.12)          (3.02)          0.94
</TABLE>

<TABLE>
<CAPTION>
                                                                          AS OF JUNE 30,
                                           ------------------------------------------------------------------------------
                                               2002             2001           2000            1999            1998
                                           --------------    -----------    ------------    -----------    --------------
<S>                                        <C>               <C>            <C>             <C>            <C>
BALANCE SHEET DATA:
   Total assets.....................       $   30,820        $   12,868     $   36,857      $  980,984     $  1,046,840
   Total indebtedness...............               --                --             --         522,879          402,755
   Shareholders' equity.............           23,114             4,872          5,703         393,259          580,673
</TABLE>




                                       10
<PAGE>

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") is
the successor to NovaCare, Inc. ("NovaCare"), which was a national leader in
physical rehabilitation services and employee services prior to the sale of all
of its operating segments. In connection with the sale of its operating
segments, NovaCare changed its name to NAHC, Inc. ("NAHC"). On June 18, 2002, in
a transaction previously approved by NAHC's stockholders at a special meeting
held for that purpose, 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.

         In order to satisfy its indebtedness, the Company sold each of its
operating segments in a series of divestiture transactions commencing June 1,
1999 and ending on November 19, 1999. As a result, the Company has no operating
business.

         Halsey is a company in transition, attempting to manage its liabilities
and realize its remaining assets. Any investment in the Company should be
considered extremely speculative and risky. The Company's current estimate of
net proceeds available for distribution per share upon liquidation of the
Company is between $0.08 and $0.24. See "Liquidity and Capital Resources -
Liquidation Analysis and Estimates."

         On July 1, 1999, the Company completed the sale of its orthotic and
prosthetic ("O&P") business to Hanger Orthopedic Group, Inc. ("Hanger"). On
September 21, 1999, the stockholders of the Company approved three proposals
submitted as part of a Special Meeting of Stockholders. The first proposal
recommended the sale of the Company's Physical Rehabilitation and Occupational
Health ("PROH") division, the second proposal recommended the sale of the
Company's 64% interest in NovaCare Employee Services, Inc. ("NCES") and the
third proposal recommended the adoption of a plan to restructure the Company.
Under the third proposal, a Plan of Restructuring was adopted whereby if, by the
designated liquidation date, currently December 31, 2003, the Company is unable
to find suitable acquisition candidates to purchase with the remaining net
assets, it will liquidate, unless the Board of Directors, in its discretion,
determines otherwise.

         On October 19, 1999, the Company completed the sale of its 64% interest
in NCES to a subsidiary of Plato Holdings, Inc. as part of a tender offer by
Plato for all of NCES's outstanding shares. On November 19, 1999, the Company
completed the sale of the PROH business to Select Medical Corporation. In
conjunction with the PROH sale, the "NovaCare" name was also sold and the
Company changed its name to NAHC, Inc. effective March 28, 2001.

         As a result of all of these transactions, the Company has disposed of
all its operating segments and the Company's remaining activities consist of
managing the legal proceedings against the Company, attempting to realize on its
remaining assets, general administrative matters and the preparation for
potential liquidation or redeployment of assets.

         On January 18, 2000, the Company fully satisfied its obligations to
subordinated debenture holders by paying the outstanding principal amount of
$84.7 million together with accrued interest. Prior to December 31, 1999, the
Company had repurchased $90.3 million of subordinated debentures, plus accrued
interest and recognized a gain of $0.6 million during the quarter ended December
31, 1999. Accordingly, all convertible subordinated debentures have been repaid.

                                       11
<PAGE>

DISCONTINUED OPERATIONS

         The Company previously operated in three business segments: long-term
care services, outpatient services and employee services. Long-term care
services consisted of providing rehabilitation and healthcare consulting
services on a contract basis to health care institutions, primarily long-term
care facilities. This segment was disposed of on June 1, 1999. Outpatient
services consisted of providing orthotic and prosthetic (O&P) and physical
rehabilitation and occupational health (PROH) rehabilitation services through a
national network of patient care centers. The O&P and PROH businesses were sold
on July 1, 1999 and November 19, 1999, respectively. Employee services were
comprehensive, fully integrated outsourcing solutions to human resource issues,
including payroll management, workers' compensation, risk management, benefits
administration, unemployment services and human resource consulting services,
and were generally provided to small and medium-sized businesses. This segment
was sold on October 19, 1999.

CONTINUING OPERATIONS

         The Company's remaining general and administrative activities
consist primarily of (i) managing litigation, including defending significant
lawsuits against the Company, and attempting to realize its remaining assets,
primarily accounts and notes receivable pertaining to the Company's former
long-term care services business, (ii) compliance with regard to general
corporate governance matters, (iii) financial, tax and Medicare program
reporting for internal and external regulatory purposes, and (iv) preparation
for potential liquidation or redeployment. The extreme uncertainty inherent
in litigation has made it, and continues to make it, difficult to estimate
the Company's assets and liabilities. It is possible that the Company may
have materially and substantially fewer net assets than has been estimated.
In addition, the Company has significant net operating loss carryforwards
which would be lost if the Company liquidates. The net operating loss
carryforwards could provide significant additional value in the event they
can be utilized. There are, however, limitations on the use of net operating
loss carryforwards. Such carryforwards may have little or no value if the
Company experiences a change of ownership within the meaning of Section 382
of the Internal Revenue Code.

PROVISION FOR RESTRUCTURE

         In fiscal 1999, as a result of the Company's decision to exit the
long-term care services operating segment and sell the O&P business, the Company
implemented a program to substantially reduce its unallocated selling, general
and administrative costs incurred at its corporate headquarters. This program
(with an aggregate provision of $12.3 million) involved the termination of
approximately 74 employees ($3.1 million), lease termination costs ($4.8
million) and long-term information services agreement buyouts ($4.4 million). In
fiscal 2000, the Company determined that this program would cost approximately
$2.0 million less than anticipated and reversed that portion of the provision
for restructure. Of the remaining aggregate $10.3 million, all of these costs
were either expended or reversed by June 30, 2002.

YEAR ENDED JUNE 30, 2002 COMPARED WITH THE YEAR ENDED JUNE 30, 2001

CONTINUING OPERATIONS

         The loss before income taxes from continuing operations was $3.1
million for the year ended June 30, 2002 compared to $4.6 million for the prior
year. The primary reason for the decrease in the loss was a decrease in selling,
general and administrative costs of approximately $1.7 million. Reductions in
legal costs and other professional fees accounted for the vast majority of this
decrease.

         There is no provision for or benefit from income taxes for the years
ended June 30, 2002 and 2001, 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 $197 million as of June 30, 2002. The
ultimate amount of the NOLs utilized is dependent on future actions 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 asset at June 30, 2002. See
Note 11 of Notes to Consolidated Financial Statements for the amount of
deferred tax assets and liabilities and valuation allowances.

                                       12
<PAGE>

DISCONTINUED OPERATIONS

         Income from discontinued operations was $0 for the years ending June
30, 2002 and 2001.

         The $21.3 million gain on disposal of discontinued operations, net
of tax, primarily relates to the settlement with the Tax Division of the U.S.
Department of Justice in the amount of $8.7 million plus approximately $3 -
$4 million in interest, the realization of certain receivables in excess of
book value totaling $8.1 million, the release of reserves no longer necessary
as a result of the settlement of various lawsuits totaling $2.6 million, the
reversal of prior year accruals of $3.2 million, reduced by additional legal
and collection expenses related to the remaining receivables of the former
long-term care services segment of $3.4 million and additional liabilities for
workers compensation claims in the amount of $1.9 million.

YEAR ENDED JUNE 30, 2001 COMPARED WITH THE YEAR ENDED JUNE 30, 2000

CONTINUING OPERATIONS

         The loss before income taxes from continuing operations was $4.6
million for the year ended June 30, 2001 compared to $24.0 million for the prior
year, which reflects the reduction of the Company's administrative functions as
a result of the sale of its businesses. The primary reasons for the decrease in
the loss was a decrease in selling, general and administrative costs of
approximately $19.0 million, a decrease in interest expense of approximately
$6.8 million as a result of the payment of the Company's line of credit and
convertible debentures in fiscal year 2000, and a decrease in investment and
other income of approximately $4.6 million.

         There is no provision for or benefit from income taxes for the years
ended June 30, 2001 and 2000, as the Company could not utilize, for financial
reporting or income tax purposes, the loss incurred in the periods. The Company
had net operating loss carryforwards ("NOLs") of approximately $190 million as
of June 30, 2001. The ultimate amount of the NOLs is dependent on future actions
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 asset at June 30, 2001. See Note 11 of Notes to
Consolidated Financial Statements for the amount of deferred tax assets and
liabilities and valuation allowances.

DISCONTINUED OPERATIONS

         Income from discontinued operations, net of tax, for the year ended
June 30, 2001 was $0, which is a decrease of $9.9 million compared to income
from discontinued operations, net of tax, for the year ended June 30, 2000 of
$9.9 million. The decrease is due to the fact that the Company ceased operations
in the fiscal year ended June 30, 2000, therefore there were no income or
expenses related to discontinued operations for the year ended June 30, 2001.

         The $3.7 million gain on disposal of discontinued operations, net of
tax, primarily reflects increases in the estimated value of long-term care
services accounts receivable due to collection or settlement of the accounts
offset by additional legal and collection expenses related to the remaining
receivables of the former long-term care services segment.

QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                   FOURTH            THIRD             SECOND              FIRST
                                                   QUARTER          QUARTER            QUARTER            QUARTER
                                                --------------    -------------    ----------------    ---------------
<S>                                             <C>               <C>              <C>                 <C>
YEAR ENDED JUNE 30, 2002:
   Loss from continuing operations..........        $   (836)      $   (589)       $     (1,158)       $       (482)
   Gain on disposal of discontinued
     operations, net of tax.................          12,516          6,508               2,400                (169)
                                                --------------    -------------    ----------------    ---------------
     Net income (loss)......................        $ 11,680       $  5,919        $      1,242        $       (651)
   Loss per share from continuing
     basic and assuming dilution............        $  (0.01)      $  (0.01)       $      (0.02)       $      (0.01)
   Gain per share on the disposal of
     discontinued operations, net of tax....        $   0.18       $   0.10        $       0.04        $       0.00
   Net income (loss) per share - basic and
     assuming dilution......................        $   0.17       $   0.09        $       0.02        $      (0.01)
</TABLE>

                                       13

<PAGE>

<TABLE>
<CAPTION>

                                                   FOURTH            THIRD             SECOND              FIRST
                                                  QUARTER           QUARTER            QUARTER            QUARTER
                                                --------------    -------------    ----------------    ---------------
<S>                                             <C>               <C>              <C>                 <C>
YEAR ENDED JUNE 30, 2001:
   Loss from continuing operations..........    $     (642)         $  (992)         $  (1,055)           $ (1,887)
   Gain on disposal of discontinued
     operations, net of tax.................           811              789                526               1,619
   Net income (loss)........................    $      169          $  (203)         $    (529)           $   (268)
   Loss per share from continuing
     operations basic and assuming
     dilution...............................    $    (0.01)         $ (0.02)         $   (0.02)           $  (0.03)
   Gain per share on the disposal of
     discontinued operations, net of tax....    $     0.01          $  0.01          $    0.01            $   0.03
   Net income (loss) per share - basic and
     assuming dilution......................    $     0.00          $ (0.01)         $   (0.01)           $  (0.00)
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS

         At June 30, 2002, cash and cash equivalents totaled $11.6 million,
an increase of $5.9 million from June 30, 2001. Cash used in continuing
operations was $2.4 million in fiscal 2002 compared to $8.5 million in fiscal
year 2001 and $31.3 million in fiscal year 2000. The $6.1 million decrease in
cash used in continuing operations from fiscal 2001 to fiscal 2002 was
primarily the result of a decrease in general operating cash outflows
pertaining to legal and other professional fees. The $22.9 million decrease
in cash used from fiscal 2000 to 2001 was primarily the result of reductions
in general operating expenses of the Company and decreases in interest
payments and accrued liabilities related to the dispositions of the Company's
operating segments. As noted above, the Company has recently been notified of
the acceptance of its settlement offer in the tax refund case and expects to
receive the Tax Refund Payment of $8.7 million plus interest of approximately
$3-$4 million in the second quarter of fiscal 2003.

         Cash provided by (used in) discontinued operations increased to $8.0
million in fiscal 2002 from ($8.2) million in fiscal 2001 and $8.0 million in
fiscal 2000. The $16.2 million increase in fiscal 2002 from fiscal 2001 was
primarily due to the collection of receivables and a reduction in payments for
legal costs. The $16.2 million decline in fiscal 2001 from fiscal 2000 was
primarily due to the payment of accrued liabilities related to the dispositions
of the Company's operating segments.

         Investing activities consisted of a release of restricted cash held by
one of the Company's workers compensation insurance carriers in the amount of
$359,000 in 2002 and $12.3 million in 2001. Investing activities provided $542.5
million of cash in fiscal 2000 principally from the $564.8 million net proceeds
from the sale of the Company' operating businesses. Cash paid for acquisitions
and capital expenditures were zero in fiscal 2002 and 2001 compared to $10.2
million in fiscal 2000.

         The Company used $7,875 in financing activities in 2002, which
represented a principal payment on a loan to an officer of the Company (See Note
9). The Company had no cash flows from financing activities in fiscal 2001. In
fiscal 2000, the Company used $526.3 million in financing activities primarily
to retire the outstanding balance on the Company's line of credit ($347.0
million) and convertible subordinated debentures ($174.4 million).

LIQUIDITY

         The Company's cash position is extremely uncertain and risky. The
Company's cash position, after satisfaction of its contractual obligations and
operating expenses, will vary based on the amount and timing of cash flows. Cash
inflows primarily consist of the Tax Refund Payment and collections (through
litigation and arbitration) of LTCS related receivables and Medicare related
receivables (all of which are in excess of one year old). Cash outflows
primarily relate to legal fees, collection fees, payroll and settlements of
lawsuits against the Company. Collectively, these lawsuits are seeking hundreds
of millions of dollars from the Company. The costs of defending these lawsuits
are substantial and may increase materially. As discussed elsewhere, cash
inflows and outflows from litigation are inherently extremely uncertain. The
Company's assumptions with respect to incoming and outgoing cash flows include,
without limitation, assumptions that certain litigation will be settled
favorably and not actually litigated, that the settlements will be for certain
minimum amounts and that the settlements will occur within certain

                                       14
<PAGE>

timeframes. These assumptions are uncertain and the actual timing and amounts
may differ materially from amounts assumed herein because of the inherent
uncertainty involved in estimating the outcomes and costs of legal and
arbitration proceedings. The Company's cash position will very likely be
materially different from that estimated here.

         The range of possible outcomes is extremely wide. On the one hand, the
Company may do materially worse than estimated in which case it may file for
bankruptcy protection. On the other hand, the Company may do better in the
lawsuits and arbitrations than estimated, in which case the cash available to
the Company may be materially higher than estimated.

LIQUIDATION ANALYSIS AND ESTIMATES

         For purposes of determining the available assets, if any, that may
be distributed to stockholders, in the event of a liquidation of the Company,
management made the following estimates of the assets and liabilities of the
Company, as of June 30, 2002. IMPORTANTLY, STOCKHOLDERS SHOULD NOTE THAT THE
CURRENT MINIMUM ESTIMATE INCLUDES ONLY ESTIMATES OF POTENTIAL SETTLEMENTS OF
THE PENDING LAWSUITS AGAINST THE COMPANY, BUT DOES NOT INCLUDE ESTIMATES OF
ANY ADVERSE RULINGS OR JUDGEMENTS AGAINST THE COMPANY IN ANY OF THESE
LAWSUITS. If the Company suffers an adverse ruling or judgment in any of
these cases, the Company may be forced to seek bankruptcy law protection. The
estimates set forth below assume that the Company receives the Tax Refund
Payment.

         The estimated operating costs during liquidation for the period from
July 1, 2002 through December 31, 2003, the assumed liquidation date, have been
based on the Company's internal estimates. It is possible that the actual
liquidation date, if any, could be later if the Board of Directors, in its
discretion, deems it appropriate and that the actual operating costs may differ
materially from the estimates included herein.

<TABLE>
<CAPTION>
                                                                                    ($ IN MILLIONS, EXCEPT PER SHARE
                                                                                               AMOUNTS)
                                                                                    ----------------------------------
                                                                                       MINIMUM            MAXIMUM
                                                                                    ---------------    ---------------
<S>       <C>                                                                       <C>                <C>
(i)       ESTIMATED REALIZABLE VALUES OF ASSETS OF THE COMPANY
              Cash at June 30, 2002............................................     $         11.6     $         11.6
              Restricted cash..................................................                4.4                4.4
              Income tax receivable............................................               13.0               13.0
              Other current assets.............................................                1.8                1.8
                                                                                    ---------------    ---------------
              Total estimated assets...........................................               30.8               30.8
                                                                                    ---------------    ---------------
(ii)      ESTIMATED LIABILITIES OF THE COMPANY
              Accounts payable and accrued expenses............................               (1.1)              (1.1)
              Tax liabilities..................................................               (2.3)              (2.3)
              Net liabilities of discontinued operations.......................              (17.1)              (4.3)
                                                                                    ---------------    ---------------
              Total estimated liabilities......................................              (20.5)              (7.7)
                                                                                    ---------------    ---------------
(iii)     ESTIMATED OPERATING COSTS DURING LIQUIDATION
              Payroll and benefits for liquidation personnel...................               (1.0)              (0.8)
              Legal, audit and other professional costs........................               (1.5)              (1.2)
              Other costs......................................................               (0.7)              (0.5)
                                                                                    ---------------    ---------------
              Total estimated operating costs during liquidation...............               (3.2)              (2.5)
                                                                                    ---------------    ---------------
              ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
                TO STOCKHOLDERS................................................     $          7.1     $         20.6
                                                                                    ===============    ===============
              ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
                PER OUTSTANDING COMMON SHARE...................................     $         0.08     $         0.24
                                                                                    ===============    ===============
</TABLE>

Possible contingencies could further reduce the realizable value available for
distribution to stockholders to below zero from $7.1 million, the revised
minimum realizable value. The possible contingencies include primarily a
judgment against the Company in any one of the material cases against the
Company, the lack of receipt of the Tax refund Payment, and a reduction in the
anticipated collections of certain notes and receivables.

         The difference between the estimated net proceeds available for
distribution set forth in the "minimum" and "maximum" columns generally
consist of increased expenses related to litigation including large estimates
to settle cases pending against the Company.

                                       15
<PAGE>

         The following table sets forth a reconciliation of the low end of the
range of the estimates set forth above under "Liquidation Analysis and
Estimates" with the Company's stockholders' equity, as set forth in its audited
Consolidated Balance Sheet as of June 30, 2002:

<TABLE>
<CAPTION>
                                                                                   ($ IN MILLIONS)
<S>                                                                                <C>
Total stockholders' equity as of June 30, 2002................................      $      23.1
   Additional contingent costs................................................            (12.8)
Estimated operating costs during liquidation..................................             (3.2)
                                                                                    ------------
ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS.............      $       7.1
                                                                                    ============
</TABLE>

         IN DETERMINING THE ESTIMATED NET PROCEEDS AVAILABLE FOR DISTRIBUTION
PER OUTSTANDING COMMON SHARE UPON THE LIQUIDATION OF THE COMPANY OF $0.08 TO
$0.24, THE METHODS USED BY MANAGEMENT IN ESTIMATING THE VALUES AND VALUE
RANGES OF THE COMPANY'S ASSETS ARE INEXACT AND SUBJECTIVE AND MAY NOT
APPROXIMATE VALUES ACTUALLY REALIZED. THESE ESTIMATES ARE SUBJECT TO NUMEROUS
UNCERTAINTIES AND ALSO DO NOT REFLECT ALL CONTINGENT LIABILITIES THAT MAY
MATERIALIZE OR ANY POSSIBLE JUDGMENT AGAINST THE COMPANY. FOR THESE REASONS,
THERE CAN BE NO ASSURANCE THAT THE ACTUAL NET PROCEEDS DISTRIBUTED TO
STOCKHOLDERS IN LIQUIDATION WILL NOT BE SIGNIFICANTLY LESS THAN THE AMOUNT
ESTIMATED. MOREOVER, NO ASSURANCE CAN BE GIVEN THAT ANY AMOUNTS TO BE
RECEIVED BY THE COMPANY'S STOCKHOLDERS IN LIQUIDATION WILL EQUAL OR EXCEED
THE PRICE OR PRICES AT WHICH THE COMMON STOCK HAS RECENTLY TRADED OR MAY
TRADE IN THE FUTURE.

         THERE IS A SIGNIFICANT RISK, AS CAN BE SEEN IN THE CURRENT ESTIMATES,
THAT THERE WILL BE LITTLE OR NO ASSETS FOR DISTRIBUTION TO STOCKHOLDERS OR TO
INVEST.

CAUTIONARY STATEMENT

         Except for historical information, matters discussed above including,
but not limited to, statements concerning litigation against the Company, the
Tax Refund Payment and estimates of values to be received in liquidation, 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, the Tax Refund Payment, potential claims related to
businesses sold, the ability of the Company to realize its remaining assets in
cash, the cost to wind up the Company's affairs in preparation for a potential
liquidation, the ability of the Company to identify potential acquisition
targets and to successfully complete such potential acquisitions and the
Company's ability to retain management and professional employees during its
wind down period.

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 1998. As a result of the
provisions of this Act, many of the Company's former customers went bankrupt and
many are nearly insolvent. Accordingly, the Company has maintained significant
allowances against it accounts and notes receivables from these customers.

         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 circumstance indicate that

                                       16
<PAGE>

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 circumstance dictate that no reasonable hope exists that the
associated receivable will be collectible at any future period, the Company
writes off the accounts receivable balance. Generally when the Company estimates
that the net receivable remaining from discontinued operations has increased,
the Company will release the associated reserves only when there has been a
significant change in facts or circumstances to support the Company's change in
estimate.

         Many of the Company's accounts and notes receivable are fully reserved
because the Company believes it is highly unlikely that it will collect any
portion of these accounts. Of the accounts that are only partially reserved,
there are fewer than eight accounts that make up greater than 76% of the net
balance. As a result it is inherently difficult to estimate the amount that the
Company will realize upon collection. If the financial condition of the
Company's former customers were to deteriorate, resulting in an impairment of
their ability to make any payments owed to the Company, significant changes to
our reserves may be required

INCOME TAXES

         The Company has net operating loss carryforwards. The realization of
any benefit of these loss carryforwards is dependent on future actions 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.

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. If the Company had used different assumptions, there may have
been a material adverse impact to the financial statements. In particular,
the Company has estimated that all of the material litigation will be settled
and that none of the cases will result in a judgment against the Company. If
the Company's assumptions are incorrect and there are one or more material
judgments against the Company, the Company may be forced to file for
bankruptcy protection.

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.




                                       17
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                          AS OF JUNE 30,
                                                                              ----------------------------------------
                                                                                     2002                  2001
                                                                              -------------------    -----------------
<S>                                                                           <C>                    <C>
ASSETS
Current assets:
     Cash and cash equivalents.........................................       $        11,632        $         5,687
     Deferred income taxes.............................................                    21                    652
     Income tax receivable and accrued interest........................                13,039                     --
     Prepaid expenses..................................................                 1,762                  1,859
                                                                              -------------------    -----------------
         Total current assets..........................................       $        26,454        $         8,198
     Restricted cash...................................................                 4,366                  4,670
                                                                              -------------------    -----------------
         Total assets..................................................       $        30,820        $        12,868
                                                                              ===================    =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
     Accounts payable and accrued expenses.............................       $         1,059        $           557
     Note payable......................................................                    --                     60
     Net liabilities remaining from discontinued operations............                 4,345                  4,775
     Taxes payable.....................................................                 2,281                  1,952
                                                                              -------------------    -----------------
         Total current liabilities.....................................                 7,685                  7,344
     Deferred income taxes.............................................                    21                    652
                                                                              -------------------    -----------------
         Total liabilities.............................................                 7,706                  7,996
     Commitments and contingencies (Note 13)...........................                    --                     --
     Stockholders' equity:
       Common stock, $.01 par value; authorized 200,000 shares; issued
         89,522 and 68,672 shares at June 30, 2002 and 2001,
         respectively..................................................                   895                    687
       Additional paid-in capital......................................               274,490                274,646
       Accumulated deficit.............................................              (209,597)              (227,787)
                                                                              -------------------    -----------------
                                                                                       65,788                 47,546
       Less: Common stock in treasury (at cost), 5,308 shares at
         June 30, 2002 and 2001........................................               (42,674)               (42,674)
                                                                              -------------------    -----------------
         Total stockholders' equity....................................                23,114                  4,872
                                                                              -------------------    -----------------
         Total liabilities and stockholders' equity....................       $        30,820        $        12,868
                                                                              ===================    =================
</TABLE>

           The accompanying Notes to Consolidated Financial Statements
                    are an integral part of these statements.

                                       18
<PAGE>

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                YEARS ENDED JUNE 30,
                                                              ---------------------------------------------------------
                                                                   2002                2001                 2000
                                                              ----------------    ----------------    -----------------
<S>                                                           <C>                 <C>                 <C>
Selling, general and administrative expenses...........       $      3,983           $   5,660        $     24,771
(Credit) provision for restructure.....................               (213)               (116)             (1,987)
                                                              -------------          ----------       -------------
   Loss from operations................................             (3,770)             (5,544)            (22,784)
Interest on cash and other income......................                710               1,048               4,179
Gain on sale of property and equipment.................                 --                  --               1,528
Interest expense.......................................                 (5)                (80)             (6,876)
                                                              -------------          ----------       -------------
   Loss from continuing operations before
     extraordinary item................................             (3,065)             (4,576)            (23,953)
Income from discontinued operations, net of tax........                 --                  --               9,877
Gain (loss) on disposal of discontinued  operations,
  net of tax...........................................             21,255               3,745            (374,122)
Extraordinary item - gain on repurchase of financing
  arrangements.........................................                 --                  --                 598
                                                              -------------          ----------       -------------
   Net income (loss)...................................       $     18,190           $    (831)       $   (387,600)
                                                              =============          ==========       =============
   Loss per share from continuing operations before
     extraordinary item - basic and assuming
     dilution..........................................       $      (0.05)          $    (.07)       $      (0.38)
                                                              =============          ==========       =============
   Net income (loss) per share - basic and assuming
     dilution..........................................       $       0.28           $   (0.01)       $      (6.12)
                                                              =============          ==========       =============
   Weighted average number of shares  outstanding -
     basic and assuming dilution.......................             65,306              63,364              63,326
                                                              =============          ==========       =============
</TABLE>

           The accompanying Notes to Consolidated Financial Statements
                    are an integral part of these statements.




                                       19
<PAGE>

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                COMMON                                         RETAINED
                                          SHARES                 STOCK                        ADDITIONAL       EARNINGS
                                 -------------------------     ($0.01 PAR      TREASURY        PAID-IN        (ACCUMULATED
                                   ISSUED        TREASURY        VALUE)          STOCK         CAPITAL          DEFICIT)
                                 ------------   -----------    ------------   ------------    -----------    ---------------
<S>                              <C>            <C>            <C>            <C>             <C>            <C>
Balance at June 30, 1999....          68,561       (5,308)     $     686      $  (42,674)     $  274,603        $ 160,644
Issued  in  connection
  with employee benefit
  plans.....................             111           --              1              --              43               --
Net loss....................              --           --             --              --              --         (387,600)
                                 ------------   -----------    ------------   ------------    -----------    ------------
Balance at June 30, 2000....          68,672       (5,308)           687         (42,674)        274,646         (226,956)
Net (loss)..................              --           --             --               --             --             (831)
                                 ------------   -----------    ------------   ------------    -----------    ------------
Balance at June 30, 2001....          68,672       (5,308)           687         (42,674)        274,646         (227,787)
                                 ------------   -----------    ------------   ------------    -----------    ------------
Issued in connection with
  conversion of note
  payable...................          20,850           --            208              --            (156)              --
Net income..................              --           --             --              --              --           18,190
                                 ------------   -----------    ------------   ------------    -----------    ------------
Balance at June 30, 2002....          89,522       (5,308)     $     895      $  (42,674)     $  274,490     $   (209,597)
                                 ============   ===========    ============   ============    ===========    ============
</TABLE>


           The accompanying Notes to Consolidated Financial Statements
                    are an integral part of these statements.

                                       20
<PAGE>

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            FOR THE YEARS ENDED JUNE 30,
                                                              ------------------------------------------------------
                                                                   2002                2001                 2000
                                                              ----------------    ----------------    --------------
<S>                                                           <C>                 <C>                 <C>
CASH FLOW FROM OPERATING ACTIVITIES:
   Net income (loss)...................................       $     18,190        $       (831)       $   (387,600)
   Adjustments to reconcile net income (loss) to net
     cash flows from operating activities of
     continuing operations:
     Income from discontinued operations, net of tax...                 --                  --              (9,877)
     (Gain) loss on disposal of discontinued
       operations, net of tax..........................            (21,255)             (3,745)            374,122
     Extraordinary item - gain on repurchase of
       financing arrangements..........................                 --                  --                (598)
     Credit provision for restructure..................               (213)               (116)             (1,987)
     Gain on sale of property and equipment............                 --                  --              (1,528)
     Depreciation and amortization.....................                 --                  --               1,336
     Non-cash compensation ............................                 --                  60                  --
     Income from restricted cash.......................                (55)                 --                  --
     Changes in assets and liabilities, net of effects
       from acquisitions and dispositions:
       Other current assets............................                 97               1,272              (6,673)
       Accounts payable and accrued expenses...........                502              (9,328)            (16,623)
       Current income taxes............................                329                (274)             26,962
       Escrow receivable...............................                 --               4,506              (4,506)
       Other, net......................................                 --                  --              (4,375)
                                                              ----------------    -------------       --------------
     Net cash flows used in continuing operations......             (2,405)             (8,456)            (31,347)
     Net cash flows provided by (used in) discontinued
       operations......................................              7,999              (8,197)              8,034
                                                              ----------------    -------------       --------------
       Net cash flows provided by (used in) operating
         activities....................................              5,594             (16,653)            (23,313)
                                                              ----------------    -------------       --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Continuing operations:
     Proceeds from sale of property and equipment......                 --                  --               4,934
   Discontinued operations:
     Net proceeds from sales of businesses.............                 --                  --             564,811
     Payments for businesses acquired, net of cash
       acquired........................................                 --                  --              (5,007)
     Additions to property and equipment...............                 --                  --              (5,249)
     Release (deposits) of restricted cash.............                359              12,332             (17,002)
                                                              ----------------    -------------       --------------
     Net cash flows provided by investing activities...                359              12,332             542,487
                                                              ----------------    -------------       --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Continuing operations:
     Payment of debt and credit arrangements...........                 --                  --            (522,281)
     Proceeds from common stock issued.................                 --                  --                  44
   Discontinued operations:
     Proceeds from debt and credit arrangements........                 --                  --               1,654
     Payment of debt and credit arrangements...........                 --                  --              (5,693)
     Payment of note payable...........................                 (8)                 --                  --
                                                              ----------------    -------------       --------------
   Net cash flows used in financing activities.........                 (8)                 --            (526,276)
                                                              ----------------    -------------       --------------
Net increase (decrease) in cash and cash equivalents...              5,945              (4,321)             (7,102)
Cash and cash equivalents, beginning of year...........              5,687              10,008              17,110
                                                              ----------------    -------------       --------------
Cash and cash equivalents, end of year.................       $     11,632        $      5,687        $     10,008
                                                              ================    =============       ==============
</TABLE>

         The accompanying Notes to Consolidated Financial Statements are
                     an integral part of these statements.

                                       21
<PAGE>

                    J. L. HALSEY CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                  JUNE 30, 2002

             (IN THOUSANDS, EXCEPT PER SHARE DATA AND EMPLOYEE DATA)

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         NATURE OF OPERATIONS: J. L. Halsey Corporation, formerly NAHC, Inc.
(the "Company"), previously operated in three business segments: long-term care
services, outpatient services and employee services. Long-term care services
("LTCS") consisted of providing rehabilitation and healthcare consulting
services on a contract basis to health care institutions, primarily long-term
care facilities. This segment was disposed of on June 1, 1999. Outpatient
services consisted of providing orthotic and prosthetic ("O&P") and physical
rehabilitation and occupational health ("PROH") rehabilitation services through
a national network of patient care centers. The O&P and PROH businesses were
sold on July 1, 1999 and November 19, 1999, respectively. Employee services were
comprehensive, fully integrated outsourcing solutions to human resource issues,
including payroll management, workers' compensation, risk management, benefits
administration, unemployment services and human resource consulting services,
and were generally provided to small and medium-sized businesses. This segment
was disposed of on October 19, 1999.

         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 remaining assets, general administrative
matters and the preparation for potential liquidation or redeployment of assets.
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.

         PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company, and prior to their disposition, its
majority-owned subsidiaries and companies effectively controlled through
management agreements under the nominee structure. Under the terms of these
agreements, the Company had absolute authority to change the nominee for an
insignificant amount of consideration, as long as the nominee was duly certified
in the state to which the management agreement pertained. Investments in 20% to
50% of the voting interest of affiliates are accounted for using the equity
method. 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 revenues and expenses
during the reporting period. Actual results could differ from those estimates.

         RECLASSIFICATION: Certain reclassifications of prior year amounts have
been made to conform with the current year's presentation.

         CASH AND CASH EQUIVALENTS: The Company's financial assets consist of
money-market instruments. These items 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.

         Restricted cash balances consist of the following:

<TABLE>
<CAPTION>
                                                                                   June 30, 2002    June 30, 2001
                                                                                  ---------------  -----------------
<S>                                                                               <C>              <C>
Cash balance in support of self-insured workers compensation liabilities........  $        4,366   $        4,670
                                                                                  ---------------  -----------------
</TABLE>

                                       22
<PAGE>

         NET LIABILITIES REMAINING FROM DISCONTINUED OPERATIONS: At June 30,
2002, the net liabilities remaining from discontinued operations primarily
consist of trade accounts receivable, Medicare indemnification receivables, and
liabilities related to all of the Company's disposed operating segments which
arose prior to or as a result of the disposition transactions.

         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.

         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. Net income (loss) per share assuming dilution, if diluted,
is calculated using basic EPS adjusted for the effects of stock options,
contingently issuable shares under certain acquisition agreements and
convertible subordinated debentures.

         COMPREHENSIVE INCOME (LOSS): For fiscal year 2002 the Company's
comprehensive income consists only of net income. For fiscal years 2001 and
2000, the Company's comprehensive income consisted only of net loss.

2.       RISKS AND UNCERTAINTIES AFFECTING THE COMPANY'S ABILITY TO CONTINUE AS
         A GOING CONCERN

         The Company has disposed of all its operating segments. The Company's
remaining activities consist of managing the legal proceedings against the
Company, attempting to realize its remaining assets, general administrative
matters and the preparation for potential liquidation or redeployment of assets.
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The environment confronting the
Company raises substantial doubt about the Company's ability to continue as a
going concern. The principal conditions giving rise to that uncertainty include
the following:

         FINANCIAL RESTRUCTURING: Pursuant to a Plan of Restructuring (the
"Plan") adopted by the Company's stockholders at a Special Meeting of
Stockholders held on September 21, 1999, as amended on September 27, 2000, May
9, 2001, January 14, 2002 and September 19, 2002 the Board of Directors has the
authority to commence a liquidation of the Company if suitable reinvestment
opportunities are not identified by the Company by December 31, 2003 (the
"Liquidation Date"). The Plan also affords the Board the discretion to adjust
the Liquidation Date to a date earlier or later than December 31, 2003, if it
determines such action to be appropriate. In evaluating whether to reinvest the
Company's remaining assets or to liquidate the Company, a critical factor for
the Board to consider is the value of the Company's remaining assets after
satisfaction of all actual and contingent liabilities. The majority of the
Company's remaining assets from its discontinued operations (approximately
$3,700, net of reserves) consists of delinquent or disputed accounts receivable
that are in litigation proceedings. The Company's remaining liabilities include,
among others, contingent liabilities that have arisen (and may arise) from
pending legal actions against the Company or for which the Company may be
responsible. The Company is unable to determine the value of net assets, if any,
that may be available for a potential reinvestment until these legal proceedings
are settled or concluded. During the period prior to the Liquidation Date, the
Company will continue its efforts to realize its remaining assets and to resolve
its outstanding liabilities. There are a number of significant risks associated
with the Company's implementation of the Plan. Because of the factors cited
above, the Company's estimate of possible net assets available for distribution
or investment is extremely uncertain. Furthermore, due to the uncertainty of the
amount and timing with regard to cash flows, there can be no assurance that the
Company will have sufficient cash flow to satisfy obligations when they become
due. Under those circumstances, the Company may seek short-term financing,
attempt to negotiate lower settlement amounts with regard to its obligations or
seek protection under the bankruptcy laws. Furthermore, even if the Company has
sufficient net assets to pursue a business acquisition or combination in
accordance with the Plan, there can be no assurance that the Company will be
able to identify an opportunity on commercially acceptable terms or that the
Company could successfully operate any business that may ultimately be acquired.

         THE AMOUNT OF NET ASSETS, IF ANY, AVAILABLE FOR INVESTMENT OR
DISTRIBUTION IN LIQUIDATION IS EXTREMELY UNCERTAIN (UNAUDITED).

         Since the Company first made estimates of its liquidation value in its
proxy statement dated August 13, 1999, management has from time to time
materially changed those estimates, and there can be no assurance that such
estimates, including those estimates contained in this report, will not be
materially changed in the future. The

                                       23
<PAGE>

range of the estimate, currently $.08 and $.24 per share of common stock,
reflects the inherent uncertainty of the Company's liquidation value. This
uncertainty is due, in general, to the nature of the Company's assets and its
contingent liabilities. A percentage of the Company's assets consist of
delinquent or disputed accounts receivable, which the Company is attempting to
collect through litigation. Counterclaims have been filed against the Company in
nearly all of these actions. The results of these collection actions are
inherently uncertain. Furthermore, the Company is a defendant in multiple
significant litigation matters. See "Legal Proceedings." The outcome of these
matters is not possible to predict and the current minimum estimate includes
only estimates of potential settlements of certain material lawsuits, but does
not include estimates of an adverse ruling or judgment against the Company. If
the Company suffers an adverse ruling or judgment in these cases, the Company
may have little or no assets to distribute or may be forced to seek bankruptcy
law protection.

CASH FLOW MAY BE INSUFFICIENT TO SATISFY OBLIGATIONS.

         The Company's cash position will vary based on the timing and amount of
cash inflows and outflows. Cash inflows primarily consist of collections from
the Tax Refund Payment and litigation related to receivables and
Medicare-related receivables. Cash outflows are principally related to legal
proceedings and claims against the Company and general and administrative
expenses. The outcome of litigation and arbitration proceedings is extremely
uncertain. Due to the uncertainty of the amount and timing with regard to cash
flows, there can be no assurance that the Company will have sufficient cash flow
in the future to satisfy obligations when they become due. Under those
circumstances, the Company may seek short-term financing, negotiate lower
settlement amounts with regard to its obligations or seek protection under the
bankruptcy laws. If the Company's liabilities exceed its assets or the Company
is unable to pay its liabilities as they become due, the Company will be forced
to seek protection under bankruptcy laws. The Company may be forced to liquidate
under this circumstance, with the stockholders of the Company receiving no
proceeds in such liquidation.

THERE IS A SUBSTANTIAL RISK THE COMPANY WILL BE FORCED TO SEEK BANKRUPTCY LAW
PROTECTION.

         If the Company's liabilities exceed its assets or the Company is unable
to pay its liabilities as they become due, the Company will be forced to seek
protection under bankruptcy laws. This is likely to occur if the Company cannot
settle the lawsuits against it, with the stockholders of the Company receiving
little or no proceeds in such liquidation.

THE COMPANY'S PROFESSIONAL LIABILITY INSURER IS UNABLE TO PAY CLAIMS ON BEHALF
OF THE COMPANY.

         On August 16, 2001, the Insurance Commissioner of the Commonwealth of
Pennsylvania filed a Petition for Rehabilitation against the Company's
professional liability insurance carrier, PHICO Insurance Company. The Order of
Rehabilitation gave the Insurance Commissioner statutory control of PHICO in
order for the Commissioner to thoroughly analyze, evaluate and oversee PHICO's
finances. During the rehabilitation process, the Commissioner determined that
PHICO is insolvent. On February 2, 2002, a Pennsylvania court authorized state
insurance regulators to liquidate PHICO Insurance Company. As a result, PHICO
will not be permitted to pay any claims on behalf of the Company. The Company is
working with state insurance guarantee funds to determine the extent to which
these funds can be used to pay claims on the Company's behalf. Management is
continuing to assess the effect of the PHICO liquidation on the Company.

THE COMPANY MAY NOT EVER BE PROFITABLE FROM OPERATIONS.

         Although the Company has recorded a net income for the year ended June
30, 2002, the Company incurred substantial net losses in each of the previous
three fiscal years. The net income in fiscal 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 Tax Division of the U.S. Department of Justice. The
Company currently has no operations and thus there can be no assurance that it
will be profitable in future periods. The Company's ability to become profitable
depends on (1) there being sufficient net assets to invest and (2) management's
ability to find a suitable business opportunity in which to invest. There can be
no assurance that there will be any, or sufficient, assets to invest or that
management will identify such an investment opportunity, or if identified, that
the Company will be able to reach an agreement and complete such an investment.
Furthermore, there can be no assurance that any investment made by the Company
will be profitable.

                                       24
<PAGE>

THE COMPANY MAY BE CONSIDERED AN INVESTMENT COMPANY.

         The Investment Company Act of 1940 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, arbitration and other activities as
part of winding down the various liabilities and assets from its 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 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
financial assets 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 us from the definition of an investment company.

THE CURRENT MANAGEMENT TEAM HAS ONLY LIMITED KNOWLEDGE OF THE COMPANY'S
OPERATING HISTORY.

         The financial constraints under which the Company is, and has been,
operating have made it difficult to retain management personnel, virtually all
of which were replaced subsequent to the disposal of the Company's operating
business segments. This high rate of management turnover, and the resultant loss
of institutional knowledge, makes it more difficult to both defend claims being
made against the Company and assert claims on its behalf.

EXTENSION OF LIQUIDATION DATE MAY INCREASE EXPENSES AND FURTHER REDUCE
LIQUIDATION VALUE.

         The Plan of Restructuring approved by the Company's stockholders gave
the Board of Directors discretion to extend the Company's search for possible
acquisition candidates or other investment opportunities, and thus delay the
Liquidation Date. The Board has exercised this discretion several times, and it
is now expected that the Company's liquidation will not occur, if at all, until
December 31, 2003. The Board may exercise its discretion to extend the
Liquidation Date in the future. The decision to extend the Liquidation Date
could result in the further depletion of proceeds available to stockholders
should the Board later decide to proceed with the liquidation of the Company.

LIQUIDATION WILL RESULT IN LOSS OF NOLS.

         If the Board of Directors decides to move forward with the Company's
liquidation, any potential benefit of the Company's net operating loss
carryforwards for income tax purposes will be lost.

3.       DISCONTINUED OPERATIONS

         At June 30, 2002 and 2001, net liabilities from discontinued
operations consisted of

<TABLE>
<CAPTION>
                                 JUNE 30, 2002      JUNE 30, 2001
                                 -------------      -------------
     <S>                         <C>                <C>
     Assets....................      3,683             12,357
     Liabilities...............      8,028             17,132
</TABLE>

         At June 30, 2002 and 2001, the net liability from discontinued
operations consisted primarily of accrued expenses to wind down the disposed
operations. These costs include workers compensation, payroll, legal fees,
estimated litigation or litigation settlement expenses, and other
liabilities. These costs are offset by accounts and notes receivable and
Medicare indemnification receivables, substantially all of which are in
litigation or arbitration and are in excess of three years old. The company
does not have any collateral with respect to the outstanding accounts
receivable and indemnification receivables. It is

                                       25
<PAGE>

reasonably possible that the amounts of accrued liabilities and the established
reserves against these receivables may need to be adjusted based on the
resolution of one or more future events for which the eventual outcome is
uncertain at this time.

         During fiscal 1999, the Company experienced a severe decline in
revenues and profitability in its long-term care services operating segment. The
revenue decline resulted from a combination of reduced patient volume (primarily
related to fewer therapy patients per customer facility and fewer treatments per
patient) and lower prices. The lower prices in turn reflected reduced
reimbursement rates from the Medicare program for contract therapy services. The
Company implemented a revised operating model in an attempt to mitigate the
effects of the lower reimbursement rates, but continued to experience declining
profitability because it could not sufficiently lower its costs to match the
decline in revenues.

         In late fiscal 1998, the Company recorded a provision for restructure
of $23,500 to recognize the costs of converting to the aforementioned revised
operating model. This provision was recorded based on the anticipated impact of
the changes in the Medicare reimbursement system mandated by the Balanced Budget
Act of 1997 (the "BBA"). The provision related principally to severance costs
associated with personnel changes required by the Company's revised operating
model and anticipated the severance of approximately 2,975 employees. During
fiscal 1999, it became apparent that a portion of this fiscal 1998 charge would
not be required. A significant portion of the employee base covered by the
restructure reserve voluntarily resigned to seek new employment or obtained
employment with customers when these customer facilities converted to in-house
therapy programs. Ultimately, 1,441 employees were terminated related to this
provision and $13,300 was reversed.

         In fiscal 1999, the Company recorded an additional provision for
restructure of $111,947 related to its decision to completely exit certain
long-term care markets, principally in the Western United States, where it was
determined that low customer and therapist concentration would preclude a return
to profitability. These markets included California, Colorado, Texas and the
Northwest. The Company determined that it would be unable to recover its
investment in long-lived assets in this portion of its long-term care operating
segment and, accordingly, wrote down all of its investment in these assets and
recognized the cost, consisting principally of employee severance costs, of
exiting the selected markets. The exit plan called for the termination of
approximately 1,300 employees, of which 1,200 were direct care providers in the
geographic regions exited and the remainder were general and administrative
personnel. All of the affected employees have been terminated.

         The provisions for restructure for the long-term care services segment
consisted of the following:

<TABLE>
<CAPTION>
                                                                              YEARS ENDED JUNE 30,
                                                            ------------------------------------------------------
                                                                  2002                2001                2000
                                                            -----------------   -----------------   --------------
<S>                                                         <C>                 <C>                 <C>
       Employee severance and other.....................           --                  --                 728
       Reversal of prior year provision.................         (299)               (220)                (58)
                                                            -----------------   -----------------   --------------
       Total............................................    $    (299)          $    (220)          $     670
                                                            =================   =================   ==============
</TABLE>

         A summary of the activity related to the provisions for restructure for
the long-term care services operating segment is as follows:

<TABLE>
<CAPTION>
                                                                              YEARS ENDED JUNE 30,
                                                            ---------------------------------------------------
                                                                  2002                2001             2000
                                                            -----------------   -----------------   -----------
      <S>                                                   <C>                 <C>                 <C>
       Beginning balance................................    $     567           $     999           $   3,206
       Provision for restructure........................           --                  --                 728
       Reversal of prior year provision for restructure.         (299)               (220)                (58)
       Payments and other reductions....................          (42)               (212)             (2,877)
                                                            -----------------   -----------------   ----------
       Ending balance...................................    $     226           $     567           $     999
                                                            =================   =================   ==========
</TABLE>

         Despite these actions, the Company determined that its remaining
operations were unlikely to achieve a sufficient level of profitability to
justify continued operations. Accordingly, the Company sold its remaining
long-term care operations to Chance Murphy, Inc. as of June 1, 1999 for a
nominal amount and issued a working capital guarantee of $30,000 to the buyer.

         A provision for loss on discontinued operations was recorded in fiscal
1999 based on management's best estimates of the amounts expected to be realized
on the sale of the long-term care services operations. While management's
estimates were based on an analysis of the sale transaction, the amounts the
Company will ultimately

                                       26
<PAGE>

realize could differ materially from the amounts assumed in computing the loss
anticipated on the final disposal of the discontinued operations. In connection
with the sale of the long-term care services segment in fiscal 1999, the Company
recognized a pretax loss of $36,676 ($30,838 after-tax) which included the
$30,000 working capital guarantee and the write down of certain property and
equipment and other assets.

         Included in the net liabilities of discontinued operations are accounts
receivable of the long-term care services Western operations, which were closed
in fiscal 1999, and accounts receivable related to the operations sold in fiscal
1999 to Chance Murphy. In a release dated November 11, 1999, the Company and
Chance Murphy agreed that a working capital guarantee had been satisfied and
that the Company was entitled to retain receivables above a specified amount.

         In conjunction with the November 11, 1999 release, the Company and
Chance Murphy established an escrow account in support of indemnifications
made by the Company relating to cost report settlements with Medicare,
Medicaid and other third party payers for the Company's services provided
prior to selling the business to Chance Murphy. The escrow account was funded
by Chance Murphy, up to a maximum of $3,000, from cash collections of
receivables due directly from these payers. Pursuant to the agreement, the
funds would remain in escrow until such time that the Company and Chance
Murphy determine that all indemnification obligations and any related third
party claims have been resolved. Prior to June 30, 2000, the Company and
Chance Murphy agreed to reduce the amount held in escrow to $1,750. As a
result, $1,250 was released to the Company. An agreement was reached between
the Company and Chance Murphy in May 2002 in which an additional $1,650 was
released to the Company. At June 30, 2002, the Company had $50 remaining in
escrow, net of reserves, which is included in other assets within the net
liabilities remaining from discontinued operations on the Company's balance
sheet. This amount is expected to be collected sometime in fiscal 2003.

         In fiscal 2000, as a result of the overall continued deterioration of
the financial condition of providers of long-term care services as a consequence
of the Balanced Budget Act ("BBA"), the Company recorded an additional loss on
the disposal of its long-term care services operating segment of $30,944. This
loss primarily relates to a provision for uncollectible accounts for certain
remaining accounts receivable, including amounts due to the Company for its
indemnification of customers for disallowed Medicare charges and trade accounts
receivable.

         In fiscal 2000, HealthSouth Corporation filed a lawsuit against the
Company seeking payment of approximately $12,600 with respect to Medicare
cost report settlements related to its medical rehabilitation hospital
division, which the Company sold to HealthSouth in fiscal 1995 (see Note 13).
The Company recorded an additional provision for this matter and has included
such amount in the loss on the disposal of the long-term care services
segment for fiscal 2000. This lawsuit was settled in December 2001 and the
impact of this confidential settlement has been recorded in these financial
statements.

         In fiscal 2001, the Company recorded a gain on the disposal of its
long-term care services operating segment of $3,587. This gain relates primarily
to changes in estimates of expenses for the long-term care services discontinued
operations and gains due to the receipt of medicare appeals.

         In fiscal 2002, the Company recorded a gain on the disposal of its
long-term care services operating segment of $20,776. This gain relates
primarily to collections of receivables in excess of book value, the release of
reserves no longer necessary as a result of various lawsuits including the
HealthSouth lawsuit in December 2001, and a settlement with the Tax Division of
the U.S. Department of Justice, offset by additional legal and collection
expenses related to the disposal of long-term care services.

         On July 1, 1999, the Company sold its O&P business to Hanger Orthopedic
Group, Inc. ("Hanger") for $445,000. Of the purchase price, the Company placed
$15,000 in escrow in conjunction with a guarantee of a minimum $93,982 of
working capital, as defined in the purchase and sale agreement. In connection
with the working capital guarantee, Hanger presented the Company in November
1999 with a calculation of working capital that indicated an adjustment of
approximately $29,000. In April 2000, Hanger revised the calculations of the
working capital adjustment to approximately $33,000. The Company presented to
Hanger its objections to Hanger's working capital calculations, with which
Hanger disagreed. In accordance with the O&P purchase and sale agreement, an
independent arbiter was engaged by both parties to resolve the matter by binding
arbitration. On May 22, 2000, the Company received notification from the
independent arbiter, which determined the working capital adjustment to be
$25,104. The Company sued Hanger over this and related issues. Hanger took
$15,000 in escrow in June 2000. The Company and Hanger settled their disputes
related to this in July of 2000. Cash in the amount of

                                       27
<PAGE>

$6,000 was paid to Hanger on July 3, 2000. In satisfaction for the remaining
working capital obligation, the Company issued a promissory note for $3,700
payable in six equal monthly installments through December 2000 plus 7%
interest. The promissory note was paid in full in December 2000.

         The gain on the sale of O&P consists of the following:

<TABLE>
     <S>                                                         <C>
         Cash received........................................   $  392,695
         Debt assumed by the buyer............................       37,305
         Less: transaction costs and related liabilities......      (25,704)
                                                                 ----------
         Net transaction amount...............................      404,296
         Book basis of net assets of O&P......................     (362,905)
                                                                 ----------
         Gain on sale of O&P..................................   $   41,391
                                                                 ==========
</TABLE>

         The cumulative gain on the sale of O&P is included in net loss on
disposal of discontinued operations. For income tax purposes, any tax liability
resulting from this transaction will be offset by net operating loss
carryforwards and the losses on the sales of NCES and PROH.

         On October 19, 1999, the Company completed the sale of its interest
in NCES at the tender offer price of $2.50 per share. In connection with the
tender offer, the Company placed approximately $13,400 in escrow related to
its four-year agreement with NCES to provide employee services to PROH (the
"PROH Subscriber Agreement") of which $11,570 remained in escrow at June 30,
2000. On July 13, 2000, the Company reached agreement with the purchasers of
NCES to mutually release the remaining escrow to satisfy the $10,600
obligation under the PROH Subscriber Agreement as of June 30, 2000, on a
discounted basis for $9,375 and substantially all other obligations of the
Company to the purchasers of NCES as specified in the NCES purchase and sale
agreement. Accordingly, of the $11,288 escrow as of that date, $9,428 was
released to the purchasers of NCES and $1,860 to the Company.

         The loss on disposal of NCES consists of the following:

<TABLE>
      <S>                                                         <C>
         Cash received........................................    $  48,500
         Less:  transaction costs and related liabilities.....       (5,244)
                                                                  ---------
         Net transaction amount...............................       43,256
         Book basis of net assets of NCES.....................      (47,791)
                                                                  ---------
         Loss on disposal of NCES.............................    $  (4,535)
                                                                  =========
</TABLE>

         The cumulative loss on disposal of NCES is included in the net loss on
disposal of discontinued operations.

         In fiscal 1999, as a result of the Company's decision to exit the
long-term care services operating segment and sell the O&P business included in
its outpatient services segment, the services the Company required of its
employee services segment were substantially reduced. The Company's employee
services segment recorded a provision for restructure of $910 consisting
principally of employee severance costs for 49 employees working at its
corporate headquarters and lease mitigation costs, to reflect the impact of this
decision. As of October 19, 1999, the date of the NCES sale, all affected
employees related to this charge were terminated. All severance payments accrued
under the provision for restructure were paid in fiscal 2000.

         On November 19, 1999, the Company completed the sale of PROH to Select
Medical Corporation ("Select"). The purchase and sale agreement required Select
to pay a purchase price of $200,000 of which the proceeds were reduced by the
amount of PROH debt assumed by Select and $36,800 was placed in escrow for two
years related to certain representations made by the Company, including minimum
working capital of $84,856, collectibility of $98,715 in accounts receivable,
net of reserves, and certain contingent earnout payments and litigation matters.
The Company's maximum liability with respect to these representations, excluding
the litigation matters, was limited to the amount placed in escrow. In fiscal
2000, the amount due under the working capital representation was finalized with
Select, and the Company and Select agreed to release $966 from escrow. At June
30, 2000, the Company had established a reserve of $32,459, against the escrow
account related to the Company's settlement with Select as of July 6, 2000. Such
escrow reserve primarily related to the accounts receivable, as described below,
and contingent earnout representations. Transaction costs include a $12,800
liability primarily related to the PROH Subscriber Agreement as well as $5
million related to severance costs to be paid by the

                                       28
<PAGE>

Company as a result of terminations following closing. At June 30, 2001, the
liabilities had been paid. The loss on disposal of PROH consists of the
following (in thousands):

<TABLE>
       <S>                                                            <C>
         Cash received...........................................     $       123,616
         Amount placed in escrow.................................              36,800
         Debt assumed by the buyer...............................              39,584
         Less:  transaction costs and related liabilities........             (24,746)
                                                                      ---------------
         Net transaction amount..................................             175,254
         Book basis of net assets of PROH........................            (522,661)
                                                                      ---------------
         Loss on disposal of PROH before escrow reserve..........            (347,407)
         Escrow reserve..........................................             (32,459)
                                                                      ---------------
         Loss on disposal of PROH................................     $      (379,866)
                                                                      ===============
</TABLE>

         On July 6, 2000, the Company entered into a settlement agreement with
regard to the accounts receivable shortfall, contingent earnout obligations and
certain other differences and disagreements between the Company and Select as
they relate to the PROH purchase and sale agreement and related escrow. As a
result of the settlement, the remaining funds in escrow accounts, including
interest, were disbursed to the parties with $4,506 being returned to the
Company. In addition, the Company agreed to reimburse Select up to $1,750 for
Medicare liabilities, if any, that relate to periods prior to the PROH sale. In
November 2000, the Company paid Select approximately $460 to settle certain
Medicare liabilities.

         The cumulative loss on disposal of PROH is included in the net loss on
disposal of discontinued operations and includes estimates of reserves and
certain liabilities which may require adjustment.

         During fiscal 1999, the Company recorded a provision for restructure of
$30,225 in connection with its decision to exit certain non-strategic markets
served by its PROH business within its outpatient services segment. The markets
consisted of 40 PROH clinics. This decision resulted in a write-down of the
value of the related assets to estimated net realizable value. The provision for
restructure consisted principally of the write-down of excess cost of net assets
acquired in the amount of $28,300. The clinics disposed of had annualized net
revenues of approximately $16,600 and annualized operating profit of
approximately $200. On November 19, 1999, the PROH business was sold.

         The $21,255 gain on disposal of discontinued operations, net of tax
recorded in fiscal 2002, reflects gains on the sale of PROH ($282), O&P
($1,697), and LTCS ($20,776) as well as a loss on the sale of NCES in the
amount of $1,500. The Company did not record any tax provision related to the
gain on disposal since it will be offset by the Company's NOL's. The gain on
the disposal of these discontinued operations primarily relates to the
settlement with the Tax Division of the U.S. Department of Justice in the
amount of $8.7 million plus approximately $3-$4 million in interest, the
realization of certain receivables in excess of book value totaling $8.1
million, the net release of reserves no longer necessary as a result of the
settlement of various lawsuits totaling $2.6 million, the reversal of prior
year accruals of $3.2 million, reduced by additional legal and collection
expenses related to the disposal of the long-term care services of $3.4
million and additional liabilities for workers compensation claims in the
amount of $1.9 million.

         Net cash flows provided by discontinued operations in 2002 of $7,999
were principally due to the collection of accounts and notes receivables
offset by collection and litigation expenses.

         The $3,745 gain on disposal of discontinued operations, net of tax
recorded in fiscal 2001, reflects a loss on the sale of PROH ($5) and gains
on the disposal of NCES ($57), O&P ($106), and LTCS ($3,587). The Company did
not record any tax provision related to the gain on disposal since it will be
offset by the Company's NOL's. The gain on the disposal of these discontinued
operations primarily relates to the realization of certain receivables in
excess of book value totaling $6.7 million and the net release of reserves no
longer necessary as a result of the settlement of various lawsuits
approximating $350, reduced by collection expenses of $2.4 million,
additional legal expenses of approximately $584 and costs to settle workers
compensation claims of approximately $443.

         The $374,122 loss on the disposal of discontinued operations in
fiscal 2000 reflects the loss on the sales of PROH ($379,871) and NCES
($4,592) and adjustments related to changes in estimates of long-term care
services discontinued operations stemming from deteriorating industry
conditions ($30,944), offset partially by the gain on the sale of O&P
($41,285). The Company did not record any tax benefit related to the loss on
disposal due to the uncertainty of future realization.

         Results of operations for all of the Company's discontinued operations
(consisting of the outpatient services, employee services and long-term care
services operating segments) were as follows for fiscal 2000. In fiscal 2002 and
2001, there were no discontinued operations.

<TABLE>
<CAPTION>
                                             YEAR ENDED JUNE 30,
                                             ------------------
                                                       2000
                                             ------------------
<S>                                          <C>
       Net revenues......................       $     388,786
       Income before income taxes........               5,507
       Income tax benefit ...............               4,370
                                                ---------------
       Net income........................       $       9,877
                                                ===============
</TABLE>

4.       NET INCOME (LOSS) PER SHARE

         The following table sets forth the computation and reconciliation of
net loss per share-basic and net loss per share-assuming dilution:

                                       29
<PAGE>

<TABLE>
<CAPTION>
                                                                                               YEARS ENDED JUNE 30,
                                                                                 --------------------------------------------------
                                                                                       2002                2001             2000
                                                                                 -----------------   -----------------   ----------
<S>                                                                              <C>                 <C>                 <C>
       Loss from continuing operations before
         extraordinary item, net of tax .....................................         $ (3,065)         $ (4,576)         $ (23,953)
       Income from discontinued operations, net of tax ......................               --                --              9,877
       Gain (loss) on disposal of discontinued
         operations, net of tax .............................................           21,255             3,745           (374,122)
       Extraordinary item ...................................................               --                --                598
                                                                                      --------          --------          ---------
             Net income (loss) ..............................................         $ 18,190          $   (831)         $(387,600)
                                                                                      ========          ========          =========
       Weighted average shares outstanding:
             basic and assuming dilution ....................................           65,306            63,364             63,326
                                                                                      ========          ========          =========
       Loss per share from continuing operations before
         extraordinary item - basic and assuming
         dilution ...........................................................         $  (0.05)         $  (0.07)         $   (0.38)
       Income per share from discontinued operations -
         basic and assuming dilution ........................................               --                --               0.16
       Gain (loss) per share on disposal of discontinued
         operations, net of tax - basic and assuming
         dilution ...........................................................             0.33              0.06              (5.91)
       Extraordinary item per share - basic and assuming
         dilution ...........................................................               --                --               0.01
                                                                                      --------          --------          ---------
       Net income (loss) per share - basic and assuming
         dilution ...........................................................         $   0.28          $  (0.01)         $   (6.12)
                                                                                      ========          ========          =========
</TABLE>

5.       PROVISION FOR RESTRUCTURE

         In the fourth quarter of fiscal 1999, the Company recorded a provision
for restructure of $12,260 related to a program to reduce its selling, general
and administrative costs incurred at its corporate headquarters.

         Activity in the accrued liability for this provision consisted of the
following:

<TABLE>
<CAPTION>
                                                                   YEARS ENDED JUNE 30,
                                                ------------------------------------------------------
                                                    2002                2001               2000
                                                 ------------    -----------------      ---------------
<S>                                              <C>             <C>                    <C>
       Beginning balance ......................     $ 220                $  81                $ 11,575
       Reclassification of receivable .........        --                  711                      --
       Reversal of provision ..................      (213)                (116)                 (1,987)
       Payments and other reductions ..........        (7)                (456)                 (9,507)
                                                    -----                -----                --------
       Balance ................................     $  --                $ 220                $     81
                                                    =====                =====                ========
</TABLE>

6.       FINANCING ARRANGEMENTS

         During fiscal 2000, the Company repurchased $90.2 million par value,
plus accrued interest, of the convertible subordinated debentures through a
series of transactions on the open market. The Company recorded an extraordinary
gain of $598 associated with these repurchases. The Company repaid the remaining
outstanding convertible subordinated debentures in their entirety, including
accrued interest, on January 18, 2000.

         Interest paid on debt during fiscal 2002, 2001 and 2000 totaled $6,
$76, and $11,260, respectively.

7.       PROPERTY AND EQUIPMENT

         As of June 30, 2002 and 2001, the Company's property and equipment was
fully depreciated and therefore valued at $0. Depreciation expense during the
fiscal years ended 2002, 2001 and 2000 was $0, $0, and $34 respectively.

                                       30
<PAGE>

8.       ACCOUNTS PAYABLE AND ACCRUED EXPENSES

         Accounts payable and accrued expenses are summarized as follows:

<TABLE>
<CAPTION>
                                                                 AS OF JUNE 30,
                                                       ------------------------------------
                                                            2002                 2001
                                                       ------------------------------------
        <S>                                            <C>                  <C>
         Accounts payable............................. $           955            $    222
         Accrued compensation and benefits............             104                 110
         Accrued provision for restructure............              --                 220
         Other........................................              --                   5
                                                       ----------------     ---------------
                                                       $         1,059            $    557
                                                       ================     ===============
</TABLE>

9.       NOTE PAYABLE

         On September 27, 2000, the Company issued a 10% convertible
subordinated note to an officer in the amount of $60. The note accrued
interest at a rate of 10% per annum and was payable on the earlier of demand
by the officer for payment or May 1, 2006. The note was convertible into the
Company's common stock and had a conversion price that ranged from $0.04 to a
potential $0.0025 per share. In the event that the Company's board acted to
file liquidation papers, or took other actions that would result in returning
assets to the stockholders, the note (and all accrued interest) became
convertible into the Company's common stock at a conversion price of $0.0025
per share. In January of 2002, the note was transferred to a limited
partnership controlled by an affiliate of the officer.

         As set forth in the terms of the note (filed with the SEC as an
exhibit to the Company's 2000 Form 10-K), the conversion price became fixed
at $.0025 per share once the Company filed with the SEC a Form 10-Q or 10-K
indicating a Balance Sheet Equity (as defined in the note) of greater than
$6,000. The Company's balance sheet on Form 10-Q for the period ending March
31, 2002 satisfied this requirement. On May 28, 2002 the limited partnership
converted $52.125 of the $69.500 note balance into 20,850,000 shares of the
Company's common stock. The remaining $9.5 of interest and $7.875 of
principal was paid to the limited partnership in cash in June 2002.

10.      OPERATING LEASES

         The Company rents office space under a non-cancelable operating lease,
which expires December 31, 2002. Future minimum lease payments as of June 30,
2002 were zero. The Company had a prepaid balance of $44 as of June 30, 2002 on
future lease payments. Total rent expense charged to operations was $102, $74
and $829 in fiscal 2002, 2001 and 2000, respectively.

         The Company received sublease payments amounting to $0, $4 and $174 for
the years ended June 30, 2002, 2001 and 2000, respectively, from companies
controlled by the Chairman of the Board of the Company.

11.      INCOME TAXES

The components of income tax expense (benefit) were as follows:

<TABLE>
<CAPTION>
                                                                                YEARS ENDED JUNE 30,
                                                                ----------------------------------------------------
                                                                     2002                2001               2000
                                                                ----------------    ----------------   -------------
<S>                                                             <C>                 <C>                <C>
       Current
           Federal .........................                    $    --             $        --        $     --
           State ...........................                         --                      --              --
                                                                     --                      --              --
       Deferred
           Federal .........................                         --        -             --              --
           State ...........................                         --        -             --              --
                                                                --------            ------------       ---------
                                                                $     0             $         0        $      0
                                                                ========            ============       =========
</TABLE>

Included in the gain on discontinued operations for 2002 was a current
federal benefit of $9,361.

                                       31
<PAGE>

         The components of net deferred tax assets (liabilities) as of June 30,
2002 and 2001 were as follows:

<TABLE>
<CAPTION>
                                                                                               AS OF JUNE 30,
                                                                                      --------------------------------
                                                                                            2002              2001
                                                                                      ---------------    -------------
<S>                                                                                   <C>                <C>
         Accruals and reserves not currently deductible for tax purposes ........         $   7,549          $  16,701
         Restructure reserves ...................................................                93                233
         Net operating loss, capital loss and tax credit carryforwards ..........           125,135            119,748
                                                                                          ---------          ---------
         Gross deferred tax assets ..............................................           132,777            136,682
         Valuation allowance ....................................................          (132,756)          (136,030)
                                                                                          ---------          ---------
         Net deferred tax assets ................................................                21                652
                                                                                          ---------          ---------
         Other, net .............................................................               (21)              (652)
                                                                                          ---------          ---------
         Gross deferred tax liabilities .........................................               (21)              (652)
                                                                                          ---------          ---------
         Net deferred tax asset (liability) .....................................         $      --          $      --
                                                                                          =========          =========
</TABLE>

         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 changes in the valuation
allowance for the fiscal years ended June 30, 2002 and 2001 are as follows:

<TABLE>
<CAPTION>
                                                                                       AS OF JUNE 30,
                                                                               --------------------------------
                                                                                    2002              2001
                                                                               ---------------    -------------
        <S>                                                                    <C>                <C>
         Balance at beginning of year.....................................     $   (136,030)      $   (106,206)
         Increase related to deferred tax assets for net operating
           loss and capital loss carryforwards which may not be
           realized.......................................................            3,274            (29,824)
                                                                               ---------------    -------------
         Balance at end of year...........................................     $   (132,756)      $   (136,030)
                                                                               ===============    =============
</TABLE>

         The Company has Federal net operating loss carryforwards of
approximately $197,000 and a capital loss carryforward of approximately $39,000,
to offset future taxable income and taxable gains. The net operating loss
carryforwards expire principally in 2018. The capital loss carryforwards expire
in 2005 and 2007. 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 (computed by
applying the federal statutory tax rate to income before income taxes) to actual
tax (benefit) expense was as follows (in thousands):

<TABLE>
<CAPTION>
                                                                                    YEARS ENDED JUNE 30,
                                                                      -----------------------------------------------
                                                                           2002                2001            2000
                                                                      ----------------    ----------------  ----------
     <S>                                                              <C>                 <C>               <C>
       Expected federal income tax expense (benefit) .............         $ 3,090            $(291)           $(8,384)
       State income taxes, less federal benefit ..................              --               --                 --
       Non-deductible nonrecurring items .........................              --               --                 --
       Non-deductible amortization of excess cost of net
         assets acquired .........................................              --               --                 --
       Effect of valuation allowance on current year
         losses ..................................................          (3,090)             291              8,384
       Othet, net ................................................              --               --                 --
                                                                           -------            -----            -------
                                                                           $     0            $   0            $     0
                                                                           =======            =====            =======
</TABLE>

         The net amount of income taxes paid (refunded) during fiscal 2002, 2001
and 2000 amounted to $0, ($38), and ($26,705), respectively.

                                       32
<PAGE>

12.      BENEFIT PLANS

STOCK OPTION PLANS

         The Company's stock option plans, as amended, provide for issuance of
options to purchase up to 8,600 shares of common stock to employees, officers
and directors. Under the plans, substantially all options are 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.

         The following summarizes the activity of the stock option plans:

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED JUNE 30,
                                                                --------------------------------------------------------
                                                                     2002                2001                2000
                                                                ----------------    ----------------   -----------------
<S>                                                             <C>                 <C>                <C>
       Options:
           Outstanding at beginning of year................               1,092               1,115               4,430
           Granted.........................................                  --                  --                  --
           Exercised.......................................                  --                  --                  (1)
           Canceled........................................                (416)                (23)             (3,314)
                                                                ----------------    ----------------   -----------------
       Outstanding at end of year..........................                 676               1,092               1,115
                                                                ================    ================   =================
           Option price per share ranges:
           Outstanding at beginning of year................      $2.38 - $13.25      $2.38 - $14.38       $.12 - $20.58
           Granted.........................................                  --                  --                  --
           Exercised.......................................                  --                  --                $.12
           Canceled........................................      $2.38 - $13.25      $2.38 - $14.38       $.12 - $20.58
           Outstanding at end of year......................      $2.38 - $13.25      $2.38 - $13.25      $2.38 - $14.38
       Options exercisable at end of year..................                 433                 568                 372
       Exercisable option price ranges.....................      $2.38 - $13.25      $2.38 - $13.25      $2.38 - $14.38
       Options available for grant at end of year under
         stock option plans................................               2,196               1,956               1,946
</TABLE>

OTHER STOCK AWARDS

         The following summarizes the other stock award activity:

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED JUNE 30,
                                                                --------------------------------------------------------
                                                                     2002                2001                2000
                                                                ----------------    ----------------   -----------------
<S>                                                             <C>                 <C>                <C>
       Options:
       Outstanding at beginning of year....................           3,200               3,200                   4,250
       Granted.............................................              --                  --                      --
       Exercised...........................................              --                  --                      --
       Canceled............................................              --                  --                  (1,050)
                                                                -----------    ----------------       -----------------
       Outstanding at end of year..........................           3,200               3,200                   3,200
                                                                ===========    ================       =================
       Option price per share ranges:
       Outstanding at beginning of year....................     $      6.88         $      6.88          $4.88 - $11.50
       Granted.............................................              --                  --                      --
       Exercised...........................................              --                  --                      --
       Canceled............................................              --                  --                      --
       Outstanding at end of year..........................     $      6.88         $      6.88          $         6.88
       Options exercisable at end of year..................           3,200               3,200                   2,500
       Exercisable option price ranges.....................     $      6.88         $      6.88          $         6.88
</TABLE>

The Company has adopted the disclosure-only provisions of SFAS 123, "Accounting
for Stock-Based Compensation" and applies Accounting Principles Board Opinion
No. 25 and related interpretations in accounting for the plans. The table below
sets forth the pro forma information as if the Company had adopted the
compensation recognition provisions of SFAS 123:

                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                                                 YEARS ENDED JUNE 30,
                                                                --------------------------------------------------------
                                                                     2002                2001                2000
                                                                ----------------    ----------------   -----------------
     <S>                                                        <C>                 <C>                <C>
       Increase to:
       Net loss............................................     $        --         $        --        $        --
       Net loss per share-basic and assuming dilution......              --                  --                 --
       Assumptions:
       Expected life (years)...............................             4.0                 4.0                4.0
       Risk-free interest rate.............................               0%                  0%                 0%
       Volatility..........................................               0%                  0%                 0%
       Divided yield.......................................             N/A                 N/A                N/A
</TABLE>

RETIREMENT PLANS

         The Company had defined contribution 401(k) plans covering
substantially all of its employees. Company contributions for fiscal 2002, 2001
and 2000 were $0, $0 and $810 respectively. The Company terminated its 401(k)
plan as of December 31, 1999, received notification of approval from the
Internal Revenue Service to dissolve the plan on October 6, 2000 and distributed
the plan assets to participants by December 31, 2000. The Company had a
non-qualified supplemental benefit plan covering certain key employees. The
Company's matching contributions were $0, $0 and $70 for fiscal 2002, 2001 and
2000, respectively. The supplemental benefit plan was terminated and plan assets
were distributed to plan participants in fiscal 2000.

13.      COMMITMENTS AND CONTINGENCIES

         Halsey is party to certain claims, suits and complaints, which have
arisen in the ordinary course of business and in the course of selling its
operating businesses. Described below are certain claims, suits or complaints,
which, in the opinion of management, could have a material adverse effect on the
Company's business, financial condition, results of operations and liquidity.
Collectively, the damages sought to be recovered from the Company in these cases
are in the hundreds of millions of dollars.

         The financial statements reflect management's best estimate of the
cost to litigate and settle these cases. The Company has not anticipated an
adverse ruling or judgement in any of these matters; if it suffers an adverse
ruling or judgement, the Company may be forced to seek bankruptcy law
protection.

         BRADY V. NAHC, INC., ET AL., in the United States District Court for
the Eastern District of Pennsylvania. This is a purported class action case
filed on behalf of all persons who purchased the common stock of the Company
during the period between April 5, 1999 through and including November 22, 1999.
Five similar actions have been filed in the Eastern District of Pennsylvania,
including one that alleges a class period from May 20, 1998 through November 22,
1999. They have been consolidated into a single action. PricewaterhouseCoopers
LLP is named as a defendant in the case.

         The case is subject to the provisions of the Private Securities
Litigation Reform Act of 1995 ("PSLRA").

         The Plaintiffs asserted that the Company and certain of its directors
and officers violated Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") and Rule 10b-5 by making false and misleading statements and
omissions regarding the prospects of the Company's business and the Company's
liquidation value and by failing timely to disclose the impact of the Balanced
Budget Act of 1997 on the long term care services business. The Plaintiffs
allege that these statements and omissions artificially inflated the value of
the Company's stock during the class period. The Plaintiffs also assert a
violation of Section 14(a) of the Exchange Act and Rule 14a-9 against the
Company and individual Defendants as well as against Wasserstein Perella & Co.
in connection with the Company's proxy statements dated August 13, 1999, as
amended through September 10, 1999. The Plaintiffs allege that the Defendants
were negligent in disseminating the proxy statements, which allegedly contained
materially false and misleading statements. Wasserstein Perella & Co. has
notified the Company that it will seek indemnification from the Company in
connection with this action, pursuant to its engagement agreement with the
Company.

         The Company has notified its insurance carriers of this action. If the
Defendants suffer an adverse judgment which the Company is required to pay, it
will likely result in there being no assets for acquisition of a business or
liquidation; in such event, the Company may be forced to file for bankruptcy law
protection.

         On October 17, 2001, the U.S. District Court for the Eastern
District of Pennsylvania dismissed the Brady case against the Company and
PricewaterhouseCoopers LLP with prejudice. The plaintiff has appealed this
decision.

                                       34
<PAGE>

         HEALTHSOUTH CORPORATION V. NOVACARE, INC. AND NC RESOURCES, INC.,
Montgomery County Court of Common Pleas, No. 99-17155 (filed September 28,
1999). The complaint in this action alleges that, pursuant to a February 3, 1995
stock purchase agreement involving the sale of the Company's medical
rehabilitation hospital subsidiary Rehab Systems Company ("RSC") to Healthsouth
Corporation ("Healthsouth"), the Company agreed to reimburse Healthsouth for any
payments that Healthsouth was obligated to pay Medicare, Medicaid or other
cost-based reimbursement systems as a result of RSC's indebtedness to such
payors. The Healthsouth litigation settled during the second quarter of
fiscal 2002, the effect of which has been included in these financial
statements. The agreement is subject to confidentiality.

         UNITED STATES OF AMERICA, EX REL., SAUL EPSTEIN V. NOVACARE, INC.,
ET AL., CIVIL ACTION NO. 98-CV-4185. This qui tam action was filed on or
about August 10, 1998 by Saul R. Epstein on behalf of the United States
government, in camera and under seal in the United States District Court for
the Eastern District of Pennsylvania, asserting claims against the Company
for violations of the False Claims Act. On October 12, 1999, the United
States Attorney for the Eastern District of Pennsylvania elected not to
intervene in the matter and not to prosecute the complaint on behalf of the
United States. On October 21, 1999 the complaint was unsealed. On November
26, 1999 an amended complaint was filed and subsequently served on the
Company. The amended complaint alleges that the Company submitted false or
fraudulent bills in connection with the provision of physical therapy to
individuals covered by various health insurance programs that were provided
to certain employees of the United States government. The complaint seeks to
recover, on behalf of the federal government, treble damages for each
violation of the False Claims Act and a civil penalty of $5 to $10 for each
violation, plus attorneys' fees, experts' fees and costs of the suit.
Pursuant to the purchase and sale agreement for the sale of the Company's
PROH division to Select, the Company has, in certain circumstances,
indemnified Select and the PROH subsidiaries acquired by Select for damages
relating to those entities arising from this action relating to conduct prior
to the sale to Select. This action has been re-sealed in the district court.
During the second quarter of fiscal 2002, an order relating to this case was
filed in the district court. The effect of this order has been reflected
within these financial statements. The Company expects that it will not incur
any additional financial liability as a result of this case.

         PIACENTILE V. NAHC, INC. During the second quarter of fiscal 2002, the
Company was served with another qui tam suit. The relator/plaintiffs in this
suit allege violations of the federal False Claims Act by the Company. The
complaint alleges that the Company submitted false or fraudulent bills in
connection with the provision of physical therapy to individuals covered by
various health insurance programs that were provided to certain employees of the
United States government. The complaint seeks to recover, on behalf of the
federal government, treble damages for each violation of the False Claims Act
and a civil penalty of $5 to $10 for each violation, plus attorneys' fees,
experts' fees and costs of the suit. The Company has completed its initial
review of this case (including appropriate accruals for handling this matter)
and plans to vigorously defend this matter.

         SABOLICH, INC., SABOLICH PROSTHETICS CENTER OF WICHITA, INC., SABOLICH
TRI-STATE PROSTHETICS, INC., SABOLICH OF FLORIDA, INC. AND JOHN A. SABOLICH V.
NOVACARE, INC. AND NOVACARE ORTHOTICS AND PROSTHETICS EAST, INC. THIS ACTION WAS
FILED ON MAY 18, 1999 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN
DISTRICT OF OKLAHOMA, CASE NO. CIV-99-670-T. The complaint alleges that the
defendants breached a 1994 Agreement of Purchase and Sale involving the
acquisition of the plaintiffs' orthotics and prosthetics business. Plaintiffs
allege that the defendants breached the agreement by failing to pay certain sums
allegedly due them under the agreement. Plaintiffs also allege that defendants
tortiously breached an alleged implied covenant of good faith and fair dealing
in the agreement. Plaintiffs have claimed $5 million of compensatory damages and
$5 million for punitive damages. As part of the Company's Stock Purchase
Agreement, dated as of April 2, 1999 and amended May 19, 1999 and June 30, 1999,
with Hanger Orthopedic Group, Inc. ("Hanger") for the sale of the Company's
orthotics and prosthetics business, the Company and Hanger agreed that each
entity would be responsible for 50% of any damages arising from this action,
including all costs and expenses associated with the matter. This matter
currently is in discovery.

         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 two former employees against the Company and its officer
and directors. The suit seeks damages in excess of $3,000 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.

         NAHC, INC. V. UNITED STATES. In this case, the Company seeks a refund
of taxes paid. The Company originally filed this action in the United States
Court of Federal Claims in 1996 to seek a refund of approximately $35,000 paid
by the Company to the IRS/United States as a result of 2 transactions: first,
the purchase of Rehab

                                       35
<PAGE>

Systems Corporation in 1992 and the subsequent sale of that business and
related businesses to HealthSouth in 1995. In 1998, each of Halsey's, Inc.
and the IRS/United States moved for summary judgment on the record. A hearing
was held on these motions in September 2000. In March 2002, the judge issued
an order denying summary judgment to both parties. Since that time, the
parties have been involved in significant discussions concerning a compromise
settlement that might be acceptable to both parties. The Company was recently
notified by the Tax Division of the U.S. Department of Justice that a
settlement in the amount of $8.7 million, plus interest, was accepted. The
interest amount is expected to total approximately $3 - $4 million. The U.S.
Department of Justice has reserved the right to deduct from the amount due
any other tax or other payment that it determines is otherwise due. The IRS
is conducting an audit of one of the Company's benefit plans. The Company
does not believe that the results of this audit will have a material impact
on its financial statement and expects to receive the tax refund, plus
interest and less any possible deduction, in the second quarter of fiscal
year 2003.

         SIGNIFICANT POTENTIAL MALPRACTICE LIABILITY

         The Company is a defendant in many significant malpractice lawsuits.
The Company purchased malpractice insurance from PHICO Insurance Company. PHICO
has been determined to be insolvent by the insurance commissioner and a state
court. On August 16, 2001, the Insurance Commissioner of the Commonwealth of
Pennsylvania filed a Petition for Rehabilitation against the Company's
professional liability insurance carrier, PHICO Insurance Company. The Order of
Rehabilitation gave the Insurance Commissioner statutory control of PHICO in
order for the Commissioner to thoroughly analyze, evaluate and oversee PHICO's
finances. During the rehabilitation process, the Commissioner determined that
PHICO is insolvent. On February 2, 2002, a Pennsylvania court authorized state
insurance regulators to liquidate PHICO Insurance Company. As a result, PHICO
will not be permitted to pay any claims on the Company's behalf. The Company is
working with state insurance guarantee funds to determine the extent to which
these funds can be used to pay claims on the Company's behalf. Management is
continuing to assess the effect of the PHICO liquidation on the Company.

         The Company is a defendant in a number of additional legal actions
seeking monetary damages, which singularly, and in the aggregate, may have a
material adverse effect on the Company's business, financial condition, results
of operations and liquidity if such actions are adversely concluded. Also, in
connection with many of the collection actions brought by the Company against
third parties to collect outstanding accounts receivable, counterclaims
(including counterclaims in the millions of dollars) have been made against the
Company which, in many cases, exceed the amount sought by the Company in the
underlying actions.

14.      RELATED PARTY TRANSACTIONS

         In prior years during the ordinary course of business, the Company
purchased printing and copying related services from XYAN.com, Inc., a national
internet-based digital imaging company controlled by John H. Foster, Chairman of
the Board of the Company, in his capacity as chairman of the board of, and
general partner of various venture capital investment funds that own interests
in, that company. During the fiscal year ended June 30, 2000, the Company paid
XYAN.com, Inc. approximately $15 for services provided. In addition, as of June
30, 2000, the Company had a prepaid balance of $127, representing a prepayment
for preferential national pricing. During the fiscal year ending June 30, 2001,
the Company incurred $19 for services rendered by Xyan.com and wrote-off the
remaining prepaid balance of $108. The Company has ceased utilizing the services
of XYAN.com, Inc.

         On May 28, 2002, a limited partnership controlled by an affiliate of
an officer of the Company, converted a note payable into shares of the
Company's common stock. See Note 9.


                                       36
<PAGE>

         REPORT OF INDEPENDENT ACCOUNTANTS

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

         In our opinion, the consolidated financial statements listed in the
index appearing under Item 15(a)(1) present fairly, in all material respects,
the financial position of J. L. Halsey Corporation and its subsidiaries at
June 30, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2002, in
conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under item 15(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial
statements and the financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which 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.

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, "Risks and Uncertainties Affecting the Company's
Ability to Continue as a Going Concern", the Company disposed of all of its
operating businesses and is operating pursuant to a plan of restructuring
approved by the stockholders on September 21, 1999, as amended. The plan
provides for possible liquidation of the Company at the discretion of the Board
of Directors. The remaining activities of the Company consist of managing the
legal proceedings against the Company, attempting to realize its assets, general
and administrative matters and the preparation for potential liquidation or
investment. The environment confronting the Company raises substantial doubt
about the Company's ability to continue as a going concern. Management's plan in
regard to these matters is described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.

PRICEWATERHOUSECOOPERS LLP

Philadelphia, PA

September 13, 2002


                                       37
<PAGE>

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.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information set forth under the headings "PROPOSAL ONE--ELECTION OF
CLASS I DIRECTORS," "DIRECTORS," "EXECUTIVE OFFICERS" and "SECTION 16 BENEFICIAL
OWNERSHIP REPORTING COMPLIANCE" contained in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A of the Exchange Act in
connection with the Company's 2002 Annual Meeting of Stockholders is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

         The information set forth under the heading "EXECUTIVE Compensation"
contained in the Company's definitive Proxy Statement to be filed pursuant to
Regulation 14A of the Exchange Act in connection with the Company's 2002 Annual
Meeting of Stockholders is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

         The information set forth under the heading "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS" contained in the Company's definitive Proxy Statement to be filed
pursuant to Regulation 14A of the Exchange Act in connection with the Company's
2002 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information set forth under the heading "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" contained in the Company's definitive Proxy Statement to
be filed pursuant to Regulation 14A of the Exchange Act in connection with the
Company's 2002 Annual Meeting of Stockholders is incorporated herein by
reference.

ITEM 14. CONTROLS AND PROCEDURES

         Not applicable.


                                       38
<PAGE>

                                     PART IV

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

         (a) The following documents are filed as part of this report:

<TABLE>
<CAPTION>
                                                                                               PAGE NUMBER
                                                                                               ------------
    <S>     <C>                                                                             <C>
      (1)   FINANCIAL STATEMENTS:
            Consolidated Balance Sheets at June 30, 2002 and 2001 .........................     18
            Consolidated Statements of Operations for each of the three years ended
              June 30, 2002, 2001 and 2000 ................................................     19
            Consolidated Statements of Changes in Stockholders' Equity for each of the
              three years ended June 30, 2002, 2001 and 2000 ..............................     20
            Consolidated Statements of Cash Flows for each of the three years ended
              June 30, 2002, 2001 and 2000 ................................................     21
            Notes to Consolidated Financial Statements ....................................     22
            Report of Independent Accountants .............................................     37

      (2)   FINANCIAL STATEMENT SCHEDULE:
            II - Valuation and qualifying accounts for each of the three years in the
              period ended June 30, 2002 ..................................................     42

      (3)   EXHIBITS (NUMBERED IN ACCORDANCE WITH ITEM 601 OF REGULATION S-K):
            The exhibits required to be filed are listed in the index
              to exhibits .................................................................     43
</TABLE>

(b)   Reports on Form 8-K:

      1. Current Report on Form 8-K (Item 5) dated June 18, 2002, announcing the
         merger of NAHC, Inc. with and into its wholly owned subsidiary, J. L.
         Halsey Corporation.

                                       39
<PAGE>

                                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 30, 2002

                          J. L. HALSEY CORPORATION, INC.

                          By: /s/ David R. Burt
                              -------------------------------------------------
                              David R. Burt
                              Chief Executive Officer, President and Secretary

         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.

<TABLE>
<CAPTION>
                  SIGNATURE                                         TITLE                              DATE
<S>                                                <C>                                        <C>
/S/ JOHN H. FOSTER                                 Chairman of the Board and Director         September 30, 2002
------------------------------------
(JOHN H. FOSTER)

/S/ DAVID R. BURT                                  Chief Executive Officer, Principal         September 30, 2002
------------------------------------               Financial and Accounting Officer
(DAVID R. BURT)                                    and Director

/S/ CHARLES E. FINELLI                             Director                                   September 30, 2002
------------------------------------
(CHARLES E. FINELLI)

/S/ TIMOTHY FOSTER                                 Director                                   September 30, 2002
------------------------------------
(TIMOTHY FOSTER)

/S/ STEPHEN E. O'NEIL                              Director                                   September 30, 2002
------------------------------------
(STEPHEN E. O'NEIL)

/S/ WILLIAM T. COMFORT, III                        Director                                   September 30, 2002
------------------------------------
(WILLIAM T. COMFORT, III)
</TABLE>

                                       40
<PAGE>

                                  CERTIFICATION

         I, David R. Burt, Chief Executive Officer, President, Secretary and
Treasurer (and acting Chief Financial Officer) of J. L. Halsey Corporation,
certify that:

             1.  I have reviewed this annual report on Form 10-K of J. L. Halsey
                 Corporation;

             2.  Based on my knowledge, this annual report does not contain any
                 untrue statement of a material fact or omit to state a material
                 fact necessary to make the statements made, in light of the
                 circumstances under which such statements were made, not
                 misleading with respect to the period covered by this annual
                 report; and

             3.  Based on my knowledge, the financial statements, and other
                 financial information included in this annual report, fairly
                 present in all material respects the financial condition,
                 results of operations and cash flows of the registrant as of,
                 and for, the periods presented in this annual report.

Date: September 30, 2002

                             /s/ David R. Burt
                             --------------------------------------------------
                             David R. Burt
                             Chief Executive Officer, President, Secretary
                             and Treasurer (and acting Chief Financial Officer)



                                       41
<PAGE>

                                   SCHEDULE II

                            J. L. HALSEY CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS
                    YEARS ENDED JUNE 30, 2002, 2001 AND 2000
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                        BALANCE AT       CHARGED TO
                                       BEGINNING OF      COSTS AND                                        BALANCE AT
DESCRIPTION                               PERIOD          EXPENSES          OTHER         DEDUCTIONS     END OF PERIOD
-----------                            ------------     -------------     -----------    ------------    -------------
<S>                                    <C>              <C>               <C>            <C>             <C>
Year ended June 30, 2002:
Allowance for uncollectible
  accounts .......................       $25,765               --         (7,937)(3)      (9,349)(2)       $    8,479

Year ended June 30, 2001:
Allowance for uncollectible
  accounts .......................       $36,633               --         (2,626)(3)      (8,242)(2)       $   25,765

Year ended June 30, 2000:
Allowance for uncollectible
  accounts .......................        $7,124           24,727          8,408(1)       (3,626)(2)       $   36,633
</TABLE>

(1) Primarily allowances for doubtful accounts related to receivables.
(2) Primarily write-offs.
(3) Primarily related to changes in reserve estimates for receivables.


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<PAGE>

                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NO.                            DESCRIPTION
<S>           <C>                                                                      <C>

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. into NovaCare,          --
              Inc. (incorporated by reference to Exhibit 3A(ii) to the Company's
              Form 10-K405 for the fiscal year ended June 30, 2000).

3(a)(iii)     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).

                                       43

<PAGE>

<S>           <C>                                                                      <C>
EXHIBIT NO.                            DESCRIPTION

3(b)          First Amended and Restated Bylaws of the Company.                         --

4(a)(i)       1986 Stock Option Plan, as amended October 31, 1996 (incorporated         --
              by reference to Exhibit 4(a) to the Company's Annual Report on
              Form 10-K for the year ended June 30, 1997).

4(a)(ii)      Amendment No. 2 to 1986 Stock Option Plan.                                --

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.                                --

4(d)          J. L. Halsey Corporation Executive Stock Option Plan.                     --

10(a)         Stock Purchase Agreement dated as of May 1, 1997 between NovaCare         --
              Employee Services, Inc. and James W. McLane (incorporated by
              reference to Exhibit 10(i) to the Company's Annual Report on Form
              10-K for the year ended June 30, 1998).

10(b)         Supplemental Benefits Plan as amended to date (incorporated by            --
              reference to Exhibit 10(k) to the Company's Annual Report on Form
              10-K for the year ended June 30, 1998).

10(c)         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(d)         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(e)         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").

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.

10(g)         Form of Indemnification Agreement, dated June 30, 2002, entered           --
              into by and between the Company and each of John H. Foster,
              Timothy E. Foster, Stephen E. O'Neil, Charles E. Finelli, and
              William T. Comfort, III.

                                       44
<PAGE>

<S>           <C>                                                                      <C>
EXHIBIT NO.                            DESCRIPTION

21            Subsidiaries of the Company (incorporated by reference to
              Exhibit 21 to the Company's Annual Report on Form 10-K for
              the year ending June 30, 2000).                                           --

24            Power of Attorney (see "Power of Attorney" in Form 10-K)                  --
</TABLE>

         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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