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, 2002

                                       OR

[ ]  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 of 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)

Issuer's telephone number, including area code:      (718) 375-6700

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

                                                            Name of exchange on
         Title of each class                                 which registered
         -------------------                                 ----------------

     Common Stock $.01 par value                           Boston Stock Exchange

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

     Common Stock $.01 par value


                                        1
<PAGE>
     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 "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
                                                              -       -

     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.  [X]

     Indicate  by  check mark whether the registrant is an accelerated filer (as
defined  in  Rule  12b-2  of  the  Act).  [ ]

     State the aggregate market value of the voting and non-voting common equity
held  by  non-affiliates  computed by reference to the price at which the common
equity  was last sold, or the average bid and asked price of such common equity,
as  of  the last business day of the registrant's most recently completed second
fiscal  quarter.  $83,169,511 (last  sale  as  of  6/28/02).

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     Indicate  the number of shares outstanding of each of the issuer's class of
common  stock,  as  of  the  latest  practicable  date:   23,918,974

                       DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents if incorporated by reference and the
Part  of  the  Form 10-K into which the document is incorporated: (1) Any annual
report  to security holders; (2) Any proxy or information statement; and (3) Any
prospectus  filed  pursuant  to  Rule  424(b) or (c) under the Securities Act of
1933.    None.


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<PAGE>
                           FORWARD LOOKING STATEMENTS

     Information  provided by the Company and its Bio Balance subsidiary in this
annual  report  contains,  and  from  time  to  time the Company may disseminate
materials  and make statements which may contain, "forward-looking" information,
as  that term is defined by the Private Securities Litigation Reform Act of 1995
(the  "Act").  In  particular,  the  information  contained  in  "Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results  of
Operation-Liquidity  and  Capital Resources" contains information concerning the
ability  of  the  Company  to  service  its  obligations  and  other  financial
commitments  as  they  come  due  and  "Company  Strategy"  contains information
regarding  management's  belief concerning the growth opportunities available to
the  Company.  The  aforementioned  forward looking statements, as well as other
forward  looking  statements  made  in this annual report are qualified in their
entirety  by  these  cautionary statements, which are being made pursuant to the
provisions  of  the  Act and with the intention of obtaining the benefits of the
"safe  harbor"  provisions  of  the  Act.

     The Company cautions investors that any forward-looking statements it makes
are  not  guarantees  of  future  performance and that actual results may differ
materially  from  those in the forward-looking statements as a result of various
factors,  including,  but  not  limited  to,  the  following:

     (a)     In recent years, an increasing number of legislative proposals have
been  introduced  or  proposed  by Congress and in some state legislatures which
would  effect  major  changes  in  the  healthcare system.  However, the Company
cannot  predict the form of healthcare reform legislation, which may be proposed
or  adopted  by  Congress or by state legislatures.  Accordingly, the Company is
unable  to assess the effect of any such legislation on its business.  There can
be  no  assurance  that  any  such  legislation will not have a material adverse
impact  on  the  future  growth,  revenues  and  net  income  of  the  Company.

     (b)     The  Company  derives  substantial  portions  of  its revenues from
third-party  payers  including,  both  directly  and  indirectly,  government
reimbursement  programs  such  as Medicare and Medicaid and some portions of its
revenues  from non-governmental sources, such as commercial insurance companies,
health  maintenance  organizations  and  other  charge-based  contracted payment
sources.  Both  government  and  non-government  payers  have  undertaken
cost-containment  measures  designed  to limit payments to healthcare providers.
There  can be no assurance that payments under governmental and non-governmental
payer  programs  will  be  sufficient  to  cover the costs allocable to eligible
patients.  The  Company  cannot  predict  whether  or  what  proposals  or
cost-containment  measures  will be adopted or, if adopted and implemented, what
effect,  if  any,  such  proposals  might have on the operations of the Company.

     (c)     The  Company  is  subject  to  extensive  federal,  state and local
regulations  governing  licensure, conduct of operations at existing facilities,
construction  of  new  facilities,  purchase  or  lease  of existing facilities,
addition  of  new  services,  certain capital expenditures, cost-containment and
reimbursement  for  services  rendered.  The failure to obtain or renew required
regulatory approvals or licenses, the delicensing of facilities owned, leased or
operated  by  the  Company  or  the  disqualification  of  the  Company  from
participation  in  certain federal and state reimbursement programs could have a
material  adverse  effect  upon  the  operations  of  the  Company.


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<PAGE>
     (d)     There can be no assurance that the Company will be able to continue
its  substantial  historical  growth  or be able to fully implement its business
strategies  or  that  management  will  be  able  to  successfully integrate the
operations  of  its  various  acquisitions.

     (e)     Bio  Balance's  business plans are subject to a variety of matters,
including  but  not  limited  to (i) trends effecting the treatment of Irritable
Bowel  Syndrome,  (ii)  United  States Food and Drug Administration regulations,
(iii)  the  possibility  of  rapid  advances  in  treatment,  (iv) the impact of
competition  from  substantially larger companies, (v) the possible introduction
of  new  products,  (vi)  Bio  Balance's  need  for  alliances  with  potential
manufacturers  and  marketing  organizations,  and  (vii)  other  matters.

                                     PART I

ITEM 1.   BUSINESS

GENERAL

     New  York  Health  Care,  Inc.  ("we"  or  the "Company") is engaged in the
delivery of home health care services (sometimes referred to herein as the "home
health  care  business") and, following the acquisition of The Bio Balance Corp.
("Bio  Balance")  in January 2003, the development and planned manufacturing and
marketing  of  a  patented  "probiotic"  product  for  the  treatment  of
gastrointestinal  diseases  and  disorders  (sometimes referred to herein as the
"probiotics  business").

     The  Company  is  a  New  York  corporation  formed in 1983.  Our principal
executive offices are located at 1850 McDonald Avenue, Brooklyn, New York 11223,
telephone  (718)  375-6700.

HISTORY,  DEVELOPMENT  AND  OVERVIEW  OF  THE  COMPANY

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

     Our  home  health  care  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.  Our home health care
business  also  operates  in  Jersey  City, Edison, Bradley Beach, Whiting, Toms
River,  East  Orange  and  Hackensack,  New  Jersey under the name Helping Hands
Healthcare.  Our  home health care services are supplied principally pursuant to
contracts  with  health  care  institutions  and agencies such as various county
Departments  of  Social  Services,  NYC  HRA,  New Jersey Medicaid, Beth Abraham
Health Services in the Bronx and Westchester County, Kingsbridge Medical Center,
Aetna  US  Healthcare,  and  Gentiva  Health  Services.

     Our  primary  objective,  in  our  health  care business, is to enhance our
position  in the home health care market by increasing the promotion of our full
service  and  specialty  health  care  capabilities to existing and new referral
sources;  expand  our  markets  and enter new markets by establishing additional
branch  offices  and acquiring other related health care businesses; and develop
complimentary home health care products and services, as well as maintaining our
regular training and testing programs, and recruitment activities.  See "Item 1.
Business  -  Home  Health  Care  Business."


                                        4
<PAGE>
     On  January  2,  2003,  we acquired Bio Balance, a privately-owned Delaware
corporation,  in  a  stock-for-stock  exchange  transaction  accounted  for as a
"reverse  acquisition,"  whereby a wholly-owned subsidiary of the Company merged
into  Bio  Balance  (the  "Merger").  See  "Item  1.  Business  -  The  Merger."

     Bio Balance was incorporated on May 21, 2001 in the State of Delaware under
the  name  "The  Zig Zag Corp." and changed its name to The Bio Balance Corp. in
September  2001.  From  its  inception, Bio Balance has been a development stage
company  and  has  not  generated  any  revenues.

     Bio  Balance owns patented "probiotic" technology and intellectual property
of  a fully developed product for the treatment of gastrointestinal diseases and
disorders  in  animals  and  humans, including irritable bowel syndrome ("IBS"),
certain  forms  of  inflammatory  bowel  disease  ("IBD")  and chronic diarrhea.

     Bio  Balance's  first product, PROBACTRIX(TM), which has undergone toxicity
and  animal  studies in established laboratories in Israel and the former Soviet
Union,  has  received  Israeli  approval for veterinarian use and use as a human
food  supplement  and was available in Israeli pharmacies from August 2000 until
July 2001, when Bio Balance entered into an agreement to acquire all rights with
respect to the product. PROBACTRIX(TM) consists of a patented proprietary strain
of  non-pathogenic  (i.e.  non-toxic)  M-17 Escherichia Coli ("E.coli") bacteria
preserved in a proprietary extract formulation.  Various clinical studies in the
former  Soviet  Union  and  in  Israel, as well as published scientific articles
support  the  beneficial  effects  of  non-pathogenic  E.coli.

     Bio  Balance  intends  to  comply  with  applicable  requirements  for  the
introduction  of  its first product, PROBACTRIX(TM), to the United States market
as  a medical food. Medical foods are not subject to the FDA regulatory criteria
and  market  clearance  standards applicable to "drugs".  Instead, medical foods
are  food  ingredients.  As  such,  medical  foods  may  be marketed following a
self-determination  that  the  product is "generally recognized as safe" (GRAS).
Bio  Balance  commenced the GRAS determination process in the spring of 2002 and
presently  expects  completion  of  that  process  by  late  2003 or early 2004.
Concurrent  with  the  GRAS  and medical food determination process, Bio Balance
intends  to  conduct  two  additional  clinical  trials  to obtain statistically
significant  data  to  support  marketing efforts before commencing marketing of
PROBACTRIX(TM)  in  the  United  States.

     Bio  Balance  also  plans  on  introducing  a  version  of its product as a
pharmaceutical  drug and thereafter market the product in the United States. FDA
approval  of the product as a pharmaceutical drug is a time consuming and costly
process.  Bio  Balance has not as yet commenced the FDA approval process and has
no current time table to begin that process.  See "Item 1. Business - Probiotics
Business."

THE  MERGER

     As  a result of the Merger, we affected a 1-for-1.5 reverse stock split and
issued 21,443,821 post-reverse split shares of common stock in exchange for 100%
of  the  outstanding securities of Bio Balance.  We also assumed all outstanding


                                        5
<PAGE>
Bio Balance warrants to acquire an additional 586,452 post-reverse split shares.
Following  the  Merger,  the  pre-Merger  shareholders of Bio Balance controlled
approximately  90%  of  the  Company.

     In  conjunction  with  the  Merger,  Bio Balance raised $6,035,000 of gross
proceeds through the privately placed sale of its common stock. The net proceeds
from the sale of shares by Bio Balance are devoted exclusively to the operations
of  Bio  Balance.

     Pursuant  to  the terms of the Merger Agreement, we completed the following
transactions:

     1.     increased  our  authorized  shares  of  common stock from 50,000,000
shares  to  100,000,000 shares and our authorized shares of preferred stock from
2,000,000  to  5,000,000;

     2.     effectuated  a one (1) share for every one and one-half (1.5) shares
reverse  stock split whereby each outstanding share of our $.01 par value common
stock  (the  "Old  Common Stock") was converted into two-thirds (2/3) of a share
(the  "New  Common  Stock"),  with  the  result that the 3,711,730 shares of Old
Common  Stock  which  had been issued and outstanding became 2,474,486 shares of
New  Common  Stock;

     3.     acquired  all  of  the  issued  and outstanding equity shares of Bio
Balance  in  exchange for issuance to former Bio Balance shareholders of a total
of  21,443,821  post-reverse  split  shares  of the Company's $.01 par value New
Common  Stock,  and  assumed  outstanding  Bio  Balance  warrants  to acquire an
additional  586,452  post-reverse  split  shares  of  New  Common  Stock;  and

     4.     elected,  in  addition  to  nominees  of the Company, Paul Stark and
David  C.  Katz,  nominees  of  Bio  Balance,  as  directors.

     Following  the  Merger,  we  had  23,918,974 shares of common stock issued,
including  24,846 shares in treasury. There are 393,583 unissued shares reserved
for  issuance  upon  the conversion of outstanding shares of preferred stock and
1,574,355 unissued shares reserved for issuance upon the exercise of outstanding
stock  options  and  warrants.  As  a  result of, and immediately following, the
Merger,  the  278  shareholders  of  Bio  Balance  held approximately 90% of the
outstanding  common  stock  of  the  Company.

     A  total  of  16,287,949  shares  are  subject  to  restrictions on sale in
accordance with the terms of the Merger Agreement.  A total of 15,296,625 shares
of  common stock issued to Bio Balance shareholders are restricted from sale for
various  periods  of time ranging from as early as February 28, 2003 and as late
as  August  10,  2003.  A total of 991,324 shares of common stock held of record
and  beneficially  by  our  Chief  Executive  Officer  and  our Chief Operating,
Financial  and  Accounting  Officer are restricted from sale for a period ending
February  28,  2003,  after which they will be able to sell not more than 10% of
their  shares per month for as long as they are directors of the Company.  These
restrictions,  however,  permit  transfers  to  family  trusts  and  registered
charities provided the transferees abide by the restrictions, although they will
be permitted to sell not more than 1,000 shares of common stock each trading day
during  a  period  ending  February  28,  2003, after which the restriction will
expire.   We  may release restrictions on the shares held by our Chief Executive
Officer  and  our  Chief Operating, Financial and Accounting Officer provided we
also releases restrictions on the shares issued to Bio Balance shareholders in a
ratio  of  one  share  held  by our Chief Executive Officer and Chief Operating,
Financial  and  Accounting  Officer  for  two  shares  held  by  the Bio Balance
shareholders.


                                        6
<PAGE>
CORPORATE  STRATEGY

     In  carrying  out  the  Merger,  management  of the Company and Bio Balance
sought  to  capitalize on the steady operating performance of the Company's home
health  care  business  and  the  growth  potential  of Bio Balance's probiotics
business while allowing each business to operate as an autonomous business unit.

     The  Company's  home  health  care business will continue to seek selective
growth  opportunities,  operate  as a self-supporting business unit and maintain
exclusive control over its existing financial and operating resources.

     With  respect  to  Bio Balance's probiotics business, we intend to actively
pursue  Bio  Balance's  business plan of developing, manufacturing and marketing
PROBACTRIX(TM)  and  other  products  based on Bio Balance's patented probiotics
technology.  Bio  Balance  will  operate as an autonomous business unit and will
have  the  exclusive  right  to use the funds raised by Bio Balance prior to the
Merger  in  pursuit of its business.  While Bio Balance does not have any rights
to utilize financial or operating resources of the home health care business, we
expect to seek  additional funding for Bio Balance from the sale of equity, debt
or  convertible  securities  of  the  Company.

HOME  HEALTH  CARE  BUSINESS

Industry  Background

     Rising  Health  Care Costs -  According to the Office of the Actuary at the
Centers  for  Medicare  &  Medicaid  Services,  national health expenditures are
projected to reach approximately $2.8 trillion in 2011, growing at a mean annual
rate  of  7.3  percent  during  the  forecast  period of 2001-2011.  Health care
spending  during  the  forecast period is projected to grow 2.5 percent per year
faster  than  the  projected  gross  domestic  product,  so that by 2011 it will
constitute  approximately 17.0 percent of projected GDP compared to 13.2 percent
in 2000.  These projections and estimates are uncertain and ought to be regarded
as  an  indication  of  possible trends based upon various assumptions regarding
future  macroeconomic  conditions  and  the  nature  and  impact  of  future
institutional  changes  in  the  health  care  sector  of  the national economy.
(National  Health  Care  Expenditures  Projections:  2001-2011,
---------------------------------------------------------------
http://www.cms.hhs.gov/statistics/nhe/projections-2001/proj2001.pdf)
--------------------------------------------------------------------

     Aging  Population  -.  Although  the  growth of the U.S.  population slowed
somewhat during the 1990's because of the relatively small number of babies born
during  the  Great  Depression  of  the  1930's,  it  is expected that the older
population will burgeon between the years 2010 and 2030 when the post WWII "baby
boom"  generation  reaches  age 65.  By 2030, it is projected that there will be
approximately  70  million  older  persons,  more than twice the number in 2000.
People  65  and older, who represented 12.4% of the population in the year 2000,
are  expected  to  grow  to  approximately  20%  of  the  population  by  2030.
(Administration  on  Aging  -  A Profile of Older Americans: 2002 Future Growth,
--------------------------------------------------------------------------------
http://www.aoa.gov/aoa/stats/profile/2002/2002profile.pdf)
----------------------------------------------------------


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<PAGE>
     Cost  Effectiveness  of  Home  Health  Care  Service  -.  Home  care  is  a
cost-effective  service,  not  only for individuals recuperating from a hospital
stay,  but  also for those who, because of a functional or cognitive disability,
find  that  they  are  unable  to  take  care  of  themselves.  More than 20,000
providers deliver home care services to some 7.6 million individuals who require
services  because  of  acute  illness,  long-term  health  conditions, permanent
disability  or  terminal illness.  Annual expenditures for home health care were
projected  to  have  been  $41.3  billion  in  2001.

     The  table  below  lists  some  examples  of  cost-effective  home  care by
comparing  the  average  Medicare  charges  on  a per-day basis for hospital and
skilled nursing facility to the average Medicare charge for a home health visit.
(2001  National  Association  of  Home  Care  Statistics,
---------------------------------------------------------
http://www.nahc.org/consumer/hcstats.html).
-------------------------------------------

     Comparison  of  Hospital,  SNF, and Home Health Medicare Charges, 1998-2000
     ---------------------------------------------------------------------------

                                                 1998    1999   2000(a)
                                                ------------------------
Hospital charges per day                        $2,370  $2,533  $  2,753
Skilled nursing facility charges per day        $  498  $  425  $    421
Home Health charges per visit.                  $   93  $   93  $    100

SOURCES:  The  hospital  and  SNF  Medicare  charge  data  are  from  the Annual
Statistical  Supplement,  2000, to the Social Security Bulletin, Social Security
Administration (October 2001).  Home care information for 1998 from HCFA, Office
of  Information  Services.  Per  visit  charges for 1999 and 2000 are calculated
using  producer  price  index  data  from the Bureau of Labor Statistics website
(www.bls.gov,  September  2001).

NOTE  (a):  Hospital  and  skilled nursing facility charges per day are based on
preliminary  data.

     Patient Preference and Physician Acceptance - The Company believes that, if
possible  in  any given case, a patient will prefer to be treated at home rather
than  in  an  institutional  setting.  Further,  in the last decade, the medical
profession  has  shown  greater  acceptance  of home health care in the clinical
management  of  patients.  As  evidence of this greater acceptance, the American
Medical  Association  Councils  on  Scientific Affairs and Medical Education has
recommended  that training in the principles and practice of home health care be
incorporated  into  the  undergraduate,  graduate  and  continuing  education of
physicians.

     Incidences  of  AIDS  and  Cancer  -  During  2002, approximately 5 million
people became infected with the human immunodeficiency virus (HIV), which causes
AIDS,  and  approximately 3.1 million people died from HIV/AIDS, a higher global
total  than  in  any  year  since  the  beginning  of  the  epidemic,  despite
antiretroviral  therapy  which  reduced the incidence of AIDS and AIDS deaths in
the  richer  countries.  Deaths  among  the  already  infected  are  expected to
continue  to  increase  for some years even if prevention programs manage to cut
the  number of new infections to zero. (AVERT.ORG, Worldwide HIV & AIDS Epidemic
                                                   -----------------------------
Statisticshttp://www.avert.org/worldstatinfo.htm).  However,  with  the
-------------------------------------------------
HIV-positive  population  still  expanding,  the annual number of AIDS deaths is
expected  to  increase for many years.  As of the end of June 2001, 793,026 AIDS
cases  in  the  USA  had  been  reported  to  the Center for Disease Control and
Prevention.  Of  these,  79%  were men, 21% were women and 1% were children less
than  13  years  of  age.  (United  States  HIV  &  AIDS Statistics Summary Aids
                           -----------------------------------------------------
Statistics,  http://www.avert.org.statsum.htm).
-----------------------------------------------


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<PAGE>
     Cancer  is  the second leading cause of death in the U.S., exceeded only by
heart disease, with one of every four deaths occurring from cancer.  Since 1990,
approximately  16 million new cancer cases have been diagnosed and approximately
1,284,900  new  cancer cases are expected to be diagnosed in 2002, not including
carcinoma  in  situ  (noninvasive cancer) of any site except urinary bladder, or
basal  and  squamous  cell skin cancers.  More than 1 million cases of basal and
squamous  cancers are expected to be diagnosed in 2002 and approximately 555,500
Americans are expected to die of cancer, more than 1,500 people a day. (American
                                                                       ---------
Cancer  Society,  Surveillance  Research  2002,  www.cancer.org).
-----------------------------------------------------------------

Services  Offered

     Overview  -  Through our staff of trained professionals, 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, catheterizations and administration of
medications.  Our  personnel  also  train  patients  in  their own care, monitor
patient  compliance  with  treatment  plans,  make reports to the physicians and
process  reimbursement  claims  to  third-party  payers.

     Infusion  Therapy  -  Among  the  specialty  services  offered,  we provide
infusion  therapy  service  to  patients  utilizing  pharmaceuticals provided by
licensed suppliers.  Management believes that the total market for home infusion
therapy  is  continuing  to growth and that increasing the provision of infusion
therapy  will  build on our strength in providing nursing services, because such
therapies  generally  require  administration by specialty nurses.  We will also
seek  to  supply  infusion  therapy  patients  with  the  other home health care
services  and  therapies,  which they often require and which are offered by us.
However,  there  can  be  no  assurance that we will expand our infusion therapy
business  or,  if  expanded that we will conduct such a business on a profitable
basis.

     Professional  Care Resources - We also intend to expand our skilled nursing
programs  in order to meet the needs which management believes are being created
by  early discharge programs.  The existing referral base of agencies, insurance
companies,  social  workers,  case  managers and physicians will be used to meet
what management perceives to be a need not being met by the current pool of home
health care agencies.  We expect that the expansion of this program will require
the  hiring  of  an additional service directors with an extensive background in
skilled  nursing  to  assist  the  Directors  of  Nursing  in each of our branch
offices.  Additional  support  staff  will  also  be  required,  as  well as new
training,  materials,  assistant  directors,  coordinators  and marketing staff.

Professional  Staff

     Overview  -  Our  services  are  provided  principally  by  our  staff  of
professionals and paraprofessionals, who provide personal care to patients, and,
to  a  lesser  extent,  by  our  staff  of  skilled  nurses, who provide various
therapies  employing  medical  supplies and equipment and infusion therapy.  Our
professional  staff  includes  paraprofessionals  and  nurses fluent in Spanish,
Mandarin  and  Cantonese  Chinese,  Yiddish  and  Russian  as  well as personnel
knowledgeable  in  the requirements and practices of kosher homes. Personal care
and  nursing  services  for a particular patient can extend from a few visits to
years  of service and can involve intermittent or continuous care. Approximately
99%  of  our  total  net  revenues  in 2002 were attributable to services by our
paraprofessional  staff.


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<PAGE>
     Certified  Paraprofessionals  -  Our  certified  paraprofessional  staff
provides  a  combination  of  unskilled  nursing  and  personal care services to
patients,  as  well  as  assistance with daily living, tasks such as hygiene and
feeding.  Consistent  with applicable regulations, all of paraprofessional aides
are  certified  and work under the supervision of a licensed professional nurse.
Certain  aides have been specially trained to work with patients with particular
needs,  such  as new mothers and their newborn infants, patients with particular
diseases  such  as Cancer, AIDS or Alzheimer's Disease and particular classes of
patients  such  as  the  developmentally  disabled  and  terminally  ill.

     We are approved by New York State Department of Health for the training and
certification  of  Home  Health  Aides  and by the New York Department of Social
Services to train and certify Personal Care Aides.  In addition, we are approved
by  the  New  Jersey  Board of Nursing for the training of Certified Home Health
Aides  in  the  State of New Jersey.  Medicare provides reimbursement solely for
Home  Health  Aide  Service, while Medicaid is responsible for reimbursement for
both  Home  Health  Aide and Personal Care Aide Services.  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 and employment programs, and the use of benefits
programs  designed  to  encourage  new employee referrals by existing employees.

     All  paraprofessional  personnel  must  pass  a  written  exam and a skills
competency test prior to employment, with all certificates having been validated
by  the  issuing  agency.  The Director of Nursing in each of our branch offices
validates  the  professional  competency of all new hires. Newly hired employees
are  re-evaluated as to competency within six months of their employment and all
employees  are  re-evaluated  on  an on-going basis, at least semi-annually.  In
addition,  all  paraprofessional  personnel  undergo an orientation program that
includes  material regarding  HIV, Hepatitis B, universal precautions, patient's
rights  and  Company  policies  and  procedures.

     Competition  for  qualified  staff  continues  to be intense. We compete to
attract  and  retain  personnel  on  the  basis  of  compensation  and  working
conditions.  Among  the  benefits, which we provide to our staff are competitive
salaries,  a  401(k)  Plan,  employee-funded  health  insurance,  vacations  and
bonuses.  We  have  generally  not  experienced  difficulties  in  the  past  in
attracting  and  retaining  personnel.  We  believe  we  will be able to compete
effectively  in  this  area  and  satisfy  our  overall  staffing  requirements.
However,  there  can be no assurance that shortages of health care professionals
in  the  future  will  not  occur and such shortages could materially affect our
ability  to  maintain  or  increase  our  current  commitments.

     Licensed Professional Nurse -  We employ licensed professional nurses (both
registered nurses and licensed practical nurses) who provide special and general
professional  nursing  services (these nurses are employed on a per diem basis).
We  also  employ  registered  nurses  who  are  responsible  for  training  and
supervising our paraprofessional staff, as well as providing backup in the field
for  the  nursing  staff  that is providing care (these nurses are employed on a
salaried  basis).  General  nursing  care is provided by registered and licensed
practical nurses and includes periodic assessment of the appropriateness of home
care, the performance of therapy procedures, and patient and family instruction.
Patients  receiving  such  care  include  stabilized  postoperative  patients
recovering  at home, patients who, although acutely ill, do not need to be cared
for  in  an  acute  care facility and patients who are chronically or terminally
ill.


                                       10
<PAGE>
     All  nurses  hired  must  have  at  least  one  year of current, verifiable
experience,  including  references and license verification.  All nurses working
in  specialty  areas  must  have  at  least  two  years  of  experience.

     While the provision of licensed professional nursing services accounted for
less  than  1%  of  our  net  revenues  in  2002,  we  have expanded our nursing
operations  in  our  existing  markets as well as new geographic locations.

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 11 principal and branch offices and 3 recruitment
and  training,  offices.  We  seek  to achieve economies of scale by having each
branch  office  serve  a large patient population.  Each office conducts its own
marketing  efforts,  negotiates  contracts  with  referral sources, recruits and
trains professionals and paraprofessionals and coordinates patient care and care
givers.  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 all 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 patient
mix,  volume,  collections,  revenues  and  staffing.  Our  systems also provide
monthly  budget analysis, financial comparisons to prior periods and comparisons
among  our  branch  offices.

Branch  Offices

     The  home health care industry is, fundamentally, a local one in which both
the  patients and the referral sources (such as hospitals, home health agencies,
social service agencies and physicians) are located in the local geographic area
in which the services are provided.  We seek to serve local market needs through
a  branch  office  network,  run  by  administrators/branch  managers  who  are
responsible  for  all  aspects  of  local  office  decision-making,  including
recruiting,  training,  staffing,  and  marketing.

     At  March  1,  2003,  our  branch office network consisted of the following
thirteen  branch  offices  opened  on  the  dates  indicated:


                Location                          Date Opened
                --------                          -----------

     Kings County Office
     -------------------
     408 Jay Street                                 07/01
     Brooklyn, NY 11201


                                       11
<PAGE>
     Nassau County Office
     --------------------
     175 Fulton Avenue                              09/93
     Hempstead, NY 11550

     Westchester County Office
     -------------------------
     6 Gramatan Avenue                              12/96
     Mt. Vernon, NY 10550

     Rockland County Office
     ----------------------
     49 South Main Street                           10/94
     Spring Valley, NY 10977

     Orange County Office
     --------------------
     45 Grand Street                                09/92
     Newburgh, NY 11250

     Bronx County Recruitment Office
     -------------------------------
     2488 Grand Concourse                           10/00
     Bronx, NY 10458

     Jersey City Office
     ------------------
     880 Bergen Avenue
     Jersey City, NJ 07306                          06/01

     Bradley Beach Recruitment Office
     --------------------------------
     716 Main Street                                09/01
     Bradley Beach, NJ 07720

     Toms River Office
     -----------------
     617 Highway 37 West                            02/98
     Toms River, NJ 08753

     Edison Office
     -------------
     629 Amboy Avenue                               08/99
     Edison, NJ 08837

     East Orange Office
     ------------------
     60 Evergreen Place                             11/01
     East Orange, NJ 07018

     Hackensack Office
     -----------------
     193 Main Street                                06/01
     Hackensack, NJ 07601

     Whiting Recruitment Office
     --------------------------
     75 Lacey Road                                  04/02
     Whiting, NJ 08759


                                       12
<PAGE>
     Our  branch  office  network  has been expanded through the years through a
combination  of  new  office  openings  and acquisitions of existing operations.
Substantially all of the  branch offices in New Jersey were acquired in a series
of  acquisitions  between  1997  and  2002.  We intend to open additional branch
offices  in  New  York  State, subject to entering agreements with the local New
York  Department  of  Social  Services agencies.  In addition, we hope to expand
further  into New Jersey, Pennsylvania and Connecticut in order to offer a wider
geographic coverage to the health maintenance organizations ("HMO's") and health
care  insurance  organizations  with  which  we  deal,  and  to  add  additional
organizations.  Further expansion is subject to the completion of market surveys
in  the  various  locations  to ascertain the extent to which existing home care
medical  needs  are not being met as well as competition and recruitment issues.

     Management  believes  that  we have successfully integrated all of our home
health  care  acquisitions,  with minimum interruptions to our daily operations.
This has been facilitated by the formation of a mergers and acquisitions ("M&A")
group,  which  includes  our  Chief  Executive  Officer  and,  Chief  Operating,
Financial  and  Accounting  Officer. We have integrated our billing, payroll and
clinical  services  to  all  new  locations to ensure they meet our high quality
standards.  We  believe  that  the  experience acquired during this process will
allow  us to continue down a path of significant M&A activity in order to become
one  of  the  leading  home  health  agencies in the New York metropolitan area.

Work  Flow

     A  case  is  initiated  by  one of our referral sources contacting a branch
office  and  advising  it of the patient's general location, diagnosis, types of
services  required,  hours  of  service  required  and  the time of day when the
services  are  to  be  rendered.  The  branch  office then contacts the referral
source  as  promptly as possible with the identification of the staff person who
will  be rendering the service, after which the referral source transmits to the
branch  office  a  detailed  copy of the plan for the patient's home care, which
includes  the  type  of  care  to  be rendered, the method by which it should be
rendered,  the  precise  location  and  hours.

     The  supervisory staff at the branch office then reviews the care plan with
the staff member(s) who will be providing the care and then dispatches the staff
member(s)  to  begin  rendering  the  care,  usually  the  next  day.

     The  clerical  staff  at  the  branch  office enters all of the information
regarding  the  case  into the local area computer network of the branch office,
which then generates the work schedule for the staff member(s), which provides a
detailed  description  of  the  services to be rendered, the hours and number of
days  during  which  the  care  is  to  be provided.  All of this information is
spontaneously  received by our principal office by way of the wide area computer
network  linking  the  principal  office  to  each  of the branch offices.  This
information  is  then  processed  by  the  principal office computer system on a
weekly  basis  to  (generate  the documentation of the services being provided).
Such  documentation is then used to generate the billing for the service as well
as  process  the  payroll  for  the  staff  member(s)  providing  the  service.

Referral  Sources

     We  obtain  patients primarily through contracts, referrals from hospitals,
community-based  health  care  institutions  and  social  service agencies, case
management  and insurance companies.  Referrals from these sources accounted for


                                       13
<PAGE>
substantially  all  of  our net revenues in 2002.  We generally conduct business
with  most  of  our  institutional referral sources, including those referred to
below,  under  one-year  contracts  that  fix  the rates and terms of all future
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.  These  contracts also generally designate the
kinds  of  services  to  be  provided  by  our  employees,  liability  insurance
requirements, billing and record keeping responsibilities, complaint procedures,
compliance  with applicable laws, and rates for employee hours or days depending
on the services to be provided.  Approximately 260 such contracts were in effect
as  of  December  31,  2002.

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

<TABLE>
<CAPTION>
                                           Percentage of Net Revenues
                                           --------------------------
Referring Institution                       2002      2001      2000
-----------------------------------------  --------------------------
<S>                                        <C>       <C>       <C>

New York City Medicaid (HRA)               47.24%    45.05%    37.58%
New Jersey Medical Assistance Program      12.08%    14.53%    15.17%
Beth Abraham Health Services                6.55%     6.37%     5.27%
County Departments of Social Services (1)   5.26%     6.81%     6.60%
Mount Sinai Medical Center (2)              0.05%     4.94%     5.32%
</TABLE>

(1)  The  various  county  departments  of social services are funded by the New
     York  State  Department of Health which, as of October 1, 1996, assumed the
     responsibility  for  the overall administration of Medicaid programs in New
     York  formerly  administered by the New York Department of Social Services.

(2)  Mount  Sinai  Medical  Center  closed  its  home  care  department in 2002.

     Overall, our ten largest referring institutions accounted for approximately
83.5%  of  net revenues for 2002, 88% of net revenues for 2001 and approximately
81.2%  of  net  revenues  for  2000.

 Billing  and  Collection

     We screen each new case to determine whether adequate reimbursement will be
available  and  have  developed  substantial expertise in processing claims.  We
make  a  concerted  effort  to  provide complete and accurate claims data to the
relevant  payer  sources  in  order to accelerate the collectibility of accounts
receivable.

     Days  Sales  Outstanding ("DSO") is a measure of the average number of days
taken  to  collect  account  receivable,  calculated  from the date services are
billed.  For  the year ended December 31, 2002 our DSO was 54 compared to 61 and
84 for the years ended December 31, 2001 and 2000, respectively. The improvement
in  DSO is the net effect of combining the New Jersey DSO and the Home Attendant
program  DSO,  which have more favorable payment terms  with our New York's DSO.

     We  license  the  Dataline  Home Care System, a computerized payroll system
designed  to  produce invoices for services rendered as a by-product of employee
compensation.  Automated  schedules  and staffing requirements are maintained in
our  offices,  with  the  ability  to  enter  all  relevant patient and employee
demographic  information.  The  payroll  is  processed  weekly  at our principal


                                       14
<PAGE>
office  in  Brooklyn.  This  office  is  responsible for the processing of data,
ensuring  the  availability  of  all  required  billing  documentation  and  its
accuracy,  and  the  printing  and  distributing  of  payments.

     Once  payroll  processing  is  completed, our computer system generates the
resulting  invoices  automatically.  The  necessary documentation is attached to
all  invoices  that  are  mailed  to  clients.

     In  the  opinion  of  management,  there  is  no reason to believe that any
computer  system or software used internally will materially affect transactions
with  any  customer,  supplier  or  business  partner,  now  or  in  the future.

     Management  reviews  reports  for  all  phases  of  the billing process and
prepares reconciliations for the purpose of ensuring accuracy and maintenance of
controls.  When  errors  are found, new processes are developed, as appropriate,
to  ensure  and  improve  the  quality  and  accuracy of the billing process and
responsiveness  to  clients'  needs  and  requirements.

     Accounts  receivable  reports  are  produced  weekly  and  are analyzed and
reviewed  by staff and management to locate negative trends or emerging problems
that  would  require  immediate attention.  All unpaid invoices are reviewed and
telephone  contacts  established  for invoices over 90 days old.  Our experience
with  collection  of  accounts receivable has been favorable, with uncollectible
accounts  within  the  allowances  provided.

     Private  patients are required to pay the one-week fee for their service in
advance,  as a deposit for services to be provided.  For patients with insurance
covering  home health services, we accept assignment of the insurance and submit
claims  if  the  carrier first verifies coverage and eligibility.  Payments from
private  patients are required to be made weekly, as invoices are submitted and,
if unpaid over three weeks, result in follow-up telephone calls to ensure prompt
payment.  Requests  for  terms  from  private patients are generally honored and
payment  arrangements  structured based on the patient's financial resources and
ability  to  pay.  Unresponsive  accounts  are  referred  to  outside collection
agencies.

Reimbursement

     We  are  reimbursed for services, primarily by referring institutions, such
as  health  care 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  and  New  Jersey  Medicaid  programs constitute our largest reimbursement
source,  when including both direct Medicaid reimbursement and indirect Medicaid
payments through many of our referring institutions.  For each of 2002, 2001 and
2000,  payments  from  referring  institutions that receive direct payments from
Medicare  and  Medicaid, together with direct reimbursement to us from Medicaid,
accounted  for  approximately  97%  of net revenues.  Direct reimbursements from
private  insurers,  prepaid  health  plans,  patients  and other private sources
accounted  for  approximately  3% of net revenues for each of the calendar years
2002,  2001  and  2000.

     The  New  York  State  Department  of  Health,  in  conjunction  with local
Departments  of  Social  Services,  promulgates  annual  reimbursement rates for
patients  covered  by  Medicaid.  These  rates  are  generally  established on a


                                       15
<PAGE>
county-by-county  basis,  using  a complex reimbursement formula applied to cost
reports  filed  by  providers.  Generally,  the  first  report  filed  (called a
"budgeted"  report) uses projections to develop the current year's reimbursement
rate,  subject  to retroactive recapture of any monies paid by local Departments
of  Social  Services  for  budgeted  expenses  that  are greater than the actual
expenses  incurred.  We  have filed all required annual cost reports for each of
our  offices,  which provide services to Medicaid recipients.  Our expenses have
always  equaled  or  exceeded  the  budgeted  amounts.

     Third party payers, including Medicaid, Medicare and private insurers, have
taken  extensive  steps  to  contain  or reduce the costs of health care.  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  health care, which is
generally  less  costly  to  third  party  payers  than hospital-based care, has
benefited  from  many  of  these  cost  containment  measures.

     On June 28, 2000, the Health Care Financing Administration (HCFA) finalized
a  new  Medicare  Payment  System  to help assure appropriate reimbursements for
quality,  efficient home health care.  On October 1, 2000, Medicare began paying
all  certified  home  health  agencies  under a prospective payment system.  The
change  was  mandated  by  the  Balanced  Budget  Act of 1997 amended by Omnibus
Consolidated  and  Emergency  Supplemental  Appropriations  Act  of 1998 and the
Balanced  Budget  Refinement  Act  of  1999.  While  we  are  not  currently  a
Medicare-Certified  Home  Health  Agency  subject  to these changes, most of our
referral  sources  are  and  they may be negatively impacted by this legislation
which  was  adopted  to  control  home  health  care  costs.

     The  New  York  State  Department of Health issues Certificates of Need for
Certified  Home  Health  Agencies ("CHHA's"), which provide post-acute home care
services  for  people  who have just been discharged from a hospital but are not
yet  fully recovered, and Long-Term Home Health Care Programs ("LTHHCP's"), also
known  as the "Nursing Home Without Walls," which is intended to provide elderly
people  with  an alternative for long-term care other than by entering a nursing
home  at  less  than the cost of nursing home care.  We negotiate contracts with
CHHA's  and LTHHCP's on the basis of services to be provided, in connection with
contracts  either  currently  in effect with the Company or with other agencies.
Prevailing  market  conditions  are  such  that,  despite  escalating  operating
expenses,  reduced  contract  rates  are  regularly  "demanded"  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
management anticipates that this trend is likely to continue for the foreseeable
future,  it  does  not expect the impact on the Company to be significant, since
its  rates  are  competitive  and, therefore, are expected to be subject to only
minor  reductions.  However,  as  expenditures  in  the  home health care market
continue  to  grow,  initiatives  aimed  at  reducing  the  costs of health care
delivery at non-hospital sites are increasing.  A significant change in coverage
or  a  reduction  in  payment rates by third party payers, particularly New York
State  Medicaid,  would  have  a  material  adverse  effect  upon  our business.

Performance  Improvement

     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.  We believe that
we  have  developed and implemented service standards that comply with or exceed


                                       16
<PAGE>
the service standards required by JCAHO.  We received "Accreditation" from JCAHO
after its triennial survey in November 1997.  In November 2000, we were surveyed
by  JCAHO  and received accreditation of its New York offices for the next three
years  (expiring in November 2003).  We did not seek JCAHO accreditation for our
New  Jersey  offices  because  such  accreditation is not required by any of the
contracts  in  that  state.  We  believe that our reputation for quality patient
care  has  been and will continue to be a significant factor in our success.  An
adverse  determination by JCAHO regarding the Company or any branch office could
adversely  affect  our  reputation  and  competitive  position.

     Our performance improvement program includes the following:

     Professional  Advisory  Committee  -  We  maintain  a Professional Advisory
Committee  for  our  branch  offices,  which  consists  of  a physician, nursing
professionals  and  representatives  of  branch  management.  The  Professional
Advisory Committee identifies problems and suggests ways to improve patient care
based  on  internal  quality compliance audits and clinical and personnel record
reviews.

     Internal Quality Compliance Review Process -  Periodic internal reviews are
conducted  by  our  management  to  ensure compliance with the documentation and
operating  procedures  required  by  state  law,  JCAHO  standards  and internal
standards.  Written  reports  are  forwarded  to  the  director  of  nursing and
administrators/branch  managers.  We believe that the internal review process is
an  effective  management  tool  for the director of nursing and administrators/
branch  managers.

     Case  Conferences -  Staff professionals regularly hold case conferences to
review  problem  and  high  risk  cases,  the physician's treatment and services
provided for such cases in order to ensure appropriate, safe patient care and to
evaluate  patient  progress  and  plans  for  future  care.

     Clinical Record Review -  Clinical record review is the periodic evaluation
of  the  documentation  in patient clinical records.  In this review process, we
evaluate  the  performance  of  the  nursing  services  staff  to  ensure  that
professional  and  patient  care  policies are followed in providing appropriate
care  and  that  the  needs  of  patients are being met.  Clinical record review
findings  are  documented  and  reviewed by the applicable Professional Advisory
Committee  for  recommendations.

Sales  and  Marketing

     Our  executive  officers,  Jerry Braun and Jacob Rosenberg, are principally
responsible  for  the  marketing  of  our  services.  Each  branch  office
administrator  is  also  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 health care
personnel  about  the  appropriate  role  of  home  health  care in the clinical
management  of  patients.

Government  Regulation

     The  federal government and the States of New York and New Jersey, where we
currently operate, regulate various aspects of our business.  Changes in the law
or  new  interpretations  of  existing  laws  can  have  a  material  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.


                                       17
<PAGE>
     We  are  licensed  by  New  York State as a home care services agency.  The
state  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 file an application
for  Council approval within 30 days of becoming controlling person and, pending
a  decision  by  the Council, such person may not exercise control of the LHCSA.
If  any  person  should become the owner or holder, or acquire control of or the
right  to  vote  10%  or  more  of our issued and outstanding Common Stock, such
person could not exercise control of our LHCSA until an application for approval
of  such  ownership,  control  or holding, has been submitted to the Council and
approved.  In  the  event  such  an  application  is not approved, such owner or
holder  may be required to reduce their ownership or holding to less than 10% of
our  issued  and  outstanding  Common  Stock.

     We  are  also  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.  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 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.

     Our  healthcare  operations  potentially  subject  us  to  the Medicare and
Medicaid  anti-kickback provisions of the Social Security Act.  These provisions
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.  There  can be no assurance that we will be able to arrange our
acquisitions  or  business relationships so as to comply with these laws or that
our  present  or  future  operations  will  not  be  accused of violating, or be
determined  to  have  violated,  such  provisions.  Any such result could have a
material  adverse  effect  on  us.

     Various Federal and state laws regulate the relationship among providers of
healthcare  services,  including employment or service contracts, and investment
relationships.  These laws 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  for certain designated health services by physicians to entities with
which  the physician or the physician's immediate family member has a "financial
relationship"  and  the  receipt  of remuneration by anyone in return for, or to
induce,  the  referral  of  a  patient  for  treatment  or purchasing or leasing
equipment  or  services  that  are paid for, in whole or in part, by Medicare or
Medicaid.  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  fully predicted with
certainty.


                                       18
<PAGE>
     In  May  1991,  the  United  States Department of Health and Human Services
adopted  regulations  creating  certain "safe harbors" from federal criminal and
civil  penalties  by  identifying  certain types of joint venture and management
arrangements  that  would  not be treated as violating the federal anti-kickback
laws  relating  to  referrals  of patients for services paid by the Medicare and
Medicaid programs.  It is not possible to accurately predict the ultimate impact
of  these  regulations  on  our  business.

     New  York  and  other states also have statutes and regulations prohibiting
payments  for  patient  referrals and other types of financial arrangements with
health  care  providers  that,  while  similar  in  many respects to the federal
legislation,  vary  from  state  to state, 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.  In  addition,  the  professional  conduct of physicians is regulated
under  state  law.  Under  New  York  law,  it  is  unprofessional conduct for a
physician to receive, directly or indirectly, any fee or other consideration for
the  referral  of  a  patient.  Finally,  under New York law, a physician with a
financial  interest  in a health care provider must disclose such information to
the  patients  and  advise  them  of  alternative  providers.

     We believe that the foregoing arrangements in particular and our operations
in  general  comply  in  all material respects with applicable federal and state
laws  relating to anti-kickbacks, 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  health  care  and  nursing  services  industry  to  greater
regulation,  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  regulations  or  increased  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).  None
of  these laws and regulations has had a material adverse effect on our business
or  competitive position or required material expenditures on our part, although
no  assurance can be given that such will continue to be the case in the future.

     We  are  unable  to accurately predict what additional legislation, if any,
may  be  enacted  in  the  future  relating  to  our business or the health care
industry,  including  third-party  reimbursement,  or  what  effect  any  such
legislation  may  have  on  us.

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

Competition

     The  home  health  care  market  is  highly  fragmented  and  significant
competitors are often localized in particular geographical markets.  Our largest
competitors  include Gentiva Health Services, Premiere Health Services, National


                                       19
<PAGE>
Home  Health  Care,  Patient  Care, Inc., and Personal Touch Home Care Services,
Inc.  The  home  health  care business is marked by low entry costs.  We believe
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 health care have substantially
greater  financial  and  human  resources than do we.  We also compete with many
other  small  temporary  medical  staffing  agencies.

     The  home  infusion therapy market is highly competitive and we expect that
the  competition will intensify.  As we seek to expand our provision of infusion
therapy  services, we will compete with a large number of companies and programs
in  the  areas  in  which  our  facilities are located.  Many of these are local
operations  servicing  a  single  area;  however,  there  are  a number of large
national and regional companies, including Gentiva Health Services, Coram Health
Care  Corp.,  and  Tender  Loving  Care,  Inc.  In  addition, certain hospitals,
clinics and physicians, who traditionally may have been referral sources for us,
have  entered  or  may  enter  the  market  with  local  programs.

     We  believe  that  the  principal  competitive  factors in its 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 price competition, as well as
our  reputation  with  physicians,  referral  sources  and  patients.

     The  United  States  health  care  industry  generally  faces a shortage of
qualified  personnel.  Accordingly, we experience intense competition from other
companies in recruiting qualified health care personnel for our home health care
operations.  Our  success  to date has depended, to a significant degree, on our
ability  to  recruit  and  retain  qualified health care personnel.  Most of the
registered  and  licensed nurses and health care 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 successfully for nursing and
paraprofessional  personnel  by  aggressive  recruitment  through  newspaper
advertisements,  work  fairs/job  fairs, flexible work schedules and competitive
compensation  arrangements.  There can be no assurance, however, that we will be
able  to  continue  to attract and retain qualified personnel.  The inability to
either  attract or retain such qualified personnel would have a material adverse
effect  on  our  business.

PROBIOTICS  BUSINESS

General

     Our  "probiotics"  business  is  conducted  through  Bio  Balance,  our
wholly-owned  subsidiary  acquired  pursuant to the Merger in January 2003.  Bio
Balance  is  a  development  stage  company,  which  owns  patented  "probiotic"
technology  and  intellectual  property  of  a  fully  developed product for the
treatment  of  gastrointestinal  diseases  and  disorders in animals and humans,
including  irritable bowel syndrome ("IBS"), certain forms of inflammatory bowel
disease  ("IBD")  and  chronic  diarrhea.

     "Probiotics"  are  living  microorganisms  or  microbial mixtures which are
administered  to  benefit  the  animal  or human host by improving its microbial
balance  by  stimulating  the growth of healthy bacteria.  Bio Balance has filed
numerous  patent  applications  in  Israel, the United States, and abroad on its
core  technologies.


                                       20
<PAGE>
     Bio  Balance's  first  product,  PROBACTRIX(TM)  has undergone toxicity and
animal studies in established laboratories in Israel and the former Soviet Union
and  has  received  approval  from the State of Israel, Ministry of Agriculture,
Division  of  Animal  Feed  Quality  Assurance for veterinarian use and from the
State  of  Israel,  Ministry  of  Health  for  use  as  a human food supplement.
PROBACTRIX(TM)  was  available in Israeli pharmacies from August 2000 until July
2001,  when  Bio  Balance  entered  into an agreement to acquire all rights with
respect  to  the  product.  PROBACTRIX(TM)  consists  of  a patented proprietary
strain  of  non-pathogenic  (i.e.  non-toxic)  M-17  Escherichia Coli ("E.coli")
bacteria  preserved  in  a  proprietary  extract  formulation.  Various clinical
studies  in  the  former  Soviet  Union  and  in  Israel,  as  well as published
scientific  articles  support  the  beneficial effects of non-pathogenic E.coli.

     Bio  Balance  intends  to  comply  with  applicable  requirements  for  the
introduction  of  its first product, PROBACTRIX(TM), to the United States market
as a medical food.  Medical foods are not subject to the FDA regulatory criteria
and  market  clearance  standards applicable to "drugs".  Instead, medical foods
are  foods  for  special  dietary  use.  As  such, medical foods may be marketed
following  a  self-determination  that  the  product's  functional ingredient is
"generally  recognized  as  safe"  (GRAS),  and  that  the  product  meets  the
definitional  medical  food  criteria.  Bio  Balance  commenced  the  GRAS
determination  process in the spring of 2002 and presently expects completion of
that  process  in 2003.  Concurrent with the GRAS and medical food determination
process, Bio Balance intends to conduct two additional clinical trials to obtain
statistically  significant  data  to support marketing efforts before commencing
marketing  of  PROBACTRIX(TM)  in  the  United  States.

     As  a  secondary  product offering, Bio Balance also plans on introducing a
version  of  its  product  as  a  pharmaceutical  drug and thereafter market the
product  in  the United States.  FDA approval of the product as a pharmaceutical
drug is a time consuming and costly process requiring extensive clinical studies
to  prove  the safety and efficacy of a product.  Clinical studies and clearance
of  a  pharmaceutical drug can cost $50 million or more and require 2 to 5 years
to  complete.  Because  of  its  intent  to initially market PROBACTRIX(TM) as a
medical  food,  and because of the time and cost associated with introduction of
PROBACTRIX(TM)  as  a  pharmaceutical drug, Bio Balance has not as yet commenced
the  FDA  approval  process and has no current time table to begin that process.
Bio  Balance  does  not  expect  to commence the FDA approval process unless and
until  it  can  secure  adequate  financing  to  support  that  effort.

     Bio Balance was incorporated on May 21, 2001 in the State of Delaware under
the  name  "The  Zig Zag Corp." and changed its name to The Bio Balance Corp. in
September  2001.  From  its  inception, Bio Balance has been a development stage
company and has not generated any revenues.  From inception to completion of its
merger  with  New  York  Health  Care, in January 2003, Bio Balance raised gross
proceeds  of  approximately  $6.8  million  from the private placement of common
stock.

Recent  Purchase  of  Technology

     In  July  2001,  Bio  Balance acquired all the intellectual property rights
used  in our probiotics business from Danron Ltd., Uprising Investment Ltd., and
Kimmey  Trading  Ltd.,  each  of which was engaged in the research, development,


                                       21
<PAGE>
limited marketing and sales of probiotic bacteria, and other technology for cash
consideration  of  $510,000 and an aggregate of 990,000 Bio Balance shares.  The
assets  purchased  consist  of  all know-how, patent applications, contracts and
other intellectual property rights possessed by Danron Ltd., Uprising Investment
Ltd., and Kimmey Trading Ltd., including pending U.S., Israeli and international
patent  applications,  relating  to  the  following:

     1.   isolation,  propagation  and  analysis  of  probiotic  bacteria;
     2.   live  microbial food supplement and the technology for its manufacture
          and  preservation;
     3.   live  microbial  preparations and the technology for their manufacture
          and  preservation  for  use  in  various  industrial and environmental
          applications, including, but not limited to, the production and use of
          bioactive filters, fermentation processes, production, storage and use
          of  bio-pesticides  and  production  storage  and  use  of  oil-spills
          degrading  bio-preparations;
     4.   production,  analysis  and  use  of  plant  derived  extracts  having
          beneficial  therapeutic  activity;  and
     5.   production,  analysis  and  use  of  plant  derived  extracts  having
          beneficial  microbial  preservation  activity.

Recent  Developments

     In February 2003, Bio Balance hired Dr. Robert Hoerr, MD, Ph.D. as Director
of  Medical and Regulatory Affairs and Dr. Eileen Bostwick, Ph.D. as Director of
Research  and Development.  Drs. Hoerr and Bostwick have initially been assigned
the  task of accelerating and completing the GRAS and medical food determination
process  along  with,  in  the  case  of Dr. Hoerr, assuring ongoing medical and
regulatory compliance and, in the case of Dr. Bostwick, ongoing product research
and  development  and  evaluating  manufacturing  facilities  requirements  and
establishing  manufacturing  procedures.



Irritable  Bowel  Syndrome

     Description  of  Irritable  Bowel  Syndrome  ("IBS")  -.  Irritable  bowel
syndrome  is  a chronic gastrointestinal disorder characterized by a combination
of  chronic or recurrent gastrointestinal symptoms, accompanied by pain that can
be  severe  at  times.  Chronic  illness  may  involve  repeated  episodes  of
deterioration  in which the patient confronts and adjusts to the effects on ones
lifestyle.  Similar  to  other  common chronic conditions, it is a disorder that
needs  to  be  taken  very  seriously.

     The  cause of IBS is not known and there is no cure. The symptoms appear to
be  due  to an increased sensitivity of the bowel, which results in spasm of the
bowel muscle.  IBS is a disorder of the way in which the bowel functions.  It is
sometimes  referred  to  as  a  'functional bowel disorder' because there are no
physical  signs  of  disease  when  the  colon  is  examined.

     IBS is a disturbance in the regulation of bowel function. In IBS the normal
rhythmic  wave  pattern  of the gut (peristalsis) is disrupted and spasms of the
bowel  muscle  can  occur.  This  disruption of brain-gut function can result in
symptoms  that include pain and altered bowel function including diarrhea and/or
constipation.


                                       22
<PAGE>
     When a person has IBS, the muscles in the bowel are very sensitive. Food or
stress  that  would  not  affect  a  normal person can cause pain, bloating, and
diarrhea  to someone with IBS. Other symptoms can include gas, nausea, vomiting,
and  mucous  in  the  stool. About 30% of people affected by IBS will experience
mainly diarrhea and about 20% will experience mainly constipation. The remainder
will  experience  symptoms  that  alternate  between  constipation and diarrhea.

     The  impact  of  IBS symptoms ranges from inconvenience to disabling. It is
comparable  to  other  chronic  diseases. For the millions of IBS sufferers with
multiple  symptoms,  there  has  been little that provides sustained relief from
pain,  diarrhea,  and  the  constant  sense of urgency to have a bowel movement.

     IBS  causes  a  great  deal of discomfort and distress, even if it does not
cause  permanent intestinal harm. It does not lead to intestinal bleeding of the
bowel  or  to  serious  diseases  such  as  cancer. For some, IBS is just a mild
annoyance,  but for many people it can be disabling. They may be afraid to go to
social  events,  to  a  work, or travel even short distances.  Hope often shifts
from  the  desire  for  a  cure  to  just finding ways to cope with the disease.

     IBS robs people of daily life. For some this occurs in small ways. They are
barely  noticeable  until  they  realize  they  have given much of their life to
coping  with  the  disorder.  For  others  it is very dramatic. Day after day it
causes  one  to be afraid to leave home. They constantly fear experiencing fecal
incontinence-at  work  or school, in a social setting, or even in the privacy of
their  own  home. Painful intestinal cramping and diarrhea overwhelm their body.

     It  is  difficult  for  those  who do not experience the severity of IBS to
imagine  what  daily  living  is  like. Imagine waking everyday, or even several
times  a  week, with GI flu like symptoms. You feel severe abdominal cramping to
the  point  of  being doubled over in pain, accompanied by nausea, and diarrhea.
You  may be in your bathroom for an hour or more before, exhausted, you feel you
can leave your home. You plan your day around the availability of restrooms. You
are  hesitant  to eat because symptoms might start all over again. You sometimes
miss  work,  or  cancel  appointments  because  of  IBS.

     IBS  affects  not  only  your  professional  or  educational life, but your
personal  life as well. It is difficult to plan trips, eat in restaurants, go to
a  movie,  take  public transportation, or even go for a walk--you need quick or
immediate  access  to  a  bathroom. Your fear of not making it to a bathroom, of
having  an "accident," can be disabling. Your friendships and your most intimate
relationships  are  affected. Your disease is invisible as you strive to hide it
from  others  but  it  affects  every  aspect  of  your  life.

     IBS  presents  some unique challenges.  To patients, the symptoms are often
unmentionable  and embarrassing, and to physicians, in the absence of structural
abnormalities,  symptoms  may  be relegated to being "psychiatric," or not truly
existing as clinical entities. However, the understanding of IBS pathophysiology
and  treatment has changed dramatically over the past decade and the disorder is
not  perceived  as  "illegitimate."

     Number  of  Affected  Individuals  -  According  to IBS Self Help Group, an
organization  formed  to  support  those  who  suffer  from IBS, IBS (1) is more
prevalent  in  the  U.S.  than  depression,  asthma, diabetes and coronary heart


                                       23
<PAGE>
disease,  (2)  affects  an estimated 40 million Americans, and (3) is the second
leading  cause  of school and work absenteeism behind the common cold.  The Mayo
Foundation  for  Medical  Education  and  Research  states,  at  its  web  site
MayoClinic.com,  that  IBS  is one of the most common gastrointestinal disorders
that  physicians  see  accounting  for  approximately 3 million physician visits
annually  in  the  United  States.

     According  to a Pharmacor study published in 2001 by Decision Resources, in
1999,  the  total  number  of  diagnosed  IBS  patients  in  the  seven  major
pharmaceutical  markets  was  16.5 million with diagnosed cases in those markets
expected  to  increase  to 19.4 million in 2009.  This number does not take into
account  undiagnosed  IBS sufferers.  Experts, according to the Pharmacor study,
estimate  that  nearly  20%  of  the  world's  population  suffers  from  IBS.

     In  a  large  U.S.  survey undertaken on irritable bowel syndrome (www.ims-
global.com//insight/news-story991122a.htm)  published  in September 1999, nearly
40%  of women reported experiencing abdominal pain they described as intolerable
without  some  kind  of  relief.  Moreover,  regardless of the severity of their
abdominal pain, most women in the survey said that their symptoms forced them to
miss  days  from  work,  limit  travel,  or  avoid  social  outings.

Current, and Potentially Competitive, Treatments and Products.

     General  -  To  date, there has been no cure for IBS.  The common treatment
has  been  a  combination  of sensible diet, stress management, and a program of
therapeutic  supplements  and/or  prescription  drugs  including  laxatives,
anti-diarrheal  and  anti-spasmodic  products.

     Products  currently on the market, or known to be in development, that are,
or  may  become,  competitive with PROBACTRIX(TM), classified by target ailments
and  market  status,  include:


     IBS  Targeted  Products.

       Several  large  pharmaceutical  companies  have  spent  heavily  on  the
development  of  products  targeted  specifically  to  the  treatment  of  IBS.

     -  Products  Currently  Being  Marketed.  The  following  products targeted
specifically  to  the  IBS  market  are  presently  available:

     1.   Lotronex(R)/Glaxo  SmithKline. On February 9, 2000, Glaxo SmithKline's
          IBS  drug Lotronex(R) (alosetron hydrochloride) a potent and selective
          5HT3  receptor  antagonist,  was  FDA-approved for treatment of IBS in
          female,  diarrhea  predominant  patients.  From March 2000 to November
          2000,  more  than  450,000  prescriptions  were  dispensed. This rapid
          market  acceptance can be explained by lack of an effective treatment,
          as  well  as  by  the  concentrated  active prescriber base for the GI
          market.  However,  on  November  28,  2000,  Glaxo  SmithKline  pulled
          Lotronex(R)  from  the  market  upon  the  FDA's  request after safety
          concerns  arose  over  reports of serious side effects. These included
          extreme  constipation  and  in some rare cases fatal ischemic colitis.
          Notably,  due  to  patient  demand,  the FDA, in June 2002, approved a
          supplemental  New  Drug  Application  (sNDA)  that  allows  restricted
          marketing  of  Lotronex(R)  to  treat  only women with severe diarrhea


                                       24
<PAGE>
          predominant IBS. The sNDA requires a risk management program to ensure
          patients  and physicians are fully informed of the risks and potential
          benefits  of  the  drug.

     2.   Zelnorm(TM)/Novartis.  Novartis' Zelnorm(TM), a 5-HT modulator thought
          to  be  responsible  for motility and bowel pain, was approved on July
          24,  2002  by  the  FDA  for  patients  (women  only)  who suffer from
          constipation-prone  IBS.

     -  Products  in Late-Stage Development.  The following products targeted to
IBS sufferers are known to be in late stage development:

     1.   Dexloxiglumide/Forest  Labs.  This  is  a  selective  and  reversible
          cholecystokinin  (CCK)  receptor  antagonist  in  development  for
          constipation-predominant IBS. CCK is a natural hormone involved in the
          modulation  of  the  sensory  and motor responses to distension in the
          intestinal  track  which  when  abnormal,  may  lead  to constipation,
          bloating  and  abdominal pain as seen in IBS. In a Phase II trial, the
          drug  was  found  to  be  superior  to  placebo  in  treatment  of
          constipation-predominant  IBS in female patients. Phase III trials are
          in  progress.

     2.   Cilansetron/Solvay.  Another 5-HT modulator, this drug is in Phase III
          trials by Solvay in the US and in Europe for diarrhea-predominant IBS.
          Data  published  to  date  have not shown problematic side effects. If
          late-stage  trials proceed, this drug may be the first in its class in
          the  IBS  market.

     3.   Renzapride/Alizyme  Inc. This drug, a 5-HT4 receptor antagonist /5-HT3
          receptor  antagonist,  is  in  Phase  IIb  trials  in  patients  with
          constipation-predominant  IBS.  Trial  data  is reported to have shown
          improvement  in  a number of symptoms associated with IBS and the drug
          was  generally  well  tolerated.

     -  Potential  Competitive  Advantages  of PROBACTRIX(TM).  In comparison to
products  presently on the market that have been burdened by potentially serious
side  effects,  clinical  trials  to  date  have  shown  PROBACTRIX(TM)  to be a
potentially  effective  treatment  for IBS with no known side effects.  Based on
the  prior  experience  with  Lotronex(R) and Zelnorm(TM), a difficult burden of
proof  exists  for  companies  that are developing 5-HT modulating drugs.  Those
companies  must  unequivocally  demonstrate  to  the FDA that their products are
efficacious and have no serious side effects.  In addition to the competitive or
potentially  competitive treatments noted, anti-diarrheas and antispasmodics are
sometimes  used  in  the  treatment  of  IBS,  although  such  products  provide
inadequate  relief  from  symptoms  and  may  result  in  constipation.

     Chronic  Diarrhea Targeted Products -  A number of pharmaceutical companies
have developed and offer products targeted to the treatment of chronic diarrhea,
a  potential  target  market  for  PROBACTRIX(TM).

     According  to  the  US Centers for Disease Control and Prevention, diarrhea
that  persists  for  more  than  two weeks is considered to be chronic.  Chronic
diarrhea  may  pose  a nuisance problem in an otherwise healthy person, a person
with  a  compromised  immune system, or someone with a life-threatening illness.
Persons  at  high  risk are those with severely weakened immune systems, such as
HIV/AIDS  patients,  those  taking  certain  types  of  chemotherapy,  new organ
transplant  recipients, as well as travelers to developing countries.  There are
two  categories  of  causes:  diarrhea  caused  by an infection and diarrhea not
caused  by  an  infection.  Sometimes,  the  cause  is  unknown.


                                       25
<PAGE>
     The  major  cause  of diarrhea in adults is infection, primarily by viruses
but  also by bacteria and parasitic organisms.  Infectious diarrhea is, in fact,
one  of  the most common illnesses in the world.  The prevalence is estimated to
be  three  to  five  billion  cases each year and is associated with five to ten
million  deaths  annually.  In  the  US,  diarrhea  is  the  second  most common
infectious  illness,  accounting  for  one  out of every six infectious diseases
episodes.  Each  year  in the U.S., from 4 to 5 million patients with infectious
diarrhea  visit  a  physician.  Depending  on  the  causative agent, the disease
course  may  last  from  a  few  days  to  several  months.

     Diarrhea caused by an infection most commonly stem from parasites, such as:
Cryptosporidium  parvum, Cyclospora cayetanensis, Entamoeba histolytica, Giardia
lamblia, microsporidia; bacteria, such as: Campylobacter, Clostridium difficile,
Escherichia  coli, Listeria monocytogenes, Salmonella enteritidis, Shigella; and
viral  infections,  such  as:  HIV,  rotavirus,  Norwalk  agent.

     Diarrhea  not  caused by an infection may stem from antibiotics, high blood
pressure  medications, cancer drugs, Crohn's disease, colitis, diabetes, thyroid
and  other  endocrine diseases, food additives (sorbitol, fructose, and others),
food  allergies,  previous  surgery  or radiation of the abdomen or GI tract and
tumors.

     -  Products  Currently  Being Marketed.  Three major types of anti-diarrhea
medications  are  available  over-the-counter  in  the  US  and  these  are:
anti-peristaltic  agents  -  such  as  loperamide (Imodium(R)) and diphenoxylate
(Lomotil(R));  Bismuth-based compounds - such as Pepto-Bismol(R); and Absorbents
-  such  as  attapulgite  (Kaopectate(R),  Donnagel(R))  and  polycarbophil
(Equalavtin(R)).  Anti-peristaltic  agents  are  similar  to  opiates  (such  as
codeine).  Like  opiates,  they  relax  the  intestinal muscles and slow transit
through  the intestines so that there is more time for fluid to be absorbed from
the  intestine.  This  causes  less  fluid  to  be  excreted in the stools.  The
relaxation  of the intestinal muscles caused by these medications also decreases
cramps.

     The FDA approved loperamide (Imodium(R)) in 1976 for acute diarrhea and for
chronic  diarrhea  in  patients with inflammatory bowel disease (Crohn's disease
and  ulcerative colitis).  Loperamide is comparable in efficacy to diphenoxylate
(Lomotil(R)).  Although loperamide is related chemically to opiates, it does not
have  their  pain-relieving  effects.

     According  to  the  CDC,  anti-peristaltic agents may be contraindicated by
persons  with  fever  or  bloody diarrhea - as in cases of Traveller's Diarrhea,
because  they  can  increase  the  severity  of disease by delaying clearance of
causative  organisms.  These  agents are now available over the counter. Adverse
effects  (toxic  megacolon,  sepsis, and disseminated intravascular coagulation)
have  been  reported  as  a result of using these medications to treat diarrhea.

     - Potential Competitive Advantages of PROBACTRIX(TM).  PROBACTRIX(TM) could
potentially  be  a new safe and efficacious drug for chronic diarrhea and offers
potential  advantages over Imodium(R) and Lomotil(R), the major over-the-counter
anti-diarrheal  medications.  While  no  side effects to date have been reported


                                       26
<PAGE>
for  PROBACTRIX(TM),  reports  of  adverse  side  effects  and  constipation for
Imodium(R)  and  Lomotil(R), could limit their use for long-term administration.
Also,  PROBACTRIX(TM)  could  more  powerfully  treat  the  cause of the chronic
diarrhea  as  well  as  the  symptoms.

     Traveler's  Diarrhea  Targeted  Products  -  A  number  of  pharmaceutical
companies  have  developed  and  offer  products  targeted  to  the treatment of
traveler's  diarrhea,  a  potential  target  market  for  PROBACTRIX(TM).

     According  to  the  CDC,  traveler's  diarrhea  is  the most common illness
affecting  travelers.  Each year, traveler's diarrhea affects between 20%-50% of
international  travelers,  an  estimated  10  million  persons.  Bacterial
enteropathogens  are responsible for at least 80 percent of cases.  The onset is
usually  within  the  first  week  of travel or soon after returning home.  Some
travelers  experience  more  than  one  episode during their trip.  The economic
impact of traveler's diarrhea  is substantial because fear of sickness is one of
the  major deterrents to tourism.  Persons at particular high-risk include young
adults,  immuno-suppressed  persons,  persons with inflammatory bowel disease or
diabetes,  and  persons  taking  H-2  blockers  or  antacids.

     Traveler's  diarrhea  usually is a self-limited disorder and often resolves
without  specific  treatment.  Morbidity  of  the  untreated  disease  may  be
substantial  with  approximately  1 percent of patients hospitalized, 20 percent
confined  to  bed  for  at  least  one day, and nearly 40 percent changing their
itinerary.  Travelers with more serious cases require treatment, most often with
antibiotics.

     -  Products  Currently  Being Marketed.  The principal products used in the
treatment  of  traveler's  diarrhea  are  antibiotics.  A  vaccine has also been
introduced  targeted  to  the  prevention of traveler's diarrhea.  The principal
current  products  in  that  regard  are:

     1.   Fluoroquinolones/CIPRO.  Fluoroquinolones  are the drugs of choice and
          the most widely used is ciprofloxacin (CIPRO). CIPRO is an antibiotic.
          However,  antibiotic  treatment  is  complicated  by  the emergence of
          resistant enteric pathogens, especially Campylobacter spp. Antibiotics
          can  also  trigger  the  overgrowth of abnormal microbial flora, which
          could  cause clinical disorders. Resistance to fluoroquinolones is the
          least common complication, but this is changing as use of these agents
          increases  worldwide.

     2.   Rifaximin/LUMENAX.  Salix  Pharmaceutical's New Drug Application (NDA)
          for LUMENAX for the treatment of traveler's diarrhea has been accepted
          for  filing  by  the  FDA. Rifaximin is a non-systemic antibiotic with
          broad spectrum of enteric bacterial pathogens and the delivery of high
          concentrations  of  antibiotic  to  the  gastrointestinal tract. Salix
          licensed  U.S.  and Canadian rights to rifaximin from Alfa Wassermann.
          The product is marketed in Italy by Alfa Wassermann and is licensed by
          Alfa  in  Mexico  to  GlaxoSmithKline  and  Schering-Plough.

     3.   Dukoral.  PowderJect  Pharmaceuticals  has  just  submitted a European
          Marketing  Authorization  Application  (MAA) for it cholera and travel
          diarrhea  vaccine,  Dukoral. This is a drinkable vaccine that protects
          against  diarrhea  caused  by  Vibrio  cholerae  (cholera)  and
          enterotoxigenic E. coli (ETEC). This is the first vaccine for ETEC and
          the first for both cholera and ETEC. Cholera is responsible for severe
          diarrhea,  and  if  untreated  can  result in rapid death. ETEC, which


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<PAGE>
          generally  results  in milder disease, is the single most common cause
          of  traveler's  diarrhea.  Dukoral is approved for combined protection
          against  both  cholera  and  ETEC  in  15  countries  worldwide.

     -  Potential  Competitive  Advantages  of  PROBACTRIX(TM).  We believe that
PROBACTRIX(TM)  could  potentially be used by susceptible patients as a powerful
agent  to  prevent  disease  onset  prior  to  travel  to  high  risk  areas.
Bismuth-based  agents,  although  commonly used, cannot be administered in large
enough  doses  to  be  sufficiently  effective.   In  contrast  with  a vaccine,
PROBACTRIX(TM),  is  a  natural  product  with  a  potentially lower risk safety
profile.  Antibiotics,  though  effective  treatments,  cannot  be  used  as
prophylactic therapy due to their side effects profile. Also, as a medical food,
PROBACTRIX(TM),  would  be  more  widely  available  than  a  prescription drug.

     Antibiotic-Associated  Diarrhea  Targeted  Products -  Limited efforts have
been  undertaken  to date to develop and offer products targeted specifically to
the  treatment  of antibiotic-associated diarrhea, a potential target market for
PROBACTRIX(TM).

     The most common adverse effect of antibiotics is diarrhea. It is known that
a normal antibiotic treatment significantly changes the intestinal micro ecology
and  shifts  the  balance for up to three to four months.  Moreover, it has been
found  that  antibiotic-associated  diarrhea,  most  commonly  triggered  by the
bacterium  C. difficile, can be serious and is associated with a longer hospital
stay,  a  higher  infection  risk  and  a  three-fold  increase  in  mortality.
C.difficile-associated  disease  is  a  debilitating,  frustrating and recurrent
infection  that  makes it necessary for the doctor to prescribe an antimicrobial
for  an  antimicrobial-induced  problem.

     There  has  been  considerable  interest  in the use of probiotics, such as
PROBACTRIX(TM),  in  the  prevention  of  antibiotic-associated  diarrhea  as  a
strategy  to  normalize microbial function in the bowel.  Commercially-available
lactobacillus-based  probiotics have been used to prevent and treat diarrhea but
few  have  been  the  subject of rigorous clinical studies.  The activity of the
probiotic  S.boulardii  has  been studied in C.difficile-associated diarrhea and
has  shown  some  beneficial  impact.

     We  believe  that  PROBACTRIX(TM)  could  potentially  be  used  prior  to
antibiotic  administration  and  also  as  an adjunctive therapy together with a
standard  anti-C.difficile  antimicrobial  treatment,  such  as metronidazole or
vancomycin,  to  avoid  the  potential  side  effects of these drugs and restore
healthy  microbial  balance.  Significantly,  PROBACTRIX(TM)  does  not  cause
antibiotic  resistance.

     We  believe  that  PROBACTRIX(TM) could also be used to prevent the adverse
side  effects  of  antifungal medications that may result from the overgrowth of
Candida  albicans  (causing  uncomfortable  yeast  infection).  Most  studies of
probiotics  for  vaginal infections, commonly with lactobacillus-based products,
have  lacked  rigorous  clinical  design.  Potentially,  PROBACTRIX(TM) could be
administered  whenever  women  take  antimicrobials,  such  as metronidazole, to
reduce  the  risk  of  candidal  vaginitis.

     -  Potentially  Competitive  Products.  As noted above, Lactobacillus-based
probiotics  have  been  used  on  a  limited  basis  in  the  treatment  of
antibiotic-associated  diarrhea  but  these  products  have  not been rigorously
studied.  In  addition,  Bio  Balance has data suggesting that PROBACTRIX(TM) is
considerably  more  powerful  than  lactobacillus-based  products.  This  is
predicated  on  the fact that PROBACTRIX(TM), delivered in a liquid formulation,
is  comprised  of  live  bacteria  and  works  immediately  in  the  GI  tract.


                                       28
<PAGE>
     - Potential Competitive Advantages of PROBACTRIX(TM).  PROBACTRIX(TM) could
be  recommended  by  physicians  when  they prescribe antibiotics and antifungal
agents  to  potentially  prevent  and  reduce  side  effects and also reduce the
transfer  of  antibiotic  resistance  to  intestinal  microbes.

Probiotics

     The Gastrointestinal (GI) Tract -  The primary role of the gastrointestinal
tract  is  to  digest  food  and absorb nutrients in order to meet the metabolic
requirements  and  demands  needed for normal human growth and development.  The
gastrointestinal  tract  functions  as  a  barrier  against  antigens  from
microorganisms  and  food.  Immuno-physiologic  regulation in the gut depends on
the  establishment  of  indigenous  microflora.

     Furthermore,  the  intestinal  mucosa  provides  a  protective host defense
against  the  constant  presence of antigens from food and microorganisms in the
gut  lumen.  Protection  against  potentially  harmful agents is ensured by many
factors,  including  saliva,  gastric  acid,  peristalsis,  mucus,  intestinal
proteolysis, and specifically the intestinal micro-flora.  Because some of these
bacteria  are  beneficial  to  health  while others are dangerous, the microbial
colonization  of  the  intestine  has  important health implications for humans,
ranging  from  infection  susceptibility  to  toxic  or  carcinogenic  effects.

     Microbial  colonization  (the  clinging of bacteria to the intestinal wall)
begins after birth, but the development of the intestinal microflora and the gut
barrier  is  a  gradual  process.  The  maternal intestinal flora is a source of
bacteria colonizing the newborn's intestine.  Colonization is also determined by
contact  with  its  surroundings.  Initially,  facultative  anaerobic  strains
dominate.  Thereafter,  differences  exist  in  the  composition  of  species,
primarily  influenced  by choice of diet.  After weaning, the composition of the
microflora  resembles that of the adult flora. Although bacteria are distributed
throughout  the  intestine,  the major concentration of microbes can be found in
the  large  intestine.

     It  is  estimated that the human intestine contains more that 400 different
bacterial  species  and approximately 100 trillion (1014) bacterial cells, which
is  more  than ten times the number of cells comprising the human body. The most
prevalent  resident  bacterial  species inhabiting the adult intestinal tract in
Western  societies  include  Bacteroides,  eubacteria,  peptostreptococci,
bifidobacteria,  enterobacteria,  streptococci,  lacto  bacilli,  clostridia and
staphylococci.

     The  intestines  of man and animals constantly have both beneficial or good
microorganisms (e.g. L. acidophilus, L. casei, and L. bifidus), and pathogens or
bad  microorganisms  (e.g. Salmonella typhimurium, Staphlococcus aureus, E. Coli
and  Colstridium  perfringens).  These  populations of organisms wage a constant
war  with  each  other  in  order  to maintain a proper balance.  The unfriendly
pathogenic  microbes  are  beneficial to the ecology of the intestines when they
are  in  the minority and in balance with the friendly beneficial bacteria. When
pathogenic microbes significantly outnumber the beneficial ones, health problems
result.  For  optimum  "gut  flora  balance,"  the  beneficial  bacteria  should
predominate,  presenting  a  barrier  to  invading  pathogenic  organisms.
Approximately  85%  of  the  intestinal microflora in a healthy person should be
beneficial  bacteria  and  15%  pathogenic  bacteria.


                                       29
<PAGE>
     The  intestinal  microflora  is  very  important  to  the  host for several
reasons.  The  gut  microflora  is  an  important constituent in the intestine's
defense  barrier.  The  microflora  increases resistance to new colonization, or
invasion  by  pathogenic organisms.  They also protect against the overgrowth of
already-present  potentially pathogenic organisms.  Another important intestinal
flora  function  is  its high metabolic activity.  The host is further protected
because  the  gut  microflora  elicit specific immune responses at a local and a
systemic  level.

     In  addition  to  participation  in  tolerance  induction,  intestinal
colonization  acts  as an important antigenic stimulus for the maturation of the
gut-associated  lymphoid  tissue.  The  capacity to generate IgA-producing cells
progressively  increases  in  response  to  intestinal  antigenic  stimulation,
particularly  the  establishment  of  the  gut  microflora.  Upon  colonization,
organisms  have  been shown to translocate to the mesenteric lymph node, but the
number  of  translocating bacteria begins to decrease with the onset of specific
IgA  response,  reflecting  maturation  of  the  intestine's immunologic defense
mechanisms.  These  results  suggest that intestinal microflora are important in
human  individuals  and  that  qualitative differences in the composition of the
microflora  might  affect  immunologic  homeostasis.

     The  GI  Microflora  Problem  -  Many factors affect the composition of the
bacteria present in the intestines.  Throughout the human life cycle, conditions
exist  that  produce  increased  risk  for  infection,  increased  activity  of
opportunistic  pathogens  and  decreased  protection  from  normal  microflora.
Several  pathways  can  upset  the  intestinal  micro  floral  balance.  The
administration  of antimicrobial agents (antibiotics) is a common cause of micro
floral  imbalance.  Stress  to  the host, in the form of diet or climate, aging,
medication, illness, infection, geographic location, socioeconomic circumstances
and  lifestyle  can  upset  this  balance  and  change  the  gut's  pH and other
environmental  factors  to  favor  the  growth  of  pathogens.

     Micro  floral  imbalance  leads  to  decreased  resistance  to  pathogenic
colonization  and  to  alterations in the metabolic activities of the intestinal
flora by the pathogenic bacteria.  Diarrhea is the most common result, but other
GI  disorders can also develop.  Studies have found that these pathogens produce
endotoxins,  which  cause  symptoms  such  as  fever,  leucopenia,  circulatory
problems,  and  hyperglycemia.

     The  amount and type of fermentable material (i.e. growth substrate) in the
gut  also  plays a role in determining the bacterial species present.  Diet, not
only  regulates  the species and concentration of microorganisms in the gut, but
also  has  been  reported  to  influence  the  metabolic  activities  of  those
microorganisms.  Thus,  it  may be possible, at least transiently, to manipulate
the  gut  microbiotia  through  bacterial  supplementation.

     It  is the recognition of the effects of colonizing microbes in association
with the human body and the combination of wanting to encourage the positive and
discourage  the  negative  properties  of  invading  microbes  that  have led to
probiotic  theory.  The  demonstration  that the gut microflora are an important
constituent  in  the  intestinal  mucosal  barrier has introduced the concept of
probiotic  therapy:  the  therapeutic  application  of  potentially  beneficial
microorganisms,  which  act  as  probiotics.

     "PROBIOTICS"  ARE  LIVE  MICROORGANISMS OR MICROBIAL MIXTURES THAT ARE
     ADMINISTERED  TO  BENEFIT  THE  ANIMAL  OR HUMAN HOST BY IMPROVING ITS
     MICROBIAL  BALANCE  BY  STIMULATING  THE  GROWTH  OF HEALTHY BACTERIA.


                                       30
<PAGE>
     The criteria for a microorganism to be defined as probiotic include that
     the strain

     --   be of human origin,
     --   be safe for human use,
     --   be stable in acid and bile,
     --   adhere to the intestinal mucosa.

     The  establishment  of  proper microflora balance in the natural microflora
has  led  to  the  introduction  of novel therapeutic interventions based on the
consumption  of  cultures  of  beneficial  live  microorganisms  that  act  as
probiotics.  The positive results from human volunteer or clinical studies, even
in  the  absence  of  compelling  mechanistic  studies,  provide validity to the
probiotic concept.  This concept has been developed further through the decades,
and  today,  especially in Europe and Japan, probiotic-focused research, product
development  and  marketing  are  at  an  all-time  high.

     In addition to their proposed direct effects on humans, probiotics may have
additional  utility  in  animal  agriculture.  Probiotics  have  been tested for
preventing  pathogens  of animal origin from colonizing in food animals, and the
products  derived  from  them.  Probiotic  bacteria  can be found worldwide in a
variety  of  products, including conventional food products, dietary supplements
and  medical  foods.

     The  probiotic theory offers an intriguing approach to controlling negative
metabolic  or  pathogenic  activities  of  microbes to which we are exposed on a
daily  basis.  Probiotics  have  the  ability  to provide this benefit.  Dietary
probiotic  approaches  have  obvious  advantages  in terms of cost, reduced side
effects and ease of market penetration to large numbers of people, when compared
to  standard  drug  based  solutions.

     History of Probiotics -  Microbes have been essential to food and alcoholic
fermentations  for  thousands  of  years.  Over  the  last  century,  different
microorganisms  have  been  used for their ability to prevent and cure diseases,
leading  to  the  coining  of the term probiotics, or "pro-life". The concept of
probiotics  evolved  around  1900,  when  Nobel  Prize-winning Elie Metchnickoff
hypothesized  that the long, healthy lives of Bulgarian peasants were the result
of  their  consumption  of  fermented  milk  products.

     The  first  clinical trials were completed in the 1930s regarding probiotic
effects  on  constipation.  Research  on probiotics has steadily increased since
then,  much  of  it  taking place in Europe and Asia.  Worldwide, probiotics are
currently available in a variety of food products and supplements.  In the U.S.,
food  products containing probiotics are most exclusively dairy products - fluid
milk and yogurt - due to the historical association of lactic acid bacteria with
fermented  milk.  The  most frequently used bacteria in these products belong to
the  Lactobacillus  and  Bifidobacterium  species.

     Due  to  their  long  history  of  use  in  food  fermentation, the FDA has
designated  many probiotics to be generally recognized as safe (GRAS).  Even for
those  without  GRAS  status,  the  industry has used probiotic bacteria in food
fermentations  with  the  assumption  that  their  history  of use implies their
safety.  The food industry will need to carefully assess the safety and efficacy
of  probiotics  before  incorporating  them  into  food  products.


                                       31
<PAGE>
     Probiotic  Selection  Criteria  -  Historically  the selection of probiotic
strains  has  been  based  on  the  criteria of efficacy and the absence of side
effects.  Additional  criteria  for  the  use of appropriate strains include the
ability  to  1) exert a beneficial effect on the host 2) survive transit through
the  intestinal  tract  3)  adhere  to  the intestinal epithelial cell lining 4)
produce  antimicrobial  substances  that  target  pathogens  5)  stabilize  the
intestinal microflora.  For probiotics to be commercially viable, they must have
viable  shelf  life  in  food  or preparations, contain a large number of viable
cells  at  the  time  of  consumption  and be both, non-pathogenic and nontoxic.

     The  Effect  of  Probiotics -  Published scientific literature and clinical
studies undertaken in Israel and the former Soviet Union suggest that probiotics
can  decrease  the  incidence,  duration  and  severity of many gastrointestinal
illnesses.

     Specifically, the safety and efficacy of non-pathogenic E.coli has been the
subject  of  a  number  of  clinical  studies  conducted  in  1997  and  1998 at
twenty-seven  medical research and therapeutic institutions in the former Soviet
Union and Israel, including various departments of the Moscow Medical Institute;
the  G.N. Gabrichevsky Institute for Epidmiology and Microbiology in Moscow; the
Ministry  of Health of the Dagestan Republic; various departments of the Russian
Academy  of  Medical  Sciences;  and  the  Rabin  Medical  Center  at  Tel  Aviv
University,  Israel.  Those  studies  covered  a  broad  range of uses of E.coli
including:  clinical  efficacy  (1)  in  patients  undergoing  therapy,  with
dyspeptical  symptoms,  developed following antibiotherapy, and in patients with
large  bowel  irritable  syndrome,  (2)  in  chronic  gastrointestinal  diseases
accompanied  with  diarrhea  syndrome  with subsequent development of intestinal
disbiosis,  (3)  in  surgical  diseases, (4) in pediatric patients, (5) in acute
infectious  diarrheal diseases as a single therapeutic preparation, (6) in acute
infectious  diarrhea,  complicated by severe pathological background, (7) in the
treatment  of patients with acute intestinal infections and viral hepatitis with
pronounced  intestinal  disbiosis,  (8)  in  a  region with increased infectious
morbidity,  (9)  in the treatment of diarrheal syndrome and intestinal disbiosis
in  patients  with  HIV-infections,  (10)  in  the  prevention  and treatment of
diarrheal  syndrome  and  other  intestinal  dysfunctions  induced by anticancer
treatment and late radiation enterocolitis, and (11) effect on the immune status
of  patients  with  neoplastic  cancers  during radiation and chemotherapy.  The
results  of  those clinical studies were reported in three publications released
in  1999.  In  each  of  those  studies it was concluded that introduction of an
E.coli  probiotic  was  effective  in the treatment of symptoms studied, with no
observed  safety  concerns  being  noted.

     Additional  studies  on animals have been conducted with respect to the use
of  E.coli  probiotics, including an acute oral toxicity study on rats conducted
by Harlan Biotech Israel Ltd. in 1999 which study indicated that the product was
safe  and  nontoxic.

     Scientific  articles  supporting  the  potential  beneficial  effects  of
probiotics,  include:  Probiotics  and  Functional  Foods  in  Gastrointestinal
Disorders,  Martin  H.  Flock,  MD  and  JoAnn  Hong-Curtiss,  MD,  Current
                                                                    -------
Gastroenterology  Reports,  2001,  3:343-350;  Non-pathogenic  Escherichia  coli
-------------------------
versus mesalazine for the treatment of ulcrative colitis: a randomised trial, BJ
Rembacken,  ATR  Axon,  The  Lancet, August 21, 1999, 354:635-639; Evaluation of
                        -----------
probiotic  treatment in a neonatal animal model, D.J. Lee, R.A. Drongowski, A.G.
Coran, C.M. Harmon, Pediatric Surgery International, 2000, V. 4, No. 4, 237-242;
                    -------------------------------
Probiotics  and  E.coli Infections in Man, R. Lodinova-Zadnikova, U. Sonnenborn,
H.  Tlaskalova,  The  Veterinary  Quarterly, V. 20, Supp. 3, June 1998, S78-S81;
                 --------------------------
Antagonistic  effect  of  Lactobacillus acidophilus, Saccharomyces boulardii and


                                       32
<PAGE>
Escherichia  coli  combinations  against  experimental  infections with Shigella
flexneri  and  Salmonela  enteritidis  subsp.  typhimurium  in gnotobiotic mice,
J.V.M. Filho-Lima, E.C. Vieira and J.R. Nicoli, Journal of Applied Microbiology,
                                                -------------------------------
March  2000,  V.  88, No. 3, 365-370; and Escherichia coli as a Probiotic?, G.J.
Jansen,  A.C.M.  Wildeboer-Veloo,  D.  van der Waaij, J.E. Degener, Infection 26
                                                                    ---------
(1998)  No.  4,  232-233.

     Those  publications  and  studies  indicate  that  probiotic  bacteria, and
specifically  E  Coli:

     --   preserve  intestinal  integrity and mediate the effects of a number of
          other  intestinal  diseases;
     --   encourage  the  colonization  of  the gut and the restoration of micro
          floral  balance;
     --   can  prevent  the  overgrowth  of  potential  pathogens  in  the
          gastrointestinal  tract;
     --   improve  symptoms  of inflammatory bowel disease (IBD), and ulcerative
          colitis  with  consumption  of  certain  strains  of  lacto  bacilli;
     --   may  inhibit  the  gastric  colonization  and activity of Helicobacter
          pylori,  which is associated with gastritis, peptic ulcers and gastric
          cancer;
     --   are  useful  in  the  treatment  of  many types of diarrhea, including
          antibiotic-induced  diarrhea  in  adults,  travelers'  diarrhea  and
          diarrheal  disease  in  young  children  caused  by  rotaviruses;
     --   promote  the  endogenous  host  defense  mechanism, in addition to the
          effects  of  probiotics  on  non-immunologic  gut  defense  that  are
          characterized  by  the  stabilizing  of  the  gut;
     --   enhance  both  specific  and  nonspecific  immune  responses;

     Those publications and studies showed no harmful inflammatory response from
the  use  of  probiotics.

     Because  diarrhea  is  a  major  cause of infant death worldwide and can be
incapacitating  in  adults,  the  widespread  use  of  probiotics  could  be  an
important,  non-invasive means to prevent and treat these diseases, particularly
in  developing  countries.

     The action of microorganisms during the preparation of cultured foods or in
the  digestive  tract  has  been shown to improve the quantity, availability and
digestibility of some dietary nutrients.  In addition to nutrient synthesis, the
actions  of  microorganisms  in  the  digestive  tract  can, to a limited extent
improve  the  digestibility of some dietary nutrients.  These nutrients, such as
enzymes,  are released into the intestinal lumen that exerts synergistic effects
on  digestion,  alleviating  symptoms of intestinal malabsorption.  In addition,
SCFA  concentration  helps  to  maintain an appropriate pH in the colonic lumen,
which  is  critical  in  the expression of many bacterial enzymes and in foreign
compound  and  carcinogen  metabolism  in  the  gut.

     Probiotics  may  also  suppress  viable  counts of an undesired organism in
other  ways.  They can produce antibacterial compounds and compete for nutrients
or physical real estate on the intestine wall.  Both are properties that the bad
organisms  need to survive.  Further, they may alter the microbial metabolism by
increasing  or  decreasing  enzyme activity. They may additionally stimulate the
immune  system by increasing antibody levels.  The probiotic elements themselves
are bound to the carrier in a manner that protects the beneficial microorganisms
from  the  above  activities  during  their  passage  through  the  GI  tract.

     How  Probiotics  Works  -  The mechanism(s) by which probiotics exert their
effects  on the host are still speculative.  Probiotics may antagonize pathogens


                                       33
<PAGE>
directly through production of antimicrobial and antibacterial compounds such as
cytokines, hydrogen peroxide, bacteriocins, and butyric acid.  Probiotics target
specific groups of pathogenic organisms.  This decreases the number of pathogens
by  affecting  their  metabolism  or  by  stimulating  immunity  to  them.

     Probiotics  reduce  gut  pH  by  stimulating  the  lactic  acid - producing
microflora,  competing  for  binding  and  receptor  sites that pathogens occupy
improving  immune  function  and stimulating immunomodulatory cells or producing
lactase  that  aids  in  lactose  digestion.

     Competitive  colonization  enables  probiotics  to  compete for binding and
receptor  sites  that  pathogens  occupy,  thereby  minimizing  the  ability  of
pathogens  to  colonize and grow.  Probiotic bacteria compete with pathogens for
available  nutrients  and other growth factors removing the nourishment that the
pathogens  need  to  survive.

     Among  the possible mechanisms of probiotic therapy is the promotion of the
non-immunologic  gut  defense  barrier,  which  includes  the  normalization  of
increased  intestinal  permeability  and  altered  gut  micro  ecology.  Another
possible  mechanism  of probiotic therapy is improvement of the intestinal tract
immunologic  barrier, particularly through intestinal immunoglobulin A responses
and  alleviation  of  intestinal  inflammatory  responses,  thereby  producing a
gut-stabilizing  effect.  Many  probiotic  effects  are  mediated through immune
regulation,  particularly  through  balance  control  of  proinflammatory  and
anti-inflammatory  cytokines.

     It  is  uncertain whether the ability of probiotics to adhere to intestinal
mucosal cells is required for optimal health effects.  Some experts believe that
adhesion  is  necessary,  with  adhesion  properties  depending  upon  bacterial
concentration,  resident  pH, transit time, and dietary factors.  Others believe
that  probiotics  exert  their  effect through only a loose affiliation with the
mucosal  layer  that  does  not  require site-specific attachment.  Microbes may
exert  their  effects without adhesion if consumed on a regular basis, as in the
case  of  yogurt  bacteria  aiding  lactose  digestion.

Bio Balance's Technology and Product

     General  -  The  basic  active  component  in  Bio  Balance's  product is a
patented  strain  of  M-17  Escherichia  Coli  (E.coli),  the  most  competitive
bacterium  in healthy microflora of man and animals.  M-17 has been used for the
preparation  of  Colibacterin, Bificon and other medicines and food supplements.

     Clinical studies of liquid food supplements with M-17 E.Coli were performed
in the former Soviet Union in the late 1980's.  In those studies, and in studies
conducted  in  Israel,  these  biologically  active  food supplements were found
efficient  in  the  treatment  of intestine infections of various etiologies and
showed  no  harmful  side  effects.

     Bio  Balance Technology -  Bio Balance's first product, PROBACTRIX(TM) is a
non-pathogenic  E-coli based probiotic microorganism.  PROBACTRIX(TM) contains a
single  species  of  a  patented  non-pathogenic  probiotic  microorganism.  Bio
Balance  believes the PROBACTRIX(TM) formulation is useful in the restoration of
normal  GI  function  and Bio Balance believes PROBACTRIX(TM) may be utilized to
maintain  or  reinstate  normal gastrointestinal microflora.  It may also aid in
the  prevention  and/or  treatment  of  numerous  gastrointestinal infections or


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<PAGE>
disorders.  The  following  list  highlights  several  diseases, infections, and
disorders  for  which  Bio  Balance  believes  PROBACTRIX(TM)  can be effective:

     --   IBS  and its various symptoms including; gas, pain, bloating, surging,
          diarrhea,  constipation  and  alternating  bouts  of  diarrhea  and
          constipation
     --   Certain  forms  of  inflammatory  bowel  disease  ("IBD")
     --   Chronic  diarrhea;
     --   Infectious  diarrhea  caused  by  Salmonella  or  Shigella
     --   C. Difficile, E. coli, Campylobacter, Clostridium, and other bacterium
     --   Diarrhea  resulting  from  antibiotic  therapy,  radiotherapy,  or
          chemotherapy

     Bio  Balance  also  intends to explore the utility of PROBACTRIX(TM) in the
treatment of gastrointestinal complications of immune disorders.

     The  proprietary  formulation  used for Bio Balance's product consists of a
patented proprietary strain of non-pathogenic E. coli preserved in a proprietary
extract formulation.  The proprietary strain of E. coli derives from an organism
that  was  originally  isolated  from  the  intestinal  microflora  of  healthy
volunteers.  The  product  is  based  on  research  and  clinical studies by the
inventors.  The  technology  and the processes comprise conditions that preserve
M-17  E.Coli  in  the  biologically active form with a shelf life of one year at
room  temperature.

     The formula was approved as a food supplement for human use by the Ministry
of  Health  of  Israel in May 1998 and was approved for use as an animal food by
the  Ministry of Agriculture of Israel in September 1998.  In August 2000, Tetra
Pharm  began  supplying  the  formula  to  pharmacies  in  Israel  and continued
manufacture  and  sale of the product until July 2001 when Tetra Pharm agreed to
cease  manufacture  and sale of the product in conjunction with its agreement to
sell  all  rights  relating  to  the product to Bio Balance and after which date
production  of  the  formula  has  been  limited  to  supplying  hospitals  and
Universities  where Bio Balance is conducting further research.  The formula has
been  extensively tested and used on animals (poultry and piglets) as well as on
a number of human volunteers with known gastrointestinal disorders.  Bio Balance
is  not  aware  of  any  side  effects  occurring  as a result of the use of the
product.  Bio  Balance  plans  on introducing the product into the United States
market  upon  attaining  GRAS  and medical food status, including the successful
completion  of  two additional clinical trials designed to provide statistically
significant  data supporting the effectiveness and safety of the product.  There
can  be  no  assurance  that  Bio  Balance's  product  will  satisfy  applicable
regulations  for  use as a medical food in the United States or that the product
will  ever  be  accepted  as  a  medical  technology.

The Need for FDA Approval of Bio Balance's Product

     General  -  Government authorities in the United States and other countries
extensively  regulate,  among  other things, the research, development, testing,
manufacture,  labeling,  promotion,  advertising,  distribution and marketing of
products  such  as  PROBACTRIX(TM).

     Bio  Balance  plans  on  introducing  its  product, PROBACTRIX(TM) into the
United  States  as  a medical food.  Bio Balance also plans, at a later date, to
introduce a different version of its product as an ethical drug.  The regulatory
scheme varies greatly between a medical food and an ethical drug.  Bio Balance's
preference  is  to introduce Bio Balance's product first as a medical food since
the  approval process for a medical food will be both timely and cost effective.


                                       35
<PAGE>
     Medical  Foods.

     -  Overview.  A  "medical  food"  means  a  food  which is formulated to be
consumed  or  administered  enterally  under  the supervision of a physician and
which  is intended for the specific dietary management of a disease or condition
for  which  distinctive nutritional requirements, based on recognized scientific
principles,  are  established  by  medical  evaluation.  Thus,  unlike  dietary
supplement  or  conventional  foods,  a  medical  food  that is intended for the
specific  dietary  management  of  a  disease or condition for which distinctive
nutritional  requirements  have  been established, may bear scientifically valid
claims  relating  to  providing  distinctive  nutritional support for a specific
disease  or  condition.

     Medical  foods  are  distinguished  from  the broader category of foods for
special dietary use (e.g., hypoallergenic foods) and from foods that make health
claims (i.e., dietary supplements) by the requirement that medical foods be used
under  medical  supervision.

     It  should  be  noted,  however,  that medical foods are not foods that are
simply  recommended  by a physician or other health care professional as part of
an overall diet designed to reduce the risk of a disease or medical condition or
as  weight  loss  products.

     Regulations for medical foods review and/or listing as well as registration
requirements  for medical foods manufacturers have not yet been established and,
for now, such products are reviewed on a case-by-case basis.

     In  order  to  be  distributed  in  the U.S., medical foods are required to
conform  to  those  regulations  dealing  with general food safety and labeling,
however,  they do not have to include nutrition information on their labels, and
their  claims  do not need to meet specific standards but the label must clearly
state  that  the  product  is  intended  to be used to manage a specific medical
disorder  or  condition,  and for use under medical supervision.  Of course, the
product  must  meet  the  medical food definition, and be formulated so as to be
safe  and  efficacious  as  a  medical  food.

     It  should be noted, however, the FDA has for some time been exploring ways
to  more specifically regulate medical foods.  Some examples include methods for
safety  evaluations,  standards  for  claims,  and  requirements  for  specific
information  on the labels.  No due date for this initiative has been published,
and  it  is  unlikely  to  occur  in the near future.  Should FDA establish more
stringent  regulatory  requirements  for medical foods, this could significantly
impact  the cost and timeline for bringing the PROBACTRIX(TM) product to market.

     In  order  to  market a product as a medical food, the product must satisfy
two  specific  criteria, (1) the product must meet the statutory definition of a
medical  food,  and  (2)  the  ingredients  in  the  medical food must be either
approved  food  additives  or  "generally  recognized as safe" (GRAS).  The time
frame  for establishing PROBACTRIX' status as a medical food which contains GRAS
ingredients  may  be  as  short  as 12 months and the cost could be as little as
several  million  dollars.

     Unlike  an  ethical drug, marketing of a product as a medical food requires
no approvals of, or filings with, FDA (although voluntary filings may be made at


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<PAGE>
Bio  Balance's discretion).  Instead, a "self determination" process is utilized
to  establish  both  satisfaction  of the medical foods statutory definition and
GRAS  status.

     -  Statutory  Definition  Requirement.  Bio  Balance  believes  that
PROBACTRIX(TM) will satisfy the statutory definition of a medical food since it:
(i)  is  a formulated and processed product for the partial or exclusive feeding
of  a  patient  by  means  of  oral  intake;  (ii)  is  intended for the dietary
management  of  a  patient who, because of therapeutic or chronic medical needs,
has  limited  or  impaired  capacity  to  ingest,  digest,  absorb or metabolize
ordinary  foodstuffs  or  certain  nutrients, or who has other special medically
determined  nutrient  requirements,  the  dietary  management of which cannot be
achieved  by  the  modification  of  the  normal  diet  alone;  (iii)  provides
nutritional  support  specifically  modified  for  the  management of the unique
nutrient needs that result from the specific disease or condition, as determined
by  medical  valuation; (iv) is intended only for a patient receiving active and
ongoing  medical  supervision  wherein  the  patient  requires medical care on a
recurring  basis, for among other things, instructions on the use of the medical
food;  and  (v)  is  intended  for  use  under  medical  supervision.

     -  GRAS  Requirement.  Under the current regulatory scheme, products coming
within  the  definition  of  a  medical  food must make a determination that the
ingredients  in  the  product  are  either  approved food additives or generally
recognized as safe (GRAS) before introducing the product to market.  GRAS status
is  determined  by  the company introducing the product without the need for any
pre-marketing  clearance  from  the  FDA,  although  a  process  of  voluntary
notification  to the agency is available, in which case FDA has 90 days to raise
questions  or  objections  to  the  GRAS  self-determination.

     Establishment  of  an  ingredient  as GRAS based upon scientific procedures
requires (1) technical evidence of safety and functionality for the intended use
and  use  levels  as defined under the Federal Food, Drug, and Cosmetic Act, and
(2) a conclusion that this technical evidence is generally known and accepted by
relevant  experts.  The  technical  element  standard  of  GRAS  requires  that
information about the substance establish that the intended use of the substance
is  safe.  Satisfaction  of  the  "general  recognition"  requirement  of  GRAS,
according  to  the  proposed  rules,  may  be  established  through  information
published  in  a  peer-reviewed  scientific  journal,  publication  of  data and
information  in  secondary  scientific  literature,  such  as  scientific review
articles,  textbooks  and  compendia,  or  the  opinion  or recommendation of an
authoritative  body.

     Bio  Balance began the process of establishing GRAS status in the spring of
2002  with  the  retention  of  Daniel  Kracov  of  Patton  Boggs to develop and
implement  a process to establish GRAS and to conduct clinical studies to obtain
statistically  significant  data to support the marketing of the product as safe
and  effective.  Under  that  process,  (1)  an  exhaustive  review and write-up
relating  to scientific literature relating to the safety of the product will be
performed,  (2)  laboratory testing will be conducted to verify that the product
in  question is the same as reflected in the scientific literature reviewed, and
(3)  a  panel  of  experts will review the literature and laboratory results and
render  an  opinion  as  to  whether  the  product  satisfies  GRAS  status.


     A  panel  composed of the GRAS experts and additional members with relevant
expertise will also review PROBACTRIX(TM) for medical food status and provide an
opinion  as  to  whether  the  product meets the medical food definition.  As of
March  1,  2003,  (1)  the  literature review had been completed, (2) laboratory
testing  to  verify the character of Bio Balance's product had been completed at


                                       37
<PAGE>
two  universities  and  at  a  well  known  and  established  testing center for
bacteriological  strains,  and (3) the first peer reviewable article relating to
PROBACTRIX(TM)  had  been  published  and  efforts  were  ongoing to secure peer
reviewed  articles  covering  Bio Balance's complete dossier.  In February 2003,
Bio  Balance hired Dr. Robert Hoerr, MD, Ph.D. and Dr. Eileen Bostwick, Ph.D. as
Director  of  Medical  and  Regulatory  Affairs  and  Director  of  Research and
Development,  respectively,  to, among other things, accelerate and complete the
GRAS  and  medical  food  determination  process.  Bio  Balance anticipates that
completion  of  the  GRAS  and  medical food determination process will occur in
2003.  The estimated cost of carrying out these determinations, exclusive of any
additional  data  development,  is  between  $200,000  and  $350,000.

     While Bio Balance believes that the current regulatory rules will allow Bio
Balance  to  begin marketing its product as a medical food immediately following
determination  of  GRAS  and medical food status based upon data currently under
development,  concurrent  with  these  determinations,  Bio  Balance  intends to
undertake at two additional clinical trials to develop statistically significant
efficacy  data  to support marketing of its product for specific conditions.  At
March  1,  2003,  protocols  were  being  written  for two double blind clinical
trials,  the  first  of which is expected to begin as early as mid April 2003 in
Israel.  Those  trials  are anticipated to require several months to perform and
to  cost  approximately  $600,000  per  trial.

     Although  Bio Balance intends to comply with the procedures and regulations
to establish and market its product as a medical food, there can be no assurance
that  the  FDA  will  not  contest  the  GRAS  status  of  the  ingredient(s) in
PROBACTRIX(TM)  or  the  status  of our product as a medical food, in which case
introduction  of  our  product  to  the  market could be delayed for an extended
period,  or  indefinitely, pending resolution of the product's status or, in the
alternative, compliance with the regulatory process applicable to ethical drugs.

     Biological  Drug

     -  General.  Bio Balance also plans to introduce a different version of its
product  and  plans  to  apply  to  the  FDA  for  approval  of  our  product,
PROBACTRIX(TM),  as  an  ethical  drug.

     Bio  Balance  believes  that another version of our product may fall within
the  scope  of  biological  therapeutic  or  a  biotechnology-derived  product.

     In  contrast  to  most  drugs  that are chemically synthesized with a known
structure,  most  biological  products  are complex mixtures that are not easily
identified or characterized and are derived from living sources, such as humans,
animals,  plants  and  microorganisms.

     Biological  products  are  approved  for  marketing under provisions of the
Public  Health Service Act (PHS Act).  However, because most biological products
also meet the definition of drugs under the Federal Food, Drug, and Cosmetic Act
(FD&C  Act),  they are also subject to regulation under the FD&C Act provisions.
     Under  the  PHS  Act,  any  company  which  wants to introduce a biological
product  into  the US market must hold a license for the product issued by CBER.
Licensing  of  biological  products under the PHS Act is very similar to the new
drug  approval  process  for  human drugs under the FD&C Act.  Following initial
laboratory  and  animal  testing,  a  biological  product is studied in clinical
trials  in  humans  under an investigational new drug application (IND).  If the
data generated by the studies demonstrate that the product is safe and effective


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<PAGE>
for  its  intended  use,  the  data are submitted to CBER as part of a Biologics
License  Application  (BLA)  for  review  and  approval  for  marketing.

     -  Regulatory  Requirements  - Clinical Studies.  Clinical development of a
drug  and  biological  drug  product  is  often described as consisting of three
sequential  phases  (Phase  I-III)  with  a  fourth  (IV)  post-approval  phase.

     1.   Phase  I  Clinical  Studies

          Phase  I starts with the initial administration of the investigational
          new  product  into  humans.  Normally,  studies  in  this  phase  have
          non-therapeutic  objectives  and  are conducted in healthy volunteers.

          Phase  I  studies can be open; baseline controlled or, preferably, use
          randomization  and  blinding  to improve the validity of observations.

     2.   Phase  II  Clinical  Studies

          The  primary  objective of Phase II is to explore therapeutic efficacy
          in  patients.  Phase  II  studies  should  be  conducted in a group of
          patients  who  are  selected  by  relatively  narrow criteria (i.e., a
          specific GI disorder), leading to a relatively homogeneous population.
          An  important  goal  of  these  studies  is  to determine the dose and
          regimen  for Phase III studies. Additional objectives to be considered
          include  evaluation of potential study endpoints, therapeutic regimens
          (including  concomitant  therapies) and target populations (e.g., mild
          versus  severe  disease).

     3.   Phase  III  Clinical  Studies

          The  primary  objective  of  Phase  III  studies is to demonstrate the
          therapeutic  benefit  of the product, i.e., to confirm the preliminary
          evidence  accumulated in Phase II studies that the product is safe and
          effective  for  use  in the intended indication and target population.
          These  studies  are  intended  to  provide  an  adequate basis for the
          marketing approval and to support adequate instructions for use of the
          product. That means that Bio Balance will have to demonstrate that Bio
          Balance  has already completed Phase I studies on animals proving that
          the  product is non-toxic and Phase II trials proving our efficacy. In
          the  event  Bio  Balance  must  file  with  the  FDA for approval as a
          biological  drug,  Bio Balance intends to consult with experienced FDA
          counsel  to determine if data compiled in previous clinical studies in
          the former Soviet Union and Israel are sufficient to satisfy FDA Phase
          I and Phase II requirements. If that data is not sufficient to satisfy
          those requirements, Bio Balance will be required to begin with Phase I
          or  Phase  II  studies.

     The  alternatives  presented  above significantly differ from each other in
many  aspects.  In  respect  to  timetable,  the faster path is the medical food
alternative  whose approval process could take less than one year.  With respect
to  cost,  the  most  expensive  alternative is the drug path for which clinical
studies  are  an  integral  (and  costly)  part  of  it including the supporting
services that are required (e.g., laboratory testing, regulatory services, etc.)
with  a  cost  of  $50  million or more (depending on which Phase II or III) and


                                       39
<PAGE>
anywhere from 2 years to 5 years depending on which Phase Bio Balance must begin
with.  The cost of the medical food path, on the other hand, would likely not be
in excess of $5,000,000.  In the event Bio Balance is unable to convince the FDA
that  Bio  Balance is ready to move directly into Phase III testing, Bio Balance
plans on proposing to the FDA an advanced Phase II stage - efficacy.  There can,
however, be no assurance that the FDA will agree with Bio Balance's proposal and
may  require  us  to  begin  with  either  Phase  I  or  Phase  II  studies.

Bio  Balance  Business  Strategies

     Bio  Balance  intends  to  pursue  continued  development  of  candidate
probiotics.  Using  proprietary  technology,  Bio  Balance hopes to make various
probiotic  agents  more effective in various clinical GI tract disorders.  It is
Bio  Balance's  intention  to  maintain  a  pipeline of new products by adding a
research  and  development  program,  employees  and consultants.  Bio Balance's
development  programs  will focus on unmet medical needs in the gastrointestinal
area  that  Bio Balance believes provide substantial commercial opportunity with
relatively limited competition.  As described above, Bio Balance's first product
is  PROBACTRIX(TM),  and  Bio Balance intends to develop additional products and
line extensions and also to pursue in-licensing opportunities to add breadth and
depth  to its research and development.  Bio Balance is presently evaluating new
formulations  and clinical uses for its product.  There can be no assurance that
Bio  Balance  will  be  successful in developing any other probiotics product or
even  in  establishing  a  research  and  development  program.

     Bio  Balance  plans  to market and sell its product in the United States as
medical  food  if  it  successfully  completes  the  GRAS  and  medical  food
determinations  and  clinical  trials.  Bio  Balance's  marketing  strategy will
include  one  or  more  of  the  following  approaches:

     --   A  direct  sales force focused on physicians specializing in the field
          of  gastroenterology.  Bio  Balance  believes  that a relatively small
          sales  force will initially be effective, as its first product targets
          a  specialized  group of physicians. This sales force may also be used
          to  market  and  sell  its  future  products.

     --   Alternatively,  Bio  Balance  may elect to enter into a partnership or
          licensing  arrangement  with a company that already specializes in the
          sale  of  prescription  drugs  directed to the gastroenterologist. Bio
          Balance  will  also  explore  sale  to  a  larger  well-established
          pharmaceutical  company

     Even  if  Bio  Balance decides to market and sell its product in the United
States,  Bio  Balance  may decide to license its foreign product rights to other
pharmaceutical companies to commercialize its product abroad.   At this point in
time, Bio Balance has not determined which way Bio Balance will proceed with its
marketing  strategy.

     Bio  Balance will take a product-focused approach towards drug development.
The  key  elements  of  its  business  strategy  will  be  as  follows:

     --   Develop  a  probiotic  for  therapy of Inflammatory Bowel Disease. The
          existing  probiotic  approach  to  IBD  leaves  room  for  innovation,
          improvement  and  application of other IBDs. This product candidate is
          focused  on  improving the balance of flora within the digestive tract
          to  promote  gastrointestinal  health  and  the  removal of unfriendly
          bacteria,  by  presenting  more  of  the  GI tract to viable probiotic
          bacteria.


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<PAGE>
     --   Leverage  experienced  scientific  and  drug  development expertise to
          develop  other  probiotic  agents.  Bio  Balance  intends to establish
          relationships  with  experienced  developers  of  probiotic  agents to
          further  development  of  additional  probiotic  agents.  Dr.  Nelli
          Kelner-Padalka,  a member of Bio Balance's Medical Advisory Board with
          substantial  experience in the use of probiotics in the GI tract and a
          developer of Bio Balance, has previously developed six other probiotic
          substances  and  was decorated in the former USSR with the Inventor of
          the  USSR  state prize of Kirghizstan. In addition to having access to
          Dr.  Kelner's  expertise,  Bio Balance is involved in discussions with
          Universities  in  Israel  and  other  individuals  with  experience in
          probiotic  development  with  a  view  to  entering into agreements to
          perform  probiotic research and development activities. To date, other
          than  Dr. Kelner's service on Bio Balance's Medical Advisory Board, no
          agreements have been entered into with any Universities or individuals
          to  perform  probiotics  research  and  development.

     --   Optimize clinical and regulatory strategies to shorten time to market.
          Bio  Balance  believes that by initially focusing on acute treatments,
          it  can  achieve  an  abbreviated development time, and faster time to
          market,  which  it  hopes  will  benefit patients with irritable bowel
          syndrome  and  disease.  Notwithstanding  its  objective  of  getting
          PROBACTRIX(TM)  to  market  as a medical food, Bio Balance intends to,
          although  it  cannot  assure that it will be able to, perform clinical
          trials  to  rapidly assess effectiveness for well-defined endpoints in
          the  treatment  of  irritable  bowel  syndromes,  chronic diarrhea and
          infectious  disorders  of  the  GI  tract.

     --   Retain significant marketing rights to Bio Balance product candidates.
          Bio  Balance's  goal  is  to  retain  marketing  rights to its product
          candidates  for  as  long  as  it  is  commercially  advantageous.  By
          completing  as  much of the pre-clinical and clinical development work
          by  itself  as  is feasible, Bio Balance hopes to be able to negotiate
          more  favorable  terms  for  any  such  marketing  arrangements.

Bio  Balance  Marketing  and  Sales

     Bio Balance's marketing and sales decisions and strategies will be dictated
primarily  by  the actions and reactions to its regulatory pathway.  Bio Balance
will  not  make  sales  and  marketing  decisions  until  it  has  satisfied the
applicable  GRAS  requirement  for  medical  foods and completed clinical trials
which  provide  statistically  significant  data  to support the efficacy of its
first  product,  PROBACTRIX(TM).

     Bio  Balance's  primary  approach  to regulatory compliance is as a medical
food,  which  Bio  Balance  believes  will  be  satisfied  in  2003. Traditional
pharmaceutical  retail  distribution  can  be  applied  with quick results using
existing  channels.  Being  designated a medical food allows Bio Balance to make
claims  relating  to  the  distinctive  nutritional requirements of a disease or
disorder.  Bio  Balance  expects  that the product will be marketed primarily to
physicians  and  sold  through hospitals, clinics and pharmacies.  While the FDA
does  not generally favor direct marketing or retail sales of medical foods, the


                                       41
<PAGE>
only  current  limitations  on  the  direct  marketing  or sale of medical foods
through  retail  channels  are  prohibitions  of  fraudulent  claims  and  the
requirement  that the product satisfy the statutory definition of a medical food
which  requires that the product is intended for use under physician supervision
and  is  so labeled.  For example, a medical food may be advertised in magazines
read by patients with gastrointestinal diseases and disorders, advising patients
of  the  existence  of the product, urging them to ask their physician about the
product,  and  informing  them as to where the product may be purchased if their
physician  believes  it  would  be  helpful  to  their condition. By utilizing a
multiple  distribution  channel  approach,  Bio  Balance  believes  it  will  be
positioned  to  reach customers who can be referred by or back to the physician.
In  the  event  that  the  FDA  or other government agencies were to prohibit or
otherwise  restrict  the  direct  marketing  or  retail  sale  of medical foods,
awareness  of PROBACTRIX(TM) among potential consumers could be severely limited
which  could  in  turn  curtail  product  sales.

     Bio Balance currently has no sales, marketing or distribution capabilities.
In order to commercialize any of its product candidates, Bio Balance must either
initially  develop  sales,  marketing  and  distribution  capabilities  or  make
arrangements  with  third parties to perform these services. Bio Balance intends
to  sell  market and distribute some products directly and rely on relationships
with third parties to sell, market and distribute other products.  To market any
of  its  products directly, Bio Balance must develop a marketing and sales force
with  technical  expertise  and  with supporting distribution capabilities.  Bio
Balance  cannot assure that Bio Balance will be able to develop any marketing or
distribution  capabilities.

     Bio Balance may elect to market and sell it's product by developing its own
sales  force to call upon doctors specializing in the field of gastroenterology.
This will entail the development of a direct sales force in the U.S. and Canada.
Bio Balance believes that a relatively small sales force of fewer than 100 sales
representatives  can  be  used  for these products because prescribing decisions
will  be made by roughly one group of physicians, primarily gastroenterologists.
If  Bio Balance elects to direct market Bio Balance's products, Bio Balance will
begin  hiring  a  sales  force  as the regulatory pathway to market becomes more
visible.  Bio  Balance  cannot guarantee that it will develop a sales force with
the  necessary  technical  expertise  and  distribution  capabilities.

     Alternatively,  Bio Balance may elect to enter into a licensing arrangement
with  a  company  that  already  specializes in the sale of medical foods and or
prescription  drugs  directed to gastroenterologists.  Bio Balance is evaluating
opportunities  to  partner with other companies to develop and commercialize its
product.  Bio  Balance  may  also  explore  an  outright  sale  to  a  larger
well-established  pharmaceutical  company.  There  can  be no assurance that Bio
Balance  will  be  successful  in  entering  into  any  partnership or licensing
arrangements  or  in  the  sale  of  Bio  Balance.

     Even  if  Bio  Balance decides to market and sell its product in the United
States,  Bio  Balance  may decide to license its foreign product rights to other
pharmaceutical  companies  to  commercialize  its product abroad.  In the United
States,  Bio  Balance does not intend to enter into co-promotion arrangements or
out-license its product candidates until its product candidates are in the later
stages  of  development,  but  Bio  Balance  may  promote its product candidates
through marketing relationships with one or more companies that have established
distribution  systems  and  direct  sales  forces.  In  international  markets,
initially  Bio  Balance  intends to seek strategic relationships to market, seek
and  distribute  its  product  candidates, but Bio Balance may eventually become
involved  in  direct sales and marketing activities in other parts of the world.


                                       42
<PAGE>
There  can  be  no assurance that Bio Balance will be successful in establishing
any  marketing  relationships.

Bio  Balance  Manufacturing

     Bio Balance intends to use contract manufacturers for at least the next few
years  to  produce  sufficient  quantities  of  PROBACTRIX(TM)  for  use  in its
pre-clinical  and  anticipated  clinical  trials  instead  of  developing  this
capability  internally.  Bio  Balance will also rely on third parties to provide
the  components  of these product candidates.  Outsourcing has been effective in
similar  situations  with  other  companies.  Bio  Balance  has not yet selected
contract  manufacturers  for  formulation  for  commercialization.  If  these
facilities become unavailable for any reason, if its contract manufacturers fail
to  comply  with  the  FDA's  current  good  manufacturing  practices, or if its
contract manufactures terminate their agreements, Bio Balance would have to find
an  alternative  source  for  manufacturing  its  drug  candidates.  Contract
manufacturers  often  encounter difficulties in scaling up production, including
problems  involving  production  yields,  quality  assurance  and  shortage  of
qualified  personnel.

     If  contract  manufacturers  are  unable to scale up production to meet its
commercial needs, Bio Balance's revenue may be adversely affected.

     The  process  for manufacturing e-coli bacteria and formulating them into a
probiotic  agent  is  complicated.  Bio  Balance  has  no  experience  in
commercial-scale  manufacture  of  PROBACTRIX(TM).  Bio  Balance's  product
candidates  will  need to be manufactured in facilities and using processes that
comply  with  the  FDA's  GMP requirements, GLPs, and other similar regulations,
including  foreign  regulations.  It  may  take  a substantial period of time to
begin  producing  probiotic e-coli bacteria in compliance with such regulations.
If  Bio  Balance  is  unable  to establish and maintain relationships with third
parties  for  manufacturing  sufficient quantities of its product candidates and
their components that meet its planned time and cost parameters, the development
and  timing  of  its  clinical  trials  may  be  adversely  affected.

Clinical  Testing

     Bio  Balance  does  not  have the ability to independently conduct clinical
studies and obtain regulatory approvals for its product candidates.  Bio Balance
intends  to  rely  on  third-party  clinical research organizations, or CROs, to
perform  these  functions  or to team with hospitals to conduct clinical trials.
However, Bio Balance has not yet finalized agreements with any CROs or hospitals
to  perform  these  functions or to team with Bio Balance in conducting clinical
trials.  Bio  Balance  has  recently  hired  Dr. Robert Hoerr, MD, Ph.D. and Dr.
Eileen  Bostwick,  Ph.D.  as  Director  of  Medical  and  Regulatory Affairs and
Director  of  Research  and  Development,  respectively, to, among other things,
accelerate  and  complete  the GRAS and medical food determination process.  Bio
Balance  anticipates  that completion of the GRAS and medical food determination
process  will  occur  in  2003.  Drs  Hoerr  and  Bostwick, along with a team of
experts,  will identify and design the clinical trials necessary and then hire a
qualified  CRO  or identify a suitable hospital partner.  Bio Balance intends to
have  contracts  in place with CROs or hospitals at least 1 to 2 months prior to
commencement  of  work  under  each  such  contract.

Future  Plans


                                       43
<PAGE>
     Following  the introduction of Bio Balance's first product, PROBACTRIX(TM),
for the treatment of IBS, Bio Balance plans to conduct product research, studies
and  clinical  trials  with  a  view to developing similar products for other GI
disorders,  such  as  Traveler's diarrhea (TD) and certain forms of inflammatory
bowel  disease  ("IBD")  including  a  form  of  Cohn's  Disease.

Competition

     The  industry  is highly competitive. Numerous companies, many of which are
significantly  larger than Bio Balance, which have greater financial, personnel,
distribution  and  other  resources  than  Bio Balance and may be better able to
withstand  volatile  market  conditions,  compete  with  Bio  Balance  in  the
development,  manufacture  and marketing of probiotics for the treatment of IBS.
Bio  Balance's  principal  competition  comes  from  domestic  and  foreign
manufacturers  and other wholesale distribution companies who have all failed to
receive FDA approval or have introduced a product to the market for IBS that was
subject to FDA imposed restrictions.  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
Bristol-Myers, Squibb, Novataris and Glaxo-Wellcome) are in competition with Bio
Balance  in  this industry, since they have already spent millions of dollars to
develop treatments for IBS.  Increased competition could have a material adverse
effect  on  Bio  Balance,  as its competitors may have far greater financial and
other  resources  available  to  them  and  possess  extensive  manufacturing,
distribution  and  marketing capabilities far greater than those of Bio Balance.

Bio Balance Intellectual Property Rights

     Bio  Balance currently relies on a combination of patents, trademark, trade
secret  laws and contractual provisions to protect its proprietary rights in its
product.  As  of  March  1,  2003,  Bio  Balance  holds  eight (8) United States
patents,  an additional six (6) patents have been allowed but not yet issued and
one  (1)  patent  application had been submitted and was pending.  At that date,
Bio  Balance  also  held  one  (1) Israeli patent and one (1) Patent Cooperation
Treaty  application  and  applications  filed  therefrom  had  been filed in the
following  countries: Japan, European, Korea, Canada, Australia, Mexico, Brazil,
Poland  and  New  Zealand, in connection with PROBACTRIX(TM).  At that date, Bio
Balance  had  also applied for one (1) United States trademark.  There can be no
assurance  that  Bio  Balance's  applications  will result in issued patents and
trademarks,  or  that,  if  issued, Bio Balance's applications will be upheld if
challenged.  Further,  even  if  granted,  there  can be no assurance that these
patents  and  trademarks  will  provide  Bio  Balance  with  any protection from
competitors,  or,  that  if  they do provide any meaningful level of protection,
that  Bio  Balance  will  have  the financial resources necessary to enforce its
patent and trademark rights.  In addition, there can be no assurance that others
will  not  independently  develop  technologies similar to Bio Balance's pending
patents  and  trademarks,  or  design around the pending patents.  If others are
able  to design around the patents, Bio Balance's results of operations could be
materially  adversely affected.  Further, Bio Balance will have very limited, if
any,  protection  of  its proprietary rights in those jurisdictions where it has
not  effected  any  filings  or  where it fails to obtain protection through its
filings.

     There  can  be no assurance that third parties will not assert intellectual
property  infringement  claims against Bio Balance in the future with respect to
current  or  future  products.  Bio Balance is responsible for defending against
charges  of  infringement  of  third  party  intellectual property rights by Bio


                                       44
<PAGE>
Balance's  actions  and  products  and such assertion may require Bio Balance to
refrain  from  the  sale  of  its  product,  enter  into royalty arrangements or
undertake  costly  litigation.  Further,  challenges  may be instituted by third
parties  as  to  the  validity, enforceability and infringement of Bio Balance's
patents.

     Bio  Balance's  adherence to industry standards with respect to its product
limits  Bio Balance's opportunities to provide proprietary features which may be
protected.  In  addition,  the  laws of various countries in which Bio Balance's
product  may  be  sold  may  not  protect Bio Balance's product and intellectual
property  rights  to  the  same  extent  as the laws of the United States.  As a
consequence,  Bio  Balance  requires  all  of  its  personnel  to  execute
confidentiality agreements and assignment of intellectual property agreements in
favor  of  Bio  Balance.

EMPLOYEES

     On  February 1, 2003, our home health care business had 1,848 employees, of
whom  97  are salaried, including 3 executive officers, 16 administrators/branch
managers,  16  nurses,  12 accounting staff, 9 clerical staff and 41 field staff
supervisors.  The  remaining  1,751  employees  are  paid on an hourly basis and
consist  of  professional  and  paraprofessional  employees.

     At  March  1,  2003,  Bio  Balance  had  two  full  time  and two part time
employees.  Bio  Balance  plans  to hire a full time Chief Executive Officer and
other  employees,  as  needed.  While  Bio  Balance has no definitive plans with
respect  to  the  size  of  its  workforce  or  persons  who  will fill specific
positions,  Bio  Balance  plans  to  evaluate its needs relative to research and
development,  product manufacturing and marketing and finance and administration
in  light  of  then  current  alliances  and  partnerships and will seek to hire
personnel  based  on  that  evaluation.

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

ITEM 2.   DESCRIPTION  OF  PROPERTIES.

     Our  principal  executive  offices  are  located  in a one-story commercial
building  of  approximately  6,000  square feet located at 1850 McDonald Avenue,
Brooklyn, New York 11223, which is leased from an unaffiliated person. The lease
is  for  a  period  ending  March 30, 2005.  The rent is $6,580 per month and is
subject  to  annual increases equal to 4% of the total prior year's monthly rent
and  all  increases  in  real  estate  taxes for the original and renewal terms.

     Bio Balance's executive offices are currently located at 16 East 34 Street,
New  York,  NY  10016,  pursuant  to  a lease agreement for the period beginning
December  1,  2001  through  November  29,  2003  at a monthly rental of $5,000.

     The  table below sets forth certain information with respect to each of our
existing  branch and recruitment office locations, all of which are leased, from
non-affiliated  lessors.


                                       45
<PAGE>
<TABLE>
<CAPTION>
                                                                Lease Terms
                                                                -----------
                                            Approximate
                                   Opening    Square        Expiration       Annual
Location                            Date      Footage          Date        Rental(l)
---------------------------------  -------  -----------  ----------------  ----------
<S>                                <C>      <C>          <C>               <C>
Kings County Office
-------------------
408 Jay Street
Brooklyn, NY 11201                   07/01        4,000          06/30/06  $   55,548

Nassau County Office
--------------------
175 Fulton Avenue
Hempstead, NY 11550                  09/93        1,600          10/31/03  $   24,225

Westchester  County Office
--------------------------
6 Gramatan Avenue
Mt. Vernon, NY 10550                 12/96        2,000  (month to month)  $   30,785

Rockland County Office
----------------------
49 South Main Street
Spring Valley, NY 10977              10/94        1,500  (month to month)  $   22,200

Orange County Office
--------------------
45 Grand Street
Newburgh, NY 11250                   09/92        1,500          04/30/04  $   12,600



Bronx County Recruitment Office
-------------------------------
2488 Grand Concourse
Bronx, NY  10458                     10/00         1000          10/31/04  $   16,453

Jersey City Office
------------------
880 Bergen Avenue
Jersey City, NJ 07306                06/01        1,000          05/31/03  $   19,200

Bradley Beach Recruitment Office
--------------------------------
716 Main Street
Bradley Brach, NJ  07720             09/01        1,000          05/30/03  $   12,000

Toms River Office
-----------------
617 Highway 37 West
Toms River, NJ 08753                 02/98        2,400  (month to month)  $   28,200


                                       46
<PAGE>
Edison Office
-------------
629 Amboy Avenue
Edison, NJ 08837                     08/99        1,450          07/31/04  $   24,650

East Orange Office
------------------
60 Evergreen Place
East Orange, NJ 07018                11/01        3,000          08/31/06  $   33,000

Hackensack Office
-----------------
193 Main Street
Hackensack, NJ 07601                 06/01         1200          05/31/03  $   13,200

Whiting Recruitment Office (2)
------------------------------
75 Lacey Road
Whiting, NJ 08759                    04/02         1200          12/31/03  $   12,231
</TABLE>

(1)  All  of  the  leases provide for additional rentals based upon increases in
     real  estate  taxes  and  other  cost  escalations.
(2)  As  part of Adult Care Services, Inc., acquisition transaction, the Company
     assumed  leasehold  obligations  for  this  office  in  April  2002.

ITEM  3.     LEGAL  PROCEEDINGS.

     In  May  2001,  Maxim  Healthcare Services, Inc. filed a lawsuit in the Law
Division  of Superior Court of New Jersey located in Middlesex County, naming as
defendants  the  Company  and  two employees who had previously been employed by
Maxim  or its predecessor, StaffBuilders, Inc. The complaint alleged defamation,
unfair  competition,  and  tortuous  interference with contractual relations and
prospective  economic  advantage, claiming that the clients. The Company and the
defendant  employees  filed an answer denying the claims and all of the material
allegations  of the complaint, and asked for dismissal of the case as meritless.
Thus  far,  the  court has dismissed the defamation claims. Both the Company and
Maxim have made motions for summary judgment which are scheduled for argument on
March  14,  2003,  when  the Company will ask for dismissal of all the remaining
claims  and  Maxim  will  ask  for  injunctive  relief  and an award of at least
$120,000 in damages. If the court denies summary judgment the case will be tried
at  a  future  date.

     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.


                                       47
<PAGE>
ITEM  4.     SUBMISSION  OF  MATTERS  TO  A  VOTE  OF  SECURITY  HOLDERS.

     Our  annual  meeting  of  shareholders  was  held on December 11, 2002. The
meeting  approved  all  of  the  proposals  presented  to  the  meeting.

     The  following persons were elected directors of the Company until the next
annual  meeting  or  until  their  successors  are  elected  and  qualify:

                                          VOTES
NAMES                FOR                  AGAINST            ABSTAIN
------------------  ------------------------------------------------
Jerry Braun         2,170,994              15,400             23,850
------------------  ------------------------------------------------
Jacob Rosenberg     2,170,994              15,400             23,850
------------------  ------------------------------------------------
H. Gene Berger      2,170,994              15,400             23,850
------------------  ------------------------------------------------
Charles J. Pendola  2,170,994              15,400             23,850
------------------  ------------------------------------------------
Paul Stark          2,170,994              15,400             23,850
------------------  ------------------------------------------------
David C. Katz       2,170,994              15,400             23,850
------------------  ------------------------------------------------

     The resolution submitted to the shareholders to ratify, approve and confirm
the  adoption  of  the Stock for Stock Exchange Agreement dated October 11, 2001
and  amended  February  13, 2002, July 10, 2002, August 13, 2002 and October 25,
2002  between  the  Company  and  Bio Balance pursuant to which our wholly-owned
Delaware  subsidiary,  NYHC Acquisition, Inc., merged with and into Bio Balance,
was  adopted  by  the  following  vote:

Common Stock - For the resolution    - 2,181,244; Against - 24,700;
Abstain - 4,300
Preferred Stock - For the resolution -   497,660; Against - 0     ;
Abstain - 0

     The resolution submitted to the shareholders to ratify, approve and confirm
the  amendment  to  our  Certificate  of  Incorporation increasing by 50,000,000
shares  the  authorized  number  of  shares  of  Common Stock from 50,000,000 to
100,000,000  was  adopted  by  the  following  vote:

Common Stock - For the resolution    - 2,162,879; Against - 42,115;
Abstain - 5,250
Preferred Stock - For the resolution -   497,660; Against - 0     ;
Abstain - 0


     The resolution submitted to the shareholders to ratify, approve and confirm
the amendment of our Certificate of Incorporation increasing by 3,000,000 shares
the  authorized  number of shares of Preferred Stock from 2,000,000 to 5,000,000
was  adopted  by  the  following  vote:

Common Stock - For the resolution    - 2,153,279; Against - 51,715;
Abstain - 5,250
Preferred Stock - For the resolution -   497,660; Against - 0     ;
Abstain - 0


                                       48
<PAGE>
     The resolution submitted to the shareholders to ratify, approve and confirm
the  amendment  to  our Certificate of Incorporation to effect a one for one and
one-half  (1:1.5)  reverse  stock  split of the issued and outstanding shares of
Common Stock was adopted by the following vote:

Common Stock - For the resolution    - 2,151,729; Against - 53,265;
Abstain - 5,250
Preferred Stock - For the resolution -   497,660; Against - 0     ;
Abstain - 0

     The resolution submitted to the shareholders to ratify, approve and confirm
the  amendment  of  our  Stock  Option  Plan  authorizing  the reservation of an
additional  3,230,000  shares  of  $.01  par  value  common  stock,  and thereby
increasing  the  number  of shares of common stock available for issuance of new
options  under  the  plan from a total of 91,000 shares to 3,321,000 shares, was
adopted  by  the  following  vote:

Common Stock - For the resolution - 2,109,894; Against - 95,100; Abstain - 5,250

     The resolution submitted to the shareholders to ratify, approve and confirm
the  "change  of  control"  provisions  that  were  included  in  the new senior
executive  employment  agreements  which  our Compensation Committee approved on
November  12,  1999  was  adopted  by  the  following  vote:

Common  Stock  -  For  the  resolution  - 2,115,144; Against - 73,900;
Abstain - 21,000

     The  resolution  submitted  to  the  shareholders  ratifying  the selection
WeiserLLP  as  our  independent auditors for the fiscal year ending December 31,
2002  was  adopted  by  the  following  vote:

Common  Stock  -  For  the  resolution  - 3,121,718; Against - 23,200;
Abstain - 16,600

                                     PART II

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

     Our  Common  Stock  is  quoted  on  the  National Association of Securities
Dealers  Automated  Quotation System ("NASDAQ") SmallCap Market and is traded on
the Boston Stock Exchange.  The following table sets forth the range of the last
price  on  NASDAQ for our Common Stock for the periods indicated.  Quotations do
not necessarily present actual transactions and do not reflect related mark-ups,
mark-downs  or  commissions:

<TABLE>
<CAPTION>
Fiscal 2001     High    Low
--------------  -----  -----
<S>             <C>    <C>

First Quarter   2.938  0.594
Second Quarter   3.19   2.05
Third Quarter    5.25   2.70
Fourth Quarter   5.35   3.05


                                       49
<PAGE>
Fiscal 2002     High   Low
--------------  -----  -----

First Quarter    3.95   2.99
Second Quarter   3.90   3.25
Third Quarter    3.65   3.28
Fourth Quarter   3.68   3.17
</TABLE>

     STOCK PERFORMANCE GRAPH

     The following table depicts the cumulative total return on New York Health
Care's common stock compared to the cumulative total return for the Nasdaq
Composite-US Index and the Nasdaq Health Index. The table assumes the investment
of $100 on December 24, 1996, when the New York Health Care common stock was
first traded in a public market.


                               [GRAPHIC OMITED]


<TABLE>
<CAPTION>
                       Base Price
                        December   December  December  December  December  December  December
                        24, 1996   31, 1997  31, 1998  31, 1999  31, 2000  31, 2001  31, 2002
                       ----------  --------  --------  --------  --------  --------  --------
<S>                    <C>         <C>       <C>       <C>       <C>       <C>       <C>
New York Health Care       100.00     62.50     25.00     43.75      7.00     84.00     80.25
Nasdaq Health Index        100.00    105.45     89.39     72.87     99.91    106.71     92.44
Nasdaq Composite - US      100.00    125.64    198.56    327.87    197.27    157.06    107.70
</TABLE>



     The comparisons in the table and in the graph above are required by the
rules of the Securities and Exchange Commission and are not intended to forecast
or be indicative of possible future performance of New York Health Care common
stock.


<PAGE>
HOLDERS

     At  February  28,  2003,  we  had  294  holders of record and more than 619
beneficial  holders  of  our  Common Stock.  On February 28, 2003, the last sale
price  of  the shares of Common Stock as reported by Nasdaq was $3.60 per share.

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  pertinent  facts.  Therefore,  there  can  be  no assurance that any
dividends  on  the  Common  Stock  will  be  paid  in  the  future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

     The following table gives information about the Company's common stock that
may  be  issued upon exercise of (1) options granted pursuant to the option plan
and  (2)  options  or warrants granted pursuant to equity compensation plans not
approved  by  security  holders  as  of  December  31,  2002.

<TABLE>
<CAPTION>
                                                                  NUMBER OF SECURITIES
                     NUMBER OF SECURITIES   WEIGHTED-AVERAGE    REMAINING AVAILABLE FOR
                      TO BE ISSUED UPON    EXERCISE PRICE OF     FUTURE ISSUANCE UNDER
                         EXERCISE OF          OUTSTANDING      EQUITY COMPENSATION PLANS
                     OUTSTANDING OPTIONS,  OPTIONS, WARRANTS     (EXCLUDING SECURITIES
PLAN CATEGORY        WARRANTS AND RIGHTS       AND RIGHTS       REFLECTED IN COLUMN (a))
-------------------  --------------------  ------------------  --------------------------
<S>                  <C>                   <C>                 <C>
Equity compensation            1,036,833              $  1.41                   1,036,833
plans approved by
security holders

Equity compensation
plans not approved
by security holders
     Total                     1,036,833              $  1.41                   1,036,833
</TABLE>


ITEM  6:     SELECTED  FINANCIAL  DATA


                                       50
<PAGE>
<TABLE>
<CAPTION>
              NEW YORK HEALTH CARE HISTORICAL FINANCIAL INFORMATION


                                                 AS OF AND FOR THE YEARS ENDED DECEMBER 31,
                                      ---------------------------------------------------------------
                                         2002        2001         2000         1999          1998
                                      ----------  -----------  -----------  ------------  -----------
<S>                                   <C>         <C>          <C>          <C>           <C>
Total revenues                        38,880,477  $34,320,710  $29,383,547  $23,772,346   $20,223,674
Net income (loss)                        378,368      352,886  (1,195,481)    (236,439)       341,152
Basic earnings (loss) per share             0.15         0.14       (0.49)       (0.10)          0.14
Diluted earnings (loss) per share           0.10         0.10       (0.49)       (0.10)          0.13
Current assets                         9,379,751    6,700,825    6,811,437    6,860,679     6,433,380
Total assets                          11,136,437    8,443,601    8,699,903   10,333,152     9,988,447
Current liabilities                    6,529,715    4,209,565    4,823,884    5,100,670     4,097,179
Long-term liabilities, net of
  current portion                             0        18,281       34,081      195,063       678,038
Shareholders' equity                   4,606,722    4,215,755    3,841,938    5,037,419     5,213,230
Book value per share                        1.86         1.72         1.57         2.05          2.09
Dividends per share                            -            -            -            -             -

Shares used in computing earnings
(loss) per common share:
     Basic                             2,471,381    2,454,179    2,445,820    2,456,457     2,493,242
     Diluted                           3,624,107    3,549,303    2,445,820    2,456,457     2,622,119
</TABLE>


The above statement gives retroactive effect of a 1 for 1.5 reverse stock split
that was effectuated on January 2, 2003




                                       51
<PAGE>
ITEM 7:     MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

RESULTS  OF  OPERATIONS - YEAR ENDED DECEMBER 31, 2002 COMPARED WITH YEARS ENDED
DECEMBER  31,  2001  AND  2000

     Revenues  in  2002  increased  to  $38,880,000 from $34,321,000 in 2001 and
$29,384,000  in  2000.  Growth  rates  were  13%  and  17%  in  2002  and  2001,
respectively.  The  increase  for  both years is the result of the New York City
(HRA)  contract's  increased caseload, offset by a new reimbursement methodology
which  limits the current and future revenue and profitability of this contract,
and  an  increase  in  our  New  Jersey  caseload.

     Cost of professional care of patients in 2002 increased to $30,228,000 from
$25,711,000  in  2001  and $21,698,000 in 2000, an increase of 18% for both 2002
and  2001.  The  increased costs were caused primarily by hiring additional home
health care personnel to service the increased caseload of the HRA contract. The
cost  of  professional  care  of  patients expressed as a percentage of revenues
increased  to  77.7%  in 2002 from 74.9% in 2001 and 73.8% in 2000. The increase
resulted  primarily  from  a change in the reimbursement methodology of the city
contract.  New guidelines changed the reimbursement rate for SG&A from an hourly
amount  to a fixed amount per client. Our cost of professional care fees remains
unchanged  as  we  continue  to  pay  on  an  hourly  basis.

     Selling,  general  and  administrative  expenses  in  2002  increased  to
$7,867,000  from  $7,198,000  in  2001 and $6,478,000 in 2000. While part of the
increase  in  2002 as compared to 2001 is attributable to the acquisition of Bio
Balance,  the remaining increased cost, as well as the increase in 2001 compared
to  2000, are steady increases in these types of expenses proportionate with the
increase  in  revenue.  Selling,  general  and  administrative  expenses  as  a
percentage  of  revenue  were 20%, 21% and 22% for the years 2002, 2001 and 2000
respectively.

     Interest expense was approximately $8,000 for the year 2002, as compared to
$130,000 and $322,000 for the years 2001 and 2000, respectively. The significant
decrease  has resulted primarily as a result of decreased borrowing. The company
has  cash on hand and is not currently using  its line of credit, as a result of
improved collection efforts and an increase in our HRA contract. However,  there
can  be  no  assurance  that  this  will  continue.

     The provision for federal, state and local taxes were $178,000 and $150,000
for  the  years  ended  2002  and  2001,  respectively, and were provided at the
effective  tax  rates  expected  to  be  applicable for the respective year. The
income  tax  benefit  of  $35,000  for  the  year  2000  is  attributable to the
impairment  of  intangible  assets.

     In  view  of  the  foregoing,  net  income  for  the  year 2002 amounted to
approximately  $378,000, as compared to approximately $353,000 in net income for
the year 2001 and an approximate net loss of $1,195,000 for the year 2000. While
income  for 2002 and 2001 was a result of increased sales, the loss for 2000 was
attributable  to  the  write-off  of $1,487,000 for the impairment of intangible
assets.  The  $378,000  in  net  income  for  the  year  2002  would  have  been
approximately  $327,000  had  the  Company  not initiated SFAS 142, which became
effective for the Company January 1, 2002 and requires that goodwill and certain
intangible  assets  with  indefinite  useful  lives  no longer be amortized, but
instead  be tested for impairment. The Company has performed its impairment test
during  the  second quarter ended June 30, 2002 and believes that the fair value


                                       52
<PAGE>
of  the  reporting  units  exceeds the carrying value as of January 1, 2002, and
that  goodwill  has  not been impaired. If not for the one time write-off in the
year  2000  of  approximately $1,487,000 of intangible assets, the Company would
have  had  net  income  of  approximately  $292,000  for  the  year  2000.

     The  impairment  of  intangible assets was due to a decrease in revenue and
projected  reductions  in revenue from the operations of certain offices located
in New Jersey.  The Company evaluated the ongoing value of its intangible assets
associated with those acquisitions (which were made by the Company from December
1997  through  February  1999) and based on those evaluations, at June 30, 2000,
the  Company  had  determined  that  intangible assets with a carrying amount of
$1,688,000 were impaired.  Accordingly, such amount was reduced by $1,487,000 to
their  estimated  fair  value by a charge to operations.  The goodwill write-off
represented  a  per-share  net  loss  of $.41 both on a basic and diluted basis.
Estimated fair value was based on the value associated with current purchases of
similar companies in the home health care industry.  There was no write-down for
the  impairment  of  intangible  assets  necessary  for the years 2002 and 2001.

     Cash  and  due  from  lending  institution  at  December 31, 2002 increased
approximately $2,694,000 from December 31, 2001. The increase is the result of a
more  aggressive  collection  effort  and  a  rate increase in our New York City
contract.  During  the  same  period  of time the amount due to HRA increased by
approximately  $1,363,000.  The  increase  resulted  from  a  change  in  the
reimbursement  methodology of the City contract. New guidelines set a fixed rate
for  SG&A  per  client.  While we continue to be reimbursed at the full contract
rate,  any  amounts  over  these  limits  must  be  paid  back  to  the  city.

LIQUIDITY  AND  CAPITAL  RESOURCES

     The  Company's  liquidity  and  capital  resources  are  generated  through
internally  generated funds, cash on hand and amount available under its line of
credit.

     On  November  27,  2002,  the Company and its wholly-owned subsidiary, NYHC
Newco  Paxxon,  Inc.,  entered  into  an  agreement  amending  and extending the
November 28, 2000 agreement with G.E. Capital/Heller Healthcare Finance, Inc., a
Maryland  corporation  ("G.E.Capital/Heller  Finance"),  providing a  $4,000,000
revolving  credit  loan  to  the  Company.  The  credit  line  is secured by the
Company's  accounts  receivable,  contract rights, intellectual property rights,
inventory  and  equipment.  The  credit  facility  may  be used only for working
capital and other costs arising in the ordinary course of business.  The Company
is  permitted  to  maintain  outstanding borrowings to the extent of a borrowing
base  of  up  to 85% of "qualified accounts receivable."  Heller Finance has the
right  to  reduce  the  borrowing base by applying a liquidity factor percentage
based  upon  a  recent collection history formula.  Currently the application of
that  formula  results  in 97% of qualified accounts being part of the borrowing
base.  The  Heller  Finance revolving credit line is for a term of two years and
bears  interest  at  the  prime  rate  charged  by CitiBank, N.A.  plus 1.5% and
provides  for  monthly  payments  of  interest on the outstanding balance on the
basis  of  the  actual  number  of  days  elapsed over a year of 360 days. As of
December  31,  2002  the  amount  available  to  borrow based on the formula was
$3,794,000.  The  only  restrictive covenant is that the Company has a net worth
greater  then  $500,000.  The  Company  utilizes the line of credit from time to
time,  and  at  the  present  time  there  is  no  balance  outstanding.


                                       53
<PAGE>
     Cash  provided  by operations for the year 2002 was $2,863,000, as compared
to  $2,976,000  for  the  year  2001 and $1,194,000 for the year 2000. While the
change  in the cash position from 2002 to 2001 is insignificant, the change from
2001  to  2000  is  attributable  in large part to the increase in net income, a
decrease in accounts receivable, an increase in accounts payable, an increase in
the  due to HRA, and an increase in income taxes payable offset by a decrease in
the  impairment  of  good  will  and  a  decrease  in  accrued  payroll.

     Net  cash  used  in  investing activities increased in 2002 by $167,000, as
compared  to  2001  due  to  the acquisition of fixed assets and the purchase of
intangible  assets in connection with an acquisition of a new office facility in
New  Jersey.  Net  cash  used  in investing activities in 2001, when compared to
2000,  decreased  by  $18,000 due to a decrease in the purchase of fixed assets.
Net  cash  used  in  financing  activities in 2002 decreased by $1,814,000, when
compared to 2001, primarily because of the reduction in repayment of our line of
credit  and  long-term  debt.  Net  cash  increased  when comparing 2001 to 2000
primarily  because of repayment of our line of credit and reduction of long term
debt.

     As  of  December  31, 2002, approximately $5,376,000 of the Company's total
assets  consisted  of  account  receivable  from  clients  who are reimbursed by
third-party  payers,  compared  to  $5,503,000 and $6,621,000 as of December 31,
2001  and  2000,  respectively.  These account receivable numbers expressed as a
percentage  of  total  assets  are 48%, 65% and 76% for the years 2002, 2001 and
2000,  respectively.  The  steady  decrease  is  the  direct  result  of  a more
aggressive collection effort and an increase in our HRA business, which has more
favorable  payment  terms.

     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, 2002 the Company's DSO was
54  compared  to  61  and  84  for  the  years ended December 31, 2001 and 2000,
respectively.  The  improvement  in  DSO  is the net effect of combining the New
Jersey  DSO and the Home Attendant program DSO which have more favorable payment
terms  with  our  New  York's  DSO.

     As a result of the change in control resulting from the Bio Balance Merger,
the  Company  expects  to record a liability of $1,900,000 comprised of payments
due to senior executives of the Company under the "change in control" provisions
of  their  employment  agreements.  The  payments are due on demand. The Company
expects  to make the payments out of funds available from operations or from the
Company's line of credit. As of the date of this report, no demand has been made
for  the  payments.

CRITICAL  ACCOUNTING  POLICIES

     The  Company's  discussion  and  analysis  of  its  financial condition and
results  of  operations  are  based  upon its consolidated financial statements,
which  have  been  prepared  in  accordance with accounting principles generally
accepted  in  the  United  States. The preparation of these financial statements
requires  the  Company  to make estimates and judgments that affect the reported
amounts  of assets, liabilities, revenues and expenses and related disclosure of
contingent  assets  and liabilities. On an on-going basis, the Company evaluates
its  estimates,  including,  but  not limited to, those estimates related to its
allowance  for possible losses, asset impairments, income taxes, commitments and
contingencies and third party payor liabilities. The Company bases its estimates
on  historical  experience and on various other assumptions that are believed to
be  reasonable  under the circumstances, the results of which form the basis for
making  judgments  about  the  carrying values of assets and liabilities. Actual
results  may  differ  from  these  estimates  under  different  assumptions  or
conditions.  The  Company  believes  the  accounting  policies  set forth in the
consolidated  financial statements are those policies that are most important to
the  presentation  of  its  financial  statements  and such policies may require
subjective  and  complex  judgments  on  the  part  of  management.

BIO  BALANCE  MERGER

     On  January  2,  2003, the Company completed the acquisition of Bio Balance
pursuant  to  the Merger of a wholly-owned subsidiary with and into Bio Balance.
As  a  result  of the Merger, future operating results and financial position of
the  Company  will  be  materially  impacted  by  Bio  Balance.

     Results  of  Operations  -  Bio  Balance  was incorporated in 2001 and is a
specialty  Pharma/Medical  Food  Company devoted to the discovery, manufacturing
and  marketing  of probiotic agents for therapy of gastrointestinal diseases and
disorders  in  animals  and humans, including IBS and chronic diarrhea. From its
inception,  Bio  Balance  has  been  a  development stage company. It has had no
revenues  since  inception  and  does not foresee any revenues form sales of its
products  in  the foreseeable future. Bio Balance's efforts since inception have
been  focused  on  acquiring  its  technology,  raising  capital,  building  its
management  and medical advisory teams and consummating its merger with New York
Health  Care.


                                       54
<PAGE>
     In  July  2001, Bio Balance acquired all the assets it uses in its business
from  unaffiliated  parties  engaged in the research, development, marketing and
sales  of  probiotic  bacteria  and  other  technology for cash consideration of
$510,000  and  an  aggregate  of  990,000  shares.

     From  inception  to  March  1, 2003, Bio Balance obtained gross proceeds of
approximately  $6.8  million  from  private  placements  of  its  common  stock.

     For  the  period  May 21,2001 (inception) through December 31, 2001 and for
the  year  ended December 31, 2002, Bio Balance sustained net losses of $452,000
and  $1,400,000,  respectively.  These  losses  are  attributable to the lack of
revenues  and  the  costs  incurred  in  organizing  Bio Balance and undertaking
preliminary  activities  for  the  commencing  of  operations.  Bio  Balance
anticipates  that  it  will  continue  to  lose  money  during  2003.

     Plan  of  Operation  -  Bio  Balance  intends  to  comply  with  applicable
requirements  for  the introduction of its first product, PROBACTRIX(TM), to the
United  States  market  as a medical food.  Medical foods are not subject to the
FDA  regulatory  criteria  and market clearance standards applicable to "drugs".
Instead,  medical  foods  are  foods  for special dietary use.  As such, medical
foods may be marketed following a self-determination that the ingredients in the
product  are  lawful  for  the  intended  use (either approved food additives or
"generally  recognized  as  safe"  (GRAS)).  Bio  Balance  commenced  the  GRAS
determination  process in the spring of 2002 and presently expects completion of
that  process  in  2003.  Following  completion  of  GRAS  and  medical  food
determination, and assuming GRAS and medical food status is determined by expert
panels  convened  by  Bio  Balance,  Bio Balance intends to conduct at least two
clinical  trials  to  obtain statistically significant data to support marketing
efforts  before  commencing  marketing  of  PROBACTRIX(TM) in the United States.
Being  designated a medical food allows Bio Balance to make substantiated claims
relating to satisfying the distinctive requirements of specific gastrointestinal
diseases  and  disorders,  claims  more akin to those typically made for ethical
pharmaceuticals,  while being marketed to physicians and direct marketed or sold
through  retail  channels to patients who are under medical supervision and have
been  directed  to  purchase  the  product.

     Bio  Balance  also  plans  on  introducing  a  version  of its product as a
pharmaceutical drug and thereafter market the product in the United States.  FDA
approval  of the product as a pharmaceutical drug is a time consuming and costly
process.  Bio  Balance has not as yet commenced the FDA approval process and has
no  current  time  table  to  begin  that  process.

     Bio Balance's marketing and sales decisions and strategies will be dictated
primarily  by  the actions and reactions to its regulatory pathway.  Bio Balance
will  not  make  sales  and  marketing  decisions  until  it  has  satisfied the
applicable  requirement  for  medical  foods and completed clinical trials which
provide  statistically  significant  data  to  support the efficacy of its first
product, PROBACTRIX(TM).  Bio Balance's  marketing  strategy will include one or
more  of  the  following  approaches:

     Bio Balance currently has no sales, marketing or distribution capabilities.
In  order  to  commercialize  any  of  its  product  candidates,  it must either
initially  develop  sales,  marketing  and  distribution  capabilities  or  make
arrangements  with third parties to perform these services.  Bio Balance intends


                                       55
<PAGE>
to  sell, market and distribute some products directly and rely on relationships
with third parties to sell, market and distribute other products.  To market any
of  its  products directly, Bio Balance must develop a marketing and sales force
with  technical  expertise  and  with  supporting  distribution  capabilities.

     Bio  Balance  may  elect  to  market and sell its product by developing its
sales  force to call upon doctors specializing in the field of gastroenterology.
This will entail the development of a direct sales force in the U.S. and Canada.
Bio Balance believes that a relatively small sales force of fewer than 100 sales
representatives  could be used for these products, because prescribing decisions
will be made principally by one group of physicians, gastroenterologists. If Bio
Balance elects to direct market its products, it will begin hiring a sales force
as the regulatory pathway to market becomes more visible.  However, there can be
no  assurance  that  Bio  Balance  will develop a sales force with the necessary
technical  expertise  and  distribution  capabilities.

     Alternatively,  Bio Balance may elect to enter into a licensing arrangement
or  partnership  with  a company that already specializes in the sale of medical
foods and or prescription drugs directed to gastroenterologists.  Bio Balance is
evaluating  opportunities  to  partner  with  other  companies  to  develop  and
commercialize  its  product.  It  may  also explore an outright sale to a larger
well-established pharmaceutical company.  There can be no assurance that it will
be  successful in entering into any partnership, licensing or sale arrangements.

     Even  if  Bio  Balance decides to market and sell its product in the United
States,  it may decide to license foreign product rights to other pharmaceutical
companies  to  commercialize  the  product  abroad.  In  the  United States, Bio
Balance  does  not intend to enter into co-promotion arrangements or out-license
its  product  candidates until its product candidates are in the later stages of
development,  but  it  may  promote  its  product  candidates  through marketing
relationships  with  one  or  more  companies that have established distribution
systems  and  direct  sales  forces.  In  international  markets,  it intends to
initially  seek  strategic  relationships  to  market,  seek  and distribute its
product  candidates,  but  may  eventually  become  involved in direct sales and
marketing  activities  in  other  parts of the world.  There can be no assurance
that Bio Balance will be successful in establishing any marketing relationships.

     Bio  Balance  intends  to  pursue  continued  development  of  candidate
probiotics.  Using  proprietary  technology,  Bio  Balance hopes to make various
probiotic  agents  more  effective in various clinical GI tract disorders. It is
Bio  Balance's  intention  to  maintain  a  pipeline of new products by adding a
research  and  development  program,  employees  and consultants.  Bio Balance's
development  programs  will focus on unmet medical needs in the gastrointestinal
area  that  Bio Balance believes provide substantial commercial opportunity with
relatively limited competition.  As described above, Bio Balance's first product
is  PROBACTRIX(TM),  and  Bio Balance intends to develop additional products and
line extensions and also to pursue in-licensing opportunities to add breadth and
depth  to its research and development.  Bio Balance is presently evaluating new
formulations  and clinical uses for its product.  There can be no assurance that
Bio  Balance  will  be  successful in developing any other probiotics product or
even  in  establishing  a  research  and  development  program.

      Bio Balance will take a product-focused approach towards drug development.
The  key  elements  of  its  business  strategy  will  be  as  follows:


                                       56
<PAGE>
     --   Develop  a  probiotic  for  therapy of Inflammatory Bowel Disease. The
          existing  probiotic  approach  to  IBD  leaves  room  for  innovation,
          improvement  and  application IBD's. This product candidate is focused
          on  improving  the  balance  of  flora  within  the digestive tract to
          promote  gastrointestinal  health  and  the  removal  of  unfriendly
          bacteria,  by  presenting  more  of  the  GI tract to viable probiotic
          bacteria.

     --   Leverage  experienced  scientific  and  drug  development expertise to
          develop  other  probiotic  agents.  Bio  Balance  intends to establish
          relationships  with  experienced  developers  of  probiotic  agents to
          further  development  of  additional  probiotic  agents.  Dr.  Nelli
          Kelner-Padalka,  a member of Bio Balance's Medical Advisory Board with
          substantial  experience in the use of probiotics in the GI tract and a
          developer of Bio Balance, has previously developed six other probiotic
          substances  and  was decorated in the former USSR with the Inventor of
          the  USSR  state prize of Kirghizstan. In addition to having access to
          Dr.  Kelner's  expertise,  Bio Balance is involved in discussions with
          universities  in  Israel  and  other  individuals  with  experience in
          probiotic  development  with  a  view  to  entering into agreements to
          perform  probiotic research and development activities. To date, other
          than  Dr. Kelner's service on Bio Balance's Medical Advisory Board, no
          agreements have been entered into with any Universities or individuals
          to  perform  probiotics  research  and  development.

     --   Optimize clinical and regulatory strategies to shorten time to market.
          Bio  Balance  believes that by initially focusing on acute treatments,
          it  can  achieve  an  abbreviated development time, and faster time to
          market,  which  it  hopes  will  benefit patients with irritable bowel
          syndrome  and  disease.  Notwithstanding  its  objective  of  getting
          PROBACTRIX(TM)  approved  as  a  medical food, Bio Balance intends to,
          although  it  cannot  assure that it will be able to, perform clinical
          trials  to  rapidly assess effectiveness for well-defined endpoints in
          the  treatment  of  irritable  bowel  syndromes,  chronic diarrhea and
          infectious  disorders  of  the  GI  tract.

     --   Retain significant marketing rights to Bio Balance product candidates.
          Bio  Balance's  goal  is  to  retain  marketing  rights to its product
          candidates  for  as  long  as  it  is  commercially  advantageous.  By
          completing  as  much of the pre-clinical and clinical development work
          by  itself  as  is feasible, Bio Balance hopes to be able to negotiate
          more  favorable  terms  for  any  such  marketing  arrangements.

     Liquidity  and  Capital Resources - During 2001 and 2002, respectively, Bio
Balance  raised  a  total  of gross proceeds of $1,956,000 and $3,861,000 from a
series  of  private  placements.  In  January  2003,  in  conjunction  with  the
consummation  of  the  Merger,  Bio  raised  an  additional  $1,072,000 of gross
proceeds from the sale of common stock. As of December 31, 2002, Bio Balance had
cash  on  hand  of  approximately $2,725,000, all of which was available to fund
operations.  Bio Balance estimates that its capital requirements in 2003 will be
approximately  $3,300,000.  This  budget  assumes that Bio Balance will continue
along  the  Medical  Food Approval track with the FDA and will not seek approval
for  any  of  its products as an ethical drug. If such approval is required, Bio
Balance's  capital  requirements  would  be  much  greater,  and there can be no
assurance  that  such  additional  capital  would  be  available  to  it  or, if
available,  on  acceptable  terms.


                                       57
<PAGE>
POTENTIAL  REGULATORY  CHANGES

     There  has  been recent news reports concerning federal budget negotiations
regarding potential changes in the way the Government will reimburse home health
care  companies in the future, including the possibility of capitation While the
Company  is  not  currently  a  Medicare-Certified Home Health Agency subject to
these  changes,  most  of  the  Company's  referral  sources are and they may be
negatively impacted by this legislation which was adopted to control home health
care  costs.  While  it  is  still premature to discern what impact, if any, the
potential  changes  may  have  on  the  Company's  operations;  there  can be no
assurance that future legislation will not result in reduced reimbursement rates
from  referral  sources.

COMPANY  STRATEGY

     The  Company  continues  to  move  towards  its  objective  to  become  a
comprehensive  provider  of  efficient  and  high quality home health care to an
increased  share  of  expanding  markets.  The primary elements of the Company's
strategy to achieve this objective are geographic expansion of its branch office
network  by  investment  in  additional branch offices and by the acquisition of
other  home  health care companies, and by expansion of the services provided by
its  licensed professional nurses, principally in the areas of infusion therapy,
pediatrics  and maternal/child care.  The Company has concentrated its expansion
efforts  in  its  current market areas and the counties surrounding those market
areas.  In  addition  to  expansion  into  geographic  areas in proximity to the
Company's  current  branch  offices,  the  Company  generally seeks to enter and
expand into new metropolitan areas in the Northeast and Southeast regions of the
United  States which have large patient populations and, in particular, patients
traveling  between  these  regions.

     The  Company's  recent  acquisition of Bio Balance is a new direction in an
effort  to  make  a  difference  in  the health care industry.  Bio Balance is a
development  stage  company  which  has engaged in the research, development and
limited  marketing  in  Israel  of  a  "probiotic  technology"  product  for the
treatment  of  gastrointestinal  disorders in humans and farm animals, including
Irritable  Bowel  Syndrome  ("IBS")  and  chronic diarrhea, which is reported to
effect  up  to  40  million  Americans and over 10% of the population of Western
countries.  Pharmaceutical  companies  have  published  data  suggesting that an
effective treatment for IBS could have sales that exceed one billion dollars per
year.  The  Company's  strategy for the acquisition is to pursue the development
and  marketing  of  products  utilizing  this  technology  in  an  effort  to
significantly  improve  the Company's economic growth, as well as to participate
in  the  development  of  what  appears  to  be  a promising treatment for these
debilitating  disorders  that  effect  so  many  Americans.

ITEM 7A:  QUANTATIVE,  QUALITATIVE  OF  MARKET  RISK

     Not applicable.

ITEM 8.   FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY  DATA

     The  consolidated  financial  statements  of the Company, together with the
independent accountants report thereon of Weiser LLP, appears herein.  See Index
to  Financial  Statements  appearing  on  page 77.


                                       58
<PAGE>
ITEM 9.   CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON
          ACCOUNTING  AND  FINANCIAL  DISCLOSURE

     None.


                                    PART III

ITEM 10.  DIRECTORS  AND  EXECUTIVE  OFFICERS  OF  THE  REGISTRANT

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

Name                  Age                     Position
--------------------  ---  -----------------------------------------------
Jerry Braun            45  President, Chief Executive Officer and Director

Jacob Rosenberg        45  Vice President, Chief Operating Officer,
                           Chief Financial and Accounting Officer,
                           Secretary and Director

H. Gene Berger         62  Director

Charles J. Pendola     57  Director

Paul Stark             40  Director

David C. Katz          61  Director

     Jerry  Braun  has  been  the  President,  Chief Executive Officer and Chief
Operating  Officer  of  the  Company  since  its  inception  in  1983.

     Jacob  Rosenberg,  has  been  Secretary  and a Director since the Company's
inception in 1983, and Vice President and Chief Operating Officer since February
1995.  Jacob Rosenberg is currently acting as the Chief Financial and Accounting
Officer  for  the  Company.

     H.  Gene  Berger  has  been  a director of the Company since February 1998.
Since  1981  Mr.  Berger  has  been  the  president  of  Jay  Isle Associates, a
consulting firm to the health care industry.  From October 1991 to October 1997,
Mr.  Berger  was  employed  by Transworld Health Care, Inc., which is a regional
provider  of  alternate  site  health care services and products, in a number of
capacities  including  executive  vice  president,  president,  chief  operating
officer  and  chief  executive  officer.

     Charles  J. Pendola has been a director of the Company since February 1998.
Since June 2002, Mr. Pendola has been the Executive Vice President of Multiplan,
Inc.,  the  largest  preferred  provider organization in the United States. From
March 2000 to June 2002, Mr. Pendola has been the President of DLJ Managed Plans
Corporation,  a  division  of an investment banking firm; he is also Senior Vice
President  of  Black  Mountain  Management,  a  management consulting firm.  Mr.
Pendola  has  been an independent management consultant to various organizations
in  the  health  care industry since April 1997.  From August 1996 to March 1997


                                       59
<PAGE>
Mr.  Pendola  was  the  president  and  chief executive officer of First Medical
Corporation,  an international health care management firm providing services to
health  care  networks,  managed  care  organizations  and  independent  health
providers  in  the  United States and Europe.  From April 1989 to June 1996, Mr.
Pendola  was  the  president  and  chief  executive  officer of Preferred Health
Network, a not-for-profit corporation that managed a diversified group of health
care  providers  and  health  related  organizations  including  five acute care
hospitals  and  20  ambulatory  care centers.  Mr. Pendola is a certified public
accountant.

     Paul Stark has served as a Director of the Company since the Merger between
the  Company and Bio Balance in January 2003.  Mr. Stark has served as President
of  Bio  Balance  since  October  2001  and  as  a Director of Bio Balance since
inception.  Mr.  Stark  previously  served as Vice President of Bio Balance from
September 2001 to October 2001 and as Secretary of Bio Balance from inception to
October  2001.  Previously,  Mr.  Stark  was  the  managing partner of Waterview
Partners,  New  York,  NY,  a  company  providing strategic advice to public and
private  companies.  Before  joining  Waterview  Partners,  Mr. Stark was a vice
president  of  Regency  Investment  Partners,  New York, NY, money managers.  In
April  1997,  Mr.  Stark  joined  KSH  Investment  Group,  New  York,  NY,  a
broker-dealer,  as  a vice president of investments.  Mr. Stark also served as a
vice-president of Joseph Stevens & Company, Inc., the placement agent of the Bio
Balance  private  placement  of  its  common  stock, from February, 1996 through
March,  1997.  Mr.  Stark  is  a  graduate  of  Touro  College  (B.A.  1982).

     David  C.  Katz  has  served  as a Director of the Company since the Merger
between  the Company and Bio Balance in January 2003. Mr. Katz has been employed
by Petrecycle Pty., Ltd. (an Australian corporation), a company in the recycling
business, in technology sales since 1999. From 1998 to 1999 he was self-employed
as  a  consultant,  and  from 1989 to 1998 was the President and Chief Operating
Officer of Pure Tec Corp., a consumer products company. Mr. Katz has served as a
director  of  United  Rentals  North America, Inc., a public company, since July
2001.  Mr.  Katz  is  a  graduate of the Georgia Institute of Technology (B.A.E.
1963,  M.S.I.E.  1965,  Industrial  Engineering).

     Directors  hold  their  offices  until  the  next  annual  meeting  of  the
stockholders  and  thereafter  until their successors have been duly elected and
qualified.  Executive  officers  are  elected  by  the  Board of Directors on an
annual  basis  and  serve  at  the direction of the Board.  All of the executive
officers  devote  approximately 90% of their time to the business affairs of the
Company.  See  "Certain  Relationships  and  Related  Transactions."

KEY EMPLOYEES - BIO BALANCE

     Dr.  Robert  Hoerr,  MD,  Ph.D.  has  served  as  Director  of  Medical and
Regulatory Affairs of Bio Balance since February 2003.  Dr. Hoerr is responsible
for  oversight  of  medical and regulatory affairs of Bio Balance, including the
GRAS  and  medical  food determination processes.  Prior to joining Bio Balance,
Dr.  Hoerr  was  the  co-founder  and served, from inception in January 2002, as
President  and  Chief  Executive  Officer  of Nanomedica, Inc., a privately held
company  engaged  in drug formulation and gene delivery applications.  From 1993
to  January  2002,  Dr.  Hoerr  served  in a variety of executive positions with
GalaGen,  Inc.,  a biopharmaceutical and nutraceutical company, rising from Vice
President, Medical and Regulatory Affairs to President, Chief Operating Officer,
Chief  Technology Officer and, ultimately, Chief Executive Officer and Chairman.
Dr.  Hoerr  received his M.D. from Indiana University and a Ph.D. in Nutritional
Biochemistry  and  Metabolism  from  Massachusetts  Institute  of  Technology.


                                       60
<PAGE>
     Dr.  Eileen  Bostwick,  Ph.D.  has  served  as  Director  of  Research  and
Development of Bio Balance since February 2003.  Dr. Bostwick is responsible for
all  product  research  and  development  activities  of  Bio Balance as well as
development and implementation of manufacturing standards and procedures.  Prior
to joining Bio Balance, from 1992 to February 2002, Dr. Bostwick was employed by
GalaGen,  Inc.,  a biopharmaceutical and nutraceutical company, where she held a
variety  of regulatory, clinical and research project management positions.  Dr.
Bostwick  holds  a  Ph.D. in Animal Physiology from the University of Minnesota.

COMMITTEES AND ATTENDANCE OF THE BOARD OF DIRECTORS

     In order to facilitate the various functions of the Board of Directors, the
Board  has  created  a  standing  Audit  Committee  and  a standing Compensation
Committee.  The  Board  of Directors has no standing nominating committee or any
committee  performing  the  functions  of  such  committee.

     The  functions of the Company's Audit Committee are to review the Company's
financial  statements  with the Company's independent auditors; to determine the
effectiveness  of  the  audit  effort through regular periodic meetings with the
Company's  independent  auditors;  to  determine  through  discussion  with  the
Company's  independent auditors that no unreasonable restrictions were placed on
the  scope  or  implementation  of  their  examinations;  to  inquire  into  the
effectiveness  of  the Company's financial and accounting functions and internal
controls  through  discussions  with  the  Company's  independent  auditors  and
officers  of  the  Company;  to  recommend  to  the  full Board of Directors the
engagement  or  discharge  of  the Company's independent auditors; and to review
with  the independent auditors the plans and results of the auditing engagement.
The  members  of  the  Audit Committee are Mr. Pendola, and Mr. Berger. Based on
management's  assessment  and  the  standards established by Nasdaq, the Company
believes  that  each  of  the members of the Audit Committee is an "independent"
director  and  satisfies  the  definition  of  a  "financial  expert".

     The functions of the Company's Compensation Committee include reviewing the
existing  compensation  arrangements  with  officers and employees, periodically
reviewing  the  overall  compensation program of the Company and recommending to
the Board modifications of such program which, in the view of the development of
the  Company  and  its  business,  the  Committee  believes  are  appropriate,
recommending  to  the  full Board of Directors the compensation arrangements for
senior management and directors, and recommending to the full Board of Directors
the  adoption of compensation plans in which officers and directors are eligible
to  participate  and  granting  options  or other benefits under such plans. The
members of the Compensation Committee are Mr. Pendola, Mr. Berger and Mr. Braun.

     During the year ended December 31, 2002, the Board of Directors held three
formal meetings, the Audit Committee held 2 meetings and the Compensation
Committee held 2 meetings.  Each director attended at least 75% of the aggregate
of (i) the total number of meetings of the Board of Directors, plus (ii) the
total number of meetings held by all committees of the Board of Directors on
which the director served.

COMPLIANCE WITH SECTION 16(A) OF EXCHANGE ACT

     Under  the  securities  laws of the United States, the Company's directors,
its  executive  officers,  and  any persons holding more than ten percent of the


                                       61
<PAGE>
Company's  Common  Stock  are  required to report their initial ownership of the
Company's  Common  Stock  and  any  subsequent  changes in that ownership to the
Securities  and  Exchange Commission.  Specific due dates for these reports have
been established and the Company is required to disclose in this Proxy Statement
any  failure  to  file  by these dates during 2002.  Based solely on a review of
such  reports  and  written  statements of its directors, executive officers and
shareholders,  the  Company  believes  that  all of the filing requirements were
satisfied  on  a  timely  basis  in  2002.

ITEM 11.  EXECUTIVE COMPENSATION

     The  following  table  sets  forth, for the fiscal years ended December 31,
2000,  2001  and  2002,  the  cash  compensation paid by the Company, as well as
certain  other  compensation paid with respect to those years and months, to the
Chief  Executive  Officer and, to the extent applicable, each of the three other
most highly compensated executive officers of the Company whose total salary and
bonuses for 2002, in all capacities in which they served, exceeded $100,000 (the
"Named  Officers").

<TABLE>
<CAPTION>
                                         ANNUAL
                                     COMPENSATION                        LONG-TERM COMPENSATION
                               --------------------------             ----------------------------
NAME AND
PRINCIPAL                                                                AWARDS       SECURITIES    PAYOUTS
POSITION (1)                                            OTHER ANNUAL   RESTRICTED     UNDERLYING      LTIP      ALL OTHER
                                   SALARY     BONUS     COMPENSATION      STOCK                     PAYOUTS    COMPENSATION
                            YEAR     ($)       ($)          ($)        AWARDS ($)    OPTIONS/SARS     (#)          ($)
                            ------------------------------------------------------------------------------------------------
<S>                         <C>   <C>        <C>       <C>             <C>          <C>             <C>       <C>
Jerry Braun (1)             2000  $ 251,290  $      0  $   38,893 (1)               515,833 Shares
  President and Chief       2001  $ 256,710  $      0  $   45,111 (1)                                         $   50,000 (3)
  Executive Officer         2002  $ 325,200  $ 30,000  $   48,395 (1)                                         $  375,000 (4)
----------------------------------------------------------------------------------------------------------------------------
Jacob Rosenberg (2)         2000  $ 210,149  $      0  $   34,839 (2)               453,333 Shares
  Chief Operating Officer   2001  $ 213,252  $      0  $   45,145 (2)                                         $   50,000 (3)
  and Chief Financial       2002  $ 242,815  $ 26,000  $   50,582 (2)                                         $  375,000 (4)
  Officer
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Includes $25,720, $22,769 and $18,343 of medical insurance premiums paid on
     behalf  of  such individual for each of the years ended 2002, 2001 and 2000
     respectively,  $12,675,  $17,342  and  $15,550  for  automobile  and
     automobile-related  costs,  including insurance, incurred on behalf of such
     individual,  respectively,  for each of the years ended 2002, 2001 and 2000
     and $10,000 in expense allowance for year ended 2002 and $5,000 for each of
     the  fiscal  years  ended  2001  and  2000.
(2)  Includes $25,720, $22,769 and $18,343 of medical insurance premiums paid on
     behalf  of  such individual for each of the years ended 2002, 2001 and 2000
     respectively,  $14,862,  $17,376  and  $11,496  for  automobile  and
     automobile-related  costs,  including insurance, incurred on behalf of such
     individual,  respectively,  for each of the years ended 2002, 2001 and 2000
     and $10,000 for year ended 2002 and $5,000 in expense allowance for each of
     the  fiscal  years  ended  2001  and  2000.
(3)  This  compensation  was accrued in 2000 and paid in 2001. This compensation
     is  in  addition  to  the  10%  pre-tax  bonus.
(4)  This  compensation  was  accrued  in fiscal years 2001 and 2002 and paid in
     2002.  This  compensation  is  in  addition  to  the  10%  pre-tax  bonus.

COMPENSATION  OF  DIRECTORS

     Each  non-employee  director  of  the  Company  is paid a fee of $1,000 per
month,  plus  $1,000 for each Board meeting attended and $500 for each committee
meeting attended.  The Company also reimburses each director for all expenses of
attending  such  meetings.

     No additional compensation of any nature is paid to employee directors.


                                       62
<PAGE>
OPTION/SAR GRANTS IN 2002

     No options were granted to Named Officers during 2002.

STOCK OPTION EXERCISES AND YEAR END VALUES

<TABLE>
<CAPTION>
                                                     Number of
                                                    Securities         Value of
                                                    Underlying       Unexercised
                                                    Unexercised      In-the-Money
                                                  Options/SARs at  Options/SARs at
                                                  Fiscal Year-End  Fiscal Year-End
                 Shares Acquired                   Exercisable/      Exercisable/
Name               on Exercise    Value Realized   Unexercisable    Unexercisable
---------------  ---------------  --------------  ---------------  ----------------
<S>              <C>              <C>             <C>              <C>
Jerry Braun                                       62,500/0 Shares  $         20,000
                                                  36,666/0 Shares  $         87,355
                                                  36,666/0 Shares  $         78,280
                                                  23,333/0 Shares  $         79,635
                                                  23,333/0 Shares  $         76,415
                                                  33,333/0 Shares  $        126,290
                                                  33,333/0 Shares  $        123,165
                                                  66,666/0 Shares  $        271,330
                                                  66,666/0 Shares  $        266,330
                                                  66,666/0 Shares  $        261,930
                                                  66,666/0 Shares  $        256,330


Jacob Rosenberg                                   36,666/0 Shares  $         87,355
                                                  36,666/0 Shares  $         78,280
                                                  23,333/0 Shares  $         79,635
                                                  23,333/0 Shares  $         76,415
                                                  33,333/0 Shares  $        126,290
                                                  33,333/0 Shares  $        123,165
                                                  66,666/0 Shares  $        271,330
                                                  66,666/0 Shares  $        266,330
                                                  66,666/0 Shares  $        261,930
                                                  66,666/0 Shares  $        256,330
</TABLE>

     Other than the stock options described in the tables above, the Company has
not  issued  any  options  to  officers  and directors under the Option Plan, or
otherwise, except common stock purchase warrants issued to two outside directors
during  2000 and 2001. The Company does not have any other existing stock option
or  other  deferred  compensation plans, but may adopt such plans in the future.


                                       63
<PAGE>
EMPLOYMENT AGREEMENTS; CHANGE IN CONTROL ARRANGEMENTS

     On  November  10, 1999, the Company entered into employment agreements with
Jerry  Braun  and Jacob Rosenberg which were extended and modified by amendments
to  the  employment  agreements  dated  January 28, 2003 and expire December 26,
2009.

     Mr.  Braun's  amended  agreement  provides for his service as President and
Chief Executive Officer in consideration of (i) initial annual base compensation
of  $232,925;  (ii)  reimbursement  of  authorized business expenses incurred in
connection  with  the  conduct of the Company's business; (iii) participation in
the Company's Bonus Plan, 401 (k) Plan and Stock Option Plan; (iv) an automobile
reimbursement  allowance  of  $750 per month toward automobile leasing costs and
payment  of  reimbursement of automobile insurance and maintenance costs; (v) an
expense  allowance  of  $10,000 per year towards the cost of insurance and other
items  which  has been in effect since January 2002; (vi) 48 days of compensated
absences per year; and (vii) an annual increases in salary of 10% for each year.

     Mr.  Rosenberg's agreement has the same general terms and conditions as Mr.
Braun's,  except that he serves as Vice President, Secretary and Chief Operating
Officer,  and  the  initial  annual  base  compensation  is  $186,340.

     In  the  event of termination of the executive's service as a member of the
Board of Directors of the Company for any reason other than death, the executive
and  the  Company  will enter into a consulting agreement (the form of which was
filed  as  an exhibit to the Company's Form S-4 Registration Statement effective
November  1, 2002), commencing on the date of termination, whereby the executive
will  provide  consulting  services  to  the Company on an as-needed basis for a
period  of not less than five (5) years. As compensation for those services, the
executive will be granted an option for ten (10) years to acquire 500,000 shares
of the Company's common stock at a price per share equal to the closing price of
the  Company's  common  stock  on  the date of termination. The shares of common
stock underlying the option will be registered by the Company for sale in public
markets  no  later  than  ninety  (90)  days  after  termination.

     These  executive  employment agreements also provide additional benefits in
the  event  there  is  a  "change of control" of the Company, which is generally
defined as a merger or consolidation of the Company with another corporation, or
the sale of all or substantially all of its assets, or the acquisition of either
a  majority  of the Company's assets or its voting equity stock, or the power to
designate  a  majority of the Company's Board of Directors by persons other than
the  present  shareholders  of  the  Company.  In the event of such a "change of
control,"  the  executives'  unexercised  stock  options will become immediately
vested  and exercisable in full, they will each receive a lump-sum payment equal
to 2.99 times the average of their annual base salary and bonus for the previous
five  years  and  the  Company will pay the cost to either maintain the lease or
transfer  the  ownership  of  the  automobile for which the Company has paid the
leasing  costs  for  the  executive.  The  Company  has also agreed that, to the
extent  any  payments  received  by  an  executive from the Company subjects the
executive  to  an excise tax under Section 499 of the Internal Revenue Code, the
Company  will  make an additional payment to the executive so that net after-tax
compensation  is  not  reduced  by  the  excise  tax.  All  "change  of control"
compensation  is  limited, to the extent it may qualify as a "parachute payment"
under  Section 280G of the Internal Revenue Code, to the maximum amount that may


                                       65
<PAGE>
be  paid to that executive without any part of that compensation being deemed to
be an "excess parachute payment." That maximum amount is generally determined by
multiplying  the average of the executive's annual base salary and bonus for the
previous  five  years  by  a  factor  of  three.

     Mr.  Braun  and Mr. Rosenberg also participate, together with all employees
of  the  Company,  in a bonus plan pursuant to which 10% of the Company's annual
pre-tax net income is contributed to the bonus pool which is distributed to such
persons  and  in  such  amounts  as  decided  upon by the Company's Compensation
Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED  STOCKHOLDER  MATTERS.

     The  following table sets forth certain information regarding shares of the
Common  Stock  beneficially owned as of March 14, 2003 by (i) each person, known
to  the  Company,  who  beneficially owns more than 5% of the Common Stock, (ii)
each of the Company's directors and (iii) all officers and directors as a group:

<TABLE>
<CAPTION>
                                      Shares        Percentage
     Name and Address of           Beneficially      of Stock
     Beneficial Owner                Owned(l)     Outstanding(l)
     ----------------------------  -------------  --------------
<S>                                <C>            <C>
     Jerry Braun (2)                   1,163,759            .74%
     929 East 28th Street
     Brooklyn, NY  11210

     Jacob Rosenberg (3)                 727,130           2.98%
     932 East 29th Street
     Brooklyn, NY  11210

     H. Gene Berger (4)                   26,668              *
     11 Fenimore Drive
     Scotch Plains, NJ 07076

     Charles J. Pendola(5)                20,001              *
     18 Guild Court
     Plainview, NY 11803-3932

     Paul Stark (6)                       92,000              *
     175 Burton Lane
     Lawrence, NY 11559

     David C. Katz (7)                    24,000              *
     54 Tarn Road
     Morris Plains, NJ 07950

     Pinchas Stefansky (8)             2,024,000            .47%
     Hershey Holdings
     Leon House
     Secretary's Lane
     P.O. Box 450, Gibraltar


                                       66
<PAGE>
     Douglas Andrew Ryan (9)           1,800,000           7.53%
     Birizma Associates
     c/o Tallhurst Ltd.
     P.O. Box 795, Gibraltar

     Bernard Korolnick (10)            2,036,709           8.52%
     KPT Partners
     c/o Alton Management
     Splelhof 14A, Postach 536
     8750 Glarus, Switzerland

     Rivvi Rose (11)                   2,100,000            .79%
     Nekavim Investors
     1/1 Library Run
     P.O. Box 317, Gibraltar

     All officers and directors
     as a group (6 persons)(1)(2)
     (3)(4)(5)(6)(7)                   2,625,289            .17%
<FN>

     ---------------------------
     *  Less than one percent (1%).

(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.

(2)  Includes  a  total  of  515,833  shares issuable upon the exercise of stock
     options  granted  to  Mr.  Braun  and  147,594  Shares  issuable  upon  the
     conversion  of  shares  of  Class  A  Convertible  Preferred  Stock.

(3)  Includes  a  total  of  453,333  shares issuable upon the exercise of stock
     options  granted  to  Mr.  Rosenberg  and  73,797  Shares issuable upon the
     conversion  of  his  shares  of  Class  A  Convertible  Preferred  Stock.

(4)  Includes  26,668 shares issuable upon the exercise of common stock purchase
     warrants  granted  to  Mr.  Berger.

(5)  Includes  20,001  shares  issuable  upon  the  exercise  of  a common stock
     purchase  warrant  granted  to  Mr.  Pendola.


                                       67
<PAGE>
(6)  Includes  100,000  shares  issuable  upon  the  exercise  of a stock option
     granted  to  Mr.  Stark,  33,000  shares  owned  of  record  by Mr. Stark's
     children,  40,000  shares owned of record by Waterview Partners, a New York
     partnership of which Mr. Stark is the President, and 19,000 shares owned of
     record  by Gotham Asset Partners, a New York Partnership of which Mr. Stark
     is  a  50%  partner. Mr. Stark disclaims beneficial ownership of the 73,000
     shares  owned  of  record  by  his children and Waterview Partners, and the
     9,500  shares  owned  of  record  by  Gotham  Asset  Partners.

(7)  Includes 21,000 shares owned of record by Mr.  Katz's wife and 1,000 shares
     owned of record by his daughter.

(8)  All  shares are owned of record by Hershey Holdings, of which Mr. Stefansky
     holds  sole  voting  and  investment  power.

(9)  All  shares  are  owned  of record by Birizma Associates, of which Mr. Ryan
     holds  sole  voting  and  investment  power.

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

(11) All  shares  are  owned  of  record by Nekavim Investors, of which Ms. Rose
     holds  sole  voting  and  investment  power.
</TABLE>

Common  Stock

     The  Company  is  authorized  to  issue  up to 100,000,000 shares of Common
Stock,  $.01  par  value  each.  The holders of Common Stock are entitled to one
vote  for  each  share  held  of  record  on  all  matters  to  be  voted  on by
stockholders.  There  is  no  cumulative  voting with respect to the election of
directors  with  the  result  that the holders of more than 50% of the shares of
Common  Stock  can  elect all of the directors.  The holders of Common Stock are
entitled  to  receive  dividends when, and if declared by the Board of Directors
out  of  funds  legally  available  therefore.  In the event of the liquidation,
dissolution  or  winding  up  of  the  Company,  the holders of Common Stock are
entitled  to share ratably in all assets remaining available for distribution to
them  after  payment  of  liabilities and after provision has been made for each
class of stock, if any, having preference over the Common Stock, as such, having
no  conversion,  preemptive  or  other  subscription  rights,  and  there are no
redemption provisions applicable to the Common Stock.  The Company currently has
outstanding  23,918,974  shares  of  Common  Stock.

Preferred  Stock

     The  Board  of  Directors  of  the  Company  is  authorized  to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including the dividend rights,
dividend  rate, conversion rights, voting rights, terms of redemption (including
sinking  fund  provisions), redemption price or prices, liquidations preferences
and  the  number  of  shares constituting any series or the designations of such
series,  without  any  further  vote or action by the stockholders.  It would be
possible for the Board of Directors to issue shares of such preferred stock in a
manner  which  would  make  acquisition of control of the Company, other than as
approved  by  the  Board,  exceedingly  difficult.


                                       68
<PAGE>
     The  Company  currently  has outstanding 590,375 of its Class A Convertible
Preferred Stock, each share of which is convertible into 2/3 of one share of its
common  stock.

Transfer  Agent

     Continental  Stock  Transfer  &  Trust  Company, New York, New York, is the
transfer  agent  for  the  shares  of  Common  Stock.

Savings  and  Stock  Option  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 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.

Stock  Option  Plan

     In  March  1996, the Company's Board of Directors and stockholders approved
and  adopted  the  New  York  Health Care, Inc.  Performance Incentive Plan (the
"Option  Plan") providing for options to purchase up to 262,500 shares of Common
Stock  to  key  employees  of  the  Company.

     On  June  25, 1998, the Company's shareholders ratified an amendment to the
Option  Plan  authorizing  the  reservation  of  an additional 210,000 shares of
Common  Stock  for  issuance  under  that plan for each of two additional years,
resulting  in  a  total  of  682,500  shares  in  the  Option  Plan.

     On  July  28, 1999, the Company's shareholders ratified an amendment to the
Option Plan that each stock option granted under the plan, including unexercised
options  outstanding  on the date of the amendment, may be exercisable in either
one,  two  or  three  equal  annual  installments  at  the  discretion  of  the
Compensation  Committee.  The  amendment  also  provided  an  additional 350,000
shares  of common stock for issuance under the Option Plan after January 1, 2000
so  that the total number of shares which may be issued under the plan increased
from  682,500  to  1,032,500  shares.

On  December  18, 2000, the Company's shareholders further ratified an amendment
to  the  Option  Plan  to  provide  for  an  additional  450,000  shares  of the
Corporation's  $.01  par  value  common  stock for issuance under the plan after
January 1, 2001 so that the total number of shares which may be issued under the
plan  increased  from  1,032,500  to  1,482,500  shares.

     On  December  10,  2002,  the  Company's  shareholders  further ratified an
amendment  to  the  Option Plan to provide for an additional 3,230,000 shares of
the  Corporation's  $.01  par  value common stock for issuance under the plan so
that  the  total  number  of shares which may be issued under the plan increased
from  1,482,500  to  4,712,500  shares.


                                       69
<PAGE>
     To  date, options have been granted under the plan for a total of 1,707,500
shares.  The  Option  Plan is administered by a Compensation Committee appointed
by  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.

     The  exercise  price  of  any incentive stock option or nonqualified option
granted under the Option 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. In the
case  of  incentive  stock  options  granted  to holders of more than 10% of the
voting power of the Company, the exercise price may not be less than 110% of the
fair  market  value.

     Under  the  terms  of  the  Option  Plan,  the  aggregate fair market value
(determined  at  the time of grant) of shares issuable to any one recipient upon
exercise  of  incentive  stock options exercisable for the first time during any
one calendar year may not exceed $100,000. Options granted under the Option Plan
become  exercisable  in  whole or in part from time to time as determined by the
Committee,  but  in no event may a stock option granted in conjunction therewith
be  exercisable  prior  to  the expiration of six months from the date of grant,
unless the grantee dies or becomes disabled prior thereto. Stock options granted
under  the  Option  Plan have a maximum term of 10 years from the date of grant,
except  that with respect to incentive stock options granted to an employee who,
at  the  time  of the grant, is a holder of more than 10% of the voting power of
the  Company,  the  stock  option shall expire not more than five years from the
date of the grant. The option price 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  date  the  option  is  exercised  equal  to  the  option  price.

     If  a  grantee's  employment  by,  or provision of services to, the Company
shall  be  terminated, the Committee may, in its discretion, permit the exercise
of  stock options for a period not to exceed one year following such termination
of  employment  with  respect to incentive stock options and for a period not to
extend  beyond the expiration date with respect to non-qualified options, except
that no incentive stock option may be exercised after three months following the
grantee's  termination  of  employment,  unless  it is due to death or permanent
disability,  in  which case they may be exercised for a period of up to one year
following  such  termination.



ITEM 13.  CERTAIN  RELATIONSHIPS  AND  RELATED  TRANSACTIONS.

     None.


ITEM 14.  CONTROLS AND PROCEDURES

     As  required  by  Rule  13a-15  under  the Securities Exchange Act of 1934,
within  the 90 days prior to the filing date of this report, the Company carried
out  an  evaluation  of  the  effectiveness  of  the design and operation of the


                                       72
<PAGE>
company's  disclosure  controls  and procedures. This evaluation was carried out
under  the  supervision  and with the participation of the Company's management,
including  the  Company's  President  and  Chief Executive Officer, and the Vice
President  and  Chief Operating Officer, Chief Financial and Accounting Officer.
Based upon that evaluation, the Company's President and Chief Executive Officer,
and  the  Vice  President  and  Chief  Operating  Officer,  Chief  Financial and
Accounting  Officer,  have  concluded that the Company's disclosure controls and
procedures  are  effective  in  timely  alerting  them  to  material information
relating  to  the  Company required to be included in the company's periodic SEC
filings.

     Disclosure  controls  and procedures are controls and other procedures that
are  designed  to  ensure  that  information required to be disclosed in Company
reports  filed  or  submitted  under  the  Exchange  Act is recorded, processed,
summarized  and reported, within the time periods specified in the SEC rules and
forms.  Disclosure controls and procedures include, without limitation, controls
and  procedures  designed to ensure that information required to be disclosed in
company  reports filed under the Exchange Act is accumulated and communicated to
management,  including  the Company's President and Chief Executive Officer, and
the  Vice  President and Chief Operating Officer, Chief Financial and Accounting
Officer,  as  appropriate,  to  allow  timely  decisions  regarding  required
disclosures.

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

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

     (1)  Consolidated  Financial  Statements:  See  Index  to  Financial
Statements  on page 77 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                   S-1

     (3)  Exhibits

<TABLE>
<CAPTION>
Exhibit
 Number   Description of Exhibit
--------  ----------------------
<C>       <S>

3.1       Certificate of Incorporation of the Company.(1)
3.2       Restated Certificate of Incorporation of the Company.(1)
3.3       Certificate of Correction of Restated Certificate of Incorporation of New York
          Health Care, Inc.(1)
3.4       Amendment to the Certificate of Incorporation filed October 17, 1996.(1)
3.5       By-laws of the Company.(1)
3.6       Amendment to the Certificate of Incorporation of the Company filed December 4,
          1996.(1)
3.7       Certificate of Designations, Rights and Preferences of New York Health Care,
          Inc. Class A Convertible Preferred Stock.(5)
4.1       Form of certificate evidencing shares of Common Stock.(1)


                                       73
<PAGE>
4.2       Underwriter's Warrant Agreement and Form of Underwriter's Warrant.(1)
10.1      Purchase and Sale Agreement by and between the Company, National Medical
          Homecare, Inc., Jerry Braun and Sam Soroka dated March 18, 1988.(1)
10.2      Lease for 105 Stevens Avenue, White Plains, New York by and between the
          Company and Vincent Rippa as receiver dated October 30, 1992.(1)
10.3      Lease for 175 Fulton Avenue, Suite 30IA, Hempstead, New York by and between
          and the Company and Hempstead Associates Limited Partnership dated July 2,
          1993.(1)
10.4      Deed for 1667 Flatbush Avenue, Brooklyn, New York from Tiara Realty Co. to
          the Company dated April 22, 1994.(1)
10.5      Agreement between Jerry Braun, Jacob Rosenberg, Samson Soroka, Hirsch
          Chitrik, Sid Borenstein and the Company dated March 31, 1988.(1)
10.6      Lease for 49 South Main Street, Spring Valley, New York by and between the
          Company and Joffe Management dated November 1, 1994.(1)
10.7      Agreement for Provisions of Home Health Aide and Personal Care Worker
          Services by and between the Company and Kingsbridge Heights Health
          Facilities Long Term Home Health Care Program dated November 2,
          1994.(1)
10.8      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.(1)
10.9      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.(1)
10.10     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.(1)
10.11     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.(1)
10.12     Lease Renewal for 45 Grand Street, Newburgh, New York by and between the
          Company and Educational and Charitable Foundation of Eastern Orange
          County, Inc. dated July 12, 1995.(1)
10.13     Lease for 91-31 Queens Boulevard, Elmhurst, New York by and between the
          Company and Expressway Realty Company dated September 15, 1995.(1)
10.14     Settlement Agreement and General Release by and between the Company and
          Samson Soroka dated September 28, 1995.(1)
10.15     Personal Care Aide Agreement by and between the Company and Nassau County
          Department of Social Services dated October 18, 1995.(1)
10.16     Lease for 1667 Flatbush Avenue, Brooklyn, New York by and between the
          Company and 1667 Flatbush Avenue LLC dated November 1, 1995.(1)
10.17     State of New York Department of Health Office 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.(1)
10.18     Home Health Agency Agreement by and between the Company and the Center
          for Nursing and Rehabilitation dated January 1, 1996.(1)
10.19     Homemaker and Personal Care Agreements by and between the Company and the
          County of Rockland Department of Social Services dated January 1,
          1996.(1)
10.20     Home Health Aide/ Personal Care Worker Services Agreement by and between
          the Company and Beth Abraham Hospital dated January 12, 1996.(1)


                                       74
<PAGE>




                                       75
<PAGE>
10.50*++  Amended Performance Incentive Plan (Stock Option Plan) of the
          Company.
10.51*++  Amendment to Employment Agreement by and between the Company and
          Jerry Braun dated January 28, 2003.
10.52*++  Amendment to Employment Agreement by and between the Company and
          Jacob Rosenberg dated January 28, 2003.
23.1      Consent of Weiser LLP Independent Public Accountants.
99.1      Certification of Jerry Braun pursuant to the Sarbanes-Oxley Act of 2002.
99.2      Certification of Jacob Rosenberg pursuant to the Sarbanes-Oxley Act of 2002.
<FN>

------------------------------
*    Filed  herewith.
++   Compensation  plan.
(1)   Incorporated  by  reference  to  Exhibits  filed  as part of the Company's
      Registration Statement on Form SB-2 under S.E.C. File No. 333-08152, which
      was  declared  effective  on  December  20,  1996.
(2)   Incorporated  by  reference to Exhibit filed as part of the Company's Form
      8-K  report  with  an  event  date  of  December  8,  1997.
(3)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      8-K  report  with  an  event  date  of  February  8,  1998.
(4)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      10-KSB  report  for  the  year  ended  December  31,  1997.
(5)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      10-QSB  report  for  the  quarter  ended  June  30,  1998.
(6)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      10-QSB  Report  for  the  quarter  ended  June  30,  1999.
(7)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      10-QSB  Report  for  the  quarter  ended  September  30,  1999.
(8)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      8-K  Report  Filed  December  8,  2000.
(9)   Incorporated  by reference to Exhibits filed as part of the Company's Form
      8-K  Report  Filed  November  6,  2001.
(10)  Incorporated  by reference to Exhibits filed as part of the Company's Form
      S-4  preliminary  registration  statement  filed  March  27,  2002.
(11)  Incorporated  by reference to Exhibits filed as part of the Company's Form
      8-K  Report  dated  November  27,  2002.
</TABLE>

     The  Company  will  furnish  a  copy  of any exhibit described above to any
beneficial  holder of its securities upon receipt of a written request, provided
that  the  holder  pays  to the Company a fee compensating it for its reasonable
expenses  in  furnishing  the  exhibits  requested.


                                       76
<PAGE>
(b)  Reports  on  Form  8-K.

     On  December 4, 2002, the Company filed a report on Form 8-K dated November
     27,  2002  that  discussed, under Item 5, amendment of certain of the terms
     and  conditions  of  its  line  of  credit.


                                       77
<PAGE>


                           NEW YORK HEALTH CARE, INC.
                                 AND SUBSIDIARY

                        CONSOLIDATED FINANCIAL STATEMENTS

                               FOR THE YEARS ENDED
                        DECEMBER 31, 2002, 2001 AND 2000




<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


NEW YORK HEALTH CARE, INC.:

Consolidated Financial Statements:

     Independent Auditors' Report                                        F-1

     Consolidated Balance Sheets at December 31, 2002 and 2001           F-2

     Consolidated Statements of Operations for the Years Ended
          December 31, 2002, 2001 and 2000                               F-3

     Consolidated Statements of Shareholders' Equity for the Years
          Ended December 31, 2002, 2001 and 2000                         F-4

     Consolidated Statements of Cash Flows for the Years Ended
          December 31, 2002, 2001 and 2000                               F-5

     Notes to Consolidated Financial Statements                       F-6 - F-27

Financial Statement Schedule:
     Schedule II - Valuation and Qualifying Accounts                     S-1


<PAGE>
                          INDEPENDENT AUDITORS' REPORT
                          ----------------------------



To the Board of Directors
New York Health Care, Inc.

We  have audited the accompanying consolidated balance sheets of New York Health
Care,  Inc. and Subsidiary (the "Corporation") as of December 31, 2002 and 2001,
the related consolidated statements of operations, shareholders' equity and cash
flows, and  financial  statement Schedule II (Valuation and Qualifying Accounts)
for  each  of  the  three  years  in  the  period ended December 31, 2002. These
financial  statements and financial statement schedule are the responsibility of
the  Corporation's  management.  Our  responsibility is to express an opinion on
these financial statements and financial statement schedule based on our audits.

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

In  our  opinion,  the financial statements referred to above present fairly, in
all  material respects, the financial position of New York Health Care, Inc. and
Subsidiary as of December 31, 2002 and 2001, and the results of their operations
and  their  cash  flows for each of the three years in the period ended December
31,  2002  in  conformity  with  accounting principles generally accepted in the
United  States  of America. In addition, in our opinion, the financial statement
schedule  referred  to above, when considered in relation to the basic financial
statements  taken  as  a  whole,  presents fairly, in all material respects, the
information  required  to  be  included  therein.

As  discussed  in Note 1 to the consolidated financial statements, on January 1,
2002,  the  Corporation  adopted  the  provisions  of  Statement  of  Financial
Accounting Standards No. 142, "Goodwill and Other Intangible Assets".



                                   Weiser LLP
                                   Certified Public Accountants


New York, NY
February  7,  2003,  except  for  the ninth paragraph of Note 11, which is as of
March 7, 2003


                                      F-1
<PAGE>
<TABLE>
<CAPTION>
                             NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
                                    CONSOLIDATED BALANCE SHEETS
                                            A S S E T S


                                                                                December 31,
                                                                         -------------------------
                                                                             2002         2001
                                                                         ------------  -----------
<S>                                                                      <C>           <C>

Current assets:
  Cash and cash equivalents                                              $ 3,548,658   $1,007,444
  Due from lending institution                                               152,825
  Accounts receivable, net of allowance for uncollectible
   amounts of $294,000 and $290,000, respectively                          5,280,128    5,442,229
  Unbilled services                                                           95,517       60,828
  Prepaid expenses                                                           159,623       74,324
  Prepaid income taxes                                                        25,000            -
  Deferred tax asset                                                         118,000      116,000
                                                                         ------------  -----------
       Total current assets                                                9,379,751    6,700,825

Property and equipment, net                                                  224,897      292,059
Deferred tax assets                                                          124,000      117,000
Goodwill, net                                                              1,222,400    1,222,400
Intangibles, net                                                             132,143       55,466
Deposits                                                                      53,246       55,851
                                                                         ------------  -----------
       Total assets                                                      $11,136,437   $8,443,601
                                                                         ============  ===========

                                   LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
  Accrued payroll                                                        $ 1,197,775   $1,209,406
  Line of credit                                                                   -      130,472
  Current portion of lease obligations payable                                18,281       16,654
  Accounts payable and accrued expenses                                    3,381,862    2,424,174
  Income taxes payable                                                             -      160,000
  Due to HRA                                                               1,931,797      268,859
                                                                         ------------  -----------
       Total current liabilities                                           6,529,715    4,209,565
                                                                         ------------  -----------

Lease obligations payable, less current portion                                    -       18,281
                                                                         ------------  -----------

Commitments and contingencies

Shareholders' equity:
  Preferred stock $.01 par value, 2,000,000 shares authorized;
    Class A Preferred, 590,375 shares authorized,
    issued and outstanding                                                     5,904        5,904
  Common stock, $.01 par value, 50,000,000 shares authorized;
    2,500,000 shares issued; 2,475,153 outstanding at December
    31, 2002 and 2,464,486 outstanding at December 31, 2001                   25,000       25,000
  Additional paid-in capital                                               4,745,631    4,750,140
  Deficit                                                                   (138,330)    (516,698)
                                                                         ------------  -----------
                                                                           4,638,205    4,264,346
        Less: Treasury stock (24,846 and 35,513 common shares at
        cost as of December 31, 2002 and December 31, 2001,
        respectively)                                                        (31,483)     (48,591)
                                                                         ------------  -----------
       Total shareholders' equity                                          4,606,722    4,215,755
                                                                         ------------  -----------
       Total liabilities and shareholders' equity                        $11,136,437   $8,443,601
                                                                         ============  ===========
</TABLE>


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS.

 THE ABOVE STATEMENTS GIVE RETROACTIVE EFFECT TO A 1 FOR 1.5 REVERSE STOCK SPLIT
                     THAT WAS EFFECTUATED ON JANUARY 2, 2003


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                     NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                       CONSOLIDATED STATEMENTS OF OPERATIONS


                                              For The Years Ended December 31,
                                          ----------------------------------------
                                              2002          2001          2000
                                          ------------  ------------  ------------
<S>                                       <C>           <C>           <C>
Net patient service revenue               $38,880,477   $34,320,710   $29,383,547
                                          ------------  ------------  ------------

Expenses:
  Professional care of patients            30,227,715    25,711,247    21,698,189
  General and administrative                7,866,762     7,198,359     6,478,140
  Bad debts expense                            77,035       586,499       398,856
  Impairment of goodwill                            -             -     1,487,192
  Depreciation and amortization               178,027       191,985       229,605
                                          ------------  ------------  ------------
    Total operating expenses               38,349,539    33,688,090    30,291,982
                                          ------------  ------------  ------------

Income (loss) from operations                 530,938       632,620      (908,435)
                                          ------------  ------------  ------------

Non-operating income (expenses):
  Interest income                              33,614             -             -
  Interest expense                             (8,184)     (129,734)     (322,046)
                                          ------------  ------------  ------------
    Non-operating income (expenses), net       25,430      (129,734)     (322,046)
                                          ------------  ------------  ------------

Income (loss) before provision (benefit)
  for income taxes                            556,368       502,886    (1,230,481)
                                          ------------  ------------  ------------

Provision (benefit) for income taxes:
  Current                                     187,000       219,000        30,000
  Deferred                                     (9,000)      (69,000)      (65,000)
                                          ------------  ------------  ------------
                                              178,000       150,000       (35,000)
                                          ------------  ------------  ------------

Net income (loss)                         $   378,368   $   352,886   $(1,195,481)
                                          ============  ============  ============


Basic earnings (loss) per share           $       .15   $       .14   $      (.49)
                                          ============  ============  ============


Diluted earnings (loss) per share         $       .10   $       .10   $      (.49)
                                          ============  ============  ============

Weighted average shares outstanding         2,471,381     2,454,179     2,445,820
                                          ============  ============  ============

Diluted weighted average
  shares outstanding                        3,624,107     3,549,303     2,445,820
                                          ============  ============  ============
</TABLE>


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS.

 THE ABOVE STATEMENTS GIVE RETROACTIVE EFFECT TO A 1 FOR 1.5 REVERSE STOCK SPLIT
                     THAT WAS EFFECTUATED ON JANUARY 2, 2003


                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                          NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
                                      CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                    FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000


                                                              Class A
                                       Common Stock        Preferred Stock     Additional    Treasury Stock       Retained
                                   ---------------------  ------------------    Paid-In    -------------------    Earnings/
                                     Shares     Amount     Shares    Amount     Capital      Shares    Amount     (Deficit)
                                   ----------  ---------  -------  ---------  -----------  --------  ---------  ------------
<S>                                <C>         <C>        <C>      <C>        <C>          <C>       <C>        <C>

Balance at January 1, 2000          2,500,000  $  25,000  590,375  $   5,904  $4,770,914    54,180   $(90,296)  $   325,897

Net loss                                   --         --       --         --          --        --         --    (1,195,481)
                                   ----------  ---------  -------  ---------  -----------  --------  ---------  ------------

Balance at December 31, 2000        2,500,000     25,000  590,375      5,904   4,770,914    54,180    (90,296)     (869,584)

Exercise of options through
  the issuance of treasury
  stock (during July through
  December) (at an average
  exercise price of $1.12 per
  share)                                   --         --       --         --     (20,774)  (18,667)    41,705            --

Net income                                 --         --       --         --          --        --         --       352,886
                                   ----------  ---------  -------  ---------  -----------  --------  ---------  ------------

Balance at December 31, 2001        2,500,000     25,000  590,375      5,904   4,750,140    35,513    (48,591)     (516,698)

Exercise of options through
  the issuance of treasury stock
  (during March through
  May) (at an average exercise
  price of $1.18 per share)                --         --       --         --      (4,509)  (10,666)    17,108            --

Net income                                 --         --       --         --          --        --         --       378,368
                                   ----------  ---------  -------  ---------  -----------  --------  ---------  ------------

Balance at December 31, 2002        2,500,000  $  25,000  590,375  $   5,904  $4,745,631    24,847   $(31,483)  $  (138,330)
                                   ==========  =========  =======  =========  ===========  ========  =========  ============


                                      Total
                                   ------------
<S>                                <C>
Balance at January 1, 2000         $ 5,037,419

Net loss                            (1,195,481)
                                   ------------

Balance at December 31, 2000         3,841,938

Exercise of options through
  the issuance of treasury
  stock (during July through
  December) (at an average
  exercise price of $1.12 per
  share)                                20,931

Net income                             352,886
                                   ------------

Balance at December 31, 2001         4,215,755

Exercise of options through
  the issuance of treasury stock
  (during March through
  May) (at an average exercise
  price of $1.18 per share)             12,599

Net income                             378,368
                                   ------------

Balance at December 31, 2002       $ 4,606,722
                                   ============
</TABLE>


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS.

 THE ABOVE STATEMENT GIVES RETROACTIVE EFFECT TO A 1 FOR 1.5 REVERSE STOCK SPLIT
                     THAT WAS EFFECTUATED ON JANUARY 2, 2003


                                      F-4
<PAGE>
<TABLE>
<CAPTION>
                           NEW YORK HEALTH CARE, INC. AND SUBSIDIARY
                             CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                          For The Years Ended December 31,
                                                       ---------------------------------------
                                                          2002          2001          2000
                                                       -----------  ------------  ------------
<S>                                                    <C>          <C>           <C>
Cash flows from operating activities:
  Net income (loss)                                    $  378,368   $   352,886   $(1,195,481)
  Adjustments to reconcile net
    income (loss) to net cash provided by
    operating activities:
      Depreciation and amortization                       178,027       191,985       229,605
      Bad debts expense                                    77,035       586,499       398,856
      Deferred tax benefit                                 (9,000)      (69,000)      (65,000)
      Impairment of goodwill                                    -             -     1,487,192
      Changes in operating assets and liabilities:
        Increase in due from lending institution         (152,825)            -             -
        Decrease (increase) in accounts receivable
         and unbilled services                             50,377       531,786      (655,341)
        (Increase) decrease in prepaid expenses           (85,299)       46,771        (7,293)
        (Increase) decrease in prepaid income taxes       (25,000)            -       154,906
        Decrease (increase) in deposits                     2,605        (2,043)       (1,082)
        (Decrease) increase in accrued payroll            (11,631)      476,955     1,157,449
        Increase in accounts payable and
         accrued expenses                                 957,688       431,390        11,482
        (Decrease) increase in income taxes payable      (160,000)      160,000
        Increase (decrease) in due to HRA               1,662,938       268,859      (321,544)
                                                       -----------  ------------  ------------
         Net cash provided by operating activities      2,863,283     2,976,088     1,193,749
                                                       -----------  ------------  ------------

Cash flows from investing activities:
  Acquisition of fixed assets                             (37,542)      (20,252)      (38,708)
  Payment for purchase of assets                         (150,000)            -             -
                                                       -----------  ------------  ------------
          Net cash used in investing activities          (187,542)      (20,252)      (38,708)
                                                       -----------  ------------  ------------

Cash flows from financing activities:
  Repayments of line of credit                           (130,472)   (1,758,920)     (960,608)
  Repayment of long-term debt                             (16,654)     (125,373)     (376,577)
  Bank overdraft                                                -       (85,030)       85,030
  Exercise of options                                      12,599        20,931             -
                                                       -----------  ------------  ------------
        Net cash used in financing activities            (134,527)   (1,948,392)   (1,252,155)
                                                       -----------  ------------  ------------

Net increase (decrease) in cash and cash equivalents    2,541,214     1,007,444       (97,114)

Cash and cash equivalents at beginning of year          1,007,444             -        97,114
                                                       -----------  ------------  ------------

Cash and cash equivalents at end of year               $3,548,658   $ 1,007,444   $         -
                                                       ===========  ============  ============
</TABLE>


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
                                   STATEMENTS.

 THE ABOVE STATEMENTS GIVE RETROACTIVE EFFECT TO A 1 FOR 1.5 REVERSE STOCK SPLIT
                     THAT WAS EFFECTUATED ON JANUARY 2, 2003


                                      F-5
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     BASIS OF CONSOLIDATION AND THE CORPORATION:

     The  accompanying consolidated financial statements include the accounts of
     New  York  Health Care, Inc. ("NYHC") and its wholly owned subsidiary which
     was  formed on August 20, 1997, NYHC Newco Paxxon, Inc. D/B/A Helping Hands
     Healthcare  ("Helping  Hands"),  (the  "Corporation").  All  material
     intercompany  transactions  and  accounts  have  been  eliminated  in
     consolidation.

     The  Corporation  provides  services  of  registered  nurses  and
     paraprofessionals  to  patients  throughout  New  York  and  New  Jersey.

     In  February 2001, the Corporation amended its certificate of incorporation
     to provide for an increase in the Corporation's number of authorized common
     stock  from  12,500,000  shares  to  a  total  of  50,000,000  shares.

     In  January  2003, the Corporation amended its certificate of incorporation
     to provide for an increase in the Corporation's number of authorized common
     stock  and preferred stock. The authorized number of common stock increased
     from  50,000,000  shares  to  a total of 100,000,000 shares. The authorized
     number  of  preferred  stock  increased from 2,000,000 shares to a total of
     5,000,000  shares. This change was approved by the shareholders on December
     10,  2002.

     The  common  stock  and  per  share  prices  in  the consolidated financial
     statements  and  related  notes  have  been  retroactively adjusted to give
     effect  to  a 1 for 1.5 reverse stock split effectuated on January 2, 2003.

     ESTIMATES:

     The  preparation  of  financial  statements  in  conformity  with generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions  that affect the reported amounts of assets and liabilities and
     disclosure  of  contingent  assets  and  liabilities  at  the  date  of the
     financial  statements  and  the  reported  amounts of revenues and expenses
     during  the  reporting  period.  Actual  results  could  differ  from those
     estimates.

     REVENUE  RECOGNITION:

     The Corporation 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.


                                      F-6
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     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      5 years
          Furniture and fixtures       7 years
          Leasehold improvements       Life of lease

     IMPAIRMENT OF LONG-LIVED ASSETS:

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  " Accounting for the
     Impairment  or  Disposal  of  Long-Lived Assets." This statement supersedes
     SFAS  NO.  121, "Accounting for the Impairment of Long-Lived Assets and for
     Long-Lived  Assets to Be Disposed Of." The statement retains the previously
     existing accounting requirements related to the recognition and measurement
     of  the impairment of long-lived assets to be held and used while expanding
     the measurement requirements of long-lived assets to be disposed of by sale
     to include discontinued operations. It also expands the previously existing
     reporting  requirements  for discontinued operations to include a component
     of  an entity that either has been disposed of or is classified as held for
     sale.  The Corporation adopted SFAS No. 144 on January 1, 2002. Adoption of
     this  statement  did  not  have  a  material  impact  on  the Corporation's
     financial  position  or  results  of  operations.


     GOODWILL  AND  OTHER  INTANGIBLE  ASSETS:

     Prior to January 1, 2002, the Corporation amortized goodwill and intangible
     assets  using  the  straight-line method over periods of up to 40 years. On
     January  1,  2002,  the  Corporation adopted the provisions of Statement of
     Financial  Standards  No.  142  (SFAS  142)  "Goodwill and Other Intangible
     Assets."  SFAS  142  requires  that  goodwill  and intangible assets having
     indefinite  lives  no  longer  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-7
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     BUSINESS COMBINATIONS:

     The  Corporation  has  accounted  for  all  business combinations using the
     purchase  method  of  accounting.

     INCOME TAXES:

     The  Corporation  uses 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.

     CASH EQUIVALENTS:

     The  Corporation considers all highly liquid investments with maturities of
     three  months  or  less  when  purchased  to  be  cash  equivalents.

     STOCK BASED COMPENSATION:

     The  Corporation  uses  the  intrinsic-value  method  of  accounting  for
     stock-based  awards  granted  to  employees.  See  Note  11  for  pro forma
     information  on the impact of the fair-value method of accounting for stock
     options.

     EARNINGS (LOSS) PER SHARE:

     Basic  earnings  (loss)  per  share  excludes  dilution  and is computed by
     dividing  income  available  to common shareholders by the weighted average
     number  of  common  shares  outstanding  for  the  period.


                                      F-8
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Diluted  earnings (loss) 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  including  the  presumed conversion of the Preferred Stock from
     the  date  of  its  issuance.  During the years ended December 31, 2002 and
     2001,  options  and  warrants  were  included in the computation of diluted
     earnings per share when the exercise price was less than the average market
     price  of  the Corporation's common stock during that period. Common shares
     issuable  as  a  result  of  the  assumed  conversion  of the Corporation's
     Preferred  Stock  were also included in the computation of diluted earnings
     per  share.  Due  to a loss in 2000, the options, warrants, and Convertible
     Preferred  Stock  are  not  included in the computation of diluted loss per
     share  because  the  effect  would  be  to  reduce  the  loss  per  share.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

     In  April 2002, the FASB issued Statement of Financial Accounting Standards
     No.  145, "Rescission of FASB Statement No. 4, 44 and 64, Amendment of FASB
     Statement No. 13, and Technical Corrections," ("SFAS 145"). SFAS 145, which
     is  effective  for  fiscal  years  beginning  after  May 15, 2002, provides
     guidance  for  income  statement  classification  of  gains  and  losses on
     extinguishment  of debt and accounting for certain lease modifications that
     have  economic effects that are similar to sale-leaseback transactions. The
     Corporation  does  not  believe  that  the  adoption of this statement will
     impact  its  financial  position,  results  of  operations,  or cash flows.


                                      F-9
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     In  June 2002, the Financial Accounting Standards Board issued Statement of
     Financial  Accounting Standards No. 146 ("SFAS 146"), "Accounting for Costs
     Associated  with  Exit  or  Disposal  Activities."  SFAS  146 nullifies the
     guidance  of  the  Emerging  Issues  Task  Force  (EITF)  Issues  No. 94-3,
     "Liability  Recognition for Certain Employee Termination Benefits and Other
     Costs  to  Exit  an  Activity  (including  Certain  Costs  Incurred  in  a
     Restructuring)."  SFAS  146  requires  that  a liability for a cost that is
     associated  with  an  exit  or  disposal  activity  be  recognized when the
     liability  is  incurred.  SFAS  146 also establishes that fair value is the
     objective  for  the initial measurement of the liability. The provisions of
     SFAS  146  are  required for exit or disposal activities that are initiated
     after  December  31,  2002.  The provisions of SFAS 146 are not expected to
     have  material  impact  on  the  Corporation's  consolidated  financial
     statements.

     In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
     Compensation  - Transition and Disclosure - an amendment of SFAS 123". This
     statement  amends  SFAS No. 123, "Accounting for Stock-Based Compensation,"
     to  provide alternative methods of transition for a voluntary change to the
     fair  value  based  method  of  accounting  for  stock-based  employee
     compensation.  In  addition,  this  statement  amends  the  disclosure
     requirements  of  SFAS  No.  123  to  require prominent disclosures in both
     annual  and interim financial statements about the method of accounting for
     stock-based  employee  compensation  and  the  effect of the method used on
     reported  results.  The  Corporation  has chosen to continue to account for
     stock-based compensation using the intrinsic value method prescribed in APB
     Opinion  No.  25  and  related  interpretations.  Accordingly, compensation
     expense  for  stock  options  is  measured  as  the  excess, if any, of the
     estimate  of the market value of the Corporation's stock at the date of the
     grant  over  the  amount  an  employee  must  pay to acquire the stock. The
     Corporation  has  adopted the annual disclosure provisions of SFAS No. 148.

     FASB  Interpretation  No.  45, "Guarantor's  Accounting  and  Disclosure
     Requirements  for Guarantees, Including Indirect Guarantees of Indebtedness
     of  Others," was issued in November 2002. This interpretation clarifies the
     requirements  of  a  guarantor's  disclosures  in  its  interim  and annual
     financial statements about its obligations under certain guarantees that it
     has  issued and which remain outstanding. The interpretation also clarifies
     the  requirements  related  to  the recognition of a liability for the fair
     value of the obligation undertaken by the guarantor at the inception of the
     guarantee,  including its ongoing obligation to stand ready to perform over
     the term of the guarantee in the event that the specified triggering events
     or  conditions  occur.  The disclosure requirements are currently effective
     with  the  recognition  and  initial  measurement  provisions  applying  to
     prospective  guarantees  issued  or modified after December 31, 2002. These
     provisions  are not expected to have a material impact on the Corporation's
     financial  statements.


                                      F-10
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     RECLASSIFICATIONS:

     Reclassifications  from  accrued  payroll  to  accounts payable and accrued
     expenses  have been made in prior years' financial statements to conform to
     classifications  used  in  the  current  year.

2.   ACQUISITION:

     On  April  10,  2002,  the  Corporation  acquired  the assets of Adult Care
     Services,  Inc.,  a  home healthcare office in Whiting, NJ. The Corporation
     does  not  consider  this  to  be  a  material  acquisition.

3.   PROPERTY  AND  EQUIPMENT:

     Property  and  equipment  consist  of  the  following  at  December  31:

<TABLE>
<CAPTION>
                                                             2002      2001
                                                           --------  --------
<S>                                              <C>       <C>
          Machinery and equipment                          $445,977  $408,175
          Furniture and fixtures                            249,796   209,796
          Leasehold improvements                            131,700   131,955
                                                           --------  --------
                                                            827,473   749,926

          Less accumulated depreciation and amortization    602,576   457,867
                                                           --------  --------

                                                           $224,897  $292,059
                                                           ========  ========
</TABLE>


                                      F-11
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     At  December  31,  2002 and 2001, the amounts shown above include assets of
     approximately $79,550 under capitalized leases and accumulated depreciation
     of  approximately  $63,650  and  $47,750,  respectively,  relating thereto.

4.   GOODWILL  AND  OTHER  INTANGIBLE  ASSETS:

     As  of  December  31,  2002,  the  Corporation  had unamortized goodwill of
     $1,222,400,  subject  to  the  provisions  of SFAS 142. The Corporation has
     completed the transitional impairment tests required by SFAS 142, which did
     not  result  in  an  impairment  charge.

     Due  to  a  decrease  in  revenue  during  2000  and  prior,  and projected
     additional  reductions  in  revenue  from the operations of certain offices
     located  in  New  Jersey,  at  June  30, 2000 the Corporation evaluated the
     ongoing  value  of  its  goodwill  associated with acquisitions made by the
     Corporation  from  December  1997 through 2000. The Corporation applied the
     provisions  of  SFAS  No.  121 "Accounting for the Impairment of Long-Lived
     Assets  and  for  Long-Lived  Assets  to  Be  Disposed  of."  Based on this
     evaluation, the Corporation determined that goodwill with a carrying amount
     of  $1,688,134  was  impaired.  Accordingly,  such  amount  was  reduced by
     $1,487,192  to estimated fair value by a charge to operations. For the year
     ended  December 31, 2000, the impairment charge represented a per-share net
     loss  of  $.41  both on a basic and diluted basis. Estimated fair value was
     determined based on management's evaluation of current purchases of similar
     companies  in  the  home  health  care  industry.

     As  noted  above,  the  Corporation  ceased  amortizing  goodwill effective
     January  1, 2002. Following are pro forma results assuming goodwill had not
     been  amortized  prior  to  January  1,  2002:

<TABLE>
<CAPTION>
                                              For The Years Ended December 31,
                                              --------------------------------
                                                2002      2001        2000
                                              --------  --------  ------------
<S>                                           <C>       <C>       <C>

Reported net income (loss)                    $378,368  $352,886  $(1,195,481)
Add back: goodwill amortization, net of tax          -    35,128       55,868
                                              --------  --------  ------------
Adjusted net income (loss)                    $378,368  $388,014  $(1,139,613)
                                              ========  ========  ============

Basic earnings (loss) per share:
As reported                                   $    .15  $    .14  $      (.49)
                                              ========  ========  ============
As adjusted for non-amortization of
goodwill                                      $    .15  $    .16  $      (.47)
                                              ========  ========  ============
Diluted earnings (loss) per share:
As reported                                   $    .10  $    .10  $      (.49)
                                              ========  ========  ============
As adjusted for non-amortization of
goodwill                                      $    .10  $    .11  $      (.47)
                                              ========  ========  ============
</TABLE>


                                      F-12
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Goodwill and other intangibles consist of the following:


                                     December 31, 2002
                -----------------------------------------------------------
                                                                Estimated
                Gross Carrying    Accumulated   Net Carrying   Useful Life
                    Amount       Amortization      Amount        (Years)
                ---------------  -------------  -------------  ------------
<S>             <C>              <C>            <C>            <C>
Goodwill        $     1,396,712  $     174,312  $   1,222,400  Indefinite
                ---------------  -------------  -------------

Contract value          110,217         43,810         66,407          3-10
Customer list            98,470         32,734         65,736          3-10
                ---------------  -------------  -------------
                        208,687         76,544        132,143
                ---------------  -------------  -------------
Total           $     1,605,399  $     250,856  $   1,354,543
                ===============  =============  =============

                                     December 31, 2001
                -----------------------------------------------------------
                                                                Estimated
                Gross Carrying    Accumulated   Net Carrying   Useful Life
                    Amount       Amortization      Amount        (Years)
                ---------------  -------------  -------------  ------------

Goodwill        $     1,396,712  $     174,312  $   1,222,400  Indefinite
                ---------------  -------------  -------------

Contract value           60,217         24,804         35,413            10
Customer list            38,470         18,417         20,053            10
                ---------------  -------------  -------------
                         98,687         43,221         55,466
                ---------------  -------------  -------------
Total           $     1,495,399  $     217,533  $   1,277,866
                ===============  =============  =============
</TABLE>

Changes in the recorded amount of goodwill were as follows:

<TABLE>
<CAPTION>
                               For the Years Ended December 31,
                               --------------------------------
                                    2002             2001
                               --------------  ----------------
<S>                            <C>             <C>
       Balance at January 1    $   1,222,400   $     1,273,528
       Amortization expense                            (51,128)
                               --------------  ----------------

       Balance at December 31  $   1,222,400   $     1,222,400
                               ==============  ================
</TABLE>

Amortization  expense,  including amortization of goodwill, amounted to $33,323,
$69,111  and  $103,661  for  the  years  ended December 31, 2002, 2001 and 2000,
respectively.


                                      F-13
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Estimated Amortization Expense:

           For The Years
              Ended
           December 31,
          ----------------

              2003               $     47,025
              2004                     47,025
              2005                     23,978
              2006                      6,346
              2007                      6,070
              Thereafter                1,699
                                 ------------
                                 $    132,143
                                 ============

5.   LINE  OF  CREDIT:

     The  Corporation had a $4,000,000 line of credit with Heller Financial that
     expired  on  November 28, 2002. The Corporation renewed that line of credit
     until  November 29, 2004. The new line of credit has substantially the same
     terms  as  the  previous line of credit, with the main difference being the
     interest  rate.  Borrowings  under  the new line of credit bear interest at
     prime  plus  1 1/2%.  Borrowings  under  the  previous  line of credit bore
     interest  at  prime  plus  2 1/2%.

     At  December  31,  2002,  approximately  $3,794,000  was  available  to the
     Corporation.  The  availability of the line of credit is based on a formula
     of  eligible  accounts  receivable.  Certain  assets  of  the  Corporation
     collateralize  the  line  of  credit.  The  agreement  contains  various
     restrictive  covenants,  which  among  other  things,  requires  that  the
     Corporation  maintain  a  minimum net worth. At December 31, 2001, $130,472
     was  outstanding.

     At  December  31,  2002,  there  was an amount due from Heller Financial of
     $152,825.  This  is  due  to  a  lockbox being used by the Corporation; all
     collections are deposited with Heller Financial and then transferred to the
     bank.

6.   ACCOUNTS  PAYABLE  AND  ACCRUED  EXPENSES:

     Accounts  payable and accrued expenses consist of the following at December
     31:


                                                2002        2001
                                             ----------  ----------
         Accounts payable                    $  292,974  $  351,333
         Accrued expenses                       200,175     178,449
         Accrued employee benefits            2,888,713   1,894,392
                                             ----------  ----------
                                             $3,381,862  $2,424,174
                                             ==========  ==========


                                      F-14
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


7.   LEASE  OBLIGATIONS  PAYABLE:

     The  Corporation  leases certain equipment under capital leases expiring in
     2003.

     The  following is a schedule of future minimum lease payments under capital
     leases  as  of  December  31,  2002:

          Year ending December 31, 2003                        $      19,283
          Less:  Amount representing interest                         (1,002)
                                                                -------------

          Present  value  of  net  minimum  lease  payments     $     18,281
                                                                =============

     Interest rates on capitalized leases vary from 10.3% to 11.0%.

8.   INCOME  TAXES:

     Deferred  tax  attributes  resulting  from  differences  between  financial
     accounting  amounts and tax bases of assets and liabilities at December 31,
     2002  and  2001  follow:

<TABLE>
<CAPTION>
                                               2002        2001
                                            ----------  ----------
<S>                                         <C>         <C>
     Current assets:
       Allowance for doubtful accounts      $ 118,000   $ 116,000
       Valuation allowance                          -           -
                                            ----------  ----------

     Net current deferred tax asset         $ 118,000   $ 116,000
                                            ==========  ==========

     Noncurrent assets and liabilities:
       Depreciation                         $  14,000   $   7,000
       Amortization of intangibles            361,000     424,000
                                            ----------  ----------

                                              375,000     431,000
       Valuation allowance                   (251,000)   (314,000)
                                            ----------  ----------

     Net noncurrent deferred tax asset      $ 124,000   $ 117,000
                                            ==========  ==========
</TABLE>


                                      F-15
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


<TABLE>
<CAPTION>

     The provision (benefit) for income taxes for the years ending December 31,
     consist  of  the  following:

                                            2002       2001        2000
                                          ---------  ---------  ----------
<S>                                       <C>        <C>        <C>
      Current tax expense                 $187,000   $219,000   $  30,000
      Deferred tax expense
        (benefit) (not including
        amount listed below)                54,000      1,000    (449,000)
      Net change in valuation allowance    (63,000)   (70,000)    384,000
                                          ---------  ---------  ----------

                                          $178,000   $ 150,000   $(35,000)
                                          =========  ==========  =========
</TABLE>

     The  provision  (benefit)  for  income taxes is comprised of the following:

<TABLE>
<CAPTION>

                               2002       2001       2000
                             ---------  ---------  ---------
<S>                        <C>        <C>        <C>
     Current:
       Federal               $ 85,000   $128,000   $(15,000)
       State                  102,000     91,000     45,000
                             ---------  ---------  ---------
                              187,000    219,000     30,000
                             ---------  ---------  ---------

     Deferred:
       Federal                 (8,100)   (62,100)   (58,500)
       State                     (900)    (6,900)    (6,500)
                             ---------  ---------  ---------
                               (9,000)   (69,000)   (65,000)
                             ---------  ---------  ---------

                             $178,000   $150,000   $(35,000)
                             =========  =========  =========
</TABLE>


     The  statutory Federal income tax rate and the effective rate is reconciled
     as  follows:

<TABLE>
<CAPTION>

                                         2002   2001   2000
                                         -----  -----  -----
<S>                                      <C>    <C>    <C>
Statutory Federal income tax rate          34%    34%    34%
State taxes, net of Federal tax benefit    12     10     10
Valuation allowance                        (2)   (14)   (31)
Prior year's over-accrual                 (12)          (10)
                                         -----  -----  -----

                                           32%    30%   (3)%
                                         =====  =====  =====
</TABLE>


                                      F-16
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



9.   FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS:

     As  of  December  31,  2002  and  2001,  the  carrying  amount  of accounts
     receivable,  accounts  payable  and  lease obligations payable approximates
     fair  value  due  to  the  short-term  maturities  of  these  instruments.

10.  THIRD-PARTY  RATE  ADJUSTMENTS  AND  REVENUE  AND  CERTAIN  CONTRACTS:

     Approximately  5%,  7%  and  7%  of net patient service revenue was derived
     under  New  York  State third-party reimbursement programs during the years
     ended  December  31,  2002, 2001 and 2000, respectively. These revenues are
     based,  in  part, on cost reimbursement principles and are subject to audit
     and  retroactive  adjustment  by  the  respective  third-party  fiscal
     intermediaries.  Differences between current rates and subsequent revisions
     are  reflected  in  the  year  the  revisions  are  determined.

     The  Corporation  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 Corporation incur direct costs of
     home  attendant  services below this fixed rate, the Corporation must repay
     the  difference  to HRA, subject to final audit by the City of New York. As
     of  December  31, 2002 and 2001, the amount included in due to HRA relating
     to  direct  labor costs amounted to $562,481 and $286,859, respectively. In
     addition  as  of  January  1,  2002,  the  city adopted a new reimbursement
     methodology  for  general  and  administrative expenses. The new guidelines
     changed  the  reimbursement  rate to a fixed amount per client based on the
     number  of  cases.  The Corporation continues to be reimbursed at an hourly
     rate. Any amount over this fixed rate must be repaid to HRA. As of December
     31, 2002, this amount was $1,369,316, subject to final audit by the City of
     New  York.  The  aggregate amount due to HRA was $1,931,797 at December 31,
     2002. As of December 31, 2002, HRA had completed their audit for the fiscal
     year ended June 30, 1999 and was in the process of auditing the fiscal year
     ended  June  30,  2000.

     During  2002,  the  New  York  State  Department of Health ("DOH") approved
     additional  funding  to  home  health  care  agencies  in  a form of a rate
     increase.  The  additional  funding  is  to  be  used  exclusively  for the
     recruitment  and retention of home health care 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, 2002, the Corporation
     accrued  approximately  $100,000 related to recruitment and retention funds
     not  yet expended.


                                      F-17
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


11.  PERFORMANCE  INCENTIVE  PLAN,  OPTIONS  AND  401(K)  PLAN:

     PERFORMANCE  INCENTIVE  PLAN:

     On  March  26,  1996,  the  Corporation's  Board  of  Directors adopted the
     Performance  Incentive  Plan,  (the  "Option Plan"). Under the terms of the
     amended  Option  Plan,  988,333  shares  of  common stock may be granted at
     December 31, 2002. The Option Plan will be administered by the Compensation
     Committee which was appointed by the Board of Directors. The Committee will
     determine which key employee, officer or director on the regular payroll of
     the  Corporation,  shall  receive  stock  options.  Granted  options  are
     exercisable commencing six months after the date of grant, and expire up to
     ten  years  after  the  date  of grant. The exercise price of any incentive
     stock  option  or nonqualified option granted under the Option Plan may not
     be less than 100% of the fair market value of the shares of common stock of
     the  Corporation  at  the  time  of  the  grant.

     On  March  26,  1996,  the  Corporation issued an option to purchase 62,500
     shares  of  Common Stock to the President of the Corporation at an exercise
     price  of  $4.50 per share. The option may be exercised at any time through
     March  26,  2006. These options were not issued under the Option Plan. None
     of  these  options  have  been  exercised  or  cancelled.

     On  July  10, 2000, the Corporation granted 266,667 stock options, pursuant
     to the Option Plan to key employees at exercise prices ranging from $.75 to
     $.83  per  share.  The  options expire in 5-10 years. The exercise price of
     these  options  was not less than the fair market price of the Common Stock
     as  of  the  date  of  grant.

     On January 2, 2001, the Corporation granted 286,667 stock options, pursuant
     to the Option Plan, to key employees at an exercise price ranging from $.89
     to  $.98 per share. The options expire in 5-10 years. The exercise price of
     these  options  was not less than the fair market price of the Common Stock
     as  of  the  date  of  grant.

     During  the  years  ended  December  31, 2002 and 2001, employees exercised
     10,666  and  18,667  options, respectively, at exercise prices ranging from
     $.89  to  $2.45  per share. There were no options exercised during the year
     ended  December  31,  2000.


                                      F-18
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Activity  in  stock  options,  and  warrants,  including  those outside the
     Performance  Incentive Plan, for each of the three years ended December 31,
     2002  is  summarized  as  follows:

<TABLE>
<CAPTION>

                                                       Shares Under     Weighted Average
                                                     Options/Warrants    Exercise Price
                                                    ------------------  -----------------
<S>                                                 <C>                 <C>
        Balance at December 31, 1999                          563,833   $            2.90

        Options and warrants granted                          280,000                 .78
        Options cancelled                                     (10,667)               1.47
                                                    ------------------

        Balance at December 31, 2000                          833,166                2.22

        Options and warrants granted                          300,000                 .93

        Options exercised                                     (18,667)               1.13

        Options cancelled/expired                             (67,000)               7.27
                                                    ------------------

        Balance at December 31, 2001                        1,047,499                1.41

        Options and warrants granted                              -0-

        Options exercised                                     (10,666)               1.19

        Options cancelled/expired                                 -0-
                                                    ------------------

        Balance at December 31, 2002                        1,036,833                1.41
                                                    ==================

        Eligible for exercise at December 31, 2002          1,036,833                1.41
                                                    ==================
</TABLE>


                                      F-19
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     The  following  table  summarizes  information  about  options and warrants
     outstanding  and  exercisable  at  December 31, 2002 (however, see below).

<TABLE>
<CAPTION>
                          Options Outstanding/Warrants            Options/Warrants Exercisable
                 ----------------------------------------------  -------------------------------
                                                                                Weighted
                                 Weighted                                        Average
                  Options/        Average          Weighted       Options/       Options/
Range of          Warrants       Remaining          Average       Warrants      Warrants
Exercise Price   Outstanding  Contractual Life  Exercise Price   Exercisable  Exercisable
---------------  -----------  ----------------  ---------------  -----------  ------------
<S>              <C>          <C>               <C>              <C>          <C>
$4.50                62,500        4.25 years  $          4.50       62,500  $       4.50
$2.45-$2.69         155,334        3.62 years             2.55      155,334          2.55
$1.41-$1.55          97,333        3.60 years             1.47       97,333          1.47
$.95-$1.04          160,000        4.08 years              .98      160,000           .98
$.75-$.83           280,000        5.38 years              .78      280,000           .78
$.89-$.98           281,666        6.37 years              .89      281,666           .89
                 -----------                                     -----------

                  1,036,833        4.95 years             1.41    1,036,833          1.41
                 ===========                                     ===========
</TABLE>

     The  fair  value  of  options granted during 2001 and 2000 was $269,000 and
     $213,400,  respectively.  There  were  no options granted during 2002. Fair
     value is estimated based on the Black-Scholes option-pricing model with the
     following  assumptions  for grants in 2001 and 2000: expected volatility of
     153%  and 161%; risk-free interest rates of 2.43% in 2001 and 5.85% in 2000
     and  expected  lives  of  approximately  7.5  years  for 2001 and 2000. Had
     compensation expense been determined based on the fair value of the options
     on  the grant dates, the Corporation's net income would have been decreased
     by  $269,000  ($.11  basic and $.08 diluted earnings per share) in 2001 and
     its  net loss would have been increased by $213,400 ($.09 basic and diluted
     loss  per  share)  in  2000.

     On  March 7, 2003, the Corporation granted options to purchase an aggregate
     of  500,000  shares of Common Stock at an exercise price of $3.14 per share
     to  3  officers of the Corporation. In addition, the Corporation granted an
     aggregate  60,000  warrants  to  purchase  shares of the Corporation Common
     Stock  at  an  exercise  price  of  $3.14  per  share to 3 Directors of the
     Corporation.

     401(K)  PLAN:

     NYHC  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 Corporation currently contributes
     50%  of each dollar contributed to the Plan by participants up to a maximum
     of  6%  of  the  participant's  salary.  The Plan also provides for certain
     discretionary  contributions  by the Corporation as determined by the Board
     of  Directors.  The Corporation's contributions, net of unvested, forfeited
     matching  funds,  amounted  to  $79,000,  $22,000 and $56,000 for the years
     ended  December  31,  2002,  2001  and  2000,  respectively.


                                      F-20
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12.  COMMITMENTS AND CONTINGENCIES:

     LEASE  COMMITMENTS:

     The  Corporation  leases office space under noncancellable operating leases
     in  New  York and New Jersey that expire between May 2003 and October 2006.

     At  December  31,  2002,  future minimum lease payments due under operating
     leases  approximate:


            2003                           $324,000
            2004                            242,000
            2005                            134,000
            2006                             80,000
                                           --------
            Total minimum future payments  $780,000
                                           ========

     Rental  expense  charged to operations was approximately $365,000, $370,000
     and  $356,000,  for  the  years  ended  December  31,  2002, 2001 and 2000,
     respectively.

     EMPLOYMENT  AGREEMENTS:

     On  November  10,  1999, the Corporation entered into employment agreements
     with  two  officers, with terms beginning December 27, 1999 and expiring in
     2004.  The  agreements  called for initial aggregate annual compensation of
     approximately  $420,000  with  an  annual  increase of 10% and provided for
     certain  additional  benefits.  This  employment  agreement  was amended on
     January  2, 2003 pursuant to the Stock for Stock Exchange Agreement between
     the  Corporation  and  The  Bio  Balance  Corporation  (Note 17). Under the
     amended employment agreement, the two officers' employment was extended for
     five  years  until  December  31,  2009.  If the officers are terminated as
     Directors,  the Corporation shall enter into consulting agreements with the
     officers,  effective  the  date  of  termination.  In such case, consulting
     services  will  be  provided on an as needed basis for a period of not less
     than  five years and, as compensation for consulting services, each officer
     will  be  granted  an option to acquire 500,000 shares of the Corporation's
     common  stock  for  a  term  of no less than ten years at a price per share
     equal  to  the  closing price of the stock on the date of such termination.

     On  February  1,  2001,  the  Compensation  Committee  approved  a bonus of
     $100,000  to  be  paid  to the two officers for the year ended December 31,
     2000; such amount was accrued as of December 31, 2000. On January 16, 2002,
     the  Compensation  Committee approved a bonus of $250,000 to be paid to the
     two officers, for the year ended December 31, 2001; such amount was accrued
     as  of December 31, 2001. During 2002, the Compensation approved a bonus of
     $500,000  to  be  paid to the two officers, for the year ended December 31,
     2002;  such  amount  was  paid  as  of  December  31,  2002.


                                      F-21
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     BONUS  PLAN:

     The  Corporation  has established a bonus plan pursuant to which 10% of the
     Corporation's  pre-tax  net  income is contributed to a bonus pool which is
     available for distribution to all employees as decided by the Corporation's
     Compensation  Committee.  A  bonus of $65,000 and $56,000 was accrued as of
     December  31,  2002  and 2001, respectively. There was no bonus accrual for
     2000  due  to  a  net  loss  for  the  year.

     CONCENTRATIONS  OF  CREDIT  RISK:

     Financial  instruments  that  potentially  subject  the  Corporation  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  Corporation  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,  exceeded  federally  insured  limits by approximately
     $3,790,917  and $1,251,000 at December 31, 2002 and 2001, respectively. The
     Corporation  does  not require collateral on commercial accounts receivable
     as  the  customer  base  generally  consists  of  large,  well-established
     institutions.

     MAJOR  CUSTOMERS:

     Two  major customers accounted for approximately 60% of net patient service
     revenue  for  the  year ended December 31, 2002 and 2001, respectively, and
     53%  for  the  year  ended  December 31, 2000. In addition, three customers
     represented  approximately  65%  and 52% of accounts receivable at December
     31,  2002  and  2001,  respectively.

     BUSINESS  RISKS:

     The  Corporation's primary business, offering home health care services, is
     heavily  regulated  at  both  the  federal  and  state  levels.  While  the
     Corporation  is  unable to predict what regulatory changes may occur or the
     impact  on  the  Corporation  of  any  particular change, the Corporation's
     operations  and  financial  results  could  be  negatively  affected.

     Further,  the  Corporation  operates in a highly competitive industry which
     may  limit  the  Corporation's ability to price its services at levels that
     the  Corporation  believes  appropriate.  These  competitive  factors  may
     adversely  affect  the  Corporation's  financial  results.

     LITIGATION:

     The  Corporation  and  two  of  its  employees  are defendants in a lawsuit
     alleging  unfair  competition,  tortious  interference  with  contractual
     relations  and  with  prospective  economic  advantage. Motions for summary
     judgment  have  been  scheduled  for  argument  on  March 14, 2003 with the
     plaintiff  asking  the Court for an order for injunctive relief and damages
     in  the  minimum  amount  of approximately $120,000, and the Corporation is
     asking the Court to dismiss the case. If the decision on those motions does
     not  fully  dispose  of  the matter, the case will be tried. The defendants
     have  denied  the material allegations set forth in the complaint, deny any
     wrongdoing,  and  intend  to  vigorously  defend  the  matter.


                                      F-22
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


13.  RELATED  PARTY  TRANSACTION:

     The  Corporation  leased  one  of its offices from certain shareholders and
     directors.  The  lease  expired  on  October 31, 2001. Rent expense for the
     years  ended  December  31, 2001 and 2000 amounted to approximately $35,000
     and  $44,000,  respectively.

     Prior  to  June  30,  2002, two of the Corporation's non-employee directors
     provided  consulting services on an as needed basis. Consulting expenses to
     the directors amounted to $19,000 for the year ended December 31, 2002, and
     $12,000  for each of the years ended December 31, 2001 and 2000. Subsequent
     to  June 30, 2002, the non-employee directors received $12,000 as directors
     fees.

     At  December  31,  2000,  the  Corporation had a promissory note payable to
     certain  shareholders. The note bore interest at prime plus 1% and was paid
     in  full  during  January  2001.

14.  SHAREHOLDERS'  EQUITY:

     PREFERRED  STOCK:

     The  Board  of Directors has authorized 590,375 shares of Class A Preferred
     Stock.  The  holders of the Preferred Stock shall be entitled to a dividend
     equal  to 9% of the purchase price for shares of the Preferred Stock before
     any  dividend  is paid on Common Stock. Dividends may be declared quarterly
     at  the  discretion  of  the Board of Directors and are not cumulative. The
     holders  of  Preferred  Stock receive no preference on liquidation and such
     shares may be converted into two-thirds of one share of Common Stock at any
     time.  The  Class A Preferred  Stockholders are entitled to vote on matters
     that affect them.

     WARRANTS:

     In  connection with the initial public offering of the Corporation's Common
     Stock,  the  underwriter  acquired  for  nominal  consideration warrants to
     purchase  an  aggregate of 83,333 shares of Common Stock. The warrants were
     exercisable  at  a  price  of  $7.80  and had expired on December 31, 2001.


                                      F-23
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     On  December  18,  2000, the Corporation granted two of its board members a
     warrant  for  each  to  purchase  up  to 6,667 shares of Common Stock at an
     exercise price of $.75 per share (which was not less than the fair value on
     date  of  grant)  during  a  period commencing June 18, 2000 and concluding
     December  18,  2005.

     On  January  2,  2001,  the  Corporation granted two of its board members a
     warrant  for  each  to  purchase  up  to 6,667 shares of Common Stock at an
     exercise price of $.90 per share (which was not less than the fair value on
     date  of  grant)  during  a  period  commencing July 2, 2001 and concluding
     January  2,  2006.

     TREASURY STOCK:

     The  Corporation  issued  treasury  stock  for the exercise of options that
     occurred  during  the  periods July through December 2001 and March through
     May  2002.  The  Corporation assigned a cost to the treasury stock based on
     the  first-in,  first-out  method.

     RESERVES:

     The  Corporation  has  reserved  an aggregate of 3,252,500 shares of Common
     Stock  for  the  exercise  of options (under the Option Plan referred to in
     Note  11)  and  warrants.

15.  SUPPLEMENTAL  CASH  FLOW  DISCLOSURES:

<TABLE>
<CAPTION>
                                    For The Years Ended
                                        December 31,
                                ----------------------------
                                  2002      2001      2000
                                --------  --------  --------
<S>                             <C>       <C>       <C>
Cash paid during the year for:
Interest                        $  8,184  $131,709  $350,105
                                ========  ========  ========

Income taxes                    $371,547  $ 81,719  $  7,133
                                ========  ========  ========
</TABLE>


                                      F-24
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16.  EARNINGS  (LOSS)  PER  SHARE:

     Earnings  (loss)  per  share  are  computed  as  follows:

<TABLE>
<CAPTION>
                                                        For The Years Ended
                                                             December 31,
                                                 ------------------------------------
                                                    2002        2001         2000
                                                 ----------  ----------  ------------
<S>                                              <C>         <C>         <C>
Basic and diluted earnings (loss)
   per share:

Earnings (loss):
Net income (loss) applicable to common
   stock                                         $  378,368  $  352,886  $(1,195,481)
                                                 ==========  ==========  ============

Shares:
Weighted average number of common shares
   outstanding - basic                            2,471,381   2,454,179    2,445,820
Effect of dilutive options                          759,143     701,541
Effect of dilutive convertible preferred
   stock                                            393,583     393,583
                                                 ----------  ----------  ------------

Diluted weighted average shares outstanding       3,624,107   3,549,303    2,445,820
                                                 ==========  ==========  ============

Basic earnings (loss) per share                  $      .15  $      .14  $      (.49)
                                                 ==========  ==========  ============

Diluted earnings (loss) per share                $      .10  $      .10  $      (.49)
                                                 ==========  ==========  ============
</TABLE>

     For  the  year ended December 31, 2000, 833,167 of the options and warrants
     outstanding  were  not  included in the computation of diluted earnings per
     share  because  to  do  so  would  cause  it  to  be  antidilutive.

     On January 2, 2003, the Corporation issued 21,443,821 shares to Bio Balance
     in  a  stock  for  stock  agreement  (See  Note  17).


                                      F-25
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



17.  SUBSEQUENT  EVENT  (UNAUDITED):

     On  October  11,  2001,  the  Corporation  entered  into  a Stock for Stock
     Exchange  Agreement  (the "Agreement") (as amended on February 13, 2002 and
     July  10,  2002),  with  The  Bio  Balance Corp. ("Bio Balance"), which was
     consummated  on January 2, 2003. Bio Balance is engaged in the research and
     development, manufacturing and marketing of probiotic agents for therapy of
     gastrointestinal  diseases.  Bio  Balance  is  a company in the development
     stage.

     The  shareholders  of  Bio Balance acquired 90% of the Corporation's voting
     interests  by  exchanging  100%  (21,443,821 shares) of its common stock in
     exchange  for  an  equal  amount  of  the  Corporation's  common  stock. In
     addition,  the  Corporation  has an obligation to issue up to an additional
     586,452  common  shares  upon  the  exercise  of  Bio  Balance  warrants
     outstanding.  Because the former Bio Balance shareholders own approximately
     90%  of  the merged company, Bio Balance is considered to be the accounting
     acquiror.  As of January 2, 2003, the historical information presented will
     be  the  historical  information  of Bio Balance. From January 2, 2003, the
     information  presented will be that of the merged entity which will include
     Bio  Balance  and  the  Corporation.

     The  purchase  price  was  based on the outstanding common stock, preferred
     stock,  options  and  warrants  of the Corporation, on the measurement date
     (July  19, 2002), date of announcement. The common stock was valued at July
     19,  2002  at  an average closing price for a six-day period ended July 24,
     2002  ($5.30)  (after giving effect to the one for one and one half reverse
     stock  split  which  was  effectuated  on  January  2,  2003).

     The  estimated  total  purchase  price  is  as  follows:

<TABLE>
<CAPTION>

<S>                                                              <C>
           Value of Corporation's common stock                   $13,100,000
           Value of Corporation's preferred stock                  2,100,000
           Value of Corporation's outstanding options/warrants     5,300,000
           Bio Balance estimated transaction costs                   249,000
                                                                 -----------

                                                                 $20,749,000
                                                                 ===========
</TABLE>

     The  purchase  price  will  be  allocated to the Corporation's tangible and
     intangible  assets  based  on  their estimated fair values as of January 2,
     2003.


                                      F-26
<PAGE>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


     Management  of  the  Corporation  believes  that  a  combination of the two
     companies  will  be  beneficial to their combined businesses and to each of
     their  respective shareholder groups. The Corporation's management believes
     that  moderate profit margins inherent to the home health care business are
     likely  to  persist  into  the foreseeable future. It has therefore entered
     into  a  business  combination  with  Bio  Balance,  which  could  provide
     shareholders  with  a  potential  of  a  higher profit margin business and,
     therefore,  enhanced  equity  value.

18.  QUARTERLY  FINANCIAL  DATA  (UNAUDITED):

<TABLE>
<CAPTION>
                        Net        Cost of
                      Patient    Professional
                      Service      Care of       Net
     2002             Revenue      Patients     Income   Basic EPS   Diluted EPS
     --------------  ----------  ------------  --------  ----------  ------------
<S>                  <C>         <C>           <C>       <C>         <C>
     First quarter   $9,237,128  $  7,202,503  $ 82,653  $      .03  $        .02
     Second quarter   9,820,612     7,565,407    91,464         .04           .03
     Third quarter    9,824,500     7,579,044   132,896         .05           .04
     Fourth quarter   9,998,237     7,880,761    71,355         .03           .01

     2001
     --------------

     First quarter   $7,836,632  $  5,905,150  $ 48,894  $      .02  $        .01
     Second quarter   8,349,910     6,243,250    61,360         .03           .02
     Third quarter    8,912,849     6,622,163   127,453         .05           .04
     Fourth quarter   9,221,319     6,940,684   115,179         .04           .03
</TABLE>


The  above  quarterly  financial  data  gives  retroactive effect to a 1 for 1.5
reverse stock split that was effectuated on January 2, 2003.


                                      F-27
<PAGE>
<TABLE>
<CAPTION>
                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS


Column A                                      Column B       Column C      Column D         Column E
-------------------------------------------  -----------  -------------  --------------  --------------
                                                            Additions
                                             Balance at      Charged
                                              Beginning     To Costs                      Balance at
Description                                   of Period   and Expenses     Deductions    End of Period
-------------------------------------------  -----------  -------------  --------------  --------------
<S>                                          <C>          <C>            <C>             <C>
Year ended December 31, 2002
  Deducted from asset accounts:
     Allowance for doubtful accounts         $   290,000  $      77,035  $ (73,035) (1)  $      294,000
     Deferred tax asset valuation allowance      314,000              -    (63,000) (2)         251,000

Year ended December 31, 2001
  Deducted from asset accounts:
     Allowance for doubtful accounts             173,000        586,499   (469,499) (1)         290,000
     Deferred tax asset valuation allowance      384,000              -    (70,000) (2)         314,000

Year ended December 31, 2000
  Deducted from asset accounts:
     Allowance for doubtful accounts             341,000        398,856   (566,856) (1)         173,000
     Deferred tax asset valuation allowance            -        384,000          -              384,000
</TABLE>

---
(1)     Uncollectible  accounts  written-off,  net  of  recoveries

(2)     Reduction  in  uncertainty  regarding  realization


                                      S-1
<PAGE>
                                   SIGNATURES

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

March 17, 2003

                                           NEW YORK HEALTH CARE, INC.


                                           By:  /s/ Jerry Braun
                                           -------------------------------------
                                           Jerry Braun
                                           President and Chief Executive 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.



/s/ Jerry Braun         President, Chief Executive         March 17, 2003
----------------------  Officer and Director
Jerry Braun


/s/ Jacob Rosenberg     Vice President, Chief Operating    March 17, 2003
----------------------  Officer, Chief Financial and
Jacob Rosenberg         Accounting Officer, Secretary,
                        Director

/s/ H. Gene Berger      Director                           March 17, 2003
----------------------
H. Gene Berger


/s/ Charles J. Pendola  Director                           March 17, 2003
----------------------
Charles J. Pendola


/s/ Paul Stark          Director                           March 17, 2003
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Paul Stark


/s/ David C. Katz       Director                           March 17, 2003
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David C. Katz


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