**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**





(Mark
      One)





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





For
      the
      fiscal year ended: December 31, 2006





OR





o
            TRANSITION
                REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





For
      the
      transition period from: _______ to ________.





**Commission
      File No. 1-12451**





**NEW
      YORK HEALTH CARE, INC.**


(Exact
      name of registrant as specified in its charter)




New
                York
            11-2636089(State
                or other jurisdiction of
            (I.R.S.
                Employer Identification
                No.)incorporation
                or organization)1850
                McDonald Avenue, Brooklyn, New
                York
            11223(Address
                of principal executive
                offices)
            (Zip
                Code)Registrant’s telephone number,
              including area code:
            212-679-7778Securities issued pursuant
              to
              Section 12(b) of the Act:
            None





Name
                of exchange onTitle
                of each class
            which
                registeredSecurities
                registered pursuant
            Common
                Stock $.01 par valueto
                Section 12(g) of the Act:





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 (the
“Exchange Act”) 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
o





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





Indicate
      by check mark whether the registrant is an accelerated filer.


Large accelerated filer o
            Accelerated filer o
            Non-accelerated filer x





The
      aggregate market value of the registrant’s common stock held by non-affiliates
      computed by reference to the price at which the common stock was last sold,
      or
      the average bid and asked price of such common stock, as of June 30, 2006,
      the
      last business day of the registrant's most recently completed second fiscal
      quarter,  was
      approximately  $
      20,424,000.





The
      number of shares outstanding of the registrant’s common stock, as of April 6,
      2007: 33,536,267.





DOCUMENTS
      INCORPORATED BY REFERENCE: NONE


2




**FORWARD-LOOKING
      STATEMENTS**




Certain
      information contained in this report is forward-looking in nature. All
      statements in this report, including those made by New York Health Care, Inc.
      and its subsidiaries (“we,” “our,” or the “Company”), other than statements of
      historical fact, are forward-looking statements. Examples of forward-looking
      statements include statements regarding the Company’s future financial
      condition, operating results, business and regulatory strategies, projected
      costs, services, research and development, competitive positions and plans
      and
      objectives of management for future operations. These forward-looking statements
      are based on management’s estimates, projections and assumptions as of the date
      hereof and include the assumptions that underlie such statements.
      Forward-looking statements may contain words such as “may,” “will,” “should,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue,” or the negative of these terms or other comparable
      terminology. Any expectations based on these forward-looking statements are
      subject to risks and uncertainties and other important factors, including those
      discussed below and in Item 7 - Management’s Discussion and Analysis of
      Financial Condition and Results of Operations -“Risks and Uncertainties.” Other
      risks and uncertainties are disclosed in the Company’s prior SEC filings. These
      and many other factors could affect the Company’s future financial operating
      results, and could cause actual results to differ materially from expectations
      based on forward-looking statements made in this report or elsewhere by the
      Company or on its behalf. The Company assumes no obligation to update such
      statements.




The
      following information should be read in conjunction with the Consolidated
      Financial Statements and notes thereto included in this Annual Report. All
      references to fiscal year apply to the Company’s fiscal year which ends on
      December 31, 2006.




**Recent
      Developments:**





On
      April
      3, 2007, Michael Nafash resigned his position as a Director of the Company.
      Contemporaneously with his resignation, Mr. Nafash voluntarily agreed to
      relinquish options to acquire 75,000 shares of the Company’s Common Stock at
      $0.37 per share, which were granted to him on September 20, 2006.





As
      of
      December 31, 2006, the BioBalance Corporation, a subsidiary of the Company
      ("BioBalance"), had cash on hand of approximately $168,000, all of which was
      available to fund operations. BioBalance estimates that its capital requirements
      for 2007 will be approximately $5,000,000. This estimate includes the cost
      of an
      initial $3,000,000 up front payment for the Phase I/II clinical trial for the
      Company's lead product, *PROBACTRIX* .
      The
      balance of approximately $2,000,000 would be required for product development
      and maintenance and administrative overhead. This estimate assumes that
      BioBalance will continue to operate using existing funds and proceeds from
      the
      healthcare operations, and assumes that BioBalance will obtain access to third
      party funding, either through loans or the sale of additional securities. It
      will be necessary for the Company to secure additional funding in order for
      BioBalance to begin the Phase I/II clinical trial, which was approved by FDA
      on
      March 24, 2006. The Company has not been able to obtain such additional funding
      up to the present time, and the BioBalance subsidiary has been operating solely
      by utilizing funds from the health care operations, which are insufficient
      for
      BioBalance's 2007 capital needs. The Company is in continuing discussions with
      potential funding sources but no agreements with any such funding sources have
      been entered into. Accordingly, since additional funding from outside sources
      has not been obtained, the Company began scaling back the operations of
      BioBalance at the end of November 2006, and BioBalance will be operating on
      a
      substantially reduced budget starting in April 2007. BioBalance management
      has
      taken steps to secure the data from clinical trials and has authorized the
      production of a duplicate of the biological strain of ProBactrix to maintain
      its
      viability, pending the receipt of funding for the clinical studies discussed
      above. Additionally, BioBalance surrendered its office space to the landlord
      in
      March 2007 in exchange for lease cancellation, incurring exit costs of
      approximately $36,000. Management is negotiating temporary cutbacks in
      consultant compensation until such time as additional funds or a strategic
      partner can be found. There can be no assurance that the Company will be able
      to
      raise additional capital in the near term to allow BioBalance to resume full
      operations and undertake the Phase I/II clinical trial for *PROBACTRIX* .


3


The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The Company’s recurring losses and
      negative working capital raises substantial doubt about its ability to continue
      as a going concern. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. Management’s
      plans in connection with this matter include the re-negotiation of its line
      of
      credit and actively seeking a buyer for all or part of the home health care
      operations.





BioBalance
      has also commenced preliminary studies regarding the use of *PROBACTRIX* in the
      treatment of Celiac disease (a dietary gluten intolerance). This study was
      conducted as a small scale pilot study which, while not providing data that
      is
      clinically or statistically useful in demonstrating efficacy, produced
      encouraging preliminary results. BioBalance intends to spend approximately
      $175,000 to $200,000 to fund the costs of clinical research and statistical
      analysis for a follow up study.





**PART
      I**





**Item
      1.**   **BUSINESS**





**OVERVIEW**





We
      are
      currently engaged in two industry segments, the delivery of home healthcare
      services (sometimes referred to as the “home healthcare business”) and, since
      our acquisition of BioBalance in a merger transaction in January 2003 (treated
      for accounting purposes as a reverse acquisition of us by BioBalance), the
      development of proprietary biotherapeutic agents for the treatment of various
      gastrointestinal (“ GI ”)
      disorders. BioBalance is a wholly-owned subsidiary of the Company. For
      accounting purposes, BioBalance is considered to be the “accounting acquirer” in
      the transaction.


4


The
      Company is a New York corporation incorporated in 1983. The Company’s principal
      executive office is 1850 McDonald Avenue, Brooklyn, New York 11223, telephone
      718-375-6700.




For
      more
      information as to the financial performance of our home healthcare and
      BioBalance business segments, see Part II, Item 7, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” and Notes 15 and 16
      of Notes to Consolidated Financial Statements included elsewhere in this
      report.





**HISTORY,
      DEVELOPMENT AND OVERVIEW**




The
      Company was initially organized to act as a licensed home healthcare agency
      engaged primarily in supplying the services of paraprofessionals who provide
      a
      broad range of healthcare support services to patients in their
      homes.





The
      home
      healthcare business operates in all five boroughs of New York City and the
      counties of Nassau, Westchester, Rockland, Orange, Dutchess, Ulster, Putnam
      and
      Sullivan, in the State of New York. Services are supplied principally pursuant
      to contracts with healthcare institutions and governmental agencies, such as
      various county departments of social services, the New York City Human Resources
      Administration, Beth Abraham Long-Term Home Health Services, and Kingsbridge
      Medical Center. We sold our New Jersey home healthcare operations to Accredited
      Health on May 22, 2005.





BioBalance
      is a development stage biopharmaceutical company incorporated in Delaware in
      May
      2001. BioBalance is focused on the development of innovative treatments for
      various gastrointestinal (GI) disorders with significant unmet needs. BioBalance
      has not generated any revenues to date other than income from short-term
      investment of the proceeds from stock offerings.





We
      believe that the *PROBACTRIX* offers a
      platform technology that could ultimately achieve regulatory approval for a
      wide
      range of GI indications. The product works by restoring the microbial balance
      within the GI tract by selective displacement of pathogenic bacteria and
      prevention of their re-colonization. Clinical studies independently conducted
      by
      Dr. Mark Pimentel in 2002 at Cedars-Sinai Medical Center in California have
      confirmed the direct link of pathogenic bacterial overgrowth with GI symptoms
      such as Irritable Bowel Syndrome (IBS). The Company believes that these studies
      support the rationale for the Company’s lead product to address a potential root
      cause of GI disease resulting in relief of symptoms with no significant side
      effects.




**CORPORATE
      STRATEGY**





We
      intend
      to pursue BioBalance’s business plan of developing *PROBACTRIX* ®
as
      a
      prescription drug for treating various gastrointestinal disorders, subject
      to
      the availability of funding. The Company intends to finance a portion of the
      continuing development of the BioBalance business, including its prescription
      drug development efforts, from existing cash and cash flow from the home
      healthcare business. Funding from outside sources will be needed for
      BioBalance’s remaining capital requirements. Potential outside sources include
      the sale of BioBalance equity, debt or convertible securities, third party
      financing and strategic partnering.


5


**BIOBALANCE
      BUSINESS**




**Overview**




BioBalance
      is a
      development stage biopharmaceutical company focused on the identification,
      licensing and development of novel treatments for GI disorders that we believe
      are poorly addressed by current therapies. These include pouchitis, irritable
      bowel syndrome (“ IBS ”),
      Crohn’s disease, ulcerative colitis, celiac disease, and *C.
      difficile* infections . We
      believe that our lead product candidate, *PROBACTRIX,* a
      probiotic, ** can
      reduce symptoms of pouchitis, IBS and other GI disorders.




Our
      current efforts consist of identifying, licensing and developing products for
      GI
      diseases where current therapies are inadequate or may have significant side
      effects. Unlike conventional treatments, we believe that our lead product
      technology restores the microbial balance in the GI tract by displacing
      pathogenic bacteria and preventing their re-establishment. Clinical trials
      conducted independently at the Cedars-Sinai Medical Center in California have
      confirmed the direct link of pathogenic bacterial overgrowth with IBS symptoms.
      Therefore, we believe that our products may address an underlying root cause
      of
      many GI disorders in addition to providing symptom relief with no significant
      side effects.




Our
      lead
      development product, *PROBACTRIX,* is a
      proprietary strain of *E.coli* M-17
      bacteria, which we plan to develop as a prescription drug treatment for
      pouchitis, IBS and other GI disorders. Prior studies have demonstrated that
      this
      product can reduce the symptoms of IBS and other GI disorders.




BioBalance
      is pursuing an accelerated regulatory approval for the use of *PROBACTRIX* in the
      U.S. by having filed an Investigational New Drug (“ IND ”)
      application with the FDA for the prevention and/or treatment of pouchitis.
      Pouchitis is a non-specific inflammation of the ileal reservoir, which can
      be a
      long-term problem for some patients. This usually occurs during the first two
      years after bowel reconstruction due to ulcerative colitis. Most pouchitis
      sufferers experience symptoms including steadily increasing stool frequency
      that
      may be accompanied by incontinence, bleeding, fever and/or a feeling of urgency.
      There are no drugs currently approved in the U.S. for pouchitis. We believe
      that
      current treatments being used “off-label” (including antibiotics) are often
      ineffective in relieving symptoms.




We
      plan
      to seek orphan drug designation for treatment of pouchitis. “Orphan drug” refers
      to a product that treats a rare disease affecting less than a specified number
      of persons (200,000 in the U.S.). FDA approval of an IND permits the sponsor
      to
      conduct clinical trials in humans in the United States.




BioBalance
      originally submitted the IND application for the pouchitis indication which
      was
      received by the FDA on January 2, 2005. On February 2, 2005, we were notified
      by
      the FDA that the IND was on clinical hold and that comments would be sent to
      us
      within approximately 30 days. Detailed comments were received on March 4, 2005.
      BioBalance’s regulatory and clinical advisors responded to these comments by
      submitting an IND Amendment with the FDA on December 15, 2005. The FDA responded
      on January 13, 2006 with additional comments which BioBalance addressed on
      February 22, 2006. On March 24, 2006, the FDA gave us clearance to proceed
      with
      the Phase I/II clinical trial. This study is currently on hold, pending the
      availability of third party funding, as described above under “Recent
      Developments”.


6


The
      patented formulation used for *PROBACTRIX* consists
      of a proprietary strain of non-pathogenic *E.coli* ,
      derived
      from an organism that was originally isolated from the intestinal mircoflora
      of
      a healthy volunteer. The technology and the processes comprise conditions that
      preserve M-17 *E.coli* in the
      biologically active form. Patent applications have been filed by BioBalance
      for
      technology that could extend the product’s shelf life for two years or longer at
      room temperature. In addition, we received approval of the registration of *PROBACTRIX* as a
      registered trademark in the U.S. on March 1, 2005. Our intellectual property
      portfolio also includes rights to a combination of two patented Bacillus
      strains, *B.
      subtilis* and *B.
      licheniformis* .




We
      have
      contracted for the manufacture of *PROBACTRIX* with ** Benchmark
      Biolabs Inc. to satisfy our clinical trial needs in a state-of-the-art facility
      located in Lincoln, Nebraska.




**Regulatory
      Strategy**





Our
      current regulatory strategy involves pursuing accelerated approval for *PROBACTRIX* in the
      U.S. by filing an IND application for the prevention and/or treatment of
      pouchitis. There are currently no approved treatments for pouchitis. Additional
      clinical studies can subsequently be conducted to determine whether there is
      support for broader usage.




BioBalance
      originally planned to pursue marketing of *PROBACTRIX* as
      a
      medical food for IBS, given limited resources and the significant time required
      for prescription drug development. Industry studies indicate that it takes
      approximately eight to 10 years for the average prescription drug to progress
      from the IND filing to market introduction. However, following discussions
      with
      regulatory consultants and potential pharmaceutical licensees, it was determined
      that a shorter pathway to drug development through filing an IND for an orphan
      drug indication would be the most economically attractive course. This involved
      addressing pouchitis, a narrowly focused indication with unmet therapeutic
      needs, rather than IBS. Pouchitis also offered the potential for orphan drug
      designation and expedited FDA approval. We believe that we can achieve FDA
      approval for *PROBACTRIX* as a
      prescription drug to treat pouchitis in approximately four to five years from
      the date on which we are able to commence the Phase I/II clinical trials,
      dependent on our obtaining necessary funding. However, there is no assurance
      that we will be able to commence the clinical trials, that such trials will
      yield desired results, or that FDA approval will be granted in any
      event.




Upon
      receipt of funding, we plan to conduct double blind, placebo controlled studies
      now that we have obtained FDA approval of our IND for the pouchitis indication.
      The first step would involve a Phase I/II study in pouchitis patients. This
      study would likely be followed with a pivotal Phase III trial in approximately
      50-75 pouchitis patients. No assurance can be given as to if or when approval
      can be obtained.




A
      prescription drug can be assigned orphan drug status by the FDA and European
      regulatory authorities if the indication addresses a target population of less
      than 200,000 sufferers in the U.S. or less than 5 sufferers per 10,000 persons
      in Europe. There is a separate Office of Orphan Drug Product Development at
      the
      FDA designed to help facilitate rapid approval of orphan drug applications.
      Once
      approved, orphan drugs are given seven year exclusivity in the U.S. and ten
      years of exclusivity in Europe. Additional benefits of receiving orphan drug
      status in the U.S. include study design assistance, a 50% reduction in the
      filing cost of the NDA/BLA (new drug application/biological licensing
      application) and may also include partial funding of clinical costs by the
      FDA.
      The NDA/BLA requests permission from FDA to market a drug in the U.S. In Europe,
      a drug product is filed with the European Medicines Agency (EMEA) for marketing
      throughout the European Commission area. The EMEA has a Committee for Orphan
      Medicinal Products (COMP) whereby drugs are designated "orphan drug" status
      for
      the European Union.


7


Longer
      term, we are currently considering expanding the label indication of *PROBACTRIX* to
      include a number of additional GI indications, including the treatment of *C.
      difficile* infections.





We
      also
      plan to explore licensing opportunities for a veterinary formulation of *PROBACTRIX* as an
      animal feed additive. We believe that a veterinary formulation of *PROBACTRIX* could
      be
      a potential replacement for antibiotics and/or animal growth hormones. This
      issue has generated significant worldwide attention as governments and consumer
      groups have called for the reduction or elimination of unnecessary antibiotics
      and growth hormones in farm animals. Based on studies conducted in Israel
      beginning in 1996 with a number of animal species, we believe that *PROBACTRIX* has
      a
      beneficial safety and efficacy profile as an animal feed additive. A veterinary
      formulation of *PROBACTRIX* was
      approved in Israel in 1998 as a veterinary feed additive. However, we can not
      assure you that we will ever license a veterinary formulation of *PROBACTRIX* as an
      animal feed product.






**PRODUCTS**




**PROBACTRIX**





Our
      initial product opportunity, *PROBACTRIX* ,
      is a
      non-pathogenic probiotic, which we believe addresses the root cause of many
      GI
      disorders, including pouchitis, IBS, IBD and diarrhea, by inhibiting and
      replacing the growth of pathogenic bacteria and preventing their
      re-colonization. Studies conducted overseas in over 14,000 patients have
      documented the safety and efficacy profile of this ingredient.





A
      predecessor product was approved as a biological agent for the treatment of
      a
      broad range of GI disorders and diarrheas in Russia in May 1998,
      as
      a food supplement for human use by the Ministry of Health of Israel in May
      1998
      and for use
      as animal food by the Ministry of Agriculture of Israel in September 1998.
      In
      August 2000, Tetra-Pharm, an Israeli pharmaceutical company, agreed to cease
      manufacture and sale of the product in conjunction with its agreement to sell
      all rights relating to the product to BioBalance. Since then, production of
      the
      formula has been limited to supplying hospitals and universities where
      BioBalance is conducting further research.


The
      basic
      active component in *PROBACTRIX* is a
      selective strain of non-pathogenic *E.coli* bacteria, which is contained in a liquid suspension. This bacterium is a
      commonly represented species in the healthy microflora of humans and animals.
      It
      has been used for the preparation of *Colibacterin,
      Bificon* and
      other medicines and food supplements outside the U.S.




8




The
      research on *PROBACTRIX* originated
      in Russia from studies by Dr. Nellie Kelner-Padalka, a pediatrician and our
      scientific founder. These studies found liquid food supplements containing *E.coli* M-17 to
      be useful in treating intestinal infections of various origins. However, shelf
      life was short and the product had a strong odor that made it difficult for
      some
      patients to ingest. Dr. Kelner-Padalka later brought her studies to Israel
      where
      several technologies were used to expand the shelf life and improve the smell
      and taste.




As
      part
      of the regulatory approval process of *E.
      coli* M-17 in
      Russia, a scientific panel determined the product’s mechanism of action included
      the following:




·
            Rapid
                suppression of pathogenic microorganisms and their
                repulsion.




·
            Restoration
                of the normalization of the body’s immune system due to increased
                synthesis of immunoglobulin, interferon and activation of
                macrophages.




·
            Stimulation
                of the enzyme complex (protease, amylase, lipase and cellulase),
                which
                helps to improve digestion.




·
            Binding,
                neutralizing and withdrawing toxic substances (including heavy metals)
                from the body.




·
            Improvement
                of the absorption of selected micronutrients including B-complex
                vitamins
                and essential amino acids.




The
      patented formulation used for *PROBACTRIX* consists
      of a proprietary strain of non-pathogenic *E.coli* ,
      derived
      from an organism that was originally isolated from the intestinal microflora
      of
      healthy volunteers, which is preserved in a liquid extract formulation. The
      technology and the processes comprise conditions that preserve M-17 *E.
      coli* in the
      biologically active form. Additional patent applications have been filed by
      BioBalance for technology that could extend the product’s shelf life for two
      years or longer at room temperature.







**Bacillus
      Product**





We
      have
      acquired the rights to a combination of two Bacillus strains that has exhibited
      anti-inflammatory, anti-bacterial and anti-viral properties, which may be
      effective in treating a variety of GI diseases. We believe our Bacillus strains
      are therapeutically effective against rotavirus and campylobacter pathogens,
      which are the leading causes of infectious diarrhea. We believe this technology
      could also be effective in treating ulcerative colitis. There was a predecessor
      product (called *Biosporin)* ,
      based
      on the Bacillus strains acquired, which was approved in Russia. The study
      conducted by us to date was inconclusive regarding the usefulness or
      effectiveness of the strains in treating GI diseases. Therefore, we have elected
      not to pursue this project further at this time.


9


**Prior
      Clinical Studies**




The
      active ingredient in *PROBACTRIX* has
      undergone testing by more than 14,000 patients in controlled trials as well
      as
      case study reports and has demonstrated safety and efficacy in adults and
      children as young as six months old. The product has demonstrated effectiveness
      in a broad range of GI diseases and conditions including IBS, IBD, pouchitis,
      Crohn’s disease, ulcerative colitis and diarrhea caused by antibiotics,
      chemotherapy and travel.




Two
      clinical studies conducted independently at Cedars-Sinai Medical Center showed
      the link between IBS symptoms and pathogenic bacteria and support the rationale
      for the use of *PROBACTRIX* as an
      effective treatment for IBS.




Clinical
      studies conducted in Israel indicate that *PROBACTRIX* is
      effective at addressing various GI symptoms in both male and female patients
      with no significant side effects. Patients typically reported a marked reduction
      in abdominal symptoms. Two pilot studies have been completed in Israel with
      the
      current formulation. The first was an open label study conducted on 63 patients
      with IBS, who were unresponsive to other therapies, and 20 patients with Crohn’s
      disease. After four to six weeks of therapy, 52% of the IBS patients had an
      excellent response, 35% and 30% of the Crohn’s disease patients had an excellent
      and partial response, respectively, and no adverse events were
      observed.




An
      open-label trial, examining the impact of *PROBACTRIX* on
      patients with Crohn’s disease, reported that three of the eight patients
      experienced a marked reduction in abdominal symptoms, two dropped out, two
      experienced no improvement and one experienced a worsening of
      symptoms.




A
      randomized, double blind pilot study conducted by Tiomny, et. al. in 2003
      reported that *PROBACTRIX* relieved
      major symptoms of IBS with no significant side effects. This study involved
      20
      patients, who were experiencing severe symptoms of diarrhea and constipation
      with a mean duration of eight years. Eight of the ten patients in the placebo
      group withdrew from the study due to lack of response. All ten patients in
      the
      treatment group completed the study. The treatment group experienced significant
      improvement in IBS symptom relief with no significant side effects.




We
      have
      completed a randomized, multi-center double blind, placebo-controlled, clinical
      trial in IBS patients to study the effectiveness of *PROBACTRIX* as
      a
      medical food. Sites for this study include Cornell Medical Center in New York
      City, St. Michael’s Hospital in Toronto, Canada, Bikur Cholim Hospital in
      Jerusalem, Israel, and Sourasky Medical Center in Tel Aviv, Israel. This data
      is
      currently undergoing statistical analysis.


10


**Veterinary
      Application**





Numerous
      clinical studies have been conducted in farm animals to support the use of *PROBACTRIX* as a
      veterinary feed additive to replace antibiotics and/or animal growth hormones.
      BioBalance believes that enough safety and efficacy data accumulated presents
      an
      attractive opportunity for licensing to leading animal health companies.
      Veterinary experts believe that repeated applications of antibiotics often
      leave
      animals weak and growth retarded. BioBalance believes that *PROBACTRIX* has a
      particularly high safety and efficacy profile in many different animal species.
      There are already probiotic products used today in the veterinary market but
      lack well-designed scientific studies. Significantly, *PROBACTRIX* has been
      studied for its use in preventing bacterial diarrhea in piglets and as a
      replacement for gentamycin and Advocin, which are most often used to treat
      diarrhea in these animals. We cannot provide any assurance that we will ever
      license a veterinary formulation of *PROBACTRIX* as a
      veterinary feed additive.





**MANUFACTURING**





During
      2005, BioBalance transferred the manufacturing process of *PROBACTRIX* to
      Benchmark Biolabs, Inc. for pilot-lab production of clinical trial materials
      in
      a state-of-the-art facility located in Lincoln, Nebraska. BioBalance has not
      yet
      committed for commercial production of *PROBACTRIX* ,
      since
      it will likely rely on a marketing/licensing partner for production. The process
      for growing *E.
      coli* and
      formulating the bacteria into a probiotic agent requires specialized
      fermentation facilities maintained and operated under FDA laboratory and good
      manufacturing procedure (“GMP”) requirements as a prescription drug
      product.





**INTELLECTUAL
      PROPERTY**





BioBalance
      uses a combination of patents, trademarks and trade secrets to protect its
      core
      technology. We have 14 patents issued in the U.S. and two patent applications
      filed and pending. The patent expiration dates range from 2020 to 2023. It has
      also filed patent applications covering application of its core technology
      in
      Japan, European, Korea, Canada, Australia, Mexico, Brazil, Poland, Russia and
      New Zealand. BioBalance is also pursuing additional patent applications relating
      to its core technology. On March 1, 2005, it received notification that *PROBACTRIX* was
      approved as a registered U.S. trademark.




BioBalance
      also previously acquired the global patent rights to a combination of two
      patented Bacillus strains ( *B.
      subtilis* and *B.
      licheniformis* )
      (”NexGen Product Platform”) for $3,850,000 which included a one-time cash
      payment of $250,000 and one million shares of Common Stock of the Company valued
      at $3,600,000. See “Bacillus Product” above. At December 31, 2004 it was
      determined that the investment in the NexGen Product Platform was impaired
      and
      as a result of the impairment analysis, a total of $1,740,326 was expensed
      during the fourth quarter of 2004. The impairment was determined by an
      independent valuation firm using a discounted cash flow model. At the time,
      the
      impairment was felt necessary due to a number of factors including the
      acceleration of the Company’s efforts to obtain regulatory approval and take
      other action necessary to market *PROBACTRIX* as a
      prescription product, overall limited funding available to the Company to
      develop the Bacillus product and available management time. At December 31,
      2005, the independent valuation firm determined that no additional impairment
      was warranted.


11


At
      December 31, 2006, management determined that the value of the NexGen Product
      Platform was impaired in its entirety due to inconclusive testing results.
      While
      management believes that further testing may prove the safety and efficacy
      of
      the NexGen Product Platform, a decision was made to devote all efforts and
      funds
      towards the development and clinical trials of ProBactrix, if, as and when
      further funding is received or a strategic partner joins the Company.
      Accordingly, management recorded an impairment loss of $926,322 (intellectual
      property $334,787; patents and trademarks $341,285 and; non-compete agreement
      $250,250) representing the entire unamortized balance of the NexGen Product
      Platform and has discontinued any further testing or development of the NexGen
      Product Platform at this time.





**BIOBALANCE
      EMPLOYEES**





At
      March
      31, 2007, BioBalance had one employee and outsourced most of its clinical and
      regulatory needs through the use of part-time or full-time consultants. While
      BioBalance has no definitive plans with respect to the ultimate size of its
      workforce or persons who will fill specific positions, BioBalance plans to
      evaluate its staffing needs relative to research and development, product
      manufacturing and marketing and finance and administration and will seek to
      retain personnel as employees or consultants based on that
      evaluation.





**HOME
      HEALTH CARE BUSINESS**





**Overview**





We
      provide a broad range of home health and personal care support services in
      capacities ranging from companions to live-ins, including assistance with
      personal hygiene, dressing and feeding, meal preparation, light housekeeping
      and
      shopping and, to a limited extent, physical therapy and standard skilled nursing
      services such as the changing of dressings, injections and administration of
      medications.





Our
      services are provided principally by our staff of professionals and
      paraprofessionals (some are bilingual), who provide personal care to patients,
      and, to a lesser extent, by our staff of skilled nurses. Approximately 99%
      of
      our home health revenues in 2006 were attributable to services by our
      paraprofessional staff.





We
      are
      approved by New York State Department of Health for the training and
      certification of Home Health Aides and Personal Care Aides. In order to provide
      a qualified and reliable staff, we continuously recruit, train, provide
      continuing education for, and offer benefits and other programs to encourage
      retention of, our staff. Recruiting is conducted primarily through advertising,
      direct contact with community groups, employment programs, and the use of
      benefits programs designed to encourage new employee referrals by existing
      employees.


12


*Organization
      and Operations*





We
      operate 24 hours a day, seven days a week, to receive referrals and coordinate
      services with physicians, case managers, patients and their families. Services
      are provided through one principal office, five branch offices and one
      recruitment and training office. Each office is typically staffed with an
      administrator/branch manager, director of nursing, nursing supervisor, home
      care
      coordinators, clerical staff and nursing services staff.





Our
      principal office retains functions necessary to ensure quality of patient care
      and to maximize financial efficiency. Services performed at the principal office
      include billing and collection, quality assurance, financial and accounting
      functions, policy and procedure development, system design and development,
      corporate development and marketing. We use financial reporting systems through
      which we monitor data for each branch office, including collections, revenues
      and staffing. Our systems also provide monthly, financial comparisons to prior
      periods and comparisons among our branch offices.





*Referral
      Sources*





We
      obtain
      patients primarily through contracts, referrals from hospitals, community-based
      healthcare institutions and social service agencies, case management and
      insurance companies. Referrals from these sources accounted for substantially
      all of our net revenues in 2006. We generally conduct business with most of
      our
      institutional referral sources under one-year contracts that fix the rates
      and
      terms of all referrals but do not require that any referrals be made. Under
      these contracts, the referral sources refer patients to us and we bill the
      referral sources for services provided to patients. Approximately 60 such
      contracts were in effect and active as of December 31, 2006.





One
      or
      more referring institutions have accounted for more than 5% of our net revenues
      during our last fiscal year, as set forth in the following table:






Referring
                Institution
            Percentage
                of Net Revenues 2006New
                York City Medicaid (HRA)
            55.2%Guildnet
                Inc.
            6.3%Beth
                Abraham Long Term Home Health Program
            6.7%Kingsbridge
                Heights Rehabilitation Center
            4.9%





Overall,
      our 10 largest referring institutions accounted for approximately 88.7% of
      net
      revenues for 2006.





Days
      Sales Outstanding (“DSO”) is a measure of the average number of days required
      for the Company to collect accounts receivable, calculated from the date
      services are billed. For the year ended December 31, 2006 the Company's DSO
      were
      58.


13


*Reimbursement*





We
      are
      reimbursed for services, primarily by referring institutions, such as healthcare
      institutions and social service agencies, which in turn receive their
      reimbursement from Medicaid, Medicare and, to a much lesser extent, through
      direct payments by insurance companies and private payers. New York State
      Medicaid programs constitute our largest reimbursement sources, when including
      both direct Medicaid reimbursement and indirect Medicaid payments through many
      of our referring institutions. For 2006, payments from referring institutions
      that receive direct payments from Medicare and Medicaid, together with direct
      reimbursement to us from Medicaid, accounted for approximately 99% of net
      revenues. Direct reimbursements from private insurers, prepaid health plans,
      patients and other private sources accounted for approximately 1% of net revenue
      for 2006.





The
      New
      York State Department of Health, in conjunction with local Departments of Social
      Services, sets annual reimbursement rates for patients covered by Medicaid.
      These rates are generally established on a county-by-county basis, using a
      complex reimbursement formula applied to cost reports filed by providers.





Third
      party payers, including Medicaid, Medicare and private insurers, have taken
      extensive steps to contain or reduce the costs of healthcare. These steps
      include reduced reimbursement rates, increased utilization review of services
      and negotiated prospective or discounted pricing and adoption of a competitive
      bid approach to service contracts. Home-based healthcare, which is generally
      less costly to third party payers than hospital-based care, has benefited from
      many of these cost containment measures.





We
      negotiate contracts on the basis of services to be provided, in connection
      with
      contracts either currently in effect with us or with other agencies. Prevailing
      market conditions are such that, despite escalating operating expenses, third
      party payers are negotiating at the same or reduced contract rates are regularly
      negotiated as a result of internal budget restraints and reductions mandated
      by
      managed care contracts between our clients and HMO's and other third party
      administrators. While we anticipate that this trend is likely to continue for
      the foreseeable future, we do not expect the impact on the Company to be
      significant, since we believe our rates are competitive. Accordingly, we expect
      to be subject to only minor rate reductions. However, as expenditures in the
      home healthcare market continue to grow, initiatives aimed at reducing the
      costs
      of healthcare delivery at non-hospital sites are increasing. A significant
      change in coverage or a reduction in payment rates by third party payers,
      particularly by New York State Medicaid, would have a material adverse effect
      upon our home healthcare business.





*Performance
      Improvement*





We
      believe that our reputation for quality patient care has been and will continue
      to be a significant factor in our success. To this end, we have established
      a
      performance improvement management program, including a performance improvement
      program to ensure that our service standards are implemented and that the
      objectives of those standards are met.


14


We
      believe that we have developed and implemented service standards that comply
      with or exceed the service standards required by the Joint Commission on
      Accreditation of Healthcare Organizations (“JCAHO”). In May 2006, the New York
      offices of the Company received full accreditation from the Joint Commission;
      this accreditation expires in September 2009.





*Sales
      and Marketing*





Each
      administrator/branch manager is responsible for sales activities in the branch
      office's local market area. We attempt to cultivate strong, long-term
      relationships with referral sources through high quality service and education
      of local healthcare personnel about the appropriate role of home healthcare
      in
      the clinical management of patients.





*Government
      Regulation*





The
      federal government and the State of New York where we operate, regulate various
      aspects of our business. Changes in the law or new interpretations of existing
      laws can have a material adverse effect on permissible activities of the
      Company, the relative costs associated with doing business and the amount of
      reimbursement by government and other third-party payers.





We
      are
      licensed by New York State as a home care services agency. New York State law
      requires approval by the New York State Public Health Council ("Council") of
      any
      change in "the controlling person" of an operator of a licensed home care
      services agency ("LHCSA"). Control of an entity is presumed to exist if any
      person owns controls or holds the power to vote 10% or more of the voting
      securities of the LHCSA. A person seeking approval as a controlling person
      of a
      LHCSA, or of an entity that is the operator of a LHCSA, must, in most cases,
      file an application for Council approval prior to becoming a controlling
      person.





We
      are
      subject to federal and state laws prohibiting payments for patient referrals
      and
      regulating reimbursement procedures and practices under Medicare, Medicaid
      and
      state programs. The federal Medicare and Medicaid legislation contains
      anti-kickback provisions, which prohibit any remuneration in return for the
      referral of Medicare and Medicaid patients or for purchasing or leasing
      equipment or services that are paid for in whole or in part by Medicare or
      Medicaid. Courts have, to date, interpreted these anti-kickbacks laws to apply
      to a broad range of financial relationships. Violations of these provisions
      may
      result in civil and criminal penalties, including fines of up to $15,000 for
      each separate service billed to Medicare or Medicaid in violation of the
      anti-kickback provisions, exclusion from participation in the Medicare and
      state
      health programs such as Medicaid and imprisonment for up to five
      years.





The
      Medicare and Medicaid anti-kickback provisions of the Social Security Act are
      broadly worded and often vague, and the future interpretation of these
      provisions and their applicability to our operations cannot be fully predicted
      with certainty. Any non-compliance or violation could have a material adverse
      effect on our home healthcare business.





Federal
      laws to which we are subject also include the broadly worded fraud and abuse
      provisions of the Social Security Act that are applicable to the Medicare and
      Medicaid programs, which prohibit various transactions involving Medicare or
      Medicaid covered patients or services. Among other things, these provisions
      restrict referrals by physicians for certain designated health services,
      including home health care, to entities with which the physician or the
      physician's immediate family member has a "financial relationship". Violations
      of these provisions may result in civil or criminal penalties for individuals
      or
      entities and/or exclusion from participation in the Medicare and Medicaid
      programs. The future interpretation of these provisions and their applicability
      to our operations cannot be predicted.


15


New
      York
      also has statutes and regulations prohibiting payments for patient referrals
      and
      other types of financial arrangements with healthcare providers that, while
      similar in many respects to the federal legislation, are often vague and have
      infrequently been interpreted by courts or regulatory agencies. Sanctions for
      violation of these state restrictions may include loss of licensure and civil
      and criminal penalties.





We
      believe that our operations, in general, comply in all material respects with
      applicable federal and state anti-kickback laws, and that we will be able to
      arrange our future business relationships so as to comply with the fraud and
      abuse provisions.





Management
      believes that the trend of federal and state legislation is to subject the
      home
      healthcare and nursing services industry to greater regulation and enforcement
      activity, particularly in connection with third-party reimbursement and
      arrangements designed to induce or encourage the referral of patients to a
      particular provider of medical services. We attempt to be responsive to such
      regulatory climate. However, we are unable to accurately predict the effect,
      if
      any, of such increased regulatory or enforcement activities on our future
      results of operations.





In
      addition, we are subject to laws and regulations which relate to business
      corporations in general, including antitrust laws, occupational health and
      safety laws, and environmental laws (which relate, among other things, to the
      disposal, transportation and handling of hazardous and infectious wastes).
      To
      date, none of these laws and regulations has had a material adverse effect
      on
      our home healthcare business or the competitive position of such business or
      required any material expenditure by us. We cannot assure that we will not
      be
      adversely affected by such laws and regulations in the future.





We
      cannot
      accurately predict what additional legislation, if any, may be enacted in the
      future relating to our business or the healthcare industry, including
      third-party reimbursement, or what affect any such legislation may have on
      us.





We
      have
      never been denied any home healthcare license we have sought to obtain. We
      believe that our home healthcare operations are in material compliance with
      all
      applicable state and federal regulations and licensing
      requirements.





*Competition*





The
      home
      healthcare market is highly fragmented and significant competitors are often
      localized in particular geographical markets. Our largest competitors include
      Premiere Health Services, National Home Health Care Corp., Patient Care, Inc.,
      and Personal Touch Home Care Services, Inc. The home healthcare business is
      marked by low entry costs so that, given the increasing level of demand for
      nursing services, significant additional competition can be expected to develop
      in the future. Some of the companies with which we presently compete in home
      healthcare have substantially greater financial and human resources than we
      do.
      We also compete with many other small temporary medical staffing
      agencies.




16




We
      believe that the principal competitive factors in our industry are quality
      of
      care, including responsiveness of services and quality of professional
      personnel; breadth of therapies and nursing services offered; successful
      referrals from referring Government agencies, hospitals and health maintenance
      organizations; general reputation with physicians, other referral sources and
      potential patients; and price. We believe that our competitive strengths have
      been the quality, responsiveness, flexibility and breadth of services and staff
      we offer, and to some extent our competitive pricing, as well as our reputation
      with referral sources and patients.





The
      United States healthcare industry generally faces a shortage of qualified
      personnel. Accordingly, we experience intense competition from other companies
      in recruiting healthcare personnel for our home healthcare operations. Our
      success to date has depended, to a significant degree, on our ability to recruit
      and retain qualified healthcare personnel. Most of the registered and licensed
      nurses and healthcare paraprofessionals who we employ are also registered with,
      and may accept placements from time to time through, our competitors. We believe
      we are able to compete for nursing and paraprofessional personnel by recruitment
      through newspaper advertisements, work fairs/job fairs, flexible work schedules
      and competitive compensation arrangements. We cannot assure you, however, that
      we will be able to continue to attract and retain sufficient qualified
      personnel. The inability to either attract or retain such qualified personnel
      would have a material adverse effect on our business.





**HOME
      HEALTH CARE EMPLOYEES**





At
      March
      31, 2007, our home healthcare business had 1,783 employees, of whom sixty four
      are salaried, including one division officer, a controller, seven
      administrators/branch managers, ten nurses, three accounting staff, sixteen
      clerical staff, and twenty one field staff supervisors. The remaining 1,718
      employees are paid on an hourly basis and consist of professional and
      paraprofessional staff.





None
      of
      our home healthcare or BioBalance employees are compensated on an independent
      contractor basis or represented by a labor union. We believe that our employee
      relations are good.


17


**Item
      1A.**  **RISK
      FACTORS**





**THE
      COMPANY OPERATES IN A CHANGING ENVIRONMENT THAT INVOLVES NUMEROUS KNOWN AND
      UNKNOWN RISKS AND UNCERTAINTIES THAT COULD MATERIALLY AND ADVERSELY AFFECT
      ITS
      OPERATIONS. THE FOLLOWING HIGHLIGHTS SOME OF THE FACTORS THAT HAVE AFFECTED,
      AND/OR IN THE FUTURE COULD AFFECT, ITS OPERATIONS.**





**Risks
      Relating to the BioBalance Business**





**BIOBALANCE
      IS A DEVELOPMENT STAGE COMPANY, HAS GENERATED NO REVENUES TO DATE AND HAS A
      LIMITED OPERATING HISTORY UPON WHICH IT MAY BE EVALUATED** ***.***





BioBalance
      was incorporated in May 2001, has generated no revenues from operations, and
      has
      no meaningful assets other than its intellectual property rights and $168,000
      in
      available cash at December 31, 2006. BioBalance faces all of the risks inherent
      in a new business and those risks specifically inherent in the business of
      developing, testing, obtaining regulatory approvals for, manufacturing,
      commercializing and selling a new prescription drug product, with all of the
      unforeseen costs, expenses, problems, and difficulties to which such ventures
      are subject. We cannot assure you that BioBalance will be able to generate
      revenues or profits from operation of its business or that BioBalance will
      be
      able to generate or sustain profitability in the future.





**FAILURE
      TO SECURE ADDITIONAL FINANCING WOULD RESULT IN IMPAIRED GROWTH AND INABILITY
      TO
      OPERATE.**





BioBalance
      will be required to expend substantial amounts of working capital in order
      to
      develop, test, obtain the requisite regulatory approvals, manufacture and market
      its proposed product and establish the necessary relationships to implement
      its
      business plan. At December 31, 2006, BioBalance had available cash in the amount
      of $168,000. For the year ended December 31, 2006, BioBalance’s operations were
      funded entirely by capital from the Company’s health care operations. For the
      year ending December 31, 2007, BioBalance will be entirely dependent on existing
      cash, working capital from the health care operations, and its ability to
      attract and receive additional funding from either the sale of securities or
      outside sources such as private investment or a strategic partner. See “Recent
      Developments”. If BioBalance fails to obtain additional financing, BioBalance's
      clinical and regulatory programs will need to be further scaled back, suspended
      or cancelled. BioBalance has no firm agreements or arrangements with respect
      to
      any such financing and we cannot assure you that any needed funds will be
      available to BioBalance on acceptable terms or at all. The inability to obtain
      sufficient funding of BioBalance’s operations in the immediate future could
      cause BioBalance to curtail or cease its operations.


18


**THE
      LOSS OF KEY EXECUTIVES OR CONSULTANTS OR THE FAILURE TO HIRE QUALIFIED EMPLOYEES
      WOULD DAMAGE OUR BUSINESS**





Because
      of the highly technical nature of our BioBalance business, we depend greatly
      on
      attracting and retaining experienced management and highly qualified and trained
      scientific personnel.





As
      previously reported by the Company in its Form 8-K filed with the Securities
      and
      Exchange Commission on September 12, 2006, Mr. Dennis O'Donnell, the Company's
      President and Chief Executive Officer, acting Principal Financial Officer and
      a
      director, resigned from all of his positions with the Company effective
      September 8, 2006. The Company has not selected a replacement for Mr. O'Donnell.
      Although Mr. Murry Englard is presently serving in the capacity of Acting Chief
      Executive Officer and Mr. Stewart Robinson as temporary Principal Financial
      Officer, these positions are temporary for the purpose of completing and filing
      this report on Form 10-K. The Company is currently operating without a permanent
      replacement for either of those executive positions. There can be no assurance
      that the Company will be able to obtain the services of a qualified Chief
      Executive Officer or Chief Financial Officer in the near term, particularly
      in
      light of BioBalance's current financial situation, as discussed above under
      the
      risk factor “Failure to Secure Additional Financing Would Result in Impaired
      Growth and Inability to Operate.”





We
      compete with other companies intensely for qualified and well trained
      professionals in our industry. If we cannot hire or retain, and effectively
      integrate, a sufficient number of qualified scientists and experienced
      professionals, this will have a material adverse effect on our capacity to
      sustain and grow our business and develop our products through the clinical
      trial process and otherwise.





**THE
      UNILATERAL RESCISSION OF THE EMERALD SETTLEMENT AGREEMENT MAY RESULT IN FUTURE
      LITIGATION**





The
      Company reported in the Company's Form 8-K filed on August 21, 2006 that the
      Company had unilaterally rescinded the settlement between the Company and
      Emerald Asset and Yitz Grossman. The settlement agreement was originally entered
      into as reported in the Company's Form 8-K filed on March 6, 2006, and the
      related liability was recorded on the books of the Company at December 31,
      2005,
      in the amount of $1,545,000. The rescission of the settlement by the Company
      was
      done without the consent of Emerald Asset and Yitz Grossman. Accordingly there
      may be future litigation brought against the Company by Emerald Asset and Yitz
      Grossman to seek enforcement of the agreement. The Company continues to retain
      the accrual for the settlement agreement on its books in its entirety. If there
      is litigation brought by Emerald Asset and Yitz Grossman to enforce the
      settlement agreement, there can be no assurance that at a future time the
      accrual that was recorded would be sufficient to offset amounts resulting from
      the future litigation. The Company would vigorously contest any claims by
      Emerald and Yitz Grossman seeking to enforce the settlement agreement. However,
      there can be no assurance such efforts by the Company would be
      successful.


19


**BIOBALANCE’S
      PRODUCTS ARE IN DEVELOPMENT AND MAY NOT SATISFY REGULATORY REQUIREMENTS OR
      BECOME COMMERCIALLY VIABLE** ***.***




The
      products that we are currently developing will require additional development,
      testing, and investment in order to market them as prescription drugs. We cannot
      be sure that our product research and development efforts will be successful,
      that candidates will enter clinical studies as anticipated, that we will satisfy
      Good Laboratory Procedures (“GLP”), medical food or prescription drug
      requirements or that any required regulatory approvals will be expeditiously
      applied for or obtained, or that any products, if introduced, will be
      commercially successful. We have conducted anecdotal and pre-clinical trials
      and
      are conducting an IBS medical food clinical trial for our initial product and
      have established GRAS (Generally Recognized As Safe) status to date. The results
      of these pre-clinical and anecdotal trials on products under development are
      not
      necessarily predictive of results that will be obtained from large scale
      clinical testing. We cannot be sure that clinical trials of the products under
      development will demonstrate the safety and efficacy of such products or will
      result in a marketable product. In addition, the administration alone or in
      combination with drugs of any product developed by BioBalance may produce
      undesirable side effects in humans. The failure to demonstrate adequately the
      safety and efficacy of a therapeutic drug product under development could delay
      or prevent regulatory approval, where required, and delay or prevent commercial
      sale of the product, any of which could have a material adverse effect on
      BioBalance. We may encounter difficulties in manufacturing, process development
      and formulation activities that could result in delays in clinical trials,
      regulatory submissions, regulatory approvals and commercialization of our
      product, or cause negative financial and competitive consequences. We cannot
      assure you that *PROBACTRIX* or any
      other product will be successfully developed, be developed on a timely basis
      or
      prove to be more effective than competing products based on existing or newly
      developed technologies. The inability to successfully complete development,
      or a
      determination by us, for financial or other reasons, not to undertake to
      complete development of *PROBACTRIX* or any
      other product, particularly in instances in which we have made significant
      capital expenditures, could have a material adverse effect on us.




**POTENTIAL
      FAILURE OF PLANNED CLINICAL TRIALS TO PRODUCE STATISTICALLY SIGNIFICANT DATA
      COULD IMPAIR OUR ABILITY TO OBTAIN REGULATORY APPROVAL AND DEVELOP, MANUFACTURE
      AND SUCCESSFULLY MARKET OUR PRODUCTS** ***.***




There
      still is substantial risk that the studies that we are planning will not yield
      sufficient statistically significant data to make strong marketing claims.
      This
      could impede our ability to obtain FDA approval for our products and, even
      if
      approval is obtained, would adversely affect marketing efforts to the medical
      community, which is traditionally resistant to new treatments unless supported
      by statistically significant data before recommending it to
      patients.




**WE
      ARE DEPENDENT ON NEW PRODUCTS AND CONTINUED INNOVATION** ***.***




The
      pharmaceutical industry in general, including the market for GI treatments,
      is
      characterized by rapid innovation and advances. These advances result in
      frequent product introductions and short product life cycles, requiring a high
      level of expenditures for research and development and the timely introduction
      of new products. We believe our ability to grow and succeed is partially
      dependent upon our ability to introduce new and innovative products into such
      markets. We cannot assure you that we will be successful in our plans to
      introduce additional products to the market or expand our current label
      indications.


20


**INTELLECTUAL
      PROPERTY RIGHTS MAY NOT PROTECT OUR BUSINESS** ***.***




We
      use a
      combination of patents, trademarks and trade secrets to protect our proprietary
      position on *PROBACTRIX* .
      We
      cannot assure you that our pending or future patent and trademark registration
      applications will result in issued patents and registered trademarks, or that,
      if issued, our applications will be upheld if challenged. Further, even if
      granted, we cannot assure you that these patents and trademarks will provide
      us
      with any protection from competitors or, that if they do provide any meaningful
      level of protection, that we will have the financial resources necessary to
      enforce our patent and trademark rights. In addition, we cannot assure you
      that
      others will not independently develop technologies similar to those covered
      by
      our pending patents and trade secrets, or design around the pending patents.
      If
      others are able to design around our patents, our results of operations could
      be
      materially adversely affected. Further, we will have very limited, if any,
      protection of our proprietary rights in those jurisdictions where we have not
      affected any filings or where we fail to obtain protection through our filings.
      We cannot assure you that third parties will not assert intellectual property
      infringement claims against us in the future with respect to current or future
      products. We are responsible for defending against charges of infringement
      of
      third party intellectual property rights by our actions and products and such
      assertion may require us to refrain from the sale of our products, enter into
      royalty arrangements or undertake costly litigation. Further, challenges may
      be
      instituted by third parties as to the validity, enforceability and infringement
      of our patents. Our adherence to industry standards with respect to our product
      may limit our opportunities to provide proprietary features which may be
      protected. In addition, the laws of various countries in which our product
      may
      be sold may not protect our product and intellectual property rights to the
      same
      extent as the laws of the United States.




**THE
      VALIDITY OF PATENTS COVERING PHARMACEUTICAL AND BIOTECHNOLOGICAL INVENTIONS
      AND
      THE SCOPE OF INTELLECTUAL PROPERTY CLAIMS MADE UNDER SUCH PATENTS IS UNCERTAIN;
      FAILURE TO SECURE NECESSARY PATENTS COULD IMPAIR OUR ABILITY TO PRODUCE AND
      MARKET OUR PRODUCTS** ***.***




There
      is
      no consistent policy regarding the breadth of intellectual property claims
      permitted in specialty pharmaceutical and biotechnology patents. In addition,
      patents may have been granted, or may be granted, to others covering products
      or
      processes that we need, or may need, for testing and developing our products.
      If
      our products or processes infringe upon patents held by third parties, or
      otherwise impermissibly utilize the intellectual property of others, we might
      be
      unable to develop, manufacture, or sell our products. In such event, we may
      be
      required to obtain licenses to from third parties to use such intellectual
      property. We cannot be sure that we will be able to obtain such licenses on
      acceptable terms, or at all.


21


**FAILURE
      TO DEVELOP, OR CONTRACT FOR, AN ADEQUATE SALES AND MARKETING ORGANIZATION,
      OR
      PARTNER WITH A LARGER PHARMACEUTICAL COMPANY WOULD RESULT IN THE INABILITY
      TO
      MARKET AND SELL OUR PRODUCT.**




To
      market
      any of our products directly, we would have to develop a substantial marketing
      and sales force. Alternatively, we may, for certain products, attempt to obtain
      the assistance of larger pharmaceutical companies with established distributions
      systems and direct sales forces. We do not know if we will be able to enter
      into
      agreements with other companies to assist in the marketing and sales of our
      products. If we are not able to sustain such marketing efforts, we may license
      marketing rights to a third party. However, we cannot be sure that we would
      be
      able to locate a qualified marketer or distributor or enter into any such
      agreement on reasonable terms or at all.




**WE
      OWN NO MANUFACTURING FACILITIES AND WILL BE DEPENDENT ON THIRD PARTIES TO MAKE
      OUR PRODUCT** ***.***




We
      own no
      manufacturing facilities or equipment, and employ no manufacturing personnel.
      We
      expect to use third parties to manufacture certain of our products on a contract
      basis. We may not be able to obtain contract-manufacturing services on
      reasonable terms or at all. If we are not able to contract manufacturing
      services, we will not be able to make our products.




**WE
      WILL BE REQUIRED TO COMPLY WITH GOOD MANUFACTURING
      PRACTICES** ***.***




The
      manufacture of our proposed products will be subject to current Good
      Manufacturing Practices ("GMP") prescribed by the FDA in the United States.
      We
      cannot give assurance that we or any entity manufacturing products on our behalf
      will be able to comply with GMP or satisfy certain regulatory inspections in
      connection with the manufacture of our proposed products. Failure or delay
      by
      any manufacturer of our products to comply with GMP or similar regulations
      or
      satisfy regulatory inspections would have a material adverse effect on
      us.




**POTENTIAL
      SIDE EFFECTS OF OUR PRODUCT COULD IMPAIR OUR ABILITY TO CONTINUE CLINICAL
      TRIALS, OBTAIN REGULATORY APPROVAL, OR SUCCESSFULLY MARKET OUR
      PRODUCTS** ***.***




Although
      no significant side effects of our products have been demonstrated, it is
      possible that, any time during clinical trials or patient usage, side effects
      may be encountered. If they are common enough or significant enough, this could
      result in the termination of our clinical trials, denial of FDA approval, the
      inability to market and sell our products, our products being withdrawn from
      the
      market, or liability claims being asserted against us.




**OUR
      PRODUCTS MAY NOT BE ACCEPTED BY PHYSICIANS, PATIENTS OR THIRD PARTY
      PAYERS** ***.***




Patients,
      doctors and third-party payers must accept our products as medically useful
      and
      cost-effective for us to be successful. Doctors and patients are very important
      constituents because they directly make all medical decisions. Third party
      payers are also very important because they pay for a major portion of all
      medical care expenses. Third party payers consist of health maintenance
      organizations (“HMOs”), health insurers, managed care providers, Medicare and
      Medicaid, and their equivalent organizations in jurisdictions outside the U.S.
      In order to achieve our sales targets in the jurisdictions in which we intend
      to
      sell our products, we must educate patients, doctors and third-party payers
      on
      the benefits of our products. We cannot assure you that patients, doctors or
      third-party payers will accept our products, even if approved for marketing,
      on
      a timely basis.


22


**GOVERNMENT
      AND PRIVATE INSURANCE PLANS MAY NOT PAY FOR OUR PRODUCTS** ***.***




The
      success of our products in the United States and other significant markets
      will
      depend, in part, upon the extent to which a consumer will be able to obtain
      reimbursement for the cost of such product from governmental authorities,
      third-party payers and other organizations. We cannot determine in advance
      the
      reimbursement status of newly approved therapeutic products. Even if a product
      is approved for marketing, we cannot be sure that adequate reimbursement will
      be
      available. Also, future legislation or regulation, or related announcements
      or
      developments, concerning the healthcare industry, or third party or governmental
      coverage and reimbursement, may adversely affect our business. In particular,
      legislation or regulation limiting consumers' reimbursement rights could have
      a
      material adverse effect on our business and revenues.




**WE
      MAY LOSE ANY TECHNOLOGICAL ADVANTAGE BECAUSE PHARMACEUTICAL RESEARCH
      TECHNOLOGIES CHANGE RAPIDLY** ***.***




The
      pharmaceutical research field is characterized by rapid technological progress
      and intense competition. As a result, our business strategy may not be
      successful and our products may not reach the marketplace or be saleable
      Businesses, academic institutions, governmental agencies, and other public
      and
      private research organizations, are conducting research to develop technologies
      that may compete with those of BioBalance. It is possible that competitors
      could
      acquire or develop technologies that would render our technology obsolete or
      noncompetitive. We cannot be certain that we will be able to access the same
      technologies at an acceptable price, or at all.




**WE
      MAY NOT BE ABLE TO PROCURE REQUIRED INSURANCE COVERAGE.**




We
      will
      need to procure liability insurance coverage required by clinical investigators,
      patients and other third parties with respect to future clinical studies. There
      can be no assurance that such coverage will be available to the Company or
      that,
      even if available, the Company will be able to bear the expense of such
      insurance coverage. Absent such coverage, the Company will not be able to
      perform required clinical studies.




**WE
      MAY BE SUBJECT TO PRODUCT LIABILITY CLAIMS WHICH COULD RESULT IN SIGNIFICANT
      LOSSES AND ADVERSE PRODUCT PUBLICITY** ***.***




BioBalance,
      like any other manufacturer of products that are designed to be ingested, faces
      an inherent risk of exposure to product liability claims and negative publicity
      in the event that the use of its product results in injury. We face the risk
      that materials used in the manufacture of the final product may be contaminated
      with substances that may cause sickness or injury to persons who have used
      the
      products, or that sickness or injury to persons may occur if the product
      distributed by us is ingested in dosages that exceed the dosage recommended
      on
      the product label. In the event that insurance coverage or contractual
      indemnification is not adequate, product liability claims could have a material
      adverse effect on our business. The successful assertion or settlement of any
      uninsured claim, a significant number of insured claims, or a claim exceeding
      any future insurance coverage, could have a material adverse effect on our
      business. Additionally, we are highly dependent upon consumers' perception
      of
      the safety and quality of our product as well as similar products distributed
      by
      other companies. Thus, the mere publication of reports and negative publicity
      asserting that our products, or similar products of others, may be harmful
      could
      have a material adverse effect on our business, regardless of whether such
      reports are scientifically supported, regardless of whether the harmful effects
      would be present at the dosages recommended for such products, and regardless
      of
      whether such adverse effects resulted from failure to consume the product as
      directed.




23


**INTENSE
      COMPETITION MAY RESULT IN OUR INABILITY TO GENERATE SUFFICIENT REVENUES TO
      OPERATE PROFITABLY** ***.***




The
      pharmaceutical industry is highly competitive. Numerous companies, many of
      which
      are significantly larger than us, and which have greater financial, personnel,
      distribution and other resources than us and may be better able to withstand
      volatile market conditions, will compete with us in the development, manufacture
      and marketing of probiotics for the treatment of IBS or other GI disorders.
      There can be no assurance that national or international companies will not
      seek
      to enter or increase their presence in the industry. In addition, large
      nationally known companies (such as Novartis and GlaxoSmithKline) are in
      competition with us in this segment, and they have already spent millions of
      dollars to develop treatments for IBS or other GI disorders. Current or
      increased competition could have a material adverse effect on our business,
      as
      many of our competitors have far greater financial and other resources and
      possess extensive manufacturing, distribution and marketing capabilities far
      greater than ours.




**RISKS
      RELATING TO THE HOME HEALTHCARE BUSINESS**





**RECENT
      RULING REGARDING COMPANIONSHIP SERVICES EXEMPTION MAY IMPACT OUR ABILITY TO
      PROVIDE HEALTHCARE SERVICES.**




On
      July
      22, 2004, the federal Second Circuit Court of Appeals issued a ruling on the
      applicability to paraprofessional field staff in New York of the Fair Labor
      Standards Act “companionship services” exemption from minimum wage and overtime
      requirements. Home care providers have long relied on this exemption to provide
      compensation to home care aides and personal care workers with the expectation
      that there is no obligation under federal laws for overtime pay. In September
      2004, a request for a rehearing was submitted en banc for the full Court. On
      January 13, 2005, the Court rejected the request for a rehearing on the
      issue.





The
      issue
      was submitted to the Supreme Court and, on January 23, 2006, the Supreme Court
      granted a writ of certiorari, vacated the judgment and remanded the case to
      the
      Second Circuit Court of Appeals to reconsider its decision in light of the
      memorandum issued by the U.S. Department of Labor on December 1, 2005. In that
      memo, the DOL stated that it considers its regulations allowing the
      companionship exemption to be used by third party employers to be “authoritative
      and legally binding”. The Second Circuit Court of Appeals reconsidered and, on
      August 31, 2006, reaffirmed its decision. The Supreme Court again granted a
      writ
      of certiorari on January 5, 2007, and will hear oral argument in the case on
      April 16, 2007. A decision is expected before the end of June
      2007.


24


The
      challenges for the home care industry and the State, if the companionship
      exemption is ruled to be inapplicable to employees of homecare agencies, will
      be
      affording higher overtime wages, ensuring patient continuity of care if agencies
      can no longer afford to authorize overtime, and the retention of workers who
      cannot secure the number of hours of work they desire. All of these factors
      may
      cause a higher cost per hour serviced thereby adversely affecting
      profitability.





**WE
      ARE INDIRECTLY DEPENDENT UPON REIMBURSEMENT BY THIRD-PARTY PAYERS; HEALTHCARE
      REFORM COULD REDUCE REVENUES** ***.***





More
      than
      45% of our revenues are paid by Certified Home Health Agencies and Long-Term
      Home Health Care Programs, as well as other clients who receive their payments
      from "third-party payers," such as private insurance companies, self-insured
      employers and HMOs. Our revenues and profitability, like those of other home
      healthcare companies, are affected by the continuing efforts of third-party
      payers to contain or reduce the costs of healthcare by lowering reimbursement
      or
      payment rates, increasing case management review of services, and negotiating
      reduced contract pricing. Because home care is generally less costly than
      hospital-based care, home nursing and home care providers have benefited from
      cost containment initiatives aimed at reducing the costs of medical care.
      However, as expenditures in the home healthcare market continue to grow, cost
      containment initiatives aimed at reducing the costs of delivering services
      at
      non-hospital sites are likely to increase. A significant reduction in coverage
      or payment rates of public or private third-party payers would reduce the
      Company’s revenues and profit margins. While we are not aware of any substantive
      changes in the Medicare or Medicaid reimbursement systems for home healthcare
      which are about to be implemented, revised budget plans of New York State or
      the
      federal government could result in limitation or reduction in the reimbursement
      of home care costs and in the imposition of limitations on the provision of
      services which will be reimbursed. Moreover, third party payers, particularly
      private insurance companies, may negotiate fee discounts and reimbursement
      caps
      for services we provide. These circumstances would have a material adverse
      impact on our business.





**SLOW
      PAYMENTS AND POSSIBLE BAD DEBTS MAY CAUSE WORKING CAPITAL SHORTAGES AND
      OPERATING LOSSES.**





We
      generally collect payments from our contractors within one to three months
      after
      services are rendered, but pay our obligations on a current basis. This timing
      delay may cause working capital shortages from time to time. We have a secured
      revolving credit facility, which expired on March 30, 2007 and is currently
      being negotiated for renewal. Such facility may be available to cover these
      periodic shortages. However, borrowings or other methods of financing may not
      be
      available when needed or, if available, may not be on terms acceptable to us.
      Although we have established a bad debt reserve for uncollectible accounts,
      any
      significant increase in bad debts would damage our revenues and profitability.


25


**PROFESSIONAL
      LIABILITY INSURANCE MAY BECOME INADEQUATE, UNAVAILABLE OR TOO
      COSTLY.**





The
      administration of home care and the provision of nursing services entail certain
      liability risks. We maintain professional liability insurance coverage with
      limits of $1,000,000 per claim and $3,000,000 annual aggregate, with an umbrella
      policy providing an additional $5,000,000 of coverage. Although we believe
      that
      the insurance we maintain is sufficient for present operations, professional
      liability insurance is increasingly expensive and sometimes difficult to obtain.
      A successful claim against us in excess of, or not covered by, our insurance
      could adversely affect our business and financial condition. Claims against
      us,
      regardless of their merit or eventual outcome, could also adversely affect
      our
      reputation and home healthcare business.





**CHANGES
      IN FEDERAL AND STATE REGULATION COULD INCREASE COSTS AND REDUCE
      REVENUES.**





Our
      home
      healthcare business is subject to substantial regulation at the state level
      and
      also under the federal Medicare and Medicaid laws. In particular, we are subject
      to state laws regulating home care, nursing services, health planning and
      professional ethics, as well as state and federal laws regarding fraud and
      abuse
      in government funded health programs. Changes in the law, or new interpretations
      of existing laws, can increase the relative costs of doing business and reduce
      the amount of reimbursement by government and private third-party payers.
      Although we have not experienced any difficulties to date complying with
      applicable laws, rules or regulations, our failure to obtain, renew or maintain
      any required regulatory approvals or licenses could have a material adverse
      effect on us and could prevent us from offering our existing services to
      patients or from further expansion. Pending legislation in the State of New
      York
      could substantially impact the conduct of our home healthcare business and
      potentially adversely affect the cost of operations and available reimbursement.
      Under the pending legislation in New York, certain reporting requirements,
      as
      well as caps on permissible administrative expenses, would be imposed. If the
      pending legislation becomes law in its current form, costs of operations of our
      home healthcare business in New York are likely to increase.





**INTENSE
      COMPETITION COULD RESULT IN LOSS OF CLIENTS, LOSS OF PERSONNEL, REDUCED REVENUES
      AND INABILITY TO OPERATE PROFITABLY** ***.***





The
      home
      healthcare industry is marked by low entry costs and is highly fragmented and
      competitive. We compete for personnel with hospitals and nursing homes, and
      we
      also compete for both personnel and business with other companies that provide
      home healthcare services, most of which are large established companies with
      significantly greater resources, access to capital and greater name recognition
      than we have. Our principal business competitors include Premiere Health
      Services, National Home Health Care Corp., Patient Care, Inc., and Personal
      Touch Home Care Services, Inc. We also compete with many other small temporary
      medical staffing agencies. Competition for qualified paraprofessional personnel
      in the New York Metropolitan area is intense. We believe that, given the
      increasing level of demand for nursing services, significant additional
      competition can be expected to develop in the future and there are no assurances
      that we will be able to remain competitive or profitable.




26


**DEPENDENCE
      ON MAJOR CUSTOMERS AND REFERRAL SOURCES MAY RESULT IN SUBSTANTIAL DECLINES
      IN
      REVENUES IF SUCH CUSTOMERS ARE LOST** ***.***





The
      development and growth of our home care and nursing businesses depends, to
      a
      significant extent, on our ability to establish close working relationships
      with
      hospitals, clinics, nursing homes, physician groups, HMO's, governmental
      healthcare agencies and other healthcare providers. Many of our contractual
      arrangements with customers are renewable annually. Existing relationships
      may
      not be successfully maintained and additional relationships may not be
      successfully developed and maintained in existing and future markets. Our 10
      largest customers accounted for approximately 88.7% of gross revenues during
      the
      year ended December 31, 2006. One referral source, New York City Medicaid,
      was
      responsible for approximately 55.2% of our gross revenues for the year ended
      December 31, 2006. The loss of, or a significant reduction in, referrals by
      these sources, as well as certain other key sources, would have a material
      adverse effect on results of operations of our home healthcare
      business.





**RISKS
      RELATING TO OUR COMMON STOCK**





**POSSIBLE
      VOLATILITY OF COMMON STOCK MAY RESULT IN LOSSES TO
      SHAREHOLDERS** ***.***




The
      trading price of our Common Stock has been subject to significant fluctuations,
      and there is a limited market for our Common Stock. For the fiscal year 2006,
      the price of our Common Stock has ranged from a high of $1.17 to a low of $0.07.
      The price of our Common Stock is likely to continue to be affected by various
      factors, including, but not limited to, the results of our development efforts
      of *PROBACTRIX* and
      other products, variations in quarterly results of operations, announcements
      of
      new contracts or services, or acquisitions by us or our competitors,
      governmental regulatory action, general trends in the industry, and other
      factors, such as extreme price and volume fluctuations which have been generally
      experienced by the securities markets from time to time in recent
      years.




**OUR
      DELISTING FROM NASDAQ DUE TO OUR FAILURE TO SATISFY NASDAQ LISTING STANDARDS
      AND
      OUR STOCK BEING SUBJECT TO THE “PENNY STOCK” RULES HAS RESULTED IN REDUCED
      LIQUIDITY AND LOWER STOCK PRICE** ***.***




Our
      Common Stock was delisted from the Nasdaq SmallCap market in April 2004 and
      was
      listed for trading in the OTC "pink sheets.” As of September 22, 2005, our
      Common Stock has been listed for trading on the Nasdaq Bulletin Board which
      provides significantly less liquidity than a securities exchange (such as the
      American or New York Stock Exchange) or an automated quotation system (such
      as
      the Nasdaq National or Capital Market **)** . As
      a
      result, the liquidity of our Common Stock is impaired, not only in the number
      of
      shares which can be bought and sold, but also through delays in the timing
      of
      transactions, reduction in security analysts' and news media's coverage, and
      lower prices for our Common Stock than might otherwise be attained. There
      is
      currently a very limited market and low volume of trading in our Common Stock,
      and on many days there is no trading activity at all in our Common
      Stock. **** Moreover,
      because of the limited market and low volume of trading, our Common Stock is
      more likely to be affected by and fluctuate from broad market fluctuations,
      general market conditions, fluctuations in our operating results, future
      securities offering by us, changes in the market’s perception of our business,
      announcements made by us or our competitors, and general industry conditions.
      Our Common Stock may not be accepted for a listing on an automated quotation
      system or securities exchange.




27


In
      addition, our Common Stock is subject to the low-priced security or so-called
      "penny stock" rules that impose additional sales practice requirements on
      broker-dealers who sell such securities. For any transaction involving a penny
      stock, the rules require, among other things, the delivery, prior to the
      transaction, of a disclosure schedule required by the SEC relating to the penny
      stock market. The broker-dealer also must disclose the commissions payable
      to
      both the broker-dealer and the registered representative and current quotations
      for the securities. Finally, monthly statements must be sent disclosing recent
      price information for the penny stocks held in the customer's account. The
      regulations relating to penny stocks could limit the ability of broker dealers
      to sell our Common Stock and thus, the ability of shareholders to sell their
      shares in the market.







**FUTURE
      ISSUANCES OR SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE
      OF OUR COMMON STOCK AND OUR ABILITY TO RAISE ADDITIONAL
      CAPITAL** ***.***




We
      have
      previously issued a substantial number of shares of Common Stock, which are
      eligible for resale under Rule 144 of the Securities Act, and which may become
      freely tradable. We have registered, or agreed to register, a substantial number
      of shares of Common Stock that are issuable upon the exercise of options and
      warrants, or that were previously issued in private transactions. If holders
      of
      options or warrants choose to exercise their purchase rights and sell shares
      of
      Common Stock in the public market, or if holders of currently restricted shares
      choose to sell such shares in the public market under Rule 144 or otherwise,
      the
      prevailing market price for the Common Stock may decline. Future public sales
      of
      shares of Common Stock may adversely affect the market price of our Common
      Stock
      or our future ability to raise capital by offering equity
      securities.




**ISSUANCE
      OF PREFERRED STOCK COULD REDUCE THE VALUE OF COMMON STOCK AND COULD HAVE
      ANTI-TAKEOVER EFFECTS.**




We
      are
      authorized by our certificate of incorporation to issue up to 5,000,000 shares
      of preferred stock, on terms which may be fixed by our board of directors
      without further shareholder action. There are now no shares of preferred stock
      issued and outstanding. The terms of any new series of preferred stock, which
      may include priority claims to assets and dividends and special voting rights,
      could adversely affect the rights of holders of the Common Stock. The issuance
      of an additional series of preferred stock, depending upon the rights and
      preferences of such series, could make the possible takeover of our company,
      or
      the removal of our management, more difficult, discourage hostile bids for
      control of our company in which shareholders may receive premiums for their
      shares of Common Stock, or otherwise dilute the rights of holders of Common
      Stock and the market price of the Common Stock.




28


**WE
      HAVE NEVER PAID ANY DIVIDENDS ON OUR COMMON STOCK** ***.***




We
      have
      never paid any dividends on our Common Stock and do not anticipate paying cash
      dividends in the foreseeable future. We currently intend to retain all earnings.
      The declaration and payment of future dividends, if any, will be at the sole
      discretion of our board of directors and will depend upon our profitability,
      financial condition, cash requirements, future prospects, the rights of any
      other classes of preferred stock, and other factors deemed relevant by the
      board
      of directors.




**SHARES
      OF OUR COMMON STOCK ISSUED IN CONNECTION WITH OUR ACQUISITION OF BIOBALANCE
      MAY
      HAVE BEEN ISSUED WITHOUT COMPLYING WITH CERTAIN STATE SECURITIES
      LAWS.**




During
      October 2003, it was determined that certain of the shares of common stock
      that
      we issued to holders of BioBalance stock in connection with our January 2003
      acquisition of BioBalance may not have been exempt from the registration or
      qualification requirements of the state securities laws of certain of the states
      where the holders of BioBalance stock then resided, although they were
      registered under the Securities Act of 1933, as amended. Although we are unable
      to quantify the actual number of shares involved that are still owned by the
      original recipients of our shares in the acquisition, the per share purchase
      price paid by the BioBalance holders for the shares they exchanged in the
      acquisition ranged from $.03 to $3.00 per share, and we currently believe that
      the purchase price paid by such persons who might have certain statutory
      rescission rights does not exceed approximately $345,000, exclusive of any
      penalties or interest, although no assurance can be given that any such claims
      will not exceed this amount. We cannot determine the effect, if any, on our
      operations or financial condition that may occur from the failure to register
      or
      qualify these shares under applicable state securities laws. If it is determined
      that we offered securities without properly registering or qualifying them
      under
      state laws, or securing exemption from registration, regulators could impose
      on
      us significant monetary fines or other sanctions. We are unable to estimate
      the
      amount of monetary fines, if any, or the nature or scope of any sanctions at
      this time.




**Item
      1B.**  **UNRESOLVED
      STAFF COMMENTS**




None.




**Item
      2.**   **DESCRIPTION
      OF PROPERTIES**





All
      of
      our executive and branch offices are located in facilities leased from
      unaffiliated persons.





Our
      corporate headquarters is located in a building containing approximately 6,000
      square feet located in Brooklyn, New York under a lease expiring in 2010, at
      a
      monthly rental of approximately $7,000, subject to annual increases and rent
      escalations based on increases in real estate taxes. Our home healthcare
      business is administered from our corporate headquarters and 6 branch and
      recruitment offices located in New York under month to month tenancies and
      term
      leases expiring from June 2005 through April 2010 at annual rentals ranging
      from
      approximately $14,000 to $55,000, and additional rent based upon increases
      in
      real estate taxes and other cost escalations.




29


BioBalance's
      executive office was located at 345 Seventh Avenue, New York, New York under
      a
      five year lease that commenced in April 2006 at a monthly rental of
      approximately $15,200. BioBalance
      surrendered this office space to the landlord in March 2007 in exchange for
      lease cancellation, incurring exit costs of approximately $36,000.





**Item
      3.**   **LEGAL
      PROCEEDINGS**





We
      are
      subject to various legal proceedings and claims, either asserted or unasserted,
      which arise in the ordinary course of business. While the outcome of these
      claims cannot be predicted with certainty, management does not believe that
      the
      outcome of any of these legal matters will have a material adverse effect on
      our
      results of operations or financial position, except as follows:





On
      March
      30, 2006, the Company was served with a shareholder derivative complaint
      captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murray
      Englard, Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York
      Health Care, Inc., (Supreme Court of State of New York County of Nassau, (Index
      No. 5125/06). The lawsuit alleged that the directors breached their fiduciary
      duty by approving the Emerald Settlement Agreement disclosed in the Company's
      Form 8-K (Date of Report March 6, 2006) filed with the Securities Exchange
      Commission on March 10, 2006. The lawsuit claimed that such breach was a product
      of their respective relationships with Mr. Grossman. The lawsuit also alleged
      that Mr. Grossman and Emerald Asset Management injured the Company by engaging
      in the actions underlying the November 2004 criminal conviction of Mr. Grossman.
      The lawsuit was dismissed in September 2006.





The
      Company reported in the Company's Form 8-K filed on August 21, 2006 that the
      Company had unilaterally rescinded the settlement between the Company and
      Emerald Asset and Yitz Grossman. The settlement agreement was originally entered
      into as reported in the Company's Form 8-K filed on March 6, 2006, and the
      related liability was recorded on the books of the Company at December 31,
      2005,
      in the amount of $1,545,000. The rescission of the settlement by the Company
      was
      done without the consent of Emerald Asset and Yitz Grossman. Accordingly there
      may be future litigation brought against the Company by Emerald Asset and Yitz
      Grossman to seek enforcement of the agreement. The Company continues to retain
      the accrual for the settlement agreement on its books in its entirety. If there
      is litigation brought by Emerald Asset and Yitz Grossman to enforce the
      settlement agreement, there can be no assurance that at a future time the
      accrual that was recorded would be sufficient to offset amounts resulting from
      the future litigation. The Company would vigorously contest any claims by
      Emerald and Yitz Grossman seeking to enforce the settlement agreement. However,
      there can be no assurance such efforts by the Company would be
      successful.




30


**Item
      4.**   **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





Not
      applicable.





**PART
      II**





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





Our
      Common Stock traded on the National Association of Securities Dealers Automated
      Quotation System (“NASDAQ”) Capital Market (formerly known as the SmallCap
      Market) Market until April 6, 2004. From April 6, 2004 until September 22,
      2005,
      our Common Stock was traded over-the-counter on the Pink Sheets. On September
      22, 2005, our Common Stock was listed for trading on the Bulletin Board. Our
      Common Stock was also listed on the Boston Stock Exchange (“BSE”) until March 5,
      2005, when our voluntary delisting application was granted, although no trades
      of our Common Stock had been executed on the BSE for at least two years prior
      to
      our making the voluntary application to delist from the BSE. The following
      table
      sets forth, for the quarters indicated, the high and low sales prices for our
      Common Stock on the NASDAQ Capital Market or the Pink Sheets or the Bulletin
      Board as applicable.


Fiscal
                  2006
              
              High
              
              LowFirst
                  Quarter
              
              $
              1.17
              
              
              0.61Second
                  Quarter
              
              
              0.86
              
              
              0.49Third
                  Quarter
              
              
              0.65
              
              
              0.25Fourth
                  Quarter
              
              
              0.33
              
              
              0.07Fiscal
                  2005First
                  Quarter
              
              
              1.12
              
              
              0.51Second
                  Quarter
              
              
              1.07
              
              
              0.75Third
                  Quarter
              
              
              1.25
              
              
              0.70Fourth
                  Quarter
              
              
              1.00
              
              
              0.67


**Holders**





At
      April
      9, 2007, we had 216 holders of record and approximately 1,400 beneficial holders
      of our Common Stock.





**Dividends**





The
      Company has not paid any cash dividends since its inception and presently
      anticipates that all earnings, if any, will be retained for development of
      the
      Company’s business and that no dividends on the shares of Common Stock will be
      declared in the foreseeable future. Any future dividends will be subject to
      the
      discretion of the Company’s Board of Directors and will depend upon, among other
      things, future earnings, the operating and financial condition of the Company,
      its capital requirements, general business conditions and other facts and
      circumstances as assessed by the Board of Directors in its reasonable judgment.
      There can be no assurance that any dividends on the Common Stock will be paid
      in
      the future.




31


**Securities
      Authorized for Issuance under Equity Compensation Plans**





For
      information on securities authorized for issuance and issued under the Company’s
      equity compensation plans, see Part III, Item 11 of this report, “Executive
      Compensation - Savings and Equity Compensation Plans.”





**Item
      6:**  **SELECTED
      FINANCIAL DATA**




**NEW
      YORK HEALTH CARE HISTORICAL FINANCIAL INFORMATION**


2006
                
                2005
                
                2004
                
                2003
                
                2002Total
                    Revenues
                
                $
                45,558,331
                
                $
                44,722,823
                
                $
                42,286,444
                
                $
                38,569,627
                
                $
                -Net
                    Loss
                
                
                (3,755,673
                )
                
                (6,321,662
                )
                
                (6,071,685
                )
                
                (22,052,170
                )
                
                (1,399,057
                )Basic
                    and diluted loss per shareBasic
                    loss per share
                
                
                (0.11
                )
                
                (0.20
                )
                
                (0.24
                )
                
                (0.91
                )
                
                (0.07
                )Diluted
                    loss per share
                
                
                (0.11
                )
                
                (0.20
                )
                
                (0.24
                )
                
                (0.91
                )
                
                (0.07
                )Current
                    Assets
                
                
                10,231,507
                
                
                13,468,664
                
                
                12,168,812
                
                
                14,543,209
                
                
                3,051,720Total
                    Assets
                
                
                12,879,538
                
                
                17,289,077
                
                
                16,503,195
                
                
                21,628,968
                
                
                5,259,449Current
                    liabilities
                
                
                14,682,154
                
                
                15,605,424
                
                
                13,918,937
                
                
                12,607,203
                
                
                349,182Long-term
                      liabilities, net of currentportion
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Shareholders
                    (Deficiency) Equity
                
                
                (1,802,616
                )
                
                1,683,653
                
                
                2,584,258
                
                
                9,021,765
                
                
                4,910,267Book
                    value per share
                
                
                (0.05
                )
                
                0.05
                
                
                0.10
                
                
                0.36
                
                
                0.23Dividends
                    per share
                
                
                -
                
                
                -
                
                
                -
                
                
                -
                
                
                -Shares
                      used in computing loss percommon share:Basic
                
                
                33,250,740
                
                
                31,895,833
                
                
                24,939,776
                
                
                24,283,907
                
                
                20,562,131Diluted
                
                
                33,250,740
                
                
                31,895,833
                
                
                24,939,776
                
                
                24,283,907
                
                
                20,562,131




**Item
      7.**   **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**Forward
      Looking Statements**





Certain
      information contained in this report is forward-looking in nature. All
      statements in this report, including those made by the Company and its
      subsidiaries (“we”, “our”, or the “Company”), other than statements of
      historical fact, are forward-looking statements. Examples of forward-looking
      statements include statements regarding the Company's future financial
      condition, operating results, business and regulatory strategies, projected
      costs, services, research and development, competitive positions and plans
      and
      objectives of management for future operations. These forward-looking statements
      are based on management's estimates, projections and assumptions as of the
      date
      hereof and include the assumptions that underlie such statements.
      Forward-looking statements may contain words such as “may,” “will,” “should,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue,” or the negative of these terms or other comparable
      terminology. Any expectations based on these forward-looking statements are
      subject to risks and uncertainties and other important factors, including those
      discussed in Item 2 - Management's Discussion and Analysis of Financial
      Condition and Results of Operations. Other risks and uncertainties are disclosed
      in the Company's prior SEC filings. These and many other factors could affect
      the Company's future financial operating results, and could cause actual results
      to differ materially from expectations based on forward-looking statements
      made
      in this report or elsewhere by the Company or on its behalf. The Company assumes
      no obligation to update such statements.




32


**Overview**





We
      are
      currently engaged in two industry segments, the delivery of home healthcare
      services (sometimes referred to as the “home healthcare business”) and the
      development of proprietary biotherapeutic agents for the treatment of various
      gastrointestinal (“GI”) disorders, through our acquisition
      BioBalance.





The
      Company is a New York corporation incorporated in 1983. The Company's principal
      executive office is 1850 McDonald Avenue, Brooklyn, New York 11223, telephone
      718-375-6700.





**Critical
      Accounting Policies**





The
      preparation of financial statements and related disclosures in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the amounts
      reported in the Consolidated Financial Statements and accompanying notes.
      Estimates are used for, but not limited to, the accounting for allowance for
      doubtful accounts and potential impairment of goodwill and other intangibles.
      Management bases its estimates on historical experience and on various other
      assumptions that are believed to be reasonable the circumstances. Actual results
      could differ from these estimates under different assumptions or
      conditions.





**Revenue
      Recognition**





The
      Company recognizes patient service revenue on the date services are rendered.
      Unbilled services represent amounts due for services rendered that had not
      been
      billed at the end of each period because authorization had not been received
      from the referral source.





**Accounts
      Receivable**





Accounts
      receivable of our home healthcare business consists of trade receivables
      recorded at original invoice amounts, less an estimated allowance for
      uncollectible accounts. We generally extend trade credit on a short-term basis.
      Accordingly, our trade receivables do not bear interest, although we may apply
      a
      finance charge to receivables that are past due. We periodically evaluate
      accounts receivable for collectiblity, based on past credit history of customers
      and the current financial condition of those customers. Changes in the estimated
      collectiblity of accounts receivable are recorded in the results of operations
      for the fiscal period in which the estimate is revised. Accounts receivable
      that
      we judge to be uncollectible are offset against the allowance for uncollectible
      accounts.




33




**Goodwill
      and Other Intangible Assets**




Statement
      of Financial Accounting Standards No.142 requires that good will and intangible
      assets having indefinite lives not be amortized, but instead be tested for
      impairment at least annually. Intangible assets determined to have definite
      lives are amortized over their remaining useful lives.





**Long-Lived
      Assets**





We
      evaluate long-lived assets, such as intangible assets other than goodwill,
      equipment and leasehold improvements, for impairment when events or changes
      in
      circumstances indicate that the carrying amounts of the assets may not be
      recoverable through estimated undiscounted cash flows from the use of these
      assets. When impairment exists, the related assets are written down to fair
      value.





**Recently
      Issued Accounting Pronouncements**




In
      February, 2007, FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* including an amendment of FAS 115, or FAS 159. This statement provides companies
      with an option to report selected financial assets and liabilities at fair
      value. This statement is effective for fiscal years beginning after November
      15,
      2007 with early adoption permitted. We are assessing FAS No. 159 and have not
      yet determined the impact that the adoption of FAS No. 159 will have
      on our results of operations or financial position, if any.





In
      September 2006, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 108, *Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements* ,
      or SAB
      108, that requires public companies to utilize a “dual approach” to assessing
      the quantitative effects of financial misstatements. This dual approach includes
      both an income statement focused assessment and a balance sheet focused
      assessment. SAB 108 is effective for annual financial statements covering the
      first fiscal year ending after November 15, 2006. We are currently assessing
      the
      impact of SAB 108 but do not expect that it will have a material effect on
      our
      results of operations or financial condition.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      (“SFAS”) No. 157 Fair Value Measurements. This statement defines fair
      value, establishes a fair value hierarchy to be used in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      Although this statement does not require any new fair value measurements, the
      application could change current practice. The statement is effective for fiscal
      years beginning after November 15, 2007. The Company is currently
      evaluating the impact of this statement to its financial position and results
      of
      operations.


34


In
      September 2006, the FASB issued SFAS No. 158 Employers' Accounting for
      Defined Benefit Pension and Other Postretirement Plans - an Amendment of FASB
      Statements No. 87, 88, 106, and 132(R). This statement requires a company
      to recognize the funded status of a benefit plan as an asset or a liability
      in
      its statement of financial position. In addition, a company is required to
      measure plan assets and benefit obligations as of the date of its fiscal
      year-end statement of financial position. The recognition provision of this
      statement, along with additional disclosure requirements, is effective for
      fiscal years ending after December 15, 2006, while the measurement date
      provision is effective for fiscal years ending after December 15, 2008.
      Management does not believe that adoption of this statement will have a material
      impact on the financial position of the Company.




In
      July
      2006, the FASB interpretation (“FIN”) No. 48, Accounting for Uncertainty in
      Income Taxes - An Interpretation of FASB Statement No. 109, was issued
      regarding accounting for, and disclosure of, uncertain tax positions. This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise's financial statements in accordance with FASB
      Statement No. 109, “Accounting for Income Taxes,” and prescribes a
      recognition threshold and measurement attribute for the financial statement
      recognition and measurement of a tax position taken or expected to be taken
      in a
      tax return. The interpretation also provides guidance on derecognition,
      classification, interest and penalties, accounting in interim periods,
      disclosure, and transition. This interpretation is effective for fiscal years
      beginning after December 15, 2006. Management does not believe that
      adoption of this statement will have a material impact on the financial position
      of the Company.





In
      March
      2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
      Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires separate recognition
      of a servicing asset and a servicing liability each time an entity undertakes
      and obligation to service a financial asset by entering into a servicing
      contract. This statement also requires that servicing assets and liabilities
      be
      initially recorded at fair value and subsequently adjusted to the fair value
      at
      the end of each reporting period. This statement is effective in fiscal years
      beginning after September 15, 2006. The Company feels implementation of this
      pronouncement will have no material effect on its financial
      statements.





In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS NO.
      155, Accounting for Certain Hybrid Financial Instruments - An Amendment of
      FASB
      No. 133 and 140. The purpose of SFAS statement No. 155 is to simplify the
      accounting for certain hybrid financial instruments by permitting fair value
      re-measurement for any hybrid financial instrument that contains an embedded
      derivative that otherwise would require bifurcation. SFAS No. 155 also
      eliminates the restriction on passive derivative instruments that a qualifying
      special-purpose entity may hold. SFAS No. 155 is effective for all financial
      instruments acquired or issued after the beginning of any entity's first fiscal
      year beginning after September 15, 2006.





In
      December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
      Payment,” or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
      supersedes APB Opinion No. 25, requires that compensation cost relating to
      share-based payment transactions be recognized in the financial statements,
      based on the fair value of the equity or liability instruments issued. On April
      14, 2005, the SEC staff postponed implementation of SFAS No. 123 (R) and it
      is
      effective for the Company as of the beginning of the first interim or annual
      reporting period that begins after December 15, 2005 and applies to all awards
      granted, modified, repurchased or cancelled after the effective date. The
      Company adopted this statement as of January 1, 2006.




35


**Results
      of Operations**





**BioBalance
      Segment**





During
      the years 2006, 2005 and 2004 the BioBalance segment had no revenues and no
      cost
      of sales.





Selling,
      general and administrative expenses ("SG&A") for the year ended December 31,
      2006 decreased approximately $1,186,000 (approximately 33.8%) to approximately
      $2,327,000 from approximately $3,513,000 for the year ended December 31, 2005.
      For the year ended December 31, 2005, SG&A increased by $618,000 from
      $2,895,000 (approximately 21.3%) for the fiscal year ended December 31,
      2004.





Product
      development costs for the BioBalance segment for the year ended December 31,
      2006 were $1,638,000 as compared to $2,802,000 for 2005, a decrease of 41.6%.
      The decrease was a result of preparation for scaling back operations because
      of
      a lack of available funding to continue clinical trials.





This
      cost
      for product development increased 165% from approximately $1,056,000 in 2004
      to
      $2,802,000 in 2005. This was due to increased work on the IND filing for
      ProBactrix.





For
      the
      year ended December 31, 2006, the operations of the BioBalance segment showed
      loss from continuing operations of $5,492,000 compared to a loss of $6,846,000
      in 2005, a decrease of 19.8%. For the year ended December 31, 2005, the loss
      from continuing operations increased by 6.6% from the 2004 loss of
      $6,425,000.





**Home
      Healthcare Segment**





Revenues
      in 2006 increased 1.9% to $45,558,000 from $44,723,000 in 2005. The revenue
      in
      2005 showed an increase of 5.8% from $42,286,000 in 2004. The revenue in the
      home health care segment includes a reversal of debt from HRA in the amount
      of
      approximately $704,000 in the quarter ended March 31, 2006, which relates to
      funds that HRA agreed not collect for their fiscal year 2002. The Company had
      previously accrued this amount as due to HRA.





Cost
      of
      professional care of patients decreased 0.9% in 2006 to $36,747,000 from
      $37,080,000 in 2005. Cost of professional care of patients increased 6.6% in
      2005 to $37,080,000 from $34,781,000 in 2004.




36


Selling,
      general and administrative expenses (SG&A) decreased by $2,721,000 (28.6%)
      to $6,778,000 in 2006 as compared to $9,499,000 in 2005. This
      decrease is due to the reduction in personnel costs, reductions of general
      operating costs at the home health care operations and the fact that in the
      third quarter of 2005 the Company made a one time settlement with the previous
      management of approximately $2,250,000.




Selling,
      general and administrative expenses (SG&A) increased to $9,499,000 in 2005
      as compared to $7,132,000 in 2004 which was primarily the result of the settlements
      discussed in the preceding paragraph.





For
      the
      year ended December 31, 2006, the income from continuing operations of the
      home
      health care segment was $1,736,000 as compared to a loss from continuing
      operations of $2,180,000 for the year ended December 31, 2005. The factors
      affecting the income of the home health care division were the settlements
      mentioned above and a one time reversal of debt from HRA in the amount of
      approximately $704,000 in the first quarter of 2006.








**Liquidity
      and Capital Resources**





**Home
      Healthcare Segment**





At
      December 31, 2006, the Company had no long-term debt. Future minimum rental
      commitments for all non-cancelable lease obligations at December 31, 2006 are
      as
      follows:





Payments
                  due by periodMore
                  thanTotal
              
              1
                  year
              
              2
                  years
              
              3-5
                  years
              
              5
                  yearsContractual
                  ObligationsLong-term
                  debt obligations
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Capital
                  lease obligations
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Operating
                  lease obligations
              
              
              1,033,000
              
              
              294,000
              
              
              285,000
              
              
              454,000
              
              
              -Purchase
                  obligations
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -$
              1,033,000
              
              $
              294,000
              
              $
              285,000
              
              $
              454,000
              
              $
              -




These
      leases also generally contain provisions allowing rental obligations to be
      accelerated upon default in the payment of rent or the performance of other
      lease obligations. These leases generally contain provisions for additional
      rent
      based upon increases in real estate taxes and other cost escalations. The lease
      for the office space for BioBalance is included in the above
      amounts.





The
      Company has no off-balance sheet arrangements and has not entered into any
      transactions involving unconsolidated, limited purpose entities or commodity
      contracts.





The
      sources of liquidity and capital resources for the home healthcare segment
      are
      internally generated funds, cash on hand and amounts that were available under
      a
      $4,000,000 revolving credit facility with G.E. Capital Health Care Services
      relating exclusively to the home healthcare segment. This
      facility expired on March 30, 2007 and currently
      there is no outstanding indebtedness under this facility. Although management
      is
      presently negotiating renewal of this facility or a modified borrowing
      arrangement with G.E. Capital, no agreement has been reached
      yet.


37


Loans
      under this revolving credit loan facility, which expired on March 30, 2007,
      could be used only for working capital of the New York Health Care's home
      healthcare business and other costs arising in the ordinary course of that
      business. New York Health Care's obligations to pay the principal of, and
      interest on, loans advanced under this facility ,
      if any, are
      secured by substantially all the assets of the New York Health Care's home
      healthcare business, and not by any assets of BioBalance. Borrowings under
      the
      facility are permitted to the extent of a borrowing base of up to 85% of
“qualified accounts receivable” of the New York Health Care's home healthcare
      business and there **** are
      no
      events of default under the relevant loan documents subject to the lender's
      right to reduce the borrowing base by applying a liquidity factor percentages
      formula based upon a calculation relating to recent collection histories of
      certain classes of qualified accounts receivable. Currently, application of
      the
      liquidity factors percentage formula results in 97% of qualified accounts
      receivable being part of the borrowing base. Accordingly, at December 31, 2006
      the amount available for borrowing under this facility was approximately
      $4,000,000. The agreement contains various restrictive covenants, which amongst
      other things, require that New York Health Care to maintain a minimum tangible
      net worth greater than $500,000. New York Health Care **** utilizes
      the line of credit from time to time, and at the present time there is no
      balance outstanding.





For
      the
      year ended December 31, 2006, cash used for operating activities on a
      consolidated basis was $2,717,000 compared to $3,620,000 in 2005, a decrease
      of
      $903,000. The change resulted from a decrease in the net loss for 2006 as
      compared to 2005 of $2,566,000, the 2005 cash impact of the operations of the
      discontinued New Jersey operations of $94,000, the gain on the sale of
      discontinued operations of $2,783,000, offset by a decrease in cash provided
      by
      changes in components of operating assets and liabilities of $4,313,000 and
      a
      decrease in cash from changes in non-cash expenses of $39,000.





Net
      cash
      used in investing activities for the year ended December 31, 2006 totaled
      approximately $335,000 and consisted principally of the acquisition of
      intangible assets.





Days
      Sales Outstanding ("DSO") is a measure of the average number of days taken
      by
      the Company to collect its account receivable, calculated from the date services
      are billed. For the year ended December 31, 2006, the DSO of the home care
      segment of the Company was 58, compared to 62 days for the year ended
      December 31, 2005.





**BioBalance
      Segment**





As
      of
      December 31, 2006, BioBalance has generated no revenues and has no accounts
      receivable. The assets of BioBalance consist mainly of intangibles related
      to
      the patents it holds on its lead product *PROBACTRIX* .


38


As
      of
      December 31, 2006, BioBalance had cash on hand of approximately $168,000, all
      of
      which was available to fund operations. BioBalance estimates that its capital
      requirements for 2007 will be approximately $5,000,000. This estimate includes
      the cost of an initial $3,000,000 up front payment for the Phase I/II clinical
      trial for the Company's lead product, ,. The balance of approximately $2,000,000
      would be required for product development and maintenance and administrative
      overhead. This estimate assumes that BioBalance will continue to operate using
      existing funds and, proceeds from the healthcare operations, and assumes that
      BioBalance will obtain access to third party funding, either through loans
      or
      the sale of additional securities. It will be necessary for the Company to
      secure additional funding in order for BioBalance to begin the Phase I/II
      clinical trial, which was approved by FDA on March 24, 2006. The Company has
      not
      been able to obtain such additional funding up to the present time, and the
      BioBalance subsidiary has been operating solely by utilizing funds from the
      health care operations, which are insufficient for BioBalance's 2007 capital
      needs. The Company is in continuing discussions with potential funding sources
      but no agreements with any such funding sources have been entered into.
      Accordingly, since additional funding from outside sources has not been
      obtained, the Company began scaling back the operations of BioBalance at the
      end
      of November 2006, and BioBalance will be operating on a substantially reduced
      budget starting in April 2007. BioBalance management has taken steps to secure
      the data from clinical trials and has authorized the production of a duplicate
      of the biological strain of ProBactrix to maintain its viability, pending the
      receipt of funding for the clinical studies discussed above. Additionally,
      BioBalance surrendered its office space to the landlord in March 2007 in
      exchange for lease cancellation, incurring exit costs of approximately $36,000.
      Management is negotiating temporary cutbacks in consultant compensation until
      such time as additional funds or a strategic partner can be found. There can
      be
      no assurance that the Company will be able to raise additional capital in the
      near term to allow BioBalance to resume full operations and undertake the Phase
      I/II clinical trial for .





**Off-Balance
      Sheet Arrangements**




The
      Company has not entered into any transactions with unconsolidated entities
      whereby the Company has financial guarantees, subordinated retained interests,
      derivative instruments or other contingent arrangements that expose the Company
      to material continuing risks, contingent liabilities, or any other obligation
      under a variable interest in an unconsolidated entity that provides financing,
      liquidity, market risk or credit risk support to the Company.




**Item
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Not
      applicable.





**Item
      8.**   **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





The
      consolidated financial statements of the Company, together with the independent
      Registered Public Accounting Firms’ report thereon of Holtz Rubenstein Reminick,
      LLP, for the year ended December 31, 2006, and Weiser LLP, for the years ended
      December 31, 2005 and 2004. See Index to “Financial
      Statements.”


39


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





On
      April
      24, 2006, the Company was notified that Weiser LLP ("Weiser") had declined
      to
      stand for re-appointment as the Company's independent registered public
      accounting firm. Prior to such notification, Company's Board of Directors had
      discussed re-evaluating its retention of Weiser. Concurrently with the Weiser
      notice, Company engaged Holtz Rubenstein Reminick LLP ("Holtz"), Certified
      Public Accountants, of Melville, New York, as its independent registered public
      accounting firm. The Company's Audit Committee recommended the engagement of
      Holtz, which was approved by the Company's Board of Directors.





During
      the fiscal years ended December 31, 2004 and 2005, there were no disagreements
      with Weiser on any matter of accounting principles or practices, financial
      statement disclosure, or auditing scope or procedure, which disagreements,
      if
      not resolved to the satisfaction of Weiser, would have caused them to make
      reference in connection with their report to the subject matter of the
      disagreement, and Weiser has not advised the Company of any reportable events
      as
      defined in Item 304(a)(1)(v) of Regulation S-K.





The
      report of independent registered public accounting firm of Weiser as of and
      for
      the years ended December 31, 2004 and 2005 did not contain any adverse opinion
      or disclaimer of opinion, nor was it qualified or modified as to audit scope
      or
      accounting principle.





During
      the fiscal years ended December 31, 2004 and 2005, and through April 24, 2006,
      the Company did not consult with Holtz regarding any of the matters or events
      set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.





**Item
      9A.**  **CONTROLS
      AND PROCEDURES**





As
      required by Rule 13a-15(b) under the Securities Exchange Act of 1934 *(* the
      “Exchange Act”), the Company’s management, with the participation of the
      Company's Acting Chief Executive Officer (“CEO”) and Chief Financial Officer
      (“CFO”), evaluated the effectiveness of the Company's disclosure controls and
      procedures as of the end of the period covered by this report in reaching a
      reasonable level of assurance that the information required to be disclosed
      by
      the Company in the reports that it files with the Securities and Exchange
      Commission is recorded, processed, summarized and reported within the time
      period specified in the Securities and Exchange Commission’s rules and forms.
      Based upon that evaluation, the CEO and CFO concluded that the Company's
      disclosure controls and procedures were effective as of the end of the period
      covered by this report. As required by Exchange Act Rule 13a-15(d), the
      Company’s management, including the Acting Chief Executive Officer and Chief
      Financial Officer, also conducted an evaluation of the Company’s internal
      control over financial reporting to determine whether any changes occurred
      during the fourth fiscal quarter that have materially affected, or are
      reasonably likely to materially affect, the Company’s internal control over
      financial reporting.




Please
      note that any system of controls, however well designed and operated, can
      provide only reasonable, and not absolute, assurance that the objectives of
      the
      system will be met. In addition, the design of any control system is based
      in
      part upon certain assumptions about the likelihood of future
      events.


40


**Item
      9B** .  **OTHER
      INFORMATION:**





Not
      applicable.





**PART
      III**





**Item
      10.**  **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**





The
      persons who currently serve as executive officers and directors of the Company,
      and who served in such capacities during the 2006 fiscal year, are as
      follows:


Name
              Age
              PositionDennis
                  M. O’Donnell
              51
              Former
                  Director, Chief Executive Officer,and
                  President of BioBalanceStewart
                  W. Robinson
              52
              Chief
                  Financial OfficerMurry
                  Englard
              48
              Director,
                  Acting Chief Executive OfficerHoward
                  Berg
              52
              DirectorYoram
                  Hacohen
              36
              DirectorStuart
                  Ehrlich
              48
              Former
                  DirectorMichael
                  Nafash
              46
              Former
                  Director





Dennis
      O'Donnell served as a director of the Company commencing January 2004, Chief
      Operating Officer of the Company's BioBalance subsidiary commencing May 2003
      and
      President of BioBalance commencing November 2003 and on February 24, 2005,
      he
      became the Company’s Chief Executive Officer. Mr. O’Donnell resigned from all of
      his positions with the Company and BioBalance on September 8, 2006. Mr.
      O'Donnell has more than 25 years of general management, marketing and business
      development experience in the pharmaceutical, consumer healthcare and
      nutritional industries, principally with Wyeth (formerly American Home Products)
      from 1983 to 2002, including as manager of the Wyeth’s Respiratory and
      GI/Topicals Divisions from 1994 to 1996; Senior Vice President of Global
      Business Development & Strategic Planning for Wyeth's OTC Drug Division from
      1996 to 1998 (where he identified drugs, devices and medical foods for potential
      acquisition); and Executive Vice President and General Manager of Wyeth’s Solgar
      division, a manufacturer of premium dietary supplements, probiotics and
      specialty nutritional products. From February 2002 to April 2003, he was a
      consultant to the pharmaceutical and consumer healthcare industries. Mr.
      O'Donnell is a registered pharmacist, with a B.S. in Pharmacy from St. John's
      University and an MBA in Marketing & Finance from New York University's
      Stern School of Business.


41


Effective
      February 5, 2007, Stewart W. Robinson was appointed to serve as the Company’s
      Chief Financial Officer on a part-time basis. Since
      November 1998, Mr. Robinson has been a partner-in-charge of SEC practice and
      quality control in the accounting firm of KBL, LLP and its predecessor. KBL,
      LLP
      is a Public Accounting Oversight Board (“PCAOB”) registered auditing and
      consulting firm concentrating in audits of small public companies and small
      to
      medium size private companies. Mr. Robinson was previously partner in-charge
      of
      litigation services and SEC auditing at several New York area accounting firms
      from 1984 through 1997. Mr. Robinson, 51, received a B.A. in Accounting from
      Queens College in 1977, attended Pace University Graduate School of Business
      for
      taxation and completed business valuation training at both the American Society
      of Appraisers and the National Association of Certified Valuation Analysts.
      He
      is a member of the American Institute of Certified Public Accountants and the
      New York State Society of Certified Public Accountants. Mr. Robinson is also
      registered with the PCAOB under the name Stewart W. Robinson, CPA.





Murry
      Englard has been a director of the Company since August 31, 2005 and acting
      Chief Executive Officer since November 20, 2006. Mr. Englard has been a partner
      of the accounting firm Harlib, Grossman & Englard, CPA since January 1996.
      He was managing partner of Englard & Company, CPA, P.C. from January 1992
      until December 1995 and a partner at Englard & Company CPA from January 1985
      until December 1991. He was a Senior Accountant at Lawrence Heimowitz &
Company, CPA, P.C. from 1980 through 1984. Mr. Englard is a certified public
      accountant.




Dr.
      Howard Berg, a partner in Specialists in Otolaryngology, LLC since November
      2001
      and a partner in Short Hills Surgical Center since February 2005, is a
      practicing physician in Otolaryngology and Head and Neck Surgery. Dr. Berg
      has
      served as an attending surgeon at New York Downtown Hospital in New York City
      since July 1986 and as an attending surgeon at St. Barnabas Medical Center
      in
      Livingston, New Jersey since July 1996.  Dr. Berg has been an Assistant
      Professor of **** Otolaryngology
      at New York University Medical Center since June 1985 and participates in the
      Otolaryngology Surgical Resident Training Program at Mount Sinai Medical
      Center.”




Since
      January 2007, Yoram Hacohen has been a partner with the firm Jaffe, Fund &
Co, Advocates, in Jerusalem, Israel, specializing in corporate, commercial
      and
      civil in the fields of international trade, tax and real estate. For the
      preceding five years, Mr. Hacohen was an independent practitioner in those
      fields of law. Mr. Hacohen earned his law degree from London Guildhall
      University, London, England in July 1995.





Stuart
      Ehrlich served as a director of the Company since August 31, 2005. He resigned
      as a director of the Company on September 22, 2006. Mr. Ehrlich has been a
      consultant to various companies since November 2004 including working with
      AEG
      (Anschultz Entertainment Group), in helping them craft and build a wireless
      phone-based SMS messaging platform and marketing strategy for sports,
      entertainment and Real Estate Properties. From May 2001 to October 2004 he
      was
      employed as the Executive Vice President of Datawind Technologies, a wireless
      Internet company based in Canada. From May 1997 to October 2001 he was a
      founding member of w-Technologies Inc., a software application company. From
      February 1991 to May 1997 he served as corporate counsel for The Conway
      Organization. Mr. Ehrlich received his Juris Doctor degree from Boston
      University Law School.


42


Michael
      Nafash served as a director of the Company since August 31, 2005. He resigned
      as
      a director of the Company on April 3, 2007. Mr. Nafash has been the Chief
      Financial Officer of Interactive Marketing Group, Inc., a full service marketing
      company, since February 2001. Since July 2003 he has been a member of Antioch
      Equities, LLC, a management company that owns and operates 10 Dunkin Donuts
      locations in New York and New Jersey. From September 1996 to May 2000 he was
      Chief Financial Officer at Mark Solution, Inc., a company specializing in the
      manufacture of modular steel prison cells and the development and deployment
      of
      Picture Archiving and Communications systems. From June 1991 to April 1996
      he
      was Chief Financial Officer for Puretech International, Inc., a specialty
      plastics manufacturer. Mr. Nafash is a Certified Public Accountant.




Directors
      hold office until the next annual meeting of the stockholders and/or until
      their
      successors have been duly elected and qualified, or until death, resignation
      or
      removal. Executive officers are elected by the Board of Directors on an annual
      basis and serve at the discretion of the Board. There is no family relationship
      between any of the Company’s directors or its executive officers.





**Audit
      Committee**





The
      Audit
      Committee of the Board of Directors previously consisted of Murry Englard and
      Michael Nafash. Upon Michael Nafash’s resignation, on April 3, 2007, the Audit
      Committee was effectively terminated.





**Section
      16(a)** **Beneficial Ownership Reporting and** **Compliance**





Section
      16(a) of the Exchange Act requires the Company’s directors and
      executive officers and holders of more than 10% of the Company's common stock
      to
      file reports with the SEC about their ownership of common stock and other
      securities of the Company. These persons are required by SEC rules to furnish
      the Company with copies of all Section 16(a) forms they file. The Company is
      required to identify anyone who filed a required report late during
      2006 .





Based
      solely on our review of forms we received and written representations from
      reporting persons stating that they were not required to file these forms,
      the
      Company believes, that during 2006, all Section 16(a) filing requirements were
      satisfied on a timely basis.





**Code
      of Ethics**





The
      Company has adopted a Code of Ethics for Senior Financial Officers which applies
      to the Company’s Chief Executive Officer and Chief Financial and Principal
      Accounting Officer. A copy of this Code was filed with the Securities and
      Exchange Commission as an exhibit to the Company’s Form 10-K for the fiscal year
      ended December 31, 2003.


43


**Item
      11.**  **EXECUTIVE
      COMPENSATION**





**Compensation
      Disclosure and Analysis**




*Objectives
      and Goals*




The
      Company does not currently have a standing compensation committee. On account
      of
      prior director resignations, from September 2006 to February 2007, the Company
      operated with only two Board members; accordingly, the Board assumed such
      functions. The objectives of the Board have been to adopt a compensation
      approach that is basically simple, internally equitable and externally
      competitive, and that attracts, motivates and retains qualified people capable
      of contributing to the growth, success and profitability of the Company, thereby
      contributing to long-term stockholder value.




o *Simplicity* .  
      The Board believes that a compensation package with three major elements of
      compensation is the simplest approach consistent with the Company’s goals. The
      Company generally does not utilize special personal perquisites such as payment
      of country club dues, Company-furnished motor vehicles, permanent lodging or
      defrayment of the cost of personal entertainment.




o *Internal
      Equity* .  
      Internal equity has generally been evaluated based on an assessment of the
      relative contributions of the members of the management team. In 2006, the
      Board
      did not undertake any formal audit or similar analysis of compensation equity
      with respect to either the CEO relative to the other members of the management
      team or with respect to the management team relative to the Company’s employees
      generally. However, the Board believes that the relative difference between
      CEO
      compensation and the compensation of the Company’s other executives is
      consistent with such differences found in the market for executive level
      personnel for public companies of similar size.




o *External
      Competitiveness* .  
      The Board believes it is important to management retention and morale that
      compensation be competitive with our competitors.




*Major
      Compensation Components*




The
      principal components of compensation for our executive officers are base salary,
      short-term incentives, generally in the form of cash bonus programs, and
      long-term incentives, generally in the form of equity-based awards such as
      stock
      awards. We believe the Company’s goals are best met by utilizing an approach to
      compensation with these three distinct elements.




o *Base
      Salaries* .  
      The Company’s base salaries are intended to be consistent with the Board’s
      understanding of competitive practices, levels of executive responsibility,
      qualifications necessary for the particular executive position, and the
      expertise and experience of the executive officer. Salary adjustments reflect
      the Board’s belief as to competitive trends, the performance of the individual
      and, to some extent, the overall financial condition of the
      Company.




o *Short-Term
      Incentives* .  
      The short-term incentive for an executive is the opportunity to earn an annual
      cash bonus. The Board has concluded that because of the nature of our
      operations, bonus payments could not be based on the achievement of specific
      predetermined profit and expense control **** targets,
      but rather should be discretionary based on the Board’s evaluation of an
      executive’s **** individual
      performance in specific qualitative areas.


44


Under
      the
      incentive plan for the fiscal year ended December 31, 2006, incentive
      bonuses of $112,500 were paid for the 2006 year to our former Chief Executive
      Officer.




When
      determining bonuses for executive officers, we also took into account progress
      in the clinical studies related to the BioBalance subsidiary. Prior bonuses
      reflected the former Chief Executive Officer’s progress made in that
      area.




o *Long-Term
      Incentives* .  
      While salary and short-term incentives are primarily designed to compensate
      current and past performance, the primary goal of the long-term incentive
      compensation program is to directly link management compensation with the
      long-term interests of the stockholders.




*—Types
      of Equity Awards and Criteria for Award Type Selection* .  
      For the immediate future, we intend to rely primarily on stock options as a
      form
      of incentive compensation.




— *Criteria
      for Award Amounts* .  
      In considering whether to grant equity incentives, the Board looks at a variety
      of factors, with no formal weighting assigned to any single factor or group
      of
      factors. The Board evaluates equity incentive awards made by our competitors
      (both individually and as part of a comparative compensation analysis), the
      extent to which value under the award is subject to risk, whether the award
      vehicle has intrinsic value, and the need to motivate and retain persons
      eligible to participate under the Company’s plans.




— *Vesting
      and Holding Periods for Equity Incentive Compensation* .  
      Historically, our grants of stock options have vested immediately, but are
      forfeited upon termination if not exercised. The Board does not anticipate
      making any determination on whether to implement any new policies in the
      immediate future.




*Equity
      Awards in 2006*




In
      2006, no stock options were granted to the executive officers of the
      Company and 640,000 stock options were forfeited due to termination of
      employment.




*Other
      Compensation Components*




Company
      executives are eligible to participate in the Company’s executive health care,
      insurance and other welfare and employee benefit programs.




*Use
      of Employment and Severance Agreements*




In
      the
      past, the Board has determined that competitive considerations merit the use
      of
      employment contracts or severance agreements for certain members of senior
      management. As of December 31, 2006, no member of senior management was employed
      pursuant to an employment contract. In 2007, we entered into an employment
      agreement with our Chief Financial Officer (“CFO”), Stewart W. Robinson. As Mr.
      Robinson is employed with the Company on a part-time basis, the compensation
      governed by that agreement is primarily based on the number days he serves
      the
      Company is his capacity as CFO.




45


*Recapture
      and Forfeiture Policies*




Historically
      the Company has not had formal policies with respect to the adjustment or
      recapture of performance based awards where the financial measures on which
      such
      awards are based or to be based are adjusted for changes in reported results
      such as, but not limited to, instances where the Company’s financial statements
      are restated. The Board does not believe that repayment should be required
      where
      the Plan participant has acted in good faith and the errors are not attributable
      to the participant’s gross negligence or willful misconduct. In such latter
      situations, the Board believes the Company has or will have available negotiated
      or legal remedies. However, the Board may elect to take into account factors
      such as the timing and amount of any financial restatement or adjustment, the
      amounts of benefits received, and the clarity of accounting requirements lending
      to any restatement in fixing of future compensation.




*Deductibility
      of Compensation and Related Tax Considerations*




As
      one of
      the factors in its review of compensation matters, the Board considers the
      anticipated tax treatment to the Company and to the executives of various
      payments and benefits.




o *Section 162(m)* .  
      Section 162(m) of the Internal Revenue Code of 1986, as amended (the
“ *Code* ”),
      generally limits to $1 million the amount that a publicly-held corporation
      is
      allowed each year to deduct for the compensation paid to each of the
      corporation’s chief executive officer and the corporation’s four most highly
      compensated executive officers, other than the chief executive officer. However,
      “performance-based” compensation is not subject to the $1 million deduction
      limit. In general, to qualify as performance-based compensation, the following
      requirements must be satisfied: (i) payments must be computed on the basis
      of an objective, performance-based compensation standard determined by a Board
      consisting solely of two or more “outside directors,” (ii) the material
      terms under which the compensation is to be paid, including the business
      criteria upon which the performance goals are based, and a limit on the maximum
      amount which may be paid to any participant pursuant to any award with respect
      to any performance period, are approved by a majority of the corporation’s
      stockholders, and (iii) the Board certifies that the applicable performance
      goals were satisfied before payment of any performance-based compensation is
      made.




Although
      the Company’s stock option plans generally have been structured with the goal of
      complying with the requirements of Section 162(m), and the Board believes
      stock options awarded thereunder should qualify as “performance-based”
compensation exempt from limitations on deductibility under Section 162(m),
      the deductibility of any compensation was not a condition to any compensation
      decision. The Company does not expect its ability to deduct executive
      compensation to be limited by operation of Section 162(m). However, due to
      interpretations and changes in the tax laws, some types of compensation payments
      and their deductibility depend on the timing of an executive’s vesting or
      exercise of previously granted rights and other factors beyond the Board’s
      control which could affect the deductibility of compensation.




The
      Board
      will continue to carefully consider the impact of Section 162(m) when
      designing compensation programs, and in making compensation decisions affecting
      the Company’s Section 162(m) covered executives. We fully expect the
      majority of future stock awards will be excludable from the
      Section 162(m) $1 million limit on deductibility, since vesting of any
      such awards will likely be tied to performance-based criteria, or be part of
      compensation packages which are less than $1 million dollars. Nonetheless,
      the
      Board believes that in certain circumstances factors other than tax
      deductibility are more important in determining the forms and levels of
      executive compensation most appropriate and in the best interests of the Company
      and its stockholders. Accordingly, it may award compensation in excess of the
      deductibility limit, with or without requiring a detailed analysis of the
      estimated tax cost of non-deductible awards to the Company. Given our dynamic
      and rapidly changing industry and business, as well as the competitive market
      for outstanding leadership talent, the Board believes it is important to retain
      the flexibility to design compensation programs consistent with its compensation
      philosophy for the Company, even if some executive compensation is not fully
      deductible.


46


• *Section 280G* .  
      Code Section 280G generally denies a deduction for a significant portion of
      certain compensatory payments made to corporate officers, certain shareholders
      and certain highly-compensated employees if the payments are contingent on
      a
      change of control of the employer and the aggregate amounts of the payments
      to
      the relevant individual exceed a specified relationship to that individual’s
      average compensation from the employer over the preceding five years. In
      addition, Code Section 4999 imposes on that individual a 20% excise tax on
      the same portion of the payments received for which the employer is denied
      a
      deduction under Section 280G. In determining whether to approve an
      obligation to make payments for which Section 280G would deny the Company a
      deduction or whether to approve an obligation to indemnify (or “gross-up”) an
      executive against the effects of the Section 4999 excise tax, the Board has
      adopted an approach similar to that described above with respect to payments
      which may be subject to the deduction limitations of
      Section 162(m).




*Chief
      Executive Officer Compensation*




The
      compensation policies described above apply equally to the compensation of
      the
      former Chief Executive Officer (“CEO”).





The
      following table sets forth, for the fiscal years ended December 31, 2004, 2005
      and 2006, the cash compensation paid by the Company, as well as certain other
      compensation paid with respect to those fiscal years, to the Company’s Chief
      Executive Officer and to each of the three other most highly compensated
      executive officers of the Company and its BioBalance subsidiary, whose total
      salary and bonuses for the fiscal year 2006, in all capacities in which served,
      was $100,000 or more (collectively, the “Named Executive
      Officers”):


47


NAME
                      AND PRINCIPAL POSITION
                  
                  YEAR
                  
                  SALARY
                    ($)
                  
                  BONUS
                    ($)
                  
                  Stock
                    Awards
                  
                  Option
                    Awards
                    (Shares)
                  
                  Non-Equity
                    Incentive
                      Plan
                    Compensation
                  
                  Change
                      in Pension
                    Value
                      and
                    Non-Qualified
                    Deferred
                    Compensation
                    Earnings
                  
                  ALL
                      OTHER
                    COMPENSATION
                    ($)(a)
                  
                  (b)
                  
                  (c)
                  
                  (d)
                  
                  (e)
                  
                  (f)
                  
                  (g)
                  
                  (h)
                  
                  (i)Dennis
                      O' Donnell
                  
                  
                  2006
                  
                  $
                  155,769
                  
                  $
                  112,500
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  24,444
                  
                  
                  (1
                  )(1)
                      President and
                  
                  
                  2005
                  
                  $
                  225,000
                  
                  $
                  90,000
                  
                  
                  
                  
                  
                  100,000
                  
                  
                  
                  
                  
                  
                  
                  $
                  22,270
                  
                  
                  (1
                  )Chief
                      Executive
                  
                  
                  2004
                  
                  $
                  200,000
                  
                  $
                  66,667
                  
                  
                  
                  
                  
                  150,000
                  
                  
                  
                  
                  
                  
                  
                  $
                  20,321
                  
                  
                  (1
                  )OfficerJames
                      Forbes (2)
                  
                  
                  2006
                  
                  $
                  -
                  
                  $
                  -
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  -Chief
                      Financial
                  
                  
                  2005
                  
                  $
                  53,800
                  
                  $
                  -
                  
                  
                  
                  
                  
                  25,000
                  
                  
                  
                  
                  
                  
                  
                  $
                  -Officer
                  
                  
                  2004
                  
                  $
                  -
                  
                  $
                  -
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  -Jerry
                      Braun (3)
                  
                  
                  2006
                  
                  $
                  -
                  
                  $
                  -
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  -President
                      and
                  
                  
                  2005
                  
                  $
                  276,231
                  
                  $
                  250,000
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,351,623
                  
                  
                  (3)
                  (5)Chief
                      Executive
                  
                  
                  2004
                  
                  $
                  341,026
                  
                  $
                  276,325
                  
                  
                  
                  
                  
                  200,000
                  
                  
                  
                  
                  
                  
                  
                  $
                  684,612
                  
                  
                  (3)
                  (5)OfficerJacob
                      Rosenberg (4)
                  
                  
                  2006
                  
                  $
                  -
                  
                  $
                  -
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  -Chief
                      Operating
                  
                  
                  2005
                  
                  $
                  211,751
                  
                  $
                  250,000
                  
                  
                  
                  
                  
                  -
                  
                  
                  
                  
                  
                  
                  
                  $
                  1,212,202
                  
                  
                  (4)
                  (5)Officer
                      and Chief Financial Officer
                  
                  
                  2004
                  
                  $
                  288,560
                  
                  $
                  271,340
                  
                  
                  
                  
                  
                  200,000
                  
                  
                  
                  
                  
                  
                  
                  $
                  583,599
                  
                  
                  (4)
                  (5)





(1)
            Dennis
                O’Donnell became President of BioBalance on November 26, 2003. On February
                24, 2005, he became the Company’s Chief Executive Officer. Includes
                $24,444, $22,270 and $20,321 of medical insurance premiums paid on
                behalf
                of such individual for the fiscal years 2006, 2005 and 2004, respectively.
                On September 9, 2006, Mr. O’Donnell resigned from all of his positions
                with the Company.





(2)
            Mr.
                Forbes became Chief Financial Officer on June 6, 2005. Mr. Forbes
                was on
                an unpaid leave of absence from the Company due to an illness commencing
                November 1, 2005, and his contract expired on December 31,
                2006.





(3)
            Mr.
                Braun resigned his position as Chief Executive Officer on February
                24,
                2005 and remained an officer of the healthcare division until his
                resignation from the Company on August 4, 2005. Includes $ 28,727
                and
                $35,518 of medical insurance premiums paid on behalf of such individual
                for the fiscal years 2005 and 2004, respectively, $4,896 and $4,305
                for
                automobile and automobile-related costs, including insurance, incurred
                on
                behalf of such individual, respectively, for the fiscal years 2005
                and
                2004 and $10,000 in expense allowance for 2005 and 2004. Includes
                a
                severance payment in 2005 in the amount of $ 1,200,000 and a payment
                for
                legal fees for $150,000.





(4)
            Mr.
                Rosenberg resigned his position as Chief Executive Officer on February
                24,
                2005 and remained an officer of the healthcare division until his
                resignation from the Company on August 4, 2005. Includes $28,727
                and
                $35,518 of medical insurance premiums paid on behalf of such individual
                for the fiscal years 2005 and 2004, respectively, $4,896 and $2,344
                for
                automobile and automobile-related costs, including insurance, incurred
                on
                behalf of such individual, respectively, for each of the fiscal years
                2005
                and 2004 and $10,000 in expense allowance for 2004. Includes a severance
                payment in 2005 in the amount of $ 1,050,000 and a payment for legal
                fees
                of $150,000.


48


(5)
            Change
                in control payment. This change in control took place with the merging
                of
                the Company and BioBalance on January 2,
                2003.





**Option/SAR
      Grants in 2006**





No
      stock
      options were granted to the Named Executive Officers in 2006.





**Individual
      Grants**


Name
              Exercise
                  Price Per Share ($/sh)
              Expiration
                  Date
              Grant
                  Date Present ValueNone





**Stock
      Option Exercises and Year End Values**





The
      following table sets forth, for the Named Executive Officers, the number of
      shares covered by stock options as of December 31, 2006, and the value of
“in-the-money” stock options, which represents the positive spread between the
      exercise price of a stock option and the market price of the shares subject
      to
      such option on December 31, 2006. No options were exercised by the Named
      Officers in 2006.





Name
            Shares
                Acquired on Exercise
            Value
                Realized
            Number
                of Securities Underlying Unexercised Options/SARs at Fiscal Year-End
                Exercisable/Unexercisable
            
            Value
                of Unexercised In- the-Money Options/SARs at Fiscal Year-End
                Exercisable/UnexercisableNone





**Compensation
      of Directors**





The
      directors of the Company receive monthly compensation as follows: Murry Englard,
      who has taken on additional responsibilities since September 2006 while serving
      as a director in the absence of executive management, is entitled to director’s
      fees of $2,500 per month. Prior to September 2006, Mr. Englard received director
      compensation of $1,000 per month plus $700 for attendance at committee meetings.
      Michael Nafash served as director from August 31, 2005 through April 3, 2007
      and
      received director compensation of $1,000 per month plus $700 for attendance
      at
      committee meetings. Stuart Ehrlich served as director from August 31, 2005
      through September 22, 2006 and received director compensation of $1,000 per
      month plus $700 for attendance at committee meetings. Yoram Hacohen and Howard
      Berg, who have served as directors since February 2007, are entitled to
      directors’ fees of $1,000 per month. No other amounts are payable to the
      directors, except for reimbursement for expenses of attending Board meetings.
      None of the present directors of the Company is an employee of the Company
      or
      its BioBalance subsidiary.


49


The
      Company also issues common stock options or warrants to non-employee directors
      from time to time in recognition of their services. In January 2006, 15,000
      common stock options, and, in September 2006, 150,000 common stock options,
      were
      issued to each of Murry Englard, Stuart Ehrlich and Michael Nafash. When Mr.
      Ehrlich resigned as a director on September 22, 2006, he relinquished all of
      those options to the Company. When Mr. Nafash resigned as a director on April
      3,
      2007, he relinquished 75,000 of those options to the Company. When Messrs.
      Hacohen and Berg were appointed directors in February 2007, they each received
      a
      grant of 25,000 options in consideration for their services.





**Employment
      Agreements of the Named Executive Officers; Change in Control
      Arrangements**





Mr.
      O’Donnell resigned in September 2006 and had a three-year employment agreement.
      Mr. O’Donnell received a ten-year option to purchase 200,000 shares of the
      Company’s common stock under the Company’s existing stock option plan at an
      exercise price of $2.48. Mr. O’Donnell was entitled to bonus payments upon the
      satisfaction of specified financial performance criteria, certain lump-sum
      payments upon the occurrence of certain change of control events, and insurance
      and other benefits. In September 2004, Mr. O’Donnell received 50,000 ten-year
      options under his employment agreement and an additional 50,000 ten-year options
      as a bonus, with an exercise price of $0.50. In 2004, Mr. O’Donnell was awarded
      a bonus of $66,667 in accordance with the term in his contract. On May 5, 2005,
      Mr. O’Donnell was awarded 100,000 options at an exercise price of $0.80 and paid
      a cash bonus in the amount of $90,000 in accordance with the terms of his
      employment contract. On July 14, 2006, Mr. O’Donnell was paid a cash bonus of
      $112,500.





Mr.
      Forbes was party to a one year employment agreement for the year 2006. Under
      the
      agreement Mr. Forbes served as the Company’s Chief Financial officer and was
      paid on an hourly basis for the hours worked. The hourly rate for 2006 was
      set
      at $1500 per day of at the rate of $200 per hour for any time less than a full
      day. Mr. Forbes was on a leave of absence from the Company commencing on
      November 1, 2005 due to an illness, and his contract expired on December 31,
      2006.





Effective
      February 5, 2007, Stewart W. Robinson was appointed to serve as the Company’s
      Chief Financial Officer on a part-time basis. The Company has agreed to pay
      Mr.
      Robinson on a per diem basis, with total compensation for the 2007 calendar
      year
      capped at $65,000 for
      36
      days up to a maximum of 45 ** days
      per
      calendar year .
      The
      parties anticipate that approximately 50% of Mr. Robinson’s time will be devoted
      to the Company’s fiscal 2006 year-end closing and audit. Mr. Robinson’s
      employment is terminable by either party on 30 days’ written
      notice.


50


**Savings
      and Equity Compensation Plans**





**401(k)
      Plan**





The
      Company maintains an Internal Revenue Code Section 401(k) salary deferral
      savings plan (the "Plan") for all of its eligible New York home healthcare
      division employees who have been employed for at least one year and are at
      least
      21 years old (effective July 1, 1996, field staff employees at the Company's
      Orange County branch office in Newburgh, New York ceased being eligible to
      participate in the Plan). Subject to certain limitations, the Plan allows
      participants to voluntarily contribute up to 15% of their pay on a pre-tax
      basis. Under the Plan, the Company may make matching contributions on behalf
      of
      the pre-tax contributions made by participants.





**Profit
      Sharing Plan:**





The
      Company maintains a qualified profit sharing plan under Internal Revenue Code
      Section 401 whereby it may contribute up to 15% of employee compensation.
      Specified employees are generally eligible for plan participation upon their
      employment commencement date with immediate vesting on the employee’s plan
      entrance date. All contributions to the plan are at the discretion of Company
      management.


51


**Equity
      Compensation Plans**





The
      following table summarizes with respect to options and warrants under the
      Company’s equity compensation plans at December 31, 2006:





**Plan
                category**
            
            **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and****rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and****rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected****in
                column (a))**Equity
                compensation plans approved by security holders(1)
            
            
            3,269,218
            
            $
            1.11
            
            
            5,841,744Equity
                compensation plans not approved by security holders(2)
            
            
            5,726,993
            
            $
            0.78
            
            
            --Total
            
            
            8,996,211





(1)
            Represents
                shares of the Company’s common stock issuable pursuant to the Company’s
                Performance Incentive Plan, as amended (the "Option Plan") and the
                Company’s 2004 Incentive Plan (the “2004 Plan”). The Company's board of
                directors and stockholders approved and adopted the Option Plan in
                March
                1996 and approved the Company’s 2004 Incentive Plan on August 31, 2005.
                The Company’s stockholders approved amendments to the Option Plan
                (previously adopted by the board of directors) in 1998, 1999, 2000
                and
                2002. Under the terms of the amended Option Plan, as amended, up
                to
                5,000,000 shares of common stock may be granted at December 31, 2006.
                The Company's board of directors and stockholders approved and adopted
                the
                2004 Incentive Option Plan. The Option Plan is administered by the
                standing compensation committee (the "Committee") of the board of
                directors (the "Committee"), which is authorized to grant incentive
                stock
                options and non-qualified stock options to selected employees of
                the
                Company and to determine the participants, the number of options
                to be
                granted and other terms and provisions of each option. Options become
                exercisable in whole or in part from time to time as determined by
                the
                Committee, but in no event may a stock option be exercisable prior
                to the
                expiration of six months from the date of grant, unless the grantee
                dies
                or becomes disabled prior to the end of the period. Stock options
                have a
                maximum term of 10 years from the date of grant, except that the
                maximum
                term of an incentive stock options granted to an employee who, at
                the date
                of grant, is a holder of more than 10% of the outstanding common
                stock (a
                “10% holder”) may not exceed five years from the date of the grant. The
                exercise price of an incentive stock option or nonqualified option
                granted
                under the Option Plan may not be less than 100% of the fair market
                value
                per share of the common stock at the date of grant, except that the
                exercise price of an incentive stock options granted to a 10% holder
                may
                not be less than 110% of the fair market value. The exercise price
                of
                options must be paid in full on the date of exercise and is payable
                in
                cash or in shares of Common Stock having a fair market value on the
                exercise date.




(2)
            5,726,993
                warrants were issued in connection with the Company’s private placement on
                February 25, 2005.


52


**Item
      12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND** **MANAGEMENT
      AND RELATED SHAREHOLDER MATTERS**





The
      following table sets forth certain information regarding shares of the Common
      Stock beneficially owned as of April 6, 2007 by (i) each person, known to the
      Company, who beneficially owns more than 5% of the Common Stock, (ii) each
      Named
      Executive Officer, (iii) each of the Company’s directors and (iv) all officers
      and directors as a group **:**


Name
                  and Address of
              
              Shares
                  Beneficially
              
              Percentage
                  ofBeneficial
                  Owner (1)
              
              Owned
              
              Stock
                  Outstanding (1)Murry
                  Englard (2)
              
              
              575,984
              
              
              1.71
              %Yoram
                  Hacohen (3)
              
              
              25,000
              
              
              0.07
              %Howard
                  Berg (4)
              
              
              1,392,289
              
              
              4.09
              %Pinchas
                  Stefansky (5)
              
              
              2,024,000
              
              
              6.00
              %Hershey
                  HoldingsLeon
                  HouseSecretary’s
                  LaneP.O.
                  Box 450, GibraltarBernard
                  Korolnick (6)
              
              
              1,729,208
              
              
              5.13
              %KPT
                  Partnersc/o
                  Alton ManagementSplelhof
                  14A, Postach 5368750
                  Glarus, SwitzerlandRivvi
                  Rose (7)
              
              
              1,950,000
              
              
              5.78
              %Nekavim
                  Investors1/1
                  Library RunP.O.
                  Box 317, GibraltarAll
                  executive officers and directors as
                  a group
              
              
              1,993,273
              
              
              5.75
              %


_______________________





(1)
            The
                shares of Common Stock owned by each person or by the group, and
                the
                shares included in the total number of shares of Common Stock outstanding,
                have been adjusted in accordance with Rule 13d-3 under the Securities
                Exchange Act of 1934, as amended, to reflect the ownership of shares
                issuable upon exercise of outstanding options, warrants or other
                common
                stock equivalents which are exercisable within 60 days. As provided
                in
                such Rule, such shares issuable to any holder are deemed outstanding
                for
                the purpose of calculating such holder's beneficial ownership but
                not any
                other holder's beneficial ownership. Unless otherwise indicated,
                the
                address of each shareholder is c/o the
                Company.


53


(2)
            Includes
                a total of 200,000 shares issuable upon the exercise of stock options
                granted to Mr. Englard and also 20,161 shares issuable upon the exercise
                of warrants.





(3)
            Includes
                a total of 25,000 shares issuable upon the exercise of stock options
                granted to Mr. Hacohen.





(4)
            Includes
                a total of 25,000 shares issuable upon the exercise of stock options
                granted to Mr. Berg and also 449,192 shares issuable upon the exercise
                of
                warrants.  (5)
            All shares are owned of record by Hershey Holdings,
              of
              which Mr. Stefansky holds sole voting and investment
              power.





(6)
            All
                shares are owned of record by KPT Partners, of which Mr. Korolnick
                holds
                sole voting and investment power.





(7)
            All
                shares are owned of record by Nekavim Investors, of which Ms. Rose
                holds
                sole voting and investment power.





**Item
      13.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS.**





None.





**Item
      14.**  **PRINCIPAL
      ACCOUNTING FEES AND SERVICES**




The
      following table presents fees for professional audit services rendered by our
      principal accountant for the audit of the Company’s annual financial statements
      for the years ended December 31, 2006, 2005 and 2004:




Holtz
                  Rubenstein Reminick, LLP
              
              Weiser,
                  LLPFiscal
                  2006
              
              Fiscal
                  2005
              
              Fiscal
                  2004Audit
                  Fees(1)
              
              
              234,524
              
              
              451,485
              
              
              442,757Audit-related
                  Fees(2)
              
              
              
              
              
              91,967
              
              
              105,139Tax
                  service Fees(3)
              
              
              48,100
              
              
              49,579
              
              
              58,377All
                  Other Fees(4)
              
              
              29,000
              
              
              -
              
              
              -
 54


(1)
            Audit
                Fees consist of fees billed for professional services rendered for
                the
                audit of the Company’s consolidated annual financial statements and review
                of the interim consolidated financial statements included in quarterly
                reports and services that are normally provided in connection with
                statutory and regulatory filings or engagements.(2)
            Audit-Related
                Fees consist of fees billed for assurance and related services that
                are
                reasonably related to the performance of the audit or review of the
                Company’s consolidated financial statements and are not reported under
                “Audit Fees.”(3)
            Tax
                Service Fees consist of fees billed for professional services rendered
                for
                tax compliance, tax advisory and tax planning. These services include
                assistance regarding federal, state and local tax compliance and
                tax
                planning.(4)
            No
                other fees for professional services rendered to the Company during
                the
                fiscal 2005 and 2004 were billed other than the services reported
                above.
                The line for all other fees for 2006 represents the audit of employee
                benefit plans performed by Holtz Rubenstein Reminick,
                LLP.





Policy
      on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
      of
      Independent Auditor. The
      Board of Directors Audit Committee previously consisted of Murry Englard and
      Michael Nafash. Upon Michael Nafash’s resignation, on April 3, 2007, the Audit
      Committee was effectively terminated. The Audit Committee had not adopted a
      formal pre-approval policy for audit and non-audit services. However, the Audit
      Committee had pre-approved all audit, audit-related, tax and other services
      provided by either Holtz Rubenstein Reminick, LLP or Weiser LLP prior to the
      engagement of either firm to provide to these services.







**PART
      IV**







**Item
      15.**  **EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES**





(a)
            The following documents are filed as a part of this
              report:  (1)
            Consolidated
                Financial Statements: See Index to Financial Statements on page F-2
                of
                this report for financial statements and supplementary data filed
                as part
                of this report.  (2)
            Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts
              for each
              of the years ended December 31, 2006, 2005 and
              2004.





(3)
            Exhibits: The exhibits listed in the accompanying Index to
              Exhibits
              are filed or incorporated by reference as part of this
              report.


55


NEW
        YORK
        HEALTH CARE, INC.
 AND
        SUBSIDIARIES
 
 CONSOLIDATED
        FINANCIAL STATEMENTS
 
 FOR
        THE
        YEARS ENDED
 DECEMBER
        31, 2006, 2005 AND 2004
 
 NEW
                  YORK HEALTH CARE, INC.:REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFOR
                  THE YEAR ENDED DECEMBER 31, 2006
              F-2REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMFOR
                  THE YEARS ENDED DECEMBER 31, 2005 AND 2004
              F-3CONSOLIDATED
                  FINANCIAL STATEMENTS:CONSOLIDATED
                  BALANCE SHEETS AT DECEMBER 31, 2006 AND 2005
              F-4CONSOLIDATED
                  STATEMENTS OF OPERATIONS FOR THE YEARS ENDEDDECEMBER
                  31, 2006, 2005 AND 2004
              F-5CONSOLIDATED
                  STATEMENTS OF SHAREHOLDERS' EQUITY FORTHE
                  YEARS ENDED DECEMBER 31, 2006, 2005 AND 2004
              F-6CONSOLIDATED
                  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDEDDECEMBER
                  31, 2006, 2005 AND 2004
              F-7NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              F-8
                  - F-31SCHEDULE
                  II - VALUATION AND QUALIFYING ACCOUNTS
              F-32


F-1


REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The
        Board
        of Directors
 New
        York
        Health Care, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of New York Health Care,
        Inc. And Subsidiaries (the "Company") as of December 31, 2006 and the related
        consolidated statements of operations, shareholders' deficiency and cash
        flows
        for the year then ended. Our audit also included the consolidated financial
        statement Schedule II for the year ended December 31, 2006. These financial
        statements and schedule are the responsibility of the Company's management.
        Our
        responsibility is to express an opinion on these consolidated financial
        statements and schedule based on our audit.
 
 We
        conducted our audit in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        consolidated financial statement presentation. We believe that our audit
        provides a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of New York
        Health
        Care, Inc. and Subsidiaries as of December 31, 2006 and the consolidated
        results
        of their operations and their cash flows for the year then ended in conformity
        with accounting principles generally accepted in the United States of America.
        Also, in our opinion, the related financial statement schedule, when considered
        in relation to the basic financial statements taken as a whole, presents
        fairly
        in all material respects the information set forth therein.
 
 As
        discussed in Note 1 to the consolidated financial statements, the Company
        adopted Statement of Financial Accounting Standard 123(R) effective January
        1,
        2006.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. As discussed in Note 1 to the
        consolidated financial statements, the Company’s losses and negative working
        capital raises substantial doubt about its ability to continue as a going
        concern. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 
 /s/
        Holtz
        Rubenstein Reminick LLP
 Holtz
        Rubenstein Reminick LLP
 
 April
        16,
        2007
 New
        York,
        NY
  F-2
  REPORT
        OF
        INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 The
        Board
        of Directors
 New
        York
        Health Care, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of New York Health Care,
        Inc. and Subsidiaries (the "Company") as of December 31, 2005, and the related
        consolidated statements of operations, shareholders' equity and cash flows
        for
        the years ended December 31, 2005 and 2004. These financial statements are
        the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on these consolidated financial statements based on our
        audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. An audit includes examining,
        on a
        test basis, evidence supporting the amounts and disclosures in the financial
        statements. An audit also includes assessing the accounting principles used
        and
        significant estimates made by management, as well as evaluating the overall
        consolidated financial statement presentation. We believe that our audits
        provide a reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of New York
        Health
        Care, Inc. and Subsidiaries as of December 31, 2005 and the consolidated
        results
        of their operations and their cash flows for the years ended December 31,
        2005
        and 2004, in conformity with U.S. generally accepted accounting
        principles.
 
 We
        have
        also audited the consolidated financial statement Schedule II for the years
        ended December 31, 2005 and 2004. In our opinion, this schedule presents
        fairly,
        in all material respects, the information required to be set forth
        therein.
  As
          more fully discussed in Note 12, on March 6, 2006, the Company entered
          into a
          settlement agreement with a former consultant to the Company and on March
          30,
          2006, a derivative complaint was filed that alleges that the directors
          breached
          their fiduciary duty by approving the settlement agreement to the former
          consultant.
 
 As
          more fully discussed in Note 3, the Company is in the process of negotiating
          the
          sale of a significant segment. If the contract for this transaction is
          signed,
          it must be approved by the shareholders prior to consummation.
 
 /s/
        Weiser LLP
 Weiser
        LLP
 
 April
        17,
        2006
 New
        York,
        NY
  F-3
  NEW
          YORK
          HEALTH CARE, INC. AND SUBSIDIARIES
 CONSOLIDATED
          BALANCE SHEETS
  December
                    31,2006
                
                
                2005ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                2,469,789
                
                
                $
                5,522,088Due
                    from lending institution
                
                
                274,934
                
                
                
                198,941Accounts
                    receivable, net of allowance for uncollectible amounts of$579,000
                    and $465,000, respectively
                
                
                7,146,973
                
                
                
                7,237,062Unbilled
                    services
                
                
                112,186
                
                
                
                122,110Prepaid
                    expenses and other current assets
                
                
                227,625
                
                
                
                388,463Total
                    current assets
                
                
                10,231,507
                
                
                
                13,468,664Property
                    and equipment, net
                
                
                120,898
                
                
                
                150,052Goodwill,
                    net
                
                
                783,000
                
                
                
                783,000Other
                    intangible assets, net
                
                
                1,575,495
                
                
                
                2,830,149Other
                    assets
                
                
                168,638
                
                
                
                57,212Total
                    assets
                
                $
                12,879,538
                
                
                $
                17,289,077LIABILITIES
                    AND SHAREHOLDERS' EQUITYCurrent
                    liabilities:Accrued
                    payroll
                
                $
                775,808
                
                
                $
                713,194Accounts
                    payable and accrued expenses
                
                
                5,963,589
                
                
                
                8,732,318Due
                    to HRA
                
                
                7,942,757
                
                
                
                6,159,912Total
                    current liabilities
                
                
                14,682,154
                
                
                
                15,605,424Commitment
                    and contingenciesShareholders'
                    (deficiency) equity:Preferred
                    stock, $.01 par value, 5,000,000 shares authorized;Class
                    A Preferred, 590,375 shares authorized, none outstandingCommon
                    stock, $.01 par value, 100,000,000 shares authorized;33,536,767
                    shares issued and 33,782,722 outstanding as of December 31,
                    200633,236,767
                    shares issued and 33,232,722 outstanding as of December 31,
                    2005
                
                
                335,368
                
                
                
                332,368Additional
                    paid-in capital
                
                
                37,149,685
                
                
                
                36,667,281Common
                    stock and options to be issued
                
                
                774,220
                
                
                
                990,220Accumulated
                    deficit
                
                
                (40,052,416
                )
                
                
                (36,296,743
                )Less:
                    Treasury stock (4,045 common shares at cost)
                
                
                (9,473
                )
                
                
                (9,473
                )Total
                    shareholders' (deficiency) equity
                
                
                (1,802,616
                )
                
                
                1,683,653Total
                    liabilities and shareholders' equity
                
                $
                12,879,538
                
                
                $
                17,289,077
 The
            accompanying notes are an integral part of these consolidated financial
            statements.
  F-4
  **NEW
            YORK HEALTH CARE, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
            STATEMENTS OF OPERATIONS**
  **Year
                      Ended December 31,**2006
                  
                  
                  2005
                  
                  
                  2004Net
                      patient service revenue
                  
                  $
                  45,558,331
                  
                  
                  $
                  44,722,823
                  
                  
                  $
                  42,286,444Expenses:Professional
                      care of patients
                  
                  
                  36,747,366
                  
                  
                  
                  37,080,286
                  
                  
                  
                  34,780,9698,810,965
                  
                  
                  
                  7,642,537
                  
                  
                  
                  7,505,475Other
                      operating expenses:General
                      and administrative
                  
                  
                  9,104,897
                  
                  
                  
                  13,012,474
                  
                  
                  
                  10,026,556Product
                      development
                  
                  
                  1,637,558
                  
                  
                  
                  2,802,091
                  
                  
                  
                  1,056,474Impairment
                      of intangible assets
                  
                  
                  926,322
                  
                  
                  
                  -
                  
                  
                  
                  1,740,326Bad
                      debts expense
                  
                  
                  253,732
                  
                  
                  
                  267,059
                  
                  
                  
                  90,400Depreciation
                      and amortization
                  
                  
                  672,584
                  
                  
                  
                  652,152
                  
                  
                  
                  819,887Other
                      operating expenses
                  
                  
                  12,595,093
                  
                  
                  
                  16,733,776
                  
                  
                  
                  13,733,643Operating
                      (loss) from continuing operations
                  
                  
                  (3,784,128
                  )
                  
                  
                  (9,091,239
                  )
                  
                  
                  (6,228,168
                  )Other
                      income (expenses):Interest
                      income
                  
                  
                  164,969
                  
                  
                  
                  89,108
                  
                  
                  
                  69,877Interest
                      expense
                  
                  
                  (61,394
                  )
                  
                  
                  (24,135
                  )
                  
                  
                  (29,538
                  )Other
                      income, net
                  
                  
                  103,575
                  
                  
                  
                  64,973
                  
                  
                  
                  40,339(Loss)
                      from continuing operations before provision for income
                      taxes
                  
                  
                  (3,680,553
                  )
                  
                  
                  (9,026,266
                  )
                  
                  
                  (6,187,829
                  )Provision
                      for income taxes - current
                  
                  
                  75,120
                  
                  
                  
                  78,628
                  
                  
                  
                  (67,176
                  )(Loss)
                      from continuing operations
                  
                  
                  (3,755,673
                  )
                  
                  
                  (9,104,894
                  )
                  
                  
                  (6,120,653
                  )Discontinued
                      operations:Income from
                      operations of discontinued component (including gain on sale
                      of assets of
                      $2,703,718 in 2005)
                  
                  
                  -
                  
                  
                  
                  2,785,885
                  
                  
                  
                  53,018Income
                      tax expense
                  
                  
                  -
                  
                  
                  
                  (2,653
                  )
                  
                  
                  (4,050
                  )Income
                      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  2,783,232
                  
                  
                  
                  48,968Net
                      (loss)
                  
                  $
                  (3,755,673
                  )
                  
                  $
                  (6,321,662
                  )
                  
                  $
                  (6,071,685
                  )Basic
                      and diluted income (loss) per share:(Loss)
                      from continuing operations
                  
                  $
                  (0.11
                  )
                  
                  $
                  (0.29
                  )
                  
                  $
                  (0.24
                  )Income
                      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  0.09
                  
                  
                  
                  -Net
                      (loss) per share:
                  
                  $
                  (0.11
                  )
                  
                  $
                  (0.20
                  )
                  
                  $
                  (0.24
                  )Weighted
                      and diluted average shares outstanding
                  
                  
                  33,250,740
                  
                  
                  
                  31,895,833
                  
                  
                  
                  24,939,776
   **The
            accompanying notes are an integral part of these consolidated financial
            statements.**
  F-5
 NEW
              YORK
              HEALTH CARE, INC. AND SUBSIDIARIES
 CONSOLIDATED
              STATEMENTS OF SHAREHOLDERS' EQUITY
 FOR
              THE
              YEARS ENDED DECEMBER 31, 2006, 2005, AND 2004
  CommonCommon
                        Stock
                    
                    stock
                        and options to be
                    
                    Preferred
                        Stock
                    
                    Additional
                        Paid-
                    
                    Treasury
                        Stock
                    
                    
                    Accumulated
                    
                    
                    Total
                      Shareholders'Shares
                    
                    Amount
                    
                    issued
                    
                    Shares
                    
                    Amount
                    
                    In
                        Capital
                    
                    Shares
                    
                    Amount
                    
                    
                    Deficit
                    
                    
                    DeficiencyBalance
                        at January 1, 2004
                    
                    
                    24,943,821
                    
                    $
                    249,438
                    
                    
                    
                    
                    
                    590,375
                    
                    $
                    5,904
                    
                    $
                    32,679,292
                    
                    
                    4,045
                    
                    $
                    (9,473
                    )
                    
                    $
                    (23,903,396
                    )
                    
                    $
                    9,021,765Warrants
                        earned for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    15,743
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    15,743Reduction
                        of compensation expense due to revaluation of
                        options/warrants
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    (381,565
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (381,565
                    )Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    (6,071,685
                    )
                    
                    
                    (6,071,685
                    )Balance
                        at December 31, 2004
                    
                    
                    24,943,821
                    
                    
                    249,438
                    
                    
                    -
                    
                    
                    590,375
                    
                    
                    5,904
                    
                    
                    32,313,470
                    
                    
                    4,045
                    
                    
                    (9,473
                    )
                    
                    
                    (29,975,081
                    )
                    
                    
                    2,584,258Proceeds
                        from issuance of common stock and warrants on February 24,
                        2005
                    
                    
                    7,899,362
                    
                    
                    78,994
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    4,118,402
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    4,197,396Increase
                        in compensation expense due to a revaluation of
                        options/warrants
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    8,710
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    8,710Options
                        earned for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    134,731
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    134,731Compensation
                        expense in connection with the issuance of "in the money"
                        options
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    90,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    90,000Common
                        stock and options to be issued in accordance with settlement
                        agreements
                    
                    
                    -
                    
                    
                    -
                    
                    
                    990,220
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    990,220Conversion
                        of Preferred stock to 2/3 share of Common Stock for each
                        share of
                        Preferred Stock
                    
                    
                    393,584
                    
                    
                    3,936
                    
                    
                    -
                    
                    
                    (590,375
                    )
                    
                    (5,904
                    )
                    
                    1,968
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    (6,321,662
                    )
                    
                    
                    (6,321,662
                    )Balance
                        at December 31, 2005
                    
                    
                    33,236,767
                    
                    
                    332,368
                    
                    
                    990,220
                    
                    
                    -
                    
                    
                    -
                    
                    
                    36,667,281
                    
                    
                    4,045
                    
                    
                    (9,473
                    )
                    
                    
                    (36,296,743
                    )
                    
                    
                    1,683,653Shares
                        issued in accordance with the Corval Settlement Agreements
                    
                    
                    300,000
                    
                    
                    3,000
                    
                    
                    (216,000
                    )
                    
                    -
                    
                    
                    -
                    
                    
                    213,000
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Options
                        earned for services
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    269,404
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    269,404Shares
                        issued to public relations consultant
                    
                    
                    250,000
                    
                    
                    2,500
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    2,500Cancellation
                        of shares issued to public relations consultant (actual share
                        cancellation
                        effectuated in March 2007)
                    
                    
                    (250,000
                    )
                    
                    (2,500
                    )
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (2,500
                    )Net
                        loss
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    -
                    
                    
                    
                    (3,755,673
                    )
                    
                    
                    (3,755,673
                    )Balance
                        at December 31, 2006
                    
                    
                    33,536,767
                    
                    $
                    335,368
                    
                    $
                    774,220
                    
                    
                    -
                    
                    
                    -
                    
                    $
                    37,149,685
                    
                    
                    4,045
                    
                    $
                    (9,473
                    )
                    
                    $
                    (40,052,416
                    )
                    
                    $
                    (1,802,616
                    )
 **The
                accompanying notes are an integral part of these consolidated financial
                statements.**
 F-6
  **NEW
          YORK HEALTH CARE, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
          STATEMENTS OF CASH FLOWS**
  **For
                    the Year Ended****December
                    31****2006**
                
                **2005**
                
                **2004**Cash
                    flows from operating activities:Net
                    (loss)
                
                $
                (3,755,673
                )
                $
                (6,321,662
                )
                $
                (6,071,685
                )Adjustments
                    to reconcile net (loss) to net cashused
                    in operations (excluding the effect of disposition)Impairment
                    of intangible assets
                
                
                926,322
                
                
                -
                
                
                1,740,326Net
                    gain from discontinued operations, net of taxes
                
                
                -
                
                
                (2,783,232
                )
                
                (48,968
                )Stock-based
                    compensation
                
                
                269,404
                
                
                1,223,661
                
                
                (365,822
                )Depreciation
                    and amortization
                
                
                672,584
                
                
                652,152
                
                
                819,887Bad
                    debts expense
                
                
                208,678
                
                
                267,059
                
                
                90,400Impairment
                    of property and equipment (abandoned in March 2007)
                
                
                27,000
                
                
                -
                
                
                -Changes
                    in operating assets and liabilities, net of effects of
                    disposition(
                      Increase) decrease in accounts receivableand unbilled
                      services
                
                
                (108,665
                )
                
                1,095,707
                
                
                (2,134,953
                )(Increase)
                    decrease in due from lending institution
                
                
                (75,993
                )
                
                367,582
                
                
                (357,802
                )Decrease
                    (increase) in prepaid expenses and other current assets
                
                
                153,838
                
                
                78,162
                
                
                (147,430
                )(Increase)
                    decrease in other assets
                
                
                (111,426
                )
                
                20,253
                
                
                (9,813
                )Increase
                    (decrease) in accrued payroll
                
                
                62,614
                
                
                (614,933
                )
                
                (457,917
                )(Decrease)
                      increase in accounts payable andaccrued expenses
                
                
                (2,768,729
                )
                
                1,406,203
                
                
                1,476,383Increase
                    (decrease) in due to HRA
                
                
                1,782,845
                
                
                895,217
                
                
                1,508,188Decrease
                    in due to related parties
                
                
                -
                
                
                -
                
                
                (1,190,526
                )Decrease
                    in taxes payable
                
                
                -
                
                
                -
                
                
                (24,394
                )Net
                    cash used in operating activities of continuing operations
                
                
                (2,717,201
                )
                
                (3,713,831
                )
                
                (5,174,126
                )Net
                    cash provided by operating activities of discontinued
                    operations
                
                
                -
                
                
                93,635
                
                
                100,791Total
                    cash used in operating activities
                
                
                (2,717,201
                )
                
                (3,620,196
                )
                
                (5,073,335
                )Cash
                    flows from investing activities:Acquisition
                    of property and equipment
                
                
                (43,370
                )
                
                (117,971
                )
                
                (8,495
                )Acquisition
                    of intangible assets
                
                
                (291,728
                )
                
                (40,464
                )
                
                (69,310
                )Net
                    proceeds from sale of discontinued operations
                
                
                -
                
                
                2,916,567
                
                
                -Net
                    cash provided by (used in) investing activities
                
                
                (335,098
                )
                
                2,758,132
                
                
                (77,805
                )Cash
                    flows from financing activities:Net
                    proceeds from issuance of common stock and warrants
                
                
                -
                
                
                4,197,396
                
                
                -Net
                    (decrease) increase in cash and cash equivalents
                
                
                (3,052,299
                )
                
                3,335,332
                
                
                (5,151,140
                )Cash
                    and cash equivalents at beginning of year
                
                
                5,522,088
                
                
                2,186,756
                
                
                7,337,896Cash
                    and cash equivalents at end of year
                
                $
                2,469,789
                
                $
                5,522,088
                
                $
                2,186,756
  The
          accompanying notes are an integral part of
          these consolidated financial statements.
  F-7
  **NEW
        YORK HEALTH CARE, INC. AND SUBSIDIARIES**
 NOTES
        TO CONSOLIDATED FINANCIAL
        STATEMENTS
 December
        31, 2006, 2005 and
        2004
  **NOTE
        1 - ORGANIZATION, RECENT DEVELOPMENT AND SUMMARY OF SIGNIFICANT ACCOUNTING
        POLICIES**
 
 **Organization
        and Basis of Consolidation and Presentation:**
 
 New
        York
        Health Care, Inc. (“New York Health Care”) was organized under the laws of the
        State of New York in 1983. New York Health Care provides services of registered
        nurses and paraprofessionals to patients throughout New York. The BioBalance
        Corp. (“BioBalance”), a Delaware corporation, was formed in May 2001. BioBalance
        is a biopharmaceutical company focused on the development of treatments for
        gastrointestinal diseases that are poorly addressed by current therapies.
        BioBalance is currently pursuing prescription drug development of its lead
        product, PROBACTRIX® for the prevention of pouchitis. On March 24, 2006, the
        Company received approval from the FDA to start Phase II clinical trials.
        There
        can be no assurance that BioBalance will be successful in obtaining regulatory
        approval or in marketing any such products. The consolidated entity,
        collectively referred to, unless the context otherwise requires, as the
“Company”, “we”, “our” or similar pronouns, includes New York Health Care and
        its wholly-owned subsidiaries, BioBalance and NYHC Newco Paxxon, Inc. D/B/A
        Helping Hands Healthcare (“Helping Hands”). All financial information prior to
        the sale of the Company's home healthcare operations in the State of New
        Jersey
        (“NJ Business”) has been restated in order to present the sale of the NJ
        Business as a discontinued operation. All significant inter-company balances
        and
        transactions have been eliminated.
 
 On
        January 2, 2003, BioBalance consummated a business combination with New York
        Health Care, Inc., a public company. As a result of the merger BioBalance
        shareholders exchanged all their BioBalance shares for 2,475,154 shares of
        common stock and 590,375 shares of preferred stock of New York Health Care.
        Because the former BioBalance shareholders own a majority of the common stock
        (89.7%) of the merged company, BioBalance is considered to be the accounting
        acquirer in the transaction.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        that
        the Company will continue as a going concern. The Company’s recurring losses and
        negative working capital raises substantial doubt about its ability to continue
        as a going concern. The consolidated financial statements do not include
        any
        adjustments that might result from the outcome of this uncertainty. Management’s
        plans in connection with this matter include the re-negotiation of its line
        of
        credit and actively seeking a buyer for all or part of the home health care
        operations.
 
 As
        of
        December 31, 2006, BioBalance had cash on hand of approximately $168,000,
        all of
        which was available to fund operations. BioBalance management estimates that
        its
        capital requirements for an entire year of operations is approximately
        $5,000,000. This amount includes the cost of the initial up front payment
        for
        the Phase I/II clinical trial, in the amount of $3,000,000, for the Company's
        lead product PROBACTRIX that is not expected to be started in 2007. It will
        be
        necessary for the Company to secure additional funding in order for BioBalance
        to begin the Phase I/II clinical trial, which was approved by FDA on March
        24,
        2006. The Company has not been able to obtain additional funding up to the
        present time and the BioBalance subsidiary has been operating solely by
        utilizing funds from the health care operations, which are insufficient for
        BioBalance's needs. The Company is in continuing discussions with potential
        funding sources but no agreements with any such funding sources have been
        entered into. Accordingly, since additional funding from outside sources
        has not
        been obtained, the Company began scaling back the operations of BioBalance
        at
        the end of November 2006, and BioBalance will be operating on a substantially
        reduced budget starting in April 2007. BioBalance management has taken steps
        to
        secure the data from clinical trials and has begun the production of a duplicate
        of the biological strain of ProBactrix. Additionally, BioBalance surrendered
        its
        office space to the landlord in March 2007 in exchange for lease cancellation,
        incurring exit costs of approximately $36,000. Management is negotiating
        temporary cutbacks in consultant compensation until such time as additional
        funds or a strategic partner can be found. There can be no assurances that
        the
        Company will be able to raise additional capital in the near term to allow
        BioBalance to continue its normal level of operations.
 
 BioBalance
        has also commenced preliminary studies regarding the use of Probactrix in
        the
        treatment of Celiac disease (a dietary gluten intolerance). This study was
        conducted as a small scale pilot study which, while not providing data that
        is
        clinically or statistically useful in demonstrating efficacy, produced
        encouraging preliminary results. BioBalance intends to spend approximately
        $175,000 to $200,000 to fund the costs of clinical research and statistical
        analysis for a follow up study.
  F-8
  **Recent
        Developments:**
 
 On
        April
        3, 2007, Michael Nafash resigned his position as a Director of the Company.
        Contemporaneously with his resignation, Mr. Nafash voluntarily agreed to
        relinquish options to acquire 75,000 shares of the Company’s Common Stock at
        $0.37 per share, which were granted to him on September 20, 2006.
  On
        March
        30, 2006, the Company was served with a shareholder derivative complaint
        captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murray
        Englard, Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York
        Health Care, Inc., (Supreme Court of State of New York County of Nassau,
        (Index
        No. 5125/06). The lawsuit alleged that the directors breached their fiduciary
        duty by approving the Emerald Settlement Agreement disclosed in the Company's
        Form 8-K (Date of Report March 6, 2006) filed with the Securities Exchange
        Commission on March 10, 2006. The lawsuit claimed that such breach was a
        product
        of their respective relationships with Mr. Grossman. The lawsuit also alleged
        that Mr. Grossman and Emerald Asset Management injured the Company by engaging
        in the actions underlying the November 2004 criminal conviction of Mr. Grossman.
        The lawsuit was dismissed in September 2006.
 
 **Summary
        of Significant Accounting Policies**
 
 **Estimates:**
 
 The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America requires management to
        make
        estimates and assumptions that could 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.
 
 **Accounts
        Receivable:**
 
 Accounts
        receivable consists of trade receivables recorded at original invoice amount,
        less an estimated allowance for uncollectible accounts. Trade credit is
        generally extended on a short-term basis; thus trade receivables do not bear
        interest, although a finance charge may be applied to receivables that are
        past
        due. Trade receivables are periodically evaluated for collectibility based
        on
        past credit history with customers and their current financial condition.
        Changes in the estimated collectibility of trade receivables are recorded
        in the
        results of operations for the period in which the estimate is revised.
        Trade
 receivables
        that are deemed uncollectible are offset against the allowance for uncollectible
        accounts. The Company generally does not require collateral for trade
        receivables.
 
 **Revenue
        Recognition:**
 
 The
        Company recognizes patient service revenue on the date services are rendered.
        Unbilled services represent amounts due for services rendered that had not
        been
        billed at the end of each period because written authorization had not been
        received from the referral source.
 
 **Property
        and Equipment:**
 
 Property
        and equipment is carried at cost and is depreciated under the straight-line
        method over the following estimated useful lives of the assets. Leasehold
        improvements are amortized over the estimated useful lives of the improvements
        or the life of the lease, whichever is shorter.
 Machinery
                    and equipment
                3-5
                  yearsFurniture
                    and fixtures
                5-7
                  yearsLeasehold
                    improvements
                Life
                  of
                  lease
 
 **Goodwill
        and Other Intangible Assets:**
 
 Statement
        of Financial Accounting Standards (SFAS No. 142) "Goodwill and Other Intangible
        Assets" requires that goodwill and intangible assets having indefinite lives
        not
        be amortized, but instead be tested for impairment at least annually. Intangible
        assets determined to have definite lives are amortized over their remaining
        useful lives.
  F-9
 
 **Income
        Taxes:**
 
 The
        Company used the asset and liability method to calculate deferred tax assets
        and
        liabilities. Deferred taxes are recognized based on the differences between
        financial reporting and income tax bases of assets and liabilities using
        enacted
        income tax rates. Deferred tax assets and liabilities are measured using
        enacted
        tax rates in effect for the years in which those temporary differences are
        expected to be recovered or settled. The effect on deferred tax assets and
        liabilities of a change in tax rates is recognized in income in the period
        that
        includes the enactment date.
 
 **Long-Lived
        Assets:**
 
 Long-lived
        assets, such as intangible assets other than goodwill, furniture, equipment
        and
        leasehold improvements, are evaluated for impairment when events or changes
        in
        circumstances indicate that the carrying amount of the assets may not be
        recoverable through estimated undiscounted future cash flows from the use
        of
        these assets. When any such impairment exists, the related assets will be
        written down to fair value.
 
 **Cash
        Equivalents:**
 
 The
        Company considers all highly liquid investments with maturities of three
        months
        or less when purchased to be cash equivalents.
 
 **Stock
        Based Compensation:**
 
 On
        January 1, 2006 the Company adopted Statement of Financial Accounting
        Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
        123(R)”). SFAS 123(R) requires the Company to recognize expense related to the
        fair value of employee stock option awards and to measure the cost of employee
        services received in exchange for an award of equity instruments based on
        the
        grant date fair value of the award. This eliminated the exception to account
        for
        such awards using the intrinsic method previously allowable under Accounting
        Principles Board Opinion No. 25, “Accounting for Stock issued to Employees”
(“APB 25”). Prior to January 1, 2006, we accounted for the stock based
        compensation plans under the recognition and measurement provisions of APB
        25,
        as permitted by SFAS No. 123, “Accounting for Stock-Based
        Compensation.”
  Effective
        January 1, 2006, the Company adopted the fair value recognition provisions
        of SFAS 123(R), using the modified-prospective-transition method. Under that
        transition method, compensation cost recognized in 2006 and beyond includes:
        (a) compensation cost for all share-based payments granted prior to, but
        not yet vested as of January 1, 2006, based on the grant date fair value
        estimated in accordance with the original provisions of SFAS No. 123, and
        (b) compensation cost for all stock-based payments granted subsequent to
        January 1, 2006, based on the grant-date fair value estimated in accordance
        with the provisions of SFAS 123(R). Results for prior periods have not been
        restated and there is no cumulative effect upon adoption of SFAS
        123(R).
 
 Prior
        to
        adoption of SFAS 123(R) the Company used intrinsic-value method of accounting
        for stock based-awards granted to employees. No stock-based compensation
        cost is
        included in the net loss for the year ended December 31, 2004, as all options
        granted to employees during that period presented had a strike price equal
        to
        the market value of the stock on the date of grant. During the year ended
        December 31, 2005 the Company issued 200,000 options on August 1, 2005 with
        a
        strike price below market value of the stock on the date of grant.
 
 In
        accordance with SFAS No. 148, "Accounting for Stock Based Compensation -
        Transition and Disclosure," the following table presents the effect on net
        loss
        and net loss per share had compensation cost for the Company's stock plans
        had
        been determined consistent with SFAS No. 123, "Accounting for Stock-Based
        Compensation".
  F-10
 
 The
        fair
        value of each option grant is estimated on the date of grant by use of the
        Black-Scholes option pricing model:
 Year
                    Ended
                
                Year
                    EndedDecember
                    31,
                
                December
                    31,2005
                
                2004Net
                    loss, as reported
                
                $
                (6,321,662
                )
                $
                (6,071,685
                )Less
                    stock-based compensation expensedetermined
                      under fair value method for
                      all employee stock options,net
                      of tax effect
                
                
                (422,381
                )
                
                (711,723
                )Add
                    back stock-based compensationexpense
                    recorded (intrinsic value)
                
                
                90,000
                
                
                --Pro
                    forma net loss
                
                $
                (6,654,043
                )
                $
                (6,783,408
                )Basic
                      and diluted loss per share, asreported
                
                $
                (0.20
                )
                $
                (0.24
                )Basic
                      and diluted loss per share,pro forma
                
                $
                (0.21
                )
                $
                (0.27
                )
 The
        options' assumptions used to estimate these values are as follows:
 2005
                
                2004Risk
                    free interest rate
                
                
                1.6%-4.2
                %
                
                1.6%-2.8
                %Expected
                    volatility ofcommon
                    stock
                
                
                88%-104
                %
                
                88%-103
                %Dividend
                    yield
                
                
                0
                %
                
                0
                %Expected
                    option term
                
                
                3-5
                    yrs
                
                
                3
                    yrs.
 
 The
        weighted average fair value of options was $0.81 and $1.12 for options granted
        during the years ended December 31, 2005 and 2004.
 
 **Loss
        Per Share:**
 
 Basic
        (loss) per share excludes dilution and is computed by dividing net (loss)
        available to common shareholders by the weighted average number of shares
        of
        Common Stock outstanding for the period.
 
 Diluted
        earnings per share is computed by dividing income available to common
        shareholders by the weighted average number of common shares outstanding
        for the
        period, adjusted to reflect potentially dilutive securities. Due to losses
        from
        continuing operations for the years ended December 31, 2006, 2005 and 2004,
        potential common stock attributable to options, warrants and preferred stock
        outstanding of 8,996,212 for 2006, 7,906,778 for 2005, and 3,246,701 for
        2004
        were not included in the computation of diluted earnings per share, because
        to
        do so would be antidilutive. During the years ended December 31, 2006 and
        2005
        potential dilutive securities also include common stock and options to be
        issued
        of 1,500,000 and 1,800,000 respectively.
 
 **Classification
        of Amounts Due to HRA:**
 Historically,
        management has maintained a liability account to show amounts paid to the
        Company under the contract with the City of New York Human Resources
        Administration (“HRA”) which were required to be used for certain employee
        benefits purposes and were to be paid to or on behalf of the home health
        aid
        employees. In 2006, management determined that approximately $904,000 could
        no
        longer be used for the employee benefit and could not be paid to the employees
        but could be expected to be required to be repaid to HRA. Accordingly, this
        amount was reclassified from general accrued expenses to the caption “Due to
        HRA”.
  F-11
 
 **Recently
        Issued Accounting Pronouncements**
  In
        February, 2007, FASB issued SFAS No. 159, *The
        Fair Value Option for Financial Assets and Financial
        Liabilities* including an amendment of FAS 115, or FAS 159. This statement provides companies
        with an option to report selected financial assets and liabilities at fair
        value. This statement is effective for fiscal years beginning after November
        15,
        2007 with early adoption permitted. We are assessing FAS No. 159 and have
        not
        yet determined the impact that the adoption of FAS No. 159 will have
        on our results of operations or financial position, if any.
 
 In
        September 2006, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 108, *Considering the Effects of Prior Year Misstatements when Quantifying
        Misstatements in Current Year Financial Statements* ,
        or SAB
        108, that requires public companies to utilize a “dual approach” to assessing
        the quantitative effects of financial misstatements. This dual approach includes
        both an income statement focused assessment and a balance sheet focused
        assessment. SAB 108 is effective for annual financial statements covering
        the
        first fiscal year ending after November 15, 2006. We are currently assessing
        the
        impact of SAB 108 but do not expect that it will have a material effect on
        our
        results of operations or financial condition.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standard
        (“SFAS”) No. 157 Fair Value Measurements. This statement defines fair
        value, establishes a fair value hierarchy to be used in generally accepted
        accounting principles and expands disclosures about fair value measurements.
        Although this statement does not require any new fair value measurements,
        the
        application could change current practice. The statement is effective for
        fiscal
        years beginning after November 15, 2007. The Company is currently
        evaluating the impact of this statement to its financial position and results
        of
        operations.
  In
        September 2006, the FASB issued SFAS No. 158 Employers' Accounting for
        Defined Benefit Pension and Other Postretirement Plans - an Amendment of
        FASB
        Statements No. 87, 88, 106, and 132(R). This statement requires a company
        to recognize the funded status of a benefit plan as an asset or a liability
        in
        its statement of financial position. In addition, a company is required to
        measure plan assets and benefit obligations as of the date of its fiscal
        year-end statement of financial position. The recognition provision of this
        statement, along with additional disclosure requirements, is effective for
        fiscal years ending after December 15, 2006, while the measurement date
        provision is effective for fiscal years ending after December 15, 2008.
        Management does not believe that adoption of this statement will have a material
        impact on the financial position of the Company.
  In
        July
        2006, the FASB interpretation (“FIN”) No. 48, Accounting for Uncertainty in
        Income Taxes - An Interpretation of FASB Statement No. 109, was issued
        regarding accounting for, and disclosure of, uncertain tax positions. This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise's financial statements in accordance with FASB
        Statement No. 109, “Accounting for Income Taxes,” and prescribes a
        recognition threshold and measurement attribute for the financial statement
        recognition and measurement of a tax position taken or expected to be taken
        in a
        tax return. The interpretation also provides guidance on derecognition,
        classification, interest and penalties, accounting in interim periods,
        disclosure, and transition. This interpretation is effective for fiscal years
        beginning after December 15, 2006. Management does not believe that
        adoption of this statement will have a material impact on the financial position
        of the Company.
 
 In
        March
        2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial
        Assets, an Amendment of SFAS No. 140. SFAS No. 156 requires separate recognition
        of a servicing asset and a servicing liability each time an entity undertakes
        and obligation to service a financial asset by entering into a servicing
        contract. This statement also requires that servicing assets and liabilities
        be
        initially recorded at fair value and subsequently adjusted to the fair value
        at
        the end of each reporting period. This statement is effective in fiscal years
        beginning after September 15, 2006. The Company feels implementation of this
        pronouncement will have no material effect on its financial
        statements.
 
 In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS NO.
        155, Accounting for Certain Hybrid Financial Instruments- An Amendment of
        FASB
        No. 133 and 140. The purpose of SFAS statement No. 155 is to simplify the
        accounting for certain hybrid financial instruments by permitting fair value
        re-measurement for any hybrid financial instrument that contains an embedded
        derivative that otherwise would require bifurcation. SFAS No. 155 also
        eliminates the restriction on passive derivative instruments that a qualifying
        special-purpose entity may hold. SFAS No. 155 is effective for all financial
        instruments acquired or issued after the beginning of any entity's first
        fiscal
        year beginning after September 15, 2006.
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
        Payment,” or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No. 123 and
        supersedes APB Opinion No. 25, requires that compensation cost relating to
        share-based payment transactions be recognized in the financial statements,
        based on the fair value of the equity or liability instruments issued. On
        April
        14, 2005, the SEC staff postponed implementation of SFAS No. 123 (R) and
        it is
        effective for the Company as of the beginning of the first interim or annual
        reporting period that begins after December 15, 2005 and applies to all awards
        granted, modified, repurchased or cancelled after the effective date. The
        Company adopted this statement as of January 1, 2006.
  F-12
 
 **NOTE
        2 -PRIVATE PLACEMENT:**
 
 On
        February 24, 2005, the Company consummated an Offering which resulted in
        its issuing an aggregate of 7,899,362 shares (the "Shares") of common stock
        and
        warrants to purchase 3,949,681 shares of Common Stock (the "Warrants") to
        persons who qualify as "accredited investors" within the meaning of rule
        501 of
        Regulation D promulgated under the Securities Act of 1933 (the "Act"). The
        aggregate purchase price for the Shares and Warrants was $4,897,600 and net
        proceeds received by the Company were approximately $4,200,000. Each Warrant
        is
        exercisable to purchase one share of the Company's Common Stock at an exercise
        price of $0.78 per share during the five-year period commencing on February
        24,
        2005. In connection with the Offering, the Company paid to the Placement
        Agent
        commissions of $470,260 and an additional $146,616 to cover non-accountable
        and
        certain other expenses of the Placement Agent, other costs of $83,328 and
        the
        value of the Placement Agent Warrants, described below. In addition, the
        Company
        issued to the Placement Agent and its designees five-year warrants (the
        "Placement Agent Warrants") to purchase an aggregate of 1,777,356 shares
        of
        Common Stock at $0.62 per share. The Company, based on the Black Scholes
        calculation, has assigned a fair value to the Placement Agent Warrants of
        $624,705. The Company allocated $2,679,518 and $893,173 of net proceeds using
        the relative fair value method of allocation to the Common Stock and Warrants,
        respectively. Under the terms of the Offering, the Company has the right
        to call
        the Warrants that were issued in the Offering upon thirty days notice, at
        a
        price of $0.01 per Warrant, provided the closing price of the Common Stock
        on
        its principal trading market exceeds $2.00 per share, subject to anti-dilution
        adjustments, for a period of 10 consecutive trading days, ending within 30
        days
        prior to the date on which the notice of redemption is given and a registration
        statement covering the shares underlying the Warrants has been declared and
        remains effective or the shares issuable upon exercise of the Warrants are
        not
        otherwise subject to any restrictions for their public sale.
 
 The
        Company agreed to file a registration statement with respect to the common
        stock
        and Warrants issued in the Offering within 45 days after the closing of the
        Offering unless the failure to file resulted from the financial statements
        of
        the Company for the year 2004 not being available (the "Required Due Date").
        If
        the registration statement was not filed by the Required Due Date or if the
        registration statement was not declared effective within 180 days after the
        closing of the Offering, then monthly cash delay payments equal to 1.5% of
        the
        aggregate gross proceeds from the Offering are due to the holders of the
        Common
        Stock and Warrants. The Company filed a registration statement on Form S-1
        on
        May 31, 2005, which was declared effective on August 12, 2005.
 
 The
        net
        proceeds from the Offering were being used to support BioBalance's operations
        including research and development, clinical trials and working capital.
        In
        addition, a $1.7 million loan from the Company to BioBalance was repaid from
        the
        proceeds of the Offering.
 
 **NOTE
        3 - DISCONTINUED OPERATIONS**
 
 On
        April
        11, 2005, the Company entered into an agreement to sell certain assets of
        Helping Hands for $3,000,000 to Accredited Health and a formal closing for
        the
        sale, which was subject to only an orderly transition of the assets, occurred
        on
        May 22, 2005. Helping Hands was part of the New York Health Care
        segment.
 
 In
        connection with the sale, the Company recognized an after tax gain of
        approximately $2.7 million on the transaction, net of taxes of approximately
        $3,000, which is included in net income from discontinued operations for
        the
        year ended December 31, 2005. The Company reported the operations of its
        NJ
        Business as discontinued operations and related assets were reclassified
        as held
        for sale as of December 31, 2004.
 
 As
        of
        December 31, 2006 and 2005, the Company no longer had assets of the discontinued
        operations described above that were held for sale. The sale of the NJ Business
        did not include liabilities.
  F-13
  **DISCONTINUED
          OPERATIONS**
 **CONSOLIDATED
          STATEMENTS OF OPERATIONS**
  Year
                    Ended December 31,2006
                
                2005
                
                2004Net
                    patient service revenue
                
                $
                -
                
                $
                2,688,082
                
                $
                6,567,914Expenses:Professional
                    care of patients
                
                
                -
                
                
                1,862,788
                
                
                4,433,247General
                    and administrative
                
                
                -
                
                
                731,410
                
                
                2,029,826Depreciation
                    and amortization
                
                
                -
                
                
                11,717
                
                
                51,823Gain
                    of sale of assets
                
                
                -
                
                
                (2,703,718
                )
                
                -Total
                    operating (income) expenses
                
                
                -
                
                
                (97,803
                )
                
                6,514,896Income
                    before taxes
                
                
                -
                
                
                2,785,885
                
                
                53,018Provision
                    for income taxes
                
                
                -
                
                
                2,653
                
                
                4,050Income
                    from discontinued operations
                
                $
                -
                
                $
                2,783,232
                
                $
                48,968
 On
        February 24, 2005, the Company consummated a private offering of its equity
        Securities (the "Offering"). In connection with the consummation of the Offering
        (see Note 2), at the close of business on February 24, 2005, at the request
        of
        the placement agent for the Offering (the "Placement Agent"), (i) Mr. Jerry
        Braun resigned as a director and as the Company's Chief Executive Officer
        and
        President and (ii) Mr. Jacob Rosenberg resigned as a director and as the
        Company's Vice President, Chief Operating Officer, Chief Financial Officer,
        Chief Accounting Officer and Secretary. In connection with Braun and Rosenberg's
        agreement with the Placement Agent to resign as officers and directors of
        the
        Company, in order to secure the obligations of the Company to (i) consummate
        the
        sale of all the assets relating to the Company's home healthcare business
        (the
        "Asset Sale") to New York Health Care, LLC, a company controlled by Messrs.Braun
        and Rosenberg (the "LLC"), pursuant to the terms of the Purchase Agreement
        signed July 15, 2004 among the Company, Helping Hands and the LLC ("Purchase
        Agreement") or (ii) to comply with any future payment obligations of the
        Company
        to Braun and Rosenberg under their respective employment agreements with
        the
        Company (the "Employment Agreements"), the Company entered into an agreement
        (the "Security Agreement"), on February 24, 2005, which granted Messrs. Braun
        and Rosenberg a security interest in the assets of the Company's home healthcare
        business being conducted in the states of New York and New Jersey and provided
        for the deposit of up to $3.55 million in a cash collateral account
        (collectively, the "Collateral"). Under terms of the Security Agreement none
        of
        BioBalance's funds would be used as Collateral.
 
 Pursuant
        to the terms of their respective Employment Agreements and as a result of
        their
        resignations from the Company's Board of Directors, on February 24, 2005,
        each
        of Braun and Rosenberg received ten year stock options ("Options") to purchase
        500,000 shares of the Company's common stock $0.01 par value per share ("Common
        Stock") at an exercise price of $0.85 per share, pursuant to the Company's
        Performance Incentive Plan.
 
 On
        March
        23, 2005, the security interest that was granted pursuant to the Security
        Agreement was terminated and Messrs. Braun and Rosenberg agreed that the
        Company
        could enter into an agreement with a third party for the sale of the NJ Business
        under specified conditions without being in breach of the Purchase
        Agreement.
 
 On
        April
        11, 2005, the Company entered into an agreement to sell the assets of the
        NJ
        Business to Accredited Health Services, Inc. ("Accredited Health"), a subsidiary
        of National Home Health Care Corp., for $3,000,000. In addition to Messrs.
        Braun
        and Rosenberg, the LLC also consented to the sale of the assets of the NJ
        Business to Accredited Health and agreed that such sale would not result
        in a
        breach of the Purchase Agreement. Funding of the purchase price in the amount
        of
        $3,000,000 was made on April 11, 2005 and a formal closing for the sale,
        which
        was subject only to an orderly transition of the assets of the NJ Business
        to
        Accredited Health, occurred on May 22, 2005. An aggregate of $150,000 of
        the
        purchase price was placed in escrow to cover actual losses, if any, incurred
        by
        Accredited Health for which the Company is required to indemnify Accredited
        Health pursuant to the agreement. If no claims by Accredited Health for
        indemnification by the Company were made, the escrowed funds would be released
        to the Company 90 days after the formal closing of the transaction which
        was on
        or about August 21, 2005. The funds were released to New York Health Care
        on
        August 22, 2005 in accordance with the agreements.
  F-14
 
 Messrs.
        Braun and Rosenberg have executed an agreement (the "Termination Agreement")
        with the Company, which became effective on August 4, 2005, pursuant to which,
        among other things, Messrs. Rosenberg and Braun resigned from their employment
        with the Company and any of its subsidiaries, and the Purchase Agreement,
        their
        Employment Agreements (except for sections of the Employment Agreements
        regarding certain non-disclosure provisions and their agreements not to compete
        with the Company, which survive as modified by the Termination Agreement)
        and
        the Security Agreement have been terminated. Under the Termination Agreement,
        (i) Mr. Braun received a cash payment of $1,200,000, (ii) Mr. Rosenberg received
        a cash payment of $1,050,000, (iii) the Company will pay for health benefits
        for
        Messrs. Braun and Rosenberg through December 31, 2005, and (iv) each of Mr.
        Braun and Mr. Rosenberg will receive up to a maximum of $5,000 to pay for
        his
        accrued but unpaid compensation, accrued vacation and accrued business expenses.
        Pursuant to the Termination Agreement, Messrs. Braun and Rosenberg each returned
        to the Company the 500,000 options granted to each of them (a total of 1,000,000
        options) on February 24, 2005, and returned a combined aggregate of 110,000
        additional options to purchase the Company's common stock previously granted
        to
        them. The Termination Agreement also contains mutual releases and
        indemnification provisions.
  Bids
          from
          a number of companies were received and evaluated by the Board. Based on
          the
          evaluation, it was determined that Accent Care had made the best offer and
          the
          Company signed a letter of intent with Accent Care October 26, 2005. The letter
          outlined a potential deal and gave Accent Care a thirty day exclusive period
          to
          do their due diligence. This period was extended for an additional two weeks
          to
          allow them to complete their work. Accent Care submitted an offer for the
          business in the form of a contract for the health care division. After reviewing
          the contract the board began negotiations with Accent Care as to the final
          terms of the deal. On December 12, 2005, during the discussions with Accent
          Care, the Company received an unsolicited revised bid from Revival Health Care
          ("Revival") who was one of the original bidders. Revival had revised their offer
          and
          it was determined that the offer was competitive with the offer being considered
          from Accent Care. Upon further review, the Board determined that overall
          the offer from Revival was a better offer for the Company than the offer from
          Accent Care. The Company made the decision to accept the offer from Revival and
          signed a letter of intent with Revival on January 16, 2006, which outlined the
          deal
          and called for a four week due diligence period. The due diligence was completed
          on February 28, 2006. An offer was received from Revival on March 3, 2006,
          after completion of the due diligence period. The agreement was never signed
          and the Board ceased negotiations of the terms of the deal with Revival. Had
          an
          agreement been signed with Revival to buy the home health care division from
          the
          Company, the shareholders would have been asked to vote to approve the sale.
  In
        September of 2005 the Company made a decision to solicit bids for its home
        healthcare division. In order to sell the home healthcare division it will
        be
        necessary for the Company to restructure itself so that the Company can sell
        the
        home healthcare division as a separate entity. This will require a vote of
        the
        shareholders to invert the Company to make BioBalance Corporation the parent
        company and to make the old New York Health Care, Inc. a subsidiary of The
        BioBalance Corporation. The Company then plans, subject to shareholder approval,
        to sell the New York Health Care subsidiary. The Company intends to obtain
        a
        letter ruling from the IRS regarding the tax free nature of the restructuring.
        See Note 15, Segment Reporting.
 
 **NOTE
        4 - PROPERTY AND EQUIPMENT**
 
 Property
        and equipment, at cost consist of the following at December 31:
 2006
                
                2005Machinery
                    and equipment
                
                $
                280,696
                
                $
                257,326Furniture
                    and fixtures
                
                
                46,033
                
                
                46,033Leasehold
                    improvements
                
                
                52,136
                
                
                52,136378,865
                
                
                355,495Less:
                    accumulated depreciation
                
                
                257,967
                
                
                205,443$
                120,898
                
                $
                150,052
 **NOTE
        5 - GOODWILL AND INTANGIBLE ASSETS:**
 
 As
        a
        result of the reverse acquisition on January 2, 2003, the Company had recognized
        goodwill on the transaction. The goodwill is associated with the home care
        business and on the date of the merger, the Company determined that the goodwill
        was impaired. The indicator leading to an impairment was the fact that, based
        on
        the then current home healthcare market, the home healthcare business could
        not
        be sold in the open market for its recorded purchase price. The Company hired
        a
        valuation expert who valued the Company using the capitalized earnings/cash
        flow
        methodology and the market multiple approach. Based on these methodologies,
        it
        was determined that an impairment had been incurred. The goodwill impairment
        amounted to $17,869,339 for the year ended December 31, 2003.
 
 As
        a
        result of the sale of certain assets of the NJ Business, the Company wrote
        off
        $117,587 of goodwill which is attributable to the NJ Business. Goodwill at
        December 31, 2004 reflects the reclassification of $117,587 of goodwill to
        assets held for sale as part of the discontinued operations summarized in
        note
        3.
 
 The
        changes in the carrying amount of goodwill relate entirely to the home
        healthcare business for the years ended December 31, 2006, 2005, 2004 and
        2003
        were as follows:
  F-15
  New
                      YorkHealth Care
                  
                  BioBalanceAcquisition
                      -- January 2, 2003
                  
                  $
                  18,769,926
                  
                  $
                  -Impairment
                      -- January 2, 2003
                  
                  
                  (17,869,339
                  )
                  
                  -Reclassed
                      as current assets of discontinued operations held for sale
                      for the year
                      ended December 31, 2004
                  
                  
                  (117,587
                  )
                  
                  -Balance
                      as of December 31, 2004
                  
                  
                  783,000
                  
                  
                  -Impairment
                      for year ended December 31, 2005
                  
                  
                  -
                  
                  
                  -Balance
                      as of December 31, 2005
                  
                  
                  783,000
                  
                  
                  -Impairment
                      for year Ended December 31, 2006
                  
                  
                  -
                  
                  
                  -Balance
                      as of December 31, 2006
                  
                  $
                  783,000
                  
                  $
                  -
 The
        impairment charges related to goodwill are noncash in nature and do not affect
        the Company's liquidity.
 
 The
        major
        classifications of intangible assets and their respective estimated useful
        lives
        are as follows:
  December
                    31, 2006Gross
                    Amount
                
                Accumulated
                    Amortization
                
                Net
                    Carrying Amount
                
                EstimatedUseful
                    Life in YearsIntellectual
                    property
                
                $
                2,036,500
                
                $
                1,103,053
                
                $
                933,447
                
                
                10Patents
                    and trademarks
                
                
                775,260
                
                
                196,296
                
                
                578,964
                
                
                10Customer
                    base
                
                
                316,000
                
                
                252,916
                
                
                63,084
                
                
                5$
                3,127,760
                
                $
                1,552,265
                
                $
                1,575,495
   December
                    31, 2005Gross
                    Amount
                
                Accumulated
                    Amortization
                
                Net
                    Carrying Amount
                
                EstimatedUseful
                    Life in YearsIntellectual
                    property
                
                $
                2,706,337
                
                $
                1,167,474
                
                $
                1,538,863
                
                
                10Patents
                    and trademarks
                
                
                1,153,369
                
                
                392,501
                
                
                760,868
                
                
                10Non-compete
                    agreement
                
                
                770,000
                
                
                365,750
                
                
                404,250
                
                
                5Customer
                    base
                
                
                316,000
                
                
                189,832
                
                
                126,168
                
                
                5$
                4,945,706
                
                $
                2,115,557
                
                $
                2,830,149
  On
        August
        20, 2003, the Company purchased from NexGen Bacterium Inc. ("NexGen") certain
        proprietary technology and intellectual property assets that did not constitute
        a business. The purchase price for the assets was comprised of a $250,000
        payment and the issuance of 1,000,000 shares of the Company's $0.01 par-value
        common stock. The stock was valued at $3,600,000 based on a closing price
        of
        $3.60 per share on August 20, 2003. The asset acquisition agreement included
        noncompete provisions restricting NexGen from competing with the Company
        for a
        period of five years.
  F-16
 
 At
        December 31, 2004, it was determined that the investment in the NexGen Platform
        was impaired and as a result of the impairment analysis a total of $1,740,326
        was expensed at year end. The impairment at that time was determined by an
        independent valuation firm using a discounted cash flow model. That impairment
        was due to a number of factors including the acceleration of PROBACTRIX as
        a
        prescription product, overall limited funding available and available management
        time. While BioBalance believed at that time that the NexGen Platform was
        a
        viable technology that could be commercialized, it will continue to be delayed
        because of above mentioned factors. At December 31, 2005, an impairment test
        was
        performed by an independent valuation firm and it was determined there was
        no
        further impairment to provide for.
 
 At
        December 31, 2006, management determined that the value of the NexGen Platform
        was impaired in its entirety due to inconclusive testing results. While
        management believes that further testing may prove the safety and efficacy
        of
        the NexGen Platform, a decision was made to devote all efforts and funds
        towards
        the development and clinical trials of ProBactrix, if, as and when further
        funding is received or a strategic partner joins the Company. Accordingly,
        management recorded an impairment loss of $926,322 (intellectual property
        $334,787; patents and trademarks $341,285 and; non-compete agreement $250,250)
        representing the entire unamortized balance of the NexGen Platform and has
        discontinued any further testing or development of the Platform at this
        time.
 
 As
        of
        December 31, 2006, approximately $1,500,000 of intangible assets net of
        accumulated amortization were attributable to BioBalance. BioBalance is a
        research and development company and has had significant losses since inception.
        In November 2006, as described in Note 1 under “Recent Developments,” a decision
        was made to scale back the operations of BioBalance by surrendering its office
        space in March 2007 and continuing to operate on a substantially reduced
        budget
        starting in April 2007.
 
 Amortization
        expense amounted to $620,061, $602,150, and $769,498 for the years ended
        December 31, 2006, 2005 and 2004, respectively.
 
 Future
        amortization of existing intangible assets for their remaining useful
        lives:
 For
                      the Years Ending December 31,2007
                  
                  $
                  345,5952008
                  
                  
                  281,5112009
                  
                  
                  281,5112010
                  
                  
                  281,5112011
                  
                  
                  196,703Thereafter
                  
                  
                  188,664$
                  1,575,495
 
  F-17
  **NOTE
        6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:**
 
 Accounts
        payable and accrued expenses consist of the following at December
        31:
 2006
                
                2005Accounts
                    payable
                
                $
                561,445
                
                $
                867,436Accrued
                    expenses
                
                
                765,150
                
                
                1,840,910Accrued
                    settlement per consulting agreement
                
                
                1,131,100
                
                
                1,131,100Accrued
                    employee benefits
                
                
                3,505,894
                
                
                4,892,872$
                5,963,589
                
                $
                8,732,318
 **NOTE
        7 - LINE OF CREDIT:**
 
 New
        York
        Health Care had a $4,000,000 line of credit with G.E. Capital Health Care
        Financial Services ("G.E. Capital") that expired on March 30, 2007. The
        availability of the line of credit was based on a formula of eligible accounts
        receivable. The loan agreement relating to the line of credit (the "Loan
        Agreement") was amended in 2004 to allow New York Health Care to lend money
        to
        BioBalance if there is no outstanding loan under this Loan Agreement. The
        Loan
        Agreement has also been amended to allow New York Health Care to invest money
        in
        BioBalance. As of December 31, 2005, approximately $4,000,000 was available
        to
        the Company. Certain assets of the Company collateralize the line of credit.
        The
        Loan Agreement contains various restrictive covenants which, among other
        things,
        require that New York Health Care maintain a minimum tangible net worth of
        $500,000. Borrowings under the Loan Agreement bear interest at prime plus
        1 1/2%
        at December 31, 2006 (9.75%).
 
 At
        December 31, 2006 and 2005, there was an amount due from G.E. Capital of
        $274,934 and $198,941 respectively. This resulted from collections deposited
        with G.E. Capital through a lockbox and then transferred to the Company's
        bank
        account.
 
 On
        April
        11, 2005, the Company's Loan Agreement with G.E. Capital was modified to
        permit
        the sale of the assets of the NJ Business to Accredited Health and to lift
        the
        lender's lien with respect to the assets of the NJ Business. As a result
        of this
        modification, no loans under the Loan Agreement may be requested or occur
        until
        such time as the parties agree on the adjusted amount of the borrowing base.
        Such an amendment will result in a decrease in the amount available for
        borrowing under the facility.
  F-18
 
 **NOTE
        8 - INCOME TAXES:**
 
 Deferred
        tax attributes resulting from differences between financial accounting amounts
        and tax bases of assets and liabilities at December 31, 2006 and 2005 follows
        (rounded to the nearest thousand).
 2006
                
                
                2005Current
                    assets:Allowance
                    for doubtful accounts
                
                $
                243,000
                
                
                $
                195,000Prepaid
                    expenses
                
                
                (78,000
                )
                
                
                (57,000
                )165,000
                
                
                
                138,000Valuation
                    allowance
                
                
                (165,000
                )
                
                
                (138,000
                )Net
                    current deferred tax asset
                
                $
                -
                
                
                $
                -Noncurrent
                    assets:Net
                    operating loss carryforwards
                
                $
                7,033,000
                
                
                $
                4,847,000Depreciation
                
                
                (7,000
                )
                
                
                (1,000
                )Amortization
                    of goodwill
                
                
                -
                
                
                
                -Amortization
                    of intangibles
                
                
                455,000
                
                
                
                292,0007,481,000
                
                
                
                5,138,000Valuation
                    allowance
                
                
                (7,481,000
                )
                
                
                (5,138,000
                )Net
                    current deferred tax asset
                
                $
                -
                
                
                $
                -
 As
        of
        December 31, 2006, the Company had net operating loss carry forwards of
        approximately $15,100,000 which expire between 2021 through 2026.
 
 
 The
        provision (benefit) for income taxes, consist of the following:
 Year
                    Ended December 31,2006
                
                2005
                
                2004Current
                    tax expense (benefit) from continuing operations
                
                $
                67,244
                
                $
                78,628
                
                $
                (67,176
                )Deferred
                    tax expense(not
                    including amount listed below)
                
                
                2,370,000
                
                
                584,000
                
                
                2,800,000Net
                    change in valuation allowance
                
                
                (2,370,000
                )
                
                (584,000
                )
                
                (2,800,000
                )$
                67,244
                
                $
                78,628
                
                $
                (67,176
                )
   F-19
  The
        provision (benefit) for income taxes is comprised of the following:
 Year
                    Ended December 31,2006
                
                2005
                
                2004Current:Federal
                    income taxes from continuig operations
                
                $
                -
                
                $
                -
                
                $
                -Federal
                    income taxes from discontinued operations
                
                
                -
                
                
                -
                
                
                -State
                    income taxes from
                  continuing
                    operations
                
                
                67,244
                
                
                78,628
                
                
                (67,176
                )$
                67,244
                
                $
                78,628
                
                $
                (67,176
                )
 The
        statutory Federal income tax rate and the effective rate is reconciled as
        follows:
 Year
                    Ended December 31,2006
                
                
                2005
                
                
                2004Statutory
                    Federal income tax rate
                
                
                34
                %
                
                
                34
                %
                
                
                34
                %State
                    taxes, net of Federal tax benefit
                
                
                12
                %
                
                
                12
                %
                
                
                12
                %Valuation
                    allowance
                
                
                -45
                %
                
                
                -45
                %
                
                
                -45
                %Over/under
                    accrual
                
                
                -1
                %
                
                
                -1
                %
                
                
                -1
                %0
                %
                
                
                0
                %
                
                
                0
                %
 **NOTE
        9 - FAIR VALUE OF FINANCIAL INSTRUMENTS:**
 
 As
        of
        December 31, 2006 and 2005, the carrying amount of cash and cash equivalents,
        accounts receivable, accounts payable and accrued expenses, accrued payroll
        and
        due to HRA, approximates fair value due to their short-term nature.
 
 **NOTE
        10 - SHAREHOLDERS' EQUITY:**
 
 On
        February 24, 2005, the Company issued 7,899,362 shares of common stock and
        warrants to purchase 3,949,681 shares of common stock in a private placement
        for
        gross proceeds of $4,897,600 and net proceeds of $4,197,396.
 
 On
        March
        6, 2006, the Company agreed to issue 400,000 shares of common stock (valued
        at
        $312,000) and 1,100,000 options (valued at $462,220) to settle with Emerald
        Asset, who provided services as a consultant to the Company, as part of a
        final
        settlement with the Emerald Asset. These amounts were recorded as common
        stock
        and options to be issued at December 31, 2005.
 
 On
        March
        9, 2006, the Company agreed to issue 300,000 shares of Common Stock (valued
        at
        $216,000) to a prior consultant of the Company as part of a final settlement
        with the consultant. At December 31, 2005, these shares were recorded as
        common
        stock and options to be issued. These shares were subsequently issued in
        October
        2006. Warrants that were previously granted to the consultant expired while
        held
        in suspension by the Company. The consultant has asserted that these warrants
        were wrongfully held in suspension and had expired prior to being released
        by
        the Board of Directors.
  F-20
 
 In
        July
        2006, the Company issued 250,000 shares to a public relations consultant.
        All of
        the shares were unconditionally returned to the Company subsequent to the
        balance sheet date in March 2007.
 
 Preferred
        Stock
 
 In
        June
        2005, the holders of all of the outstanding shares of the Company's preferred
        stock, a total of 590,375 shares, elected to convert their preferred stock
        to
        shares of common stock in accordance with the provisions of the preferred
        stock.
        The holders of the preferred stock received a total of 393,584 shares of
        common
        stock upon conversion. The Company has no preferred stock outstanding as
        of
        December 31, 2006 or 2005.
 
 Treasury
        Stock
 
 The
        Company issued treasury stock for the exercise of options that occurred in
        September and October 2003. The Company assigned a cost to the treasury stock
        based on the first-in, first-out method.
 
 **NOTE
        11 - STOCK OPTION/WARRANTS:**
 
 The
        following tables summarize options and warrants issued during the years ended
        December 31, 2006, 2005 and 2004 to consultants and employees (including
        non-employee Board of Directors) and in connection with the
        Offering:
 
 Warrants:
 
 These
        warrants were issued to or earned by consultants but may not be outstanding
        at
        each year end.
 Grant
                    Date
                
                Number
                    of Warrants
                
                Exercise
                    Price
                
                Expiration
                    TermNo
                    warrants were issued to consultants in 2004February
                    24, 2005
                
                
                5,726,993
                
                $
                0.78
                
                
                5
                    yrsAugust
                    31, 2005
                
                
                20,000
                
                $
                1.20
                
                
                5
                    yrsSeptember
                    1, 2005
                
                
                150,000
                
                $
                1.21
                
                
                5
                    yrsNo
                    warrants were issued to consultants in
                    2006
 Some
        of
        these warrants granted vest immediately, some warrants vest monthly. For
        accounting purposes, unvested warrants are not considered outstanding. For
        the
        year ended December 31, 2006, no consultant warrants were issued and no expense
        was recognized. For the year ended December 31, 2005, $134,731 was expensed
        as
        compensation expense for these warrants. For the year ended December 31,
        2004,
        $15,743 was expensed as compensation expense for these warrants.
 
 Nasdaq
        implemented a rule on July 1, 2003 that requires a company to obtain shareholder
        approval prior to the issuance of warrants to consultants or non-employee
        members of the Board of Directors. The Company committed to issue warrants
        to
        certain consultants subsequent to July 1, 2003. Therefore, these commitments
        of
        warrants are re-valued at each balance sheet date with the appropriate
        adjustment made to compensation expense. Once shareholder approval is obtained,
        no further adjustment to compensation expense will be recorded. For the year
        ended December 31, 2005, the re-valued warrants generated an increase in
        compensation of $8,710. For the year ended December 31, 2004, the re-valued
        warrants generated a reduction in compensation of $381,565. The shareholders
        approved a new option plan on August 31, 2005, that allows for the issuance
        of
        warrants and options to consultants. Therefore, the above warrants were valued
        on August 31, 2005, and no further compensation expense will be recorded
        for
        these warrants.
  F-21
 
 **Performance
        Incentive Plan:**
 
 On
        August
        31, 2005, the shareholders approved the Company's 2004 Incentive Plan, (the
        "Incentive Plan"). Under the terms of the Incentive Plan, up to 5,000,000
        shares
        of common stock may be granted at December 31, 2006. The Incentive Plan is
        administered by the Compensation Committee which is appointed by the Board
        of
        Directors. The Committee determines which key employee, officer or director
        on
        the regular payroll of the Company, or outside consultants shall receive
        stock
        options. Granted options are exercisable after the date of grant in accordance
        with the terms of the grant up to ten years after the date of the grant.
        The
        exercise price of any incentive stock option or nonqualified option granted
        under the Incentive Plan may not be less than 100% of the fair market value
        of
        the shares of common stock of the Company at the time of the grant.
 
 On
        March
        26, 1996, the Company's Board of Directors adopted the Performance Incentive
        Plan, (the "Option Plan"). The Option plan has substantially the same terms
        as
        the Incentive Plan above.
 
 
 **Options/Warrants:**
 
 The
        following options and warrants were issued to employees and non-employee
        Board
        of Directors and consultants in accordance with the Company's Performance
        Incentive Plan. However, they may not be outstanding at each year
        end.
 Grant
                      Date
                  
                  
                  
                  Number
                      of Options
                  
                  Exercise
                      Price
                  
                  Expiration
                      TermJanuary
                      4, 2006
                  
                  
                  
                  
                  
                  45,000
                  
                  $
                  0.78
                  
                  
                  5
                      yrsMarch
                      6, 2006
                  
                  
                  
                  
                  
                  1,100,000
                  
                  $
                  0.78
                  
                  
                  4
                      yrsJuly
                      19, 2006
                  
                  
                  
                  
                  
                  250,000
                  
                  $
                  0.57
                  
                  
                  5
                      yrsJuly
                      27, 2006
                  
                  
                  
                  
                  
                  20,000
                  
                  $
                  0.60
                  
                  
                  10
                      yrsSeptember
                      20, 2006
                  
                  
                  
                  
                  
                  450,000
                  
                  $
                  0.37
                  
                  
                  5
                      yrsFebruary
                      24, 2005 *
                  
                  
                  
                  
                  
                  1,000,000
                  
                  $
                  0.85
                  
                  
                  10
                      yrsMay
                      6, 2005
                  
                  
                  
                  
                  
                  100,000
                  
                  $
                  0.80
                  
                  
                  10
                      yrsJune
                      6, 2005
                  
                  
                  
                  
                  
                  75,000
                  
                  $
                  0.84
                  
                  
                  10
                      yrsAugust
                      1, 2005
                  
                  
                  
                  
                  
                  200,000
                  
                  $
                  0.75
                  
                  
                  5
                      yrsAugust
                      31, 2005
                  
                  
                  
                  
                  
                  85,000
                  
                  $
                  1.20
                  
                  
                  5
                      yrsOctober
                      3, 2005
                  
                  
                  
                  
                  
                  50,000
                  
                  $
                  1.00
                  
                  
                  5
                      yrsJanuary
                      29, 2004
                  
                  
                  
                  
                  
                  450,000
                  
                  $
                  2.13
                  
                  
                  10
                      yrsSeptember
                      14, 2004
                  
                  
                  
                  
                  
                  100,000
                  
                  $
                  0.50
                  
                  
                  10
                      yrs
 * The
        1,000,000 options issued on February 24, 2005, to Messrs Braun and Rosenberg
        were returned to the Company on August 4, 2005, as part of their termination
        agreement with the Company.
 
 Other
        than the 200,000 options issued on August 1, 2005 to non-employee directors,
        for
        which a compensation expense in the amount of $90,000 was recorded, all other
        options were issued to employees and non-employee directors at not less than
        fair value on the date of grant, no compensation expense was
        recorded.
  On
          November 26, 2003, the Company suspended the 100,000 options granted on
          March 7,
          2003,
          to Paul Stark, the former President of BioBalance. The options are considered
          outstanding but can not be exercised until the Company gives notice that
          they
          may be exercised. The options have been recorded under the intrinsic value
          method.
 At
        December 31, 2006, the Company has 8,996,212 shares of common stock reserved
        for
        issuance of these options/warrants and for options/warrants granted
        previously.
 
 Valuation
        assumptions for these options are as follows:
 
 2006
              
              
              2005Risk
                  free interest rate
              
              
              4.3%
                  - 5.1
              %
              
              
              1.6%
                  - 4.2
              %Expected
                  volatility of common stock
              
              
              0%
                  - 102
              %
              
              
              88%
                  - 104
              %Dividend
                  yield
              
              
              0
              %
              
              
              0
              %Expected
                  option term
              
              
              2-5 years
              
              
              
              3-5
  F-22
 
 Activity
        in stock options and warrants, including those outside the Performance Incentive
        Plan, for each of the three years ended December 31, is summarized as
        follows:
 Shares
                    Under Options/Warrants
                
                Weighted
                    Average Exercise PriceBalance
                    at December 31, 2003
                
                
                3,255,651
                
                $
                2.27Options
                    granted
                
                
                550,000
                
                
                1.83Options
                    exercised
                
                
                -Options
                    cancelled/expired
                
                
                (952,532
                )
                
                2.31Balance
                    at December 31, 2004
                
                
                2,853,119
                
                
                2.17Options
                    granted
                
                
                7,406,993
                
                
                0.81Options
                    exercised
                
                
                -
                
                
                -Options
                    cancelled/expired
                
                
                (2,353,334
                )
                
                1.82Balance
                    at December 31, 2005
                
                
                7,906,778
                
                
                0.98Options
                    granted
                
                
                1,865,000
                
                
                0.65Options
                    exercised
                
                
                -
                
                
                -Options
                    cancelled/expired
                
                
                (775,566
                )
                
                1.29Balance
                    at December 31, 2006
                
                
                8,996,212
                
                
                0.93
 *Includes
        the performance based warrants discussed above.
 
 All
        of
        the options listed in the above table have no intrinsic value as their exercise
        prices are all in excess of the market value of the Company’s common stock as of
        December 31, 2006.
  F-23
  The
        following table summarizes information about options and warrants outstanding
        and exercisable at December 31, 2006.
 Options/Warrants
                    Outstanding
                
                
                
                
                
                Options/Warrants
                    ExercisableRange
                    of Exercise Price
                
                Options/
                    Warrants Outstanding
                
                Weighted
                    Average Remaining Contractual Life
                
                Weighted
                    Average Exercise Price
                
                Options
                    Warrants Exercisable
                
                Weighted
                    Average Options Warrants Exercisable$3.69
                
                
                100,000
                
                
                1.71
                
                $
                3.69
                
                
                100,000
                
                $
                3.69$3.22-3.47
                
                
                48,387
                
                
                1.00
                
                
                3.31
                
                
                48,387
                
                
                3.31$3.14
                
                
                160,000
                
                
                6.19
                
                
                3.14
                
                
                160,000
                
                
                3.14$3.00
                
                
                39,166
                
                
                0.08
                
                
                3.00
                
                
                39,166
                
                
                3.00$2.55
                
                
                75,333
                
                
                1.42
                
                
                2.55
                
                
                75,333
                
                
                2.55$2.44
                
                
                6,667
                
                
                1.42
                
                
                2.44
                
                
                6,667
                
                
                2.44$1.50
                
                
                51,333
                
                
                1.98
                
                
                1.50
                
                
                51,333
                
                
                1.50$1.21
                
                
                150,000
                
                
                3.67
                
                
                1.21
                
                
                150,000
                
                
                1.21$1.21
                
                
                50,000
                
                
                4.01
                
                
                1.21
                
                
                50,000
                
                
                1.21$1.20
                
                
                105,000
                
                
                3.67
                
                
                1.20
                
                
                105,000
                
                
                1.20$1.00
                
                
                200,000
                
                
                4.42
                
                
                1.00
                
                
                200,000
                
                
                1.00$0.97
                
                
                66,667
                
                
                2.87
                
                
                0.97
                
                
                66,667
                
                
                0.97$0.89
                
                
                133,333
                
                
                4.01
                
                
                0.92
                
                
                133,333
                
                
                0.92$0.84
                
                
                50,000
                
                
                8.43
                
                
                0.84
                
                
                50,000
                
                
                0.84$0.78
                
                
                5,726,993
                
                
                3.15
                
                
                0.78
                
                
                5,726,993
                
                
                0.78$0.78
                
                
                30,000
                
                
                4.01
                
                
                0.78
                
                
                30,000
                
                
                0.78$0.78
                
                
                1,100,000
                
                
                3.18
                
                
                0.78
                
                
                1,100,000
                
                
                0.78$0.75
                
                
                133,333
                
                
                3.58
                
                
                0.75
                
                
                133,333
                
                
                0.75$0.75
                
                
                200,000
                
                
                3.52
                
                
                0.75
                
                
                200,000
                
                
                0.75$0.60
                
                
                20,000
                
                
                9.58
                
                
                0.60
                
                
                20,000
                
                
                0.60$0.57
                
                
                250,000
                
                
                4.55
                
                
                0.57
                
                
                250,000
                
                
                0.57$0.37
                
                
                300,000
                
                
                4.72
                
                
                0.37
                
                
                300,000
                
                
                0.37Total
                
                
                8,996,212
                
                
                3.12
                
                
                0.93
                
                
                8,996,212
                
                
                0.93
 **NOTE
        12 - COMMITMENTS AND CONTINGENCIES:**
 
 
 During
        October 2004, it was determined that certain of the shares of Common Stock
        that
        the Company issued to holders of BioBalance stock in connection with the
        Company's January 2003 acquisition of BioBalance may not have been exempt
        from
        the registration or qualification requirements of the state securities laws
        of
        certain of the states where the holders of BioBalance stock then resided
        although they were registered under the Securities Act of 1933, as amended.
        Although the Company is unable to quantify the actual number of shares involved
        that are still owned by the original recipients of the Company's Common Stock
        received in the BioBalance acquisition, the per share purchase price paid
        by the
        BioBalance holders for the BioBalance shares they exchanged in the acquisition
        ranged from $.03 to $3.00 per share and the Company currently believes that
        the
        purchase price paid by such persons who might have certain statutory rescission
        rights does not exceed approximately $345,000, exclusive of any penalties
        or
        interest, although no assurance can be given that any such claims will not
        exceed this amount. The Company cannot determine the effect, if any, on its
        operations or financial condition that may occur from the failure to register
        or
        qualify these shares under applicable state securities laws. If it is determined
        that the Company offered Common Stock in connection with the BioBalance
        acquisition without properly registering or qualifying the shares under state
        laws, or securing exemption from registration, regulators could impose on
        the
        Company monetary fines or other sanctions as provided under these laws. The
        Company is unable to estimate the amount of monetary fines, if any, or the
        nature or scope of any sanctions at this time and is continuing its
        investigation of this matter.
  F-24
 
 Risk
        Factors Associated with Fair Labor Standards Act:
 
 On
        July
        22, 2004, the federal Second Circuit Court of Appeals issued a ruling on
        the
        applicability to paraprofessional field staff in New York of the Fair Labor
        Standards Act “companionship services” exemption from minimum wage and overtime
        requirements. Home care providers have long relied on this exemption to provide
        compensation to home care aides and personal care workers with the expectation
        that there is no obligation under federal laws for overtime pay. In September
        2004, a request for a rehearing was submitted en banc for the full Court.
        On
        January 13, 2005, the Court rejected the request for a rehearing on the
        issue.
 
 The
        issue
        was submitted to the Supreme Court and, on January 23, 2006, the Supreme
        Court
        granted a writ of certiorari, vacated the judgment and remanded the case
        to the
        Second Circuit Court of Appeals to reconsider its decision in light of the
        memorandum issued by the U.S. Department of Labor on December 1, 2005. In
        that
        memo, the DOL stated that it considers its regulations allowing the
        companionship exemption to be used by third party employers to be “authoritative
        and legally binding”. The Second Circuit Court of Appeals reconsidered and, on
        August 31, 2006, reaffirmed its decision. The Supreme Court again granted
        a writ
        of certiorari on January 5, 2007, and will hear oral argument in the case
        on
        April 16, 2007. A decision is expected before the end of June 2007.
 
 The
        challenges for the home care industry and the State, if the companionship
        exemption is ruled to be inapplicable to employees of homecare agencies,
        will be
        affording higher overtime wages, ensuring patient continuity of care if agencies
        can no longer afford to authorize overtime, and the retention of workers
        who
        cannot secure the number of hours of work they desire. All of these factors
        may
        cause a higher cost per hour serviced thereby adversely affecting
        profitability.
 
 See
        Note
        1 Recent Developments for other commitments and contingencies.
 
 **Lease
        Commitments**
 
 The
        Company leases office space under non-cancelable operating leases in New
        York
        expire between June 2006 and March 2010.
 
 At
        December 31, 2006, future minimum lease payments due under operating leases
        approximate:
 For
                    the Years Ending December 31,2007
                
                $
                294,0002008
                
                
                285,0002009
                
                
                275,0002010
                
                
                136,0002011
                
                
                43,000Thereafter
                
                
                -$
                1,033,000
 
 
 Rent
        expense for Company facilities charged to operations, including real estate
        taxes, was approximately $461,000, $403,000, and $461,000 for the years ended
        December 31, 2006, 2005 and 2004, respectively.
 
 As
        of May
        1, 2005, all of the New Jersey office leases were assumed by Accredited Health
        Care.
  F-25
 
 In
        April
        2006, the Company entered into a five (5) year non-cancelable operating lease
        for office space in New York, New York at an average annual rental of
        approximately $182,000 for its BioBalance subsidiary. Subsequent to the balance
        sheet date in March 2007, the Company entered into an agreement with the
        landlord whereby it was released from its obligation under the lease going
        forward from the date of the agreement. Pursuant to the agreement, the Company
        surrendered the premises. The Company incurred a loss of approximately $63,000
        in connection with terminating the lease of which $27,000 was charged to
        property impairment in 2006 and approximately $36,000 will be charged to
        operations during the first quarter of 2007. Rent expense incurred by the
        Company for the year ended December 31, 2006 includes approximately $118,000
        related to this lease. This lease has been eliminated from the table above
        due
        to its termination in 2007.
 
 **Employment
        Agreements:**
 
 In
        June
        2004, the Company entered into an employment agreement with Dennis O'Donnell
        the
        president and CEO of the Company that expired on May 5, 2006 at an annual
        compensation of $200,000. The board approved an increase of $25,000
        upon
 the
        closing of the Offering that took place on February 24, 2005. On May 6, 2005,
        the board of directors approved a bonus of $90,000 and granted him 100,000
        options to acquire common stock. In 2006, the Board approved a bonus of
        $112,500. On
        September 6, 2006, Mr. O’Donnell resigned his positions as President, Chief
        Executive Officer and a Director of New York Health Care Inc. and its subsidiary
        BioBalance Corporation.
 
 In
        June
        2005, the Company entered into an employment agreement with A. James Forbes
        to
        become the chief financial officer of the Company which expired on December
        31,
        2005. The agreement was renewed on January 1, 2006 and expired December 31,
        2006. Mr. Forbes was on a leave of absence due to an illness since November
        1,
        2005 and did not resume his position since that date.
 
 On
          January 13, 2005, the Compensation Committee approved bonuses of $500,000
          to be
          paid to the two former officers for the year ended December 31, 2004. Such
          amount was accrued as of December 31, 2004.
  **401(k)
        Plan:**
 
 The
        Home
        Healthcare segment maintains an Internal Revenue Code Section 401(k) salary
        deferred savings plan (the "Plan") for eligible employees who have been employed
        for at least one year and are at least 21 years old. Subject to certain
        limitations, the Plan allows participants to voluntarily contribute up to
        15% of
        their pay on a pretax basis. The Company currently contributes 50% of each
        dollar contributed to the Plan by participants up to a maximum of 3% of the
        participant's salary. The Plan also provides for certain discretionary
        contributions by the Company as determined by the Board of Directors. The
        Company's contributions offset by unvested, forfeited matching funds amounted
        to
        $46,000, $54,000, and $40,000 for the years ended December 31, 2006 and 2005
        and
        2004, respectively.
 
 **Profit
        Sharing Plan:**
 
 The
        Company maintains a qualified profit sharing plan under Internal Revenue
        Code
        Section 401 whereby it may contribute up to 15% of employee compensation.
        Specified employees are generally eligible for plan participation upon their
        employment commencement date with immediate vesting on the employee’s plan
        entrance date. All contributions to the plan are at the discretion of Company
        management. The Company made contributions to the plan of $169,739, $174,648
        and
        $172,845 for the years ended December 31, 2006, 2005 and 2004,
        respectively.
  **Bonus
          Plan:**
 
 The
          Home Healthcare segment of the Company has established a bonus plan pursuant
          to
          which 10% of the Company's pre-tax net income is contributed to a bonus
          pool
          which is available for distribution to all employees as decided by the
          Company's
          Compensation Committee. No bonus was accrued for 2006. There was no bonus
          accrued at December 31, 2005, as it was paid out to the plan participants
          in
          December 2005 in the amount of $38,100. A bonus of $44,000 was accrued
          as of
          December 31, 2004.
 **Concentrations
        of Credit Risk:**
 
 Financial
        instruments that potentially subject the Company to concentrations of credit
        risk consist of temporary cash investments, which from time-to-time exceed
        the
        Federal depository insurance coverage and commercial accounts receivable.
        The
        Company has cash investment policies that restrict placement of these
        investments to financial institutions evaluated as highly creditworthy. Cash
        and
        cash equivalents held in one bank exceed federally insured limits by
        approximately $2,545,000 at December 31, 2006. The Company does not require
        collateral on commercial accounts receivable as the customer base generally
        consists of large, well-established institutions.
 
 **Major
        Customers:**
 
 One
        major
        customer accounted for approximately 55% of net patient service revenue for
        the
        years ended December 31, 2006. Two major customers accounted for approximately
        58% and 54% of net patient service revenue for the years ended December 31,
        2005
        and 2004, respectively. In addition, three customers represented approximately
        38%, 44% and 49% of accounts receivable at December 31, 2006, 2005 and 2004,
        respectively.
  F-26
 
 **Business
        Risks:**
 
 The
        Company's primary business, offering home healthcare services, is heavily
        regulated at both the federal and state levels. While the Company is unable
        to
        predict what regulatory changes may occur or the impact on the Company of
        any
        particular change, the Company's operations and financial results could be
        negatively affected.
 
 Further,
        the Company operates in a highly competitive industry, which may limit the
        Company's ability to price its services at levels that the Company believes
        appropriate. These competitive factors may adversely affect the Company's
        financial results.
  **Cautionary
          Statement**
 
 BioBalance
          operates in a competitive environment that involves a number of risks,
          some of
          which are beyond its control. Although we believe the expectations for
          BioBalance are based on reasonable assumptions, we can give no assurance
          that
          our expectations will be attained. Factors that could cause actual events
          or
          results to differ materially from expected results involve both known and
          unknown risks. Key factors include, among others: our need to secure additional
          financing and at acceptable terms; the high cost and uncertainty of clinical
          trials and other development activities involving pharmaceutical products;
          the
          dependence on third parties to manufacture its products; the unpredictability
          of
          the duration and results of regulatory approval for our products; our dependence
          on our lead biotherapeutic agent, PROBACTRIX and the uncertainty of its
          market
          acceptance; the possible impairment of, or inability to enforce, intellectual
          property rights and the subsequent costs of defending these rights; and
          the loss
          of key executives or consultants.
 
 **Legal
        Settlements:**
 
 We
        are
        subject to various legal proceedings and claims, either asserted or unasserted,
        which arise in the ordinary course of business. While the outcome of these
        claims cannot be predicted with certainty, management does not believe that
        the
        outcome of any of these legal matters will have a material adverse effect
        on our
        results of operations or financial position, except as follows:
 
 On
        March
        30, 2006, the Company was served with a shareholder derivative complaint
        captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murray
        Englard, Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York
        Health Care, Inc., (Supreme Court of State of New York County of Nassau,
        (Index
        No. 5125/06). The lawsuit alleged that the directors breached their fiduciary
        duty by approving the Emerald Settlement Agreement disclosed in the Company's
        Form 8-K (Date of Report March 6, 2006) filed with the Securities Exchange
        Commission on March 10, 2006. The lawsuit claimed that such breach was a
        product
        of their respective relationships with Mr. Grossman. The lawsuit also alleged
        that Mr. Grossman and Emerald Asset Management injured the Company by engaging
        in the actions underlying the November 2004 criminal conviction of Mr. Grossman.
        The lawsuit was dismissed in September 2006.
 
 On
        March
        9, 2006, the Company entered into a final settlement agreement (the "Corval
        Settlement Agreement") with Mark Olshenitsky related to the resolution of
        disputes under a consulting agreement dated April 14, 2003 (the "Corval
        Consulting Agreement") between the Company and Corval International, Inc.
        ("Corval"). Pursuant to the Corval Consulting Agreement, Corval was issued
        warrants to purchase 500,000 shares of the Company's Common Stock for $2.50
        per
        share until April 21, 2004 (the "Warrants"). Mark Olshenitsky ("Olshenitsky")
        is
        the sole owner of Corval and is the assignee/successor to Corval.
 
 In
        November 2003, the Company suspended the Warrants in response to the indictment
        of one of its directors and officer of BioBalance and a consultant to BioBalance
        as reported in the Company's Form 10-K for the year ended December 31,
        2003.
 
 Both
        Corval and Olshenitsky have continually denied any involvement in the events
        leading up to the indictments and have threatened litigation alleging breach
        of
        contract and related compensatory damages as a result of the suspension of
        the
        Warrants. Neither Corval nor Olshenitsky was indicted.
 
 Pursuant
        to the Corval Settlement Agreements and in order avoid the cost and uncertainty
        of litigation, the Company agreed to issue 300,000 (valued at $216,000) shares
        of common stock to Olshenitsky in return for a general release of all claims
        Corval and Olshenitsky may have against the Company. The common stock are
        "restricted shares" and may only be resold after registration of such shares
        or
        the availability of an exemption from registration, including under Rule
        144 of
        the Securities Act of 1933 as amended (the "Securities Act"). At December
        31,
        2005, the Company has recorded $216,000 for the Corval settlement under common
        stock and options to be issued. (See Note 10.)
 
 On
        March
        6, 2006, the Company entered into a settlement agreement (the "Emerald
        Settlement Agreement") with Emerald Asset Management, Inc. ("Emerald") and
        Yitz
        Grossman ("Grossman") related to the resolution of disputes under a consulting
        agreement dated June 1, 2001 (the "Emerald Consulting Agreement") between
        the
        Company and Emerald. Grossman is the sole owner of Emerald. Pursuant to the
        Emerald Consulting Agreement, Emerald was entitled to $250,000 per year through
        2011, additional payments equal to bonuses paid to the Chief Executive Officer
        of the Company and reimbursement for expenses.
 
 In
        November 2003, the Company terminated the Emerald Consulting Agreement in
        response to the indictment of one of its directors and officer of BioBalance,
        and a consultant as reported in the Company's Form 10-K for the year ended
        December 31, 2003. As of September 2004, BioBalance notified the consultant
        in
        writing that the consulting agreement was terminated for cause. At December
        31,
        2004, the Company had accrued had approximately $359,000 relating to this
        consulting agreement as reported in the 2004 10-K.
  F-27
 
 Emerald
        and Grossman have threatened litigation alleging breach of contract and related
        compensatory damages as a result of the termination of the Emerald Consulting
        Agreement. Emerald asserts that the Emerald Consulting Agreement was terminated
        "without cause" as defined in the agreement entitling Emerald to certain
        payments that Emerald estimates at approximately $2,225,000.
 
 Pursuant
        to the Emerald Settlement Agreement and in order avoid the cost and uncertainty
        of uncertainty of litigation, the Company agreed to (i) the immediate payment
        of
        $700,000 to Emerald, (ii) payment of $22,000 per month for eighteen months
        beginning January 1, 2006, (iii) the issuance of 400,000 shares of common
        stock,
        (iv) options to purchase 1,100,000 shares of common stock at $0.78 per share
        until March 1, 2010 and (v) health insurance for Grossman and his family
        for the
        eighteen month period ending June 30, 2008 amounting to approximately $35,100.
        In return, Emerald and Grossman have executed a general release of all claims
        they may have against the Company. The common stock to be issued and the
        common
        stock issuable pursuant to the options are "restricted shares" and may only
        be
        resold after registration of such shares or the availability of an exemption
        from registration, including under Rule 144 of the Securities Act. The Company
        has granted Emerald a one-time demand registration right and unlimited piggy
        back registrant rights. The Company has not paid any of this liability and
        has
        expensed $1,545,931 for the above settlement during the year ended December
        31,
        2005. As of December 31, 2005, the Company has recorded a liability of
        $1,131,100 and common stock and options to be issued valued at $774,220 as
        of
        March 6, 2006. On April 17, 2006, Emerald Asset and Grossman have agreed
        not to
        demand the cash portion of the settlement agreement until such time as New
        York
        Health Care receives any additional monies from any source. (See Note
        10.)
 
 On August
        21, 2006, the Company unilaterally rescinded the settlement between the Company
        and Emerald Asset and Yitz Grossman. The rescission of the settlement by
        the
        Company was done without the consent of Emerald Asset and Yitz Grossman.
        Accordingly there may be future litigation brought against the Company by
        Emerald Asset and Yitz Grossman to seek enforcement of the agreement. The
        Company continues to retain the accrual for the settlement agreement on its
        books in its entirety. If there is litigation brought by Emerald Asset and
        Yitz
        Grossman to enforce the settlement agreement, there can be no assurance that
        at
        a future time the accrual that was recorded would be sufficient to offset
        amounts resulting from the future litigation. The Company would vigorously
        contest any claims by Emerald and Yitz Grossman seeking to enforce the
        settlement agreement. However, there can be no assurance such efforts by
        the
        Company would be successful.
 
 
 **NOTE
        13 - THIRD-PARTY RATE ADJUSTMENTS AND REVENUE AND CERTAIN CONTRACTS RELATED
        TO
        OPERATIONS:**
 
 Approximately
        4% of net patient service revenue was derived under New York State Medicaid
        reimbursement programs during each of the years ended December 31, 2006,
        2005
        and 2004. These revenues are based, in part, on cost reimbursement principles
        and are subject to audit and retroactive adjustment. Differences between
        current
        rates and subsequent revisions are reflected in the year that the revisions
        are
        determined.
 
 The
        Company has an agreement with the City of New York acting through the Department
        of Social Services of The Human Resources Administration ("HRA") to provide
        personal care services to certain qualified individuals as determined by
        HRA.
        The agreement with HRA sets a fixed direct labor cost in the reimbursement
        rate.
        Should the Company incur direct costs of home attendant services below this
        fixed rate, the Company must repay the difference to HRA, subject to final
        audit
        by the City of New York. As of December 31, 2006 and 2005, the amount included
        in due to HRA relating to direct labor costs amounted to $1,461,063 and
        $202,833, respectively. In addition, the City's reimbursement methodology
        for
        general and administrative expenses is based on a fixed amount per client
        based
        on the number of cases. The Company is reimbursed at an hourly rate. Any
        amount
        over this fixed rate must be repaid to HRA. As of December 31, 2006 and 2005,
        this amount was $6,481,694 and $5,957,079, respectively, subject to final
        audit
        by the City of New York. The aggregate amount due to HRA was $7,942,757 and
        $6,159,912 at December 31, 2006 and 2005, respectively. Subsequent to December
        31, 2006, HRA had completed their audit for the fiscal year ended June 30,
        2003.
 
 In
        January 2003, the New York State Department of Health ("DOH") approved
        additional funding to home healthcare agencies in a form of a rate increase.
        The
        additional funding is to be used exclusively for the recruitment and retention
        of home healthcare employees. Any unspent money relating to recruitment and
        retention is recorded as an accrued liability until such time as it is spent.
        As
        of December 31, 2006 and 2005, the Company accrued approximately $1,699,000
        and
        $1,966,000, respectively, related to recruitment and retention funds not
        yet
        expended and is included in accrued employee benefits.
  F-28
 
 
 **NOTE
        14- SUPPLEMENTAL CASH FLOW DISCLOSURES:**
 Year
                    Ended December 31,2006
                
                2005
                
                2004Supplemental
                    cash flow disclosures:Cash
                    paid during the period for:Interest
                
                $
                31,394
                
                $
                37,693
                
                $
                29,583Income
                    Taxes
                
                $
                62,198
                
                $
                70,888
                
                $
                49,608Supplemental
                    schedule of noncash investing and financing activities:Issuance
                    of common stock in payment of accrued expenses in connection
                    with Corval
                    Settlement Agreement
                
                $
                216,000
                
                $
                -
                
                $
                -Shares
                    issued to public relations consultant returned in 2007
                
                $
                2,500
                
                $
                -
                
                $
                -The
                    Company issued Placement Agent Warrants as part of the Private
                    Placement
                    Offering
                
                $
                -
                
                $
                624,705
                
                $
                -
  F-29
  **NOTE
        15 - SEGMENT REPORTING:**
 
 The
        Company has two reportable business segments: New York Health Care, a home
        health care agency that provides a broad range of health care support services
        to patients in their homes, and BioBalance, a company that is developing
        a
        patented biotherapeutic agent for the treatment of gastrointestinal disorders.
        In the segment reporting which follows, revenue, loss from continuing operations
        and total assets excludes Helping Hands, which is part of the New York Health
        Care segment. See Note 3 - Discontinued Operations, which includes the gain
        on
        the sale of assets of approximately $2,700,000. BioBalance has not generated
        any
        revenue as of December 31, 2006.
  New
                    York Health Care
                
                BioBalance
                
                Elimination
                    of Intersegment Activity
                
                Consolidated**Year
                    ended December 31, 2006****Revenue:**Net
                    patient service revenue
                
                $
                45,558,331
                
                $
                -
                
                $
                -
                
                $
                45,558,331Sales
                
                
                -
                
                
                -
                
                
                -
                
                
                -Total
                    revenue
                
                $
                45,558,331
                
                $
                -
                
                $
                -
                
                $
                45,558,331Income
                    (loss) from continuing operations before provision for income
                    taxes
                
                $
                1,736,399
                
                $
                (5,492,072
                )
                $
                -
                
                $
                (3,755,673
                )Income
                    from discontinued operations
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -Depreciation
                    and amortization
                
                $
                97,797
                
                $
                574,787
                
                $
                -
                
                $
                672,584Interest
                    income
                
                $
                160,983
                
                $
                3,986
                
                $
                -
                
                $
                164,969Interest
                    expense
                
                $
                31,394
                
                $
                30,000
                
                $
                -
                
                $
                61,394Income
                    tax expense
                
                $
                75,120
                
                $
                -
                
                $
                -
                
                $
                75,120Total
                    assets
                
                $
                10,980,738
                
                $
                1,898,800
                
                $
                -
                
                $
                12,879,538Expenditures
                    for long-lived assets
                
                $
                -
                
                $
                335,098
                
                $
                -
                
                $
                335,098**Year
                    ended December 31, 2005****Revenue:**Net
                    patient service revenue
                
                $
                44,722,823
                
                $
                -
                
                $
                -
                
                $
                44,722,823Sales
                
                
                -
                
                
                -
                
                
                -
                
                
                -Total
                    revenue
                
                $
                44,722,823
                
                $
                -
                
                $
                -
                
                $
                44,722,823Income
                    (loss) from continuing operations before provision for income
                    taxes
                
                $
                (2,180,416
                )
                $
                (6,845,850
                )
                $
                -
                
                $
                (9,026,266
                )Income
                    from discontinued operations
                
                $
                2,783,232
                
                $
                -
                
                $
                -
                
                $
                2,783,232Depreciation
                    and amortization
                
                $
                102,381
                
                $
                549,771
                
                $
                -
                
                $
                652,152Interest
                    income
                
                $
                69,785
                
                $
                33,118
                
                $
                (13,795
                )
                $
                89,108Interest
                    expense
                
                $
                24,135
                
                $
                13,795
                
                $
                (13,795
                )
                $
                24,135Income
                    tax expense
                
                $
                81,281
                
                $
                -
                
                $
                -
                
                $
                81,281Noncash
                    compensation
                
                $
                -
                
                $
                1,223,661
                
                $
                -
                
                $
                1,223,661Total
                    assets
                
                $
                14,253,009
                
                $
                3,036,068
                
                $
                -
                
                $
                17,289,077Expenditures
                    for long-lived assets
                
                $
                40,656
                
                $
                77,045
                
                $
                -
                
                $
                117,701**Year
                    ended December 31, 2004****Revenue:**Net
                    patient service revenue
                
                $
                42,286,444
                
                $
                -
                
                $
                -
                
                $
                42,286,444Sales
                
                
                -
                
                
                -
                
                
                -
                
                
                -Total
                    revenue
                
                $
                42,286,444
                
                $
                -
                
                $
                -
                
                $
                42,286,444Income
                    (loss) from continuing operations before provision for income
                    taxes
                
                $
                237,184
                
                $
                (6,425,013
                )
                $
                -
                
                $
                (6,187,829
                )Income
                    from discontinued operations
                
                $
                48,968
                
                $
                -
                
                $
                -
                
                $
                48,968Depreciation
                    and amortization
                
                $
                107,296
                
                $
                712,591
                
                $
                -
                
                $
                819,887Interest
                    income
                
                $
                90,307
                
                $
                2,343
                
                $
                (22,773
                )
                $
                69,877Interest
                    expense
                
                $
                29,538
                
                $
                22,773
                
                $
                (22,773
                )
                $
                29,538Income
                    tax (benefit) expense
                
                $
                (65,077
                )
                $
                (2,099
                )
                $
                -
                
                $
                (67,176
                )Noncash
                    compensation
                
                $
                -
                
                $
                (365,822
                )
                $
                -
                
                $
                (365,822
                )Total
                    assets
                
                $
                13,123,228
                
                $
                3,379,967
                
                $
                -
                
                $
                16,503,195Expenditures
                    for long-lived assets
                
                $
                -
                
                $
                77,805
                
                $
                -
                
                $
                77,805
  F-30
 
 NOTE
        16 -
        QUARTERLY FINANCIAL DATA (UNAUDITED):
 
 The
        following table summarizes the unaudited quarterly statements of operations
        for
        the Company for 2006 and 2005. Net patient service revenue and cost of
        professional care of patients is related to the healthcare segment. The
        following table includes the activity of Helping Hands, which is recorded
        as a
        discounted operations, see note 3.
 Net
                    Patient Service Revenue
                
                Cost
                    of Professional Care of Patients
                
                Loss
                    from Operations
                
                
                
                Basic
                    and Diluted EPS2006First
                    quarter
                
                $
                11,966,614
                
                $
                9,396,754
                
                $
                (240,886
                )
                
                
                
                $
                (0.01
                )Second
                    quarter
                
                
                11,018,270
                
                
                9,147,298
                
                
                (1,228,021
                )
                
                
                
                
                (0.04
                )Third
                    quarter
                
                
                11,095,345
                
                
                9,208,649
                
                
                (1,028,520
                )
                
                
                
                
                (0.03
                )Fourth
                    quarter
                
                
                11,478,102
                
                
                8,994,665
                
                
                (1,258,246
                )
                (1)
                
                
                
                (0.03
                )2005First
                    quarter
                
                
                12,462,405
                
                
                10,024,030
                
                
                (958,269
                )
                
                
                
                $
                (0.03
                )Second
                    quarter
                
                
                10,913,774
                
                
                9,010,944
                
                
                (1,080,318
                )
                
                
                
                
                (0.03
                )Third
                    quarter
                
                
                11,497,791
                
                
                9,544,957
                
                
                (3,850,894
                )
                
                
                
                
                (0.12
                )Fourth
                    quarter
                
                
                9,848,853
                
                
                8,500,355
                
                
                (422,970
                )
                (2)
                
                
                
                (0.01
                )
   (1)
                    In
                        the fourth quarter of 2006, it was determined that the NexGen
                        intangible
                        assets were fully impaired by $926,322 as a result of inconclusive
                        test
                        results and the decision to not pursure further development
                        of the NexGen
                        Platform.  (2)
                    In
                        the fourth quarter of 2005, the Company entered into two
                        settlement
                        agreements and has recorded an expense of $1,761,931. (See
                        Note 12)
   F-31
  SCHEDULE
                        II - VALUATION AND QUALIFYING ACCOUNTS
  Column
                        A
                    
                    Column
                        B
                    
                    Column
                        C
                    
                    Column
                        D
                    
                    Column
                        EBalance
                        at Beginning of Period
                    
                    Charged
                        to Costs and Expenses
                    
                    Additions
                        Charged to Other Accounts
                    
                    Deductions
                    
                    Balance
                        at End of PeriodDescriptionYear
                        ended December 31, 2006Deducted
                        from asset accounts:Allowance
                        for doubtful accounts
                    
                    $
                    465,000
                    
                    $
                    208,678
                    
                    $
                    -
                    
                    $
                    (94,678
                    )
                    $
                    579,000Deferred
                        tax asset valuation allowance
                    
                    $
                    5,276,000
                    
                    $
                    2,370,000
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    7,646,000Year
                        ended December 31, 2005Deducted
                        from asset accounts:Allowance
                        for doubtful accounts
                    
                    $
                    460,000
                    
                    $
                    267,059
                    
                    $
                    -
                    
                    $
                    (262,059
                    )
                    $
                    465,000Deferred
                        tax asset valuation allowance
                    
                    $
                    4,659,000
                    
                    $
                    584,000
                    
                    $
                    33,000
                    
                    $
                    -
                    
                    $
                    5,276,000Year
                        ended December 31, 2004Deducted
                        from asset accounts:Allowance
                        for doubtful accounts
                    
                    $
                    397,000
                    
                    $
                    90,400
                    
                    $
                    -
                    
                    $
                    (27,400
                    )
                    $
                    460,000Deferred
                        tax asset valuation allowance
                    
                    $
                    1,859,000
                    
                    $
                    2,800,000
                    
                    $
                    -
                    
                    $
                    -
                    
                    $
                    4,659,000




F-32




**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.





April
      16,
      2007




**NEW
              YORK
              HEALTH CARE, INC.**By:
            /s/ Stewart
              W. RobinsonName:
              Stewart W. RobinsonTitle:
              Chief Financial Officer







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








SIGNATURE
            
            TITLE
            
            DATE/s/
                Murry Englard
            
            Director,
              Acting
                Chief Executive Officer
            
            April
                16, 2007Murry
                Englard/s/
                Stewart W. Robinson
            
            Chief
                Financial Officer
            
            April
                16, 2007Stewart
                W. Robinson/s/
                Howard Berg
            
            Director
            
            April
                16, 2007Howard
                Berg/s/
                Yoram Hacohen
            
            Director
            
            April
                16, 2007Yoram
                Hacohen





**INDEX
      TO EXHIBITS**





These
      Exhibits are numbered in accordance with Exhibit Table of Item 601 of Regulation
      S-K.


**Exhibit****Number**
              **Description
                of Exhibit**2.1
              Stock
                for Stock
                Exchange Agreement between the Company and BioBalance dated October
                11,
                2001, as amended by Amendment No. 1 dated February 13, 2002, Amendment
                No.
                2 dated July 10, 2002, Amendment No. 3 dated August 13, 2002 and
                Amendment
                No. 4 dated October 25, 2002 (Incorporated by reference to Exhibits
                No.
                2.1-2.4, inclusive, to the Company's Registration Statement on Form
                S-4,
                SEC File No. 333-85054).2.2
              Asset
                  Purchase Agreement dated as of April 11, 2005 by and among Accredited
                  Health Services, Inc., the Company and NYHC Newco Paxxon Inc.
                  Incorporated by reference to Exhibit 2.1 to the Company's Form
                  8-K filed
                  (on May 26, 2005).3.1
              Restated
                  Certificate of Incorporation filed on March 26, 1996. (Incorporated
                  by
                  reference to Exhibit 3.2 to the Company's Registration Statement
                  on Form
                  SB-2, SEC File No. 333-08152, declared effective on December 20,
                  1996).3.2
              Certificate
                  of Correction of Restated Certificate of Incorporation filed on
                  March 26,
                  1996. Incorporated by reference to Exhibit 3.3 to the Company's
                  Registration Statement on Form SB-2, SEC File No. 333-08152, declared
                  effective on December 20, 1996).3.3
              Amendment
                  to the Certificate of Incorporation filed October 17, 1996. (Incorporated
                  by reference to Exhibit 3.4 to the Company's Registration Statement
                  on
                  Form SB-2, SEC File No. 333-08152, declared effective on December
                  20,
                  1996).3.4
              Amendment
                  to the Certificate of Incorporation filed December 4, 2006. (Incorporated
                  by reference to Exhibit 3.6 to the Company's Registration Statement
                  on
                  Form SB-2, SEC File No. 333-08152, declared effective on December
                  20,
                  1996).3.5
              Amendment
                  to the Certificate of Incorporation filed February 5, 2001. (Incorporated
                  by reference to Exhibit 3.5 to the Company's Form 10-K filed on
                  April 17,
                  2006).3.6
              Amendment
                  to the Certificate of Incorporation filed January 7, 2002. (Incorporated
                  by reference to Exhibit 3.6 to the Company's Form 10-K filed on
                  April 17,
                  2006).3.7
              Certificate
                  of Amendment to the Restated Certificate of Incorporation filed
                  on
                  September 10, 2004 (Incorporated by reference to Exhibit 3.1 to
                  the
                  Company's 8-K filed on September 15, 2004).3.8
              Amended
                  and Restated Bylaws (Incorporated by reference to Appendix B to
                  the
                  Company's Definitive Proxy Statement on Schedule 14A filed on August
                  5,
                  2005 with respect to the Company's Annual Meeting of Stockholders
                  held on
                  August 31, 2005).




4.1
            Form
              of certificate evidencing sharesof
              Common Stock. (Incorporated by reference to Exhibit 4.1 to the Company's
              Registration Statement on Form SB-2, SEC File No. 333-08152, declared
              effective on December 20, 1996). ++10.1
            Employment
                Agreement for Dennis O'Donnell. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 10-Q filed on August 16, 2004 for the quarter
                ended
                June 30, 2004).


++10.3
            Option
                Agreement dated September 14, 2004 between the Company and Dennis
                O'Donnell. (Incorporated by reference to Exhibit 10.1 to the Company's
                Form 10-Q filed on November 22, 2004 for the quarter ended September
                30,
                2004).


++10.4
            Option
                Agreement between the Company and Dennis O'Donnell dated May 6, 2005.
                (Incorporated by reference to Exhibit 10.2 to the Company's Form
                10-Q
                filed on August 17, 2005 for the quarter ended June 30,
                2005).


++10.5
            Employment
                Agreement between the Company and A. James Forbes, Jr. dated June
                1, 2005.
                (Incorporated by reference to Exhibit 10.1 to the Company's Form
                10-Q
                filed on August 17, 2005 for the quarter ended June 30,
                2005).


++10.6
            Amended
                Performance Incentive Plan (Stock Option Plan). (Incorporated by
                reference
                to Exhibit 10.50 to the Company's Form 10-K filed on March 17, 2003
                for
                the year ended December 31, 2003).


++10.7
            2004
                Stock Incentive Plan (incorporated by reference to Appendix A to
                the
                Company's Definitive Proxy Statement on Schedule 14A filed on August
                9,
                2005 with respect to the Company's Annual Meeting of Stockholders
                held on
                August 31, 2005).


10.8
            Loan
                Security Agreement among the Company, NYHC Newco Paxxon, Inc. and
                Heller
                Healthcare Finance, Inc. dated November 28, 2000. (Incorporated by
                reference to Exhibit 10.45 to the Company's Form 8-K filed on December
                8,
                2000).


10.9
            Amendment
                No. 1 to Loan and Security Agreement and Consent and Waiver with
                Heller
                Healthcare Finance, Inc. dated November 27, 2002. (Incorporated by
                reference to Exhibit 10.49 to the Company's Form 8-K filed on December
                4,
                2002).


10.10
            Amendment
                No. 2 to Loan and Security Agreement among GE HFS Holding, Inc.,
                the
                Company and Newco Paxxon, Inc. dated March 29, 2004. (Incorporated
                by
                reference to Exhibit 10.2 to the Company's Form 10-Q filed on May
                17, 2004
                for the quarter ended March 31,
                2004).


10.11
            Amendment
                No. 3 to Loan and Security Agreement among GE HFS Holdings, Inc.,
                the
                Company and Newco Paxxon, Inc. dated November 29, 2004 (Incorporated
                by
                reference to Exhibit 10.1 the Company's Form 8-K filed on December
                2,
                2004). 10.12
            Amendment
                No. 4 to Loan and Security Agreement among the Company, NYHC Newco
                Paxxon,
                Inc. and GE HFS Holdings, Inc. dated January 13, 2005. (Incorporated
                by
                reference to Exhibit 10.1 to the Company's Form 8-K filed on January
                19,
                2005). 10.13
            Amendment
              No. 5 to Loan and Security Agreement among the Company, NYHC Newco
              Paxxon,
              Inc. and GE HFS Holdings, Inc. dated August 12, 2005. (Incorporated
              by
              reference to Exhibit 10.3 to the Company's Form 10-Q filed on August
              17,
              2005 for the quarter ended June 30,
              2005).









10.14
            Amendment
                No. 6 to Loan and Security Agreement among the Company, NYHC Newco
                Paxxon,
                Inc. and GE HFS Holdings, Inc. dated November 29,
                2005.


10.15
            Engagement
                Letter Agreement between the Company and Sterling Financial Investment
                Group, Inc. dated May 6, 2004. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 10-Q filed on May 17, 2004 for the quarter
                ended
                March 31, 2004). 10.16
            Placement
                Agreement between the Company and Sterling Financial Investment Corp.,
                Inc. dated November 19, 2004. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 8-K filed on November 23,
                2004).


10.18
                Amendment
                    dated February 7, 2005 to the Placement Agreement between the
                    Company and
                    Sterling Financial Group, Inc. dated November 19, 2004. (Incorporated
                    by
                    reference to Exhibit 10.2 to the Company's Form 10-Q filed on
                    May 23, 2005
                    for the quarter ended March 31,
                    2005).


10.19
            Amendment
                dated February 18, 2005 to the Placement Agreement between the Company
                and
                Sterling Financial Group, Inc. dated November 19, 2004. (Incorporated
                by
                reference to Exhibit 10.3 to the Company's Form 10-Q filed on May
                23, 2005
                for the quarter ended March 31,
                2005).


10.19
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Rockland,
                Westchester and Bronx Counties dated May 8, 1995. (Incorporated by
                reference to Exhibit 10.8 to the Company's Registration Statement
                on Form
                S-4, SEC File No. 333-85054).


10.20
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Dutchess,
                Orange, Putnam, Sullivan and Ulster Counties dated May 8, 1995.
                (Incorporated by reference to Exhibit 10.9 to the Company's Registration
                Statement on Form S-4, SEC File No.
                333-85054).


10.21
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Nassau,
                Suffolk and Queens Counties dated May 8, 1995. (Incorporated by reference
                to Exhibit 10.10 to the Company's Registration Statement on Form
                S-4, SEC
                File No. 333-85054).


10.22
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Orange
                and
                Rockland Counties dated July 1, 1995. (Incorporated by reference
                to
                Exhibit 10.11 to the Company's Registration Statement on Form S-4,
                SEC
                File No. 333-85054).


10.23
            Personal
                Care Aide Agreement by and between the Company and Nassau County
                Department of Social Services dated October 18, 1995. (Incorporated
                by
                reference to Exhibit 10.15 to the Company's Registration Statement
                on Form
                S-4, SEC File No. 333-85054).


10.24
            State
                of New York Department of Health Offices of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Bronx,
                Kings, New York, Queens and Richmond Counties dated December 29,
                1995.
                (Incorporated by reference to Exhibit 10.17 to the Company's Registration
                Statement on Form S-4, SEC File No.
                333-85054).





10.25
            Homemaker
                and Personal Care Agreements by and between the Company and the County
                of
                Rockland Department of Social Services dated January 1, 1996.
                (Incorporated by reference to Exhibit 10.19 to the Company's Registration
                Statement on Form S-4, SEC File No.
                333-85054).


10.26
            Termination
                Agreement and Release among the Company, NYHC Newco Paxxon, Inc.,
                New York
                Health Care, LLC, Jerry Braun and Jacob Rosenberg dated July 27,
                2005.
                (Incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                on August 10, 2005).


10.27
            Settlement
                Agreement among Corval International, Inc., Mark Olshenitsky and
                the
                Company dated March 9, 2006. (Incorporated by reference to Exhibit
                10.2 to
                the Company's Form 8-K filed on March 10,
                2006).


10.28
            Settlement
                Agreement among Emerald Asset Management, Inc., Yitz Grossman and
                the
                Company dated March 1, 2006. (Incorporated by reference to Exhibit
                10.4 to
                the Company's Form 8-K filed on March 10,
                2006).


10.29
            Engagement
                Letter of Corval International Inc. (“Corval”) and BioBalance dated April
                21, 2003 with warrant agreement in favor of Corval attached (Incorporated
                by reference to Exhibit 10.1 filed as part of the Company's Form
                8-K on
                March 10, 2006).


10.30
            Consulting
                Agreement dated June 1, 2001 between The Zig Zag Corp., Emerald Asset
                Management, Inc. (“Emerald”), and Yitz Grossman (Incorporated by reference
                to Exhibit 10.3 filed as part of the Company's Form 8-K on March
                10,
                2006).


10.31
            Revival
                Press Release dated January 17, 2006 (Incorporated by reference to
                Exhibit
                10.5 filed as part of the Company's Form 8-K on March 10,
                2006)


10.32
            Amendment
                to Emerald Settlement Agreement dated April 17, 2006 between the
                Company,
                Emerald and Yitz Grossman (Incorporated by reference to Exhibit 10.1
                filed
                as part of the Company's Form 8-K on April 19,
                2006).


10.33
            Engagement
                Agreement between Stewart Robinson and the Company dated February
                5, 2007
                (Incorporated by reference to Exhibit 10.1 filed as part of the Company's
                Form 8-K on February 8, 2007).


10.34*
            Non-Qualified
                Stock Option Agreement dated September 20, 2006 between the Company
                and
                Michael Nafash.


10.35*
            Non-Qualified
                Stock Option Agreement dated February 28, 2007 between the Company
                and
                Howard Berg.


10.36*
            Non-Qualified
                Stock Option Agreement dated February 28, 2007 between the Company
                and
                Yoram Hacohen.


10.37*
            Surrender
                Agreement dated March 8, 2007 between the Company and 345 Seventh
                Avenue
                LLC.


14.1
            Code
                of Ethics for Senior Financial Officers. (Incorporated by reference
                to
                Exhibit 14.1 of the Company's Form 10-K filed on March 31, 2004 for
                the
                fiscal year ended December 31,
                2003.


23.1*
            Consent
                of Weiser LLP.


23.2*
            Consent
                of Holtz Rubenstein Reminick, LLP.


31.1*
            Certification
                of Acting Chief Executive Officer and Principal Financial Officer
                Pursuant
                to Section 302 of the Sarbanes-Oxley Act of
                2002.


32.1*
            Certification
                of Acting Chief Executive Officer and Principal Financial Officer
                Pursuant
                to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




____________





*
      Filed
      herewith.





++
      Compensation plan.