SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(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, 1996

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934
         For the transition period from:

                           Commission File No. 1-12451

                            NEW YORK HEALTHCARE, INC.
                 (Name of small business issuer 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
<PAGE>

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

Common Stock $.01 par value

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes X No__

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure  will be contained,  to
the  best  of  registrant's   knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year.  $11,920,017

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of a specified date within the past sixty
(60) days. $ 5,000,000 (as of 3/19/97).

                         (ISSUERS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

Indicate  by check mark  whether  the  Registrant  has filed all  documents  and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities under
a plan confirmed by a court.
Yes __    No __

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares  outstanding  of each of the issuer's class of common
equity, as of the latest practicable date: 3,750,000

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference,  briefly describe them
and  identify  the part of the Form 10-KSB  (e.g.,  Part I, Part II,  etc.) into
which the document is incorporated:  (1) any annual report to security  holders;
(2) any proxy or information  statements;  and (3) any prospectus filed pursuant
to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The list
of documents should be clearly described for identification purposes.



                                       1
<PAGE>

                                     PART I

Item 1. DESCRIPTION OF BUSINESS.

     (a) General Development of Business.

     New York Health Care,  Inc. (the  "Company") is 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.

     The Company operates 24 hours a day, seven days a week to receive referrals
and  coordinate  services with  physicians,  case  managers,  patients and their
families.

     The Company 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.  The  Company's  services  are  supplied  principally
pursuant to contracts with health care institutions and agencies such as various
county departments of social services, Beth Abraham Health Services in the Bronx
and Westchester County,  Kingsbridge Medical Center, Mt Sinai Medical Center and
New York Methodist Hospital in Brooklyn.

     When the Company was initially organized under the laws of the State of New
York,  in February  1983,  it engaged  principally  in the business of providing
nursing staff in nursing homes.

     In 1988, the Company  purchased the equipment,  fixtures,  client lists and
paraprofessional  aide lists of  National  Medical  Home Care,  Inc.  located in
Brooklyn,  Queens  Village,   Rockville  Centre  and  Mount  Vernon,  New  York.
Thereafter,  the Company  maintained  offices in Brooklyn,  Hempstead  and Mount
Vernon,  New York and shifted the focus of its business to the provision of home
health care support services.

     In 1992,  the Company opened a fourth  office,  in Spring Valley,  New York
and,  in 1993,  opened its fifth  office,  in  Newburgh,  New York.  Each of the
Company's five offices are  responsible for the sales and health care operations
within  their  respective   territories  and  maintain  their  own  recruitment,
scheduling,  training and quality assurance  programs.

     In August 1993,  the Company  established a  maternal/child  care division,
called "Special  Deliveries,"  which presently  accounts for approximately 5% of
the Company's  business and which supplies  comprehensive  nursing  services for
women  during  pregnancy,   and  for  them  and  their  newborn  children  after
childbirth.  The  Company  provides  its  skilled  nursing  staff  with  special
additional  training  in this  division,  which  offers a wide  range of quality
health services to patients at home through the provision of Registered  Nurses,
including those with at least two years of


                                       2
<PAGE>

experience in maternal child care, Neonatal Intensive Care Unit ("NICU") Nurses,
Maternal/Newborn Registered Nurses, Certified Childbirth Educators and Certified
Lactation Consultants. Referral services are also available for support programs
providing  social  workers,  bereavement  counselors  and  nutritionists.   Each
patient's  individual treatment plan and insurance coverage is reviewed prior to
commencement of services being rendered, except for childbirth education,  which
is privately contracted.

     The  Company's  primary  objective  is to enhance its  position in the home
health care market by increasing the promotion of its full service and specialty
health  care  capabilities  to existing  and new  referral  sources;  expand its
markets  and enter new markets by  establishing  additional  branch  offices and
acquiring other related health care businesses;  expand its provision of skilled
nursing  services,  principally  infusion  therapy and the care of women  during
pregnancy and their newborn children; and develop complimentary home health care
products and services,  as well as maintaining its regular  training and testing
programs, and recruitment activities.

     The Company had been treated as an "S  Corporation"  under  Subchapter S of
the Internal  Revenue  Code since its  inception.  As a result,  the Company was
exempt from federal and certain state income taxes  attributable to its earnings
and such income taxes were instead the obligation of the Company's stockholders.
The Company terminated its S Corporation status during the last quarter of 1996.
As a result of the  termination,  the Company is subject to federal income taxes
at rates of up to 35% and may, in certain  circumstances,  become subject to the
federal  alternative  minimum tax imposed on  corporations.  The Company is also
subject to state and local income taxes.

     The  Company  maintains  its  principal  offices at 1850  McDonald  Avenue,
Brooklyn, NY 11223, telephone (718) 375-6700.

Industry Background.

     The home health care industry has grown  substantially over the past decade
according to published industry  information.  The New York State Association of
Home Care Providers  estimates (from annual reports  submitted by agencies) that
Medicaid and Medicare spending on home health care has grown from  approximately
$2.9 billion in 1985 to in excess of  approximately  $19.4 billion in 1994.  The
Company believes that the primary reasons for the growth in the home health care
market include the aging of the U.S. population;  the realization of substantial
cost savings  through  treatment at home as an alternative  to  hospitalization;
advances in medical technology which have enabled a growing number of treatments
to be provided in the home rather than  requiring  hospitalization;  the general
preference  of  patients  to  receive  treatment  in  a  familiar   environment;
reductions  in the  length  of  hospital  stays as a result of  increasing  cost
containment  efforts in the health care industry;  growing acceptance within the
medical  profession of home health care and the rapid  increase in the incidence
of AIDS-related diseases and cancer.


                                       3
<PAGE>

   Aging Population.

     The number of individuals  over age 65 in the United States is estimated to
have  grown  from  25.7  million  in  1980,  or  11.3%  of  the  population,  to
approximately 34.1 million in 1996, or 12.9% of the population, and is projected
to  increase to more than 35 million,  or 12.8% of the  population,  by the year
2000.  The  elderly  have  traditionally  accounted  for two to three  times the
average per capita share of health care expenditures. As the number of Americans
over age 65  increases,  the need for home health care services is also expected
to increase.

   Cost Effectiveness of Home Health Care Services.

     National health care expenditures increased from approximately $697 billion
in 1990 (12.6% of the United  States gross  national  product) to  approximately
$1,008 billion in 1995 (14.2% of the United States gross national product),  and
is projected to increase to more than $1,481 billion (15.9% of the United States
cross  national  product) by the year 2000. In response to rapidly rising costs,
governmental  and private  payors have adopted cost  containment  measures  that
encourage reduced hospital admissions,  reduced lengths of stay in hospitals and
delayed nursing,  home  admissions.  Changes in hospital  reimbursement  methods
under Medicare from a cost-based method to a fixed reimbursement method based on
the  patient's  diagnosis  have  created an incentive  for earlier  discharge of
patients  from  hospitals.  These  measures have in turn fostered an increase in
home health care which, when appropriate,  provides medically  necessary care at
significantly  less  expense  than  similar  care  provided in an  institutional
setting.

   Advances in Technology.

     Advances  in  technology  in  the  past  decade  now  enable  patients  who
previously  required  hospitalization  to be treated at home.  For example,  the
development of a compact and portable  phototherapy  blanket performing the same
functions  as  bilirubin  lighting  systems in  hospitals  for the  treatment of
newborn children with jaundice, a common condition,  permits these infants to be
treated at home.  Prior to the  development  of this device,  these infants were
kept in the neonatal  unit of a hospital  even after the mother was  discharged.
This practice delayed mother-infant  bonding, made breast-feeding  difficult and
otherwise  caused  substantial  inconvenience  and concern to families at a time
when the mother was in a weakened state. Similar advances have been made in home
infusion  therapy  (which is  provided  by the  Company on a limited  basis) and
rehabilitation  equipment  permitting  treatments  at home which used to require
hospital settings.

   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


                                       4
<PAGE>

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.

     Increases in the incidence of AIDS/HIV infections and cancer have also been
responsible for a significant  portion of the growth in the home care market. As
of  December  1995,  more than  513,486  cases of AIDS had been  reported to the
Center for Disease Control (not including those with less advanced HIV who could
still benefit from  treatment).  During their treatment,  AIDS/HIV  patients may
receive several courses of infusion and other therapies  typically  administered
by infusion  therapy  companies,  including  AZT,  aerosolized  Pentamidine(TM),
antibiotics and nutritional  support.  The Company presently  provides a limited
amount of infusion therapy with pharmaceuticals  provided by licensed suppliers.
The Company  plans to expand its  infusion  therapy  operations  during the next
year. See "Home Health Care Services."

     The American Cancer Society estimates that 83 million (or 33%) of Americans
now living will eventually be diagnosed with cancer.  Approximately  one million
new  cases are  reported  annually.  At the same  time,  improvements  in cancer
diagnosis and treatment have caused mortality rates to increase more slowly than
the increase in incidence rates.  Cancer treatment is one of the fastest growing
segments of outpatient  infusion  therapy due to increasing  numbers of patients
and  new   technologies   that  allow  for  the  therapy's  safe  and  effective
administration  in the home and at alternate site locations.  Over the course of
their  treatment,  cancer  patients  may require a range of infusion  therapies,
including chemotherapy, pain management and nutritional support.

     (b) Financial Information About Industry Segments

         Not Applicable

     (c) Narrative Description of Business

     The Company currently offers a broad range of support  services,  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. The Company's 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  payors.  Among the  paraprofessionals  and nurses  supplied  by the
Company are those  fluent in Spanish,  Yiddish and Russian as well as  personnel
knowledgeable in the requirements and practices of Kosher homes.


                                       5
<PAGE>

Home Health Care Services

     The  Company's  home health care services are provided  principally  by its
paraprofessional  staff,  who provide personal care to patients and, to a lesser
extent,  by its skilled nursing staff, who provide various  therapies  employing
medical  supplies  and  equipment  and, to a lesser  extent,  infusion  therapy.
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  95% of the Company's total net revenues in 1996 were attributable
to services by its paraprofessional staff.

Certified Paraprofessionals

     The Company's  certified  paraprofessional  staff provide 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 the Company's aides are certified and work under
the  supervision  of a  licensed  professional  nurse.  Certain  aides have been
specially  trained by the Company 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 terminal.

     The Company is approved by the New York State Department of Health to train
"Home Health Aides" and by the New York  Department of Social  Services to train
"Personal Care Aides." Medicaid provides reimbursement for services performed by
both  Home  Health  Aides and  Personal  Care  Aides,  while  Medicare  provides
reimbursement  only for the services  provided by Home Health Aides. In order to
provide a qualified  and  reliable  staff,  the Company  continuously  recruits,
trains, provides continuing education for and offers benefits and other programs
to encourage  retention of its 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 or Director of  Maternal/Child
Health  in each of the  Company's  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,  they
undergo an orientation  program which includes material  regarding HIV patients,
Hepatitis  B,  universal  precautions  which  must be taken  with all  patients,
patient's  rights  issues,  and  the  Company's  policies  and  procedures.   An
orientation manual is also provided to each employee.


                                       6
<PAGE>

     Competition  for  qualified  staff has been  intense in recent  years.  The
Company  competes to attract and retain  personnel on the basis of  compensation
and working  conditions.  Among the benefits  which the Company  provides to its
staff are competitive salaries, a 401(k) Plan and unlimited  Company-paid visits
to a walk-in clinic.  The Company has generally not experienced  difficulties in
the past in attracting and retaining  personnel.  It believes it will be able to
compete effectively in this area and satisfy its 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  effect the
Company's ability to maintain or increase its current commitments.

Licensed Professional Nurses

     The Company employs 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).  The Company
also employs  registered nurses who are responsible for training and supervising
the Company's  paraprofessional  staff, as well as providing backup in the field
for the nursing  staff which 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  assessments 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.

     Specialty nurses are registered  nurses with experience or certification in
particular  specialities,  such as emergency service,  intensive care, oncology,
intravenous  therapy  or infant  and  pediatric  nursing.  The  Company  employs
specialty  nurses to provide a variety of therapies  and special care regimes to
patients in their homes. These specialty nurses also instruct patients and their
families  in the self  administration  of  certain  therapies  and in  infection
control,  emergency procedures and the proper handling and usage of medications,
medical supplies and equipment.

     The  Company's  licensed  professional  nurses also  provide a very limited
amount of in-home administration to patients of nutrients, antibiotics and other
medications  intravenously  (into a vein),  subcutaneously  (under  the skin) or
through feeding tubes,  utilizing supplies provided by licensed suppliers.  Such
intravenous therapy is used for antibiotic treatment,  parenteral nutrition (the
administration of nutrients), enteral nutrition (the administration of nutrients
directly into the digestive tract), growth hormone therapy, pain management, and
chemotherapy.  The duration,  progression and complexity of infusion  therapy is
governed by the patient's  disease and  condition and can range  anywhere from a
few weeks to many years.

     All nurses  hired by the  Company  must have at least one year of  current,
verifiable   experience,   including   references   and  license   verification.
Maternal/Child care nurses must have at least two years of experience.


                                       7
<PAGE>

     While the provision of licensed professional nursing services accounted for
less than 5% of the  Company's  net  revenues in 1996,  the  Company  intends to
expand its  maternal/child  care and infusion therapy operations in its existing
markets as well as new Geographic locations. See "Company Strategy."

Company Strategy

     The Company's objective is 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 intends to initially  concentrate 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 will generally seek 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.

   Acquisitions

     A major  element of the  Company's  strategy is to acquire home health care
and related companies in order to diversify in additional geographic markets and
to increase  market share in the Company's  current markets and add patients and
referral sources to existing branch offices without adding substantial  overhead
cost. The Company is interested in home health care agencies (which are expected
to cost  between  $500,000 and $ 1,000,000  each),  infusion  therapy  companies
(which are expected to cost between  $750,000 and  $1,500,000  each) and durable
medical  equipment  businesses  (which are expected to cost between $400,000 and
$800,000 each) in the states of New York, New Jersey, Pennsylvania, Connecticut,
North Carolina, Georgia and Florida. However, the Company has not yet identified
any particular potential acquisition and there can be no assurance that any such
acquisition  which  may be  consistent  with  the  Company's  strategy  will  be
available or, if  available,  that it will be at a price which the Company deems
to be favorable.

   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.  The Company  seeks to serve local market
needs  through  its  branch  office  network,  run by  branch  managers  who are
responsible  for  all  aspects  of  local  office   decision-making,   including
recruiting,  training,  staffing,  and  marketing.  The Company  intends to open
additional  branch offices,  using a portion of the net proceeds of its recently
completed public offering in the Counties of Suffolk,


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<PAGE>

Putnam,  Ulster and Dutchess,  in New York State, subject to entering agreements
with the local New York Department of Social Services agencies. In addition, the
Company hopes to expand 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 it deals,  and to
add  additional  organizations.   This  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.

   Expansion of Infusion Therapy

     The Company presently provides a limited amount of infusion therapy service
to  patients,   utilizing   pharmaceuticals   provided  by  licensed  suppliers.
Management  believes  that  the  total  market  for  home  infusion  therapy  is
continuing its growth and that increasing the provision of infusion therapy will
build on the  Company's  strength in providing  nursing  services,  because such
therapies generally require administration by specialty nurses. The Company 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 the
Company.  While the Company has no current  commitments  to  establish  infusion
therapy  facilities,  it intends to pursue the  establishment of such facilities
during  the next 18 months in order to  increase  its very small  market  share.
However, there can be no assurance that the Company will succeed in expanding an
infusion therapy business or, if expanded,  that it will conduct such a business
on a profitable basis.

   Professional Care Resources

     The Company  intends to expand its  maternal/child  care division,  Special
Deliveries,  as well as its  pediatric  care programs in order to meet the needs
which  management  believes are being created by early discharge  programs.  The
existing referral base utilized by the Company from the various agencies, 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.  The Company  expects that the  expansion of this program will require
the hiring of an additional  services  director with an extensive  background in
pediatrics to assist the  Directors of Nursing in each of the  Company's  branch
offices.  Additional  support  staff  will  also  be  required,  as  well as new
training, materials, assistant directors,  coordinators and marketing staff. The
Company also expects that  expansion  of the Special  Deliveries  division  will
result in the acquisition of additional office facilities.

Organization and Operations

     The  Company  operates  24  hours  a day,  seven  days a week,  to  receive
referrals and coordinate services with physicians,  case managers,  patients and
their families.  The Company  provides  services  through its five principal and
branch offices and one  recruitment and training,  office.  The Company seeks to
achieve economies of scale by having each branch office serve a large


                                       9
<PAGE>

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 a  branch  manager,  director  of  nursing,  home  care
coordinators, clerical staff and nursing services staff.

     The Company's  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.  The Company uses
financial  reporting  systems  through  which it  monitors  data for each branch
office, including patient mix, volume,  collections,  revenues and staffing. The
Company's systems also provide monthly budget analysis, financial comparisons to
prior periods and comparisons among the Company's branch offices. The Company is
in the process of acquiring  new computer  hardware and upgrade its software and
other  systems  with  the  intention  of  increasing  its  processing  capacity,
enhancing  its database  capabilities  and clinical  management  capacities  and
improving collections and financial management.

   Work Flow

     A case is initiated by one of the Company's  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 the Company's 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.


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<PAGE>

   Referral Sources

     The Company obtains patients  primarily  through  referrals from hospitals,
community-based health care institutions and social service agencies.  Referrals
from these sources accounted for substantially all of the Company's net revenues
in 1996. The Company generally  conducts business with most of its institutional
referral sources,  including those referred to below,  under one-year  contracts
which 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 the Company and the Company bills the referral  sources for services
provided to patients.  These  contracts  also  generally  designate the kinds of
services  to  be  provided  by  the  Company's  employees,  liability  insurance
requirements, billing and recordkeeping responsibilities,  complaint procedures,
compliance with applicable  laws, and rates for employee hours or days depending
on the services to be provided.  A total of 52 such  contracts were in effect as
of December 31, 1996.

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

                                                 Percentage of Net Revenues
   Referring Institution                            1995            1996
   ---------------------                         -----------      ---------

   County Departments of Social Services(l)         26.8%           24.1%
   Beth Abraham Health Services                     12.5%            9.6%
   Revival Home Health Care                          3.9%            5.5%
   Kingsbridge Medical Center                        6.1%            5.3%
   Mt. Sinai Medical Center(2)                       6.0%            5.8%
   Methodist Medical Center                          5.1%            3.1%

----------
(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)  The Mount Sinai Medical Center contract was established in March 1995.

     Overall,  the Company's ten largest  referring  institutions  accounted for
approximately 69% of net revenues for 1996 and 75% of net revenues for 1995.

   Billing and Collection

     The  Company   screens  each  new  case  to  determine   whether   adequate
reimbursement  will be  available  and has  developed  substantial  expertise in
processing  claims. The Company makes a concerted effort to provide complete and
accurate claims data to the relevant payor sources in order


                                       11
<PAGE>

to accelerate the collectibility of its accounts receivable. For the years ended
December 31, 1995 and 1996, the Company's days' sales outstanding ("DSO"), which
are  measured  from the date  services  are  billed,  were 130 days and 87 days,
respectively.  As a result  of the  Receivable  Sale  Agreement,  the  amount of
receivables  outstanding,  as at December 31, 1996 decreased 26.2% to $3,097,821
as compared to $4,198,512 at December 31, 1995.  The reduction of  approximately
33% in DSO during 1996 is principally the result of the Company having, received
the purchase price of $3,150,000  pursuant to the Receivables Sale Agreement and
is therefore  not  indicative  of any trend.  Certain  accounts  receivable  are
outstanding for more than 90 days, particularly where the agreement provides for
payment  terms of 90 days or more,  the  services  relate  to new  patients,  or
existing patients receive additional  services requiring medical review. The DSO
may increase in subsequent periods due to the accounts receivable  increasing to
levels  comparable to those prevailing  before the Receivable Sale Agreement was
executed.  There can  therefore be no assurance  that the Company's DSO will not
increase in subsequent fiscal periods.

     The Company licenses 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 the  Company's  offices,  with the ability to enter all  relevant
patient and employee demographic information. The payroll is processed weekly at
the Company's  principal 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,  the  Company's  computer  system
generates the resulting invoices  automatically.  The necessary documentation is
attached to all invoices that are mailed to clients.

     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
which would require  immediate  attention.  All unpaid invoices are reviewed and
telephone  contacts  established  for invoices  over 90 days old. The  Company's
experience  with  collection of accounts  receivable  has been  favorable,  with
uncollectible accounts within the allowances provided by the Company.

     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,  the Company accepts  assignment of the insurance
and submits  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


                                       12
<PAGE>

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

     The  Company  is  reimbursed  for  its  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  Medicaid  programs  constitute  the  Company's  largest
reimbursement  source,  when including both direct  Medicaid  reimbursement  and
indirect Medicaid payments through many of the Company's referring institutions.
For 1995 and 1996,  payments from  referring  institutions  which receive direct
payments  from  Medicare  and New York  State  Medicaid,  together  with  direct
reimbursement  to the  Company  from  New York  State  Medicaid,  accounted  for
approximately 92% and 91%, respectively,  of net revenues. For the same periods,
a significant  number of referring  institutions  with home health care programs
accounted for approximately 73% and 76%, respectively,  of net revenues for 1995
and 1996. Direct  reimbursements  from private  insurers,  prepaid health plans,
patients and other private sources  accounted for approximately 8% and 9% of net
revenues for the calendar years 1995 and 1996, respectively.

     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
county-by-county  basis, using a complex  reimbursement  formula applied to cost
reports  filed by  providers.  The  Company has filed all  required  annual cost
reports for each of its offices which provide  services to Medicaid  recipients.
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  which are greater  than the actual  expenses  incurred.  The
Company's 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,
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.

     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


                                       13
<PAGE>

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. The Company negotiates its 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  the
Company's  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  the  Company's
business.

Quality Assurance

     The Company has established a quality  assurance program to ensure that its
service standards are implemented and that the objectives of those standards are
met.  The  Company  believes  that  it has  developed  and  implemented  service
standards  that comply with or exceed the service  standards  required by JCAHO.
The Company  received  "Accreditation  with  Commendation"  from JCAHO after its
initial, and only, review in 1994. In February 1996, the Company was selected by
the University of Colorado  Health Sciences Center as one of only 22 home health
care agencies  participating  in a two to three year study known as the New York
State Outcome-Based Quality Improvement in Home Care Demonstration project being
funded by the New York State  Department  of Health,  by reason of the Company's
commitment to both quality assurance and improvement.  The Company believes that
its  reputation  for  quality  patient  care has been and will  continue to be a
significant factor in its success.  An adverse  determination by JCAHO regarding
the Company on any branch office could adversely affect the Company's reputation
and competitive position.

     The Company's quality assurance program includes the following:

     Quality Advisory Board.  The Company maintains a Quality Advisory Board for
its branch offices,  which consists of a physician,  nursing  professionals  and
representatives  of branch  management.  The Quality  Advisory Board  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  the   Company's   management  to  ensure   compliance   with  the
documentation and


                                       14
<PAGE>

operating  procedures  required  by state  law,  JCAHO  standards  and  internal
standards.  Written  reports  are  forwarded  to branch  managers.  The  Company
believes that the internal  review process is an effective  management  tool for
branch managers.

     Case conferences.  Staff  professionals  regularly hold case conferences to
review  problem  and high risk  cases,  the  physician's  treatment  and Company
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,  the
Company  evaluates 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  Quality  Advisory Board
for recommendations.

Sales and Marketing

     The Company's  executive  officers,  Jerry Braun and Jacob  Rosenberg,  are
principally responsible for the marketing of the Company's services. Each branch
office director is also  responsible for sales activities in the branch office's
local  market  area.  The  Company  attempts  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  State of New  York,  where  the  Company
currently operates, regulates various aspects of the Company's 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.

     The Company is 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 ( a  "LHCSA").  Control  of an  entity is
presumed to exist if any person owns, controls or holds the power to vote 10% or
more of the voting  securities  of 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 the  issued  and
outstanding Common


                                       15
<PAGE>

Stock of the Company,  such person could not exercise  control of the  Company's
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 the  Company's  issued  and  outstanding  Common
Stock.

     The Company is 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   antikickback   provisions,   exclusion   from
participation  in the Medicare and state  health  programs  such as Medicaid and
imprisonment for up to five years.

     The Company's healthcare operations  potentially subject it 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 the Company's  operations cannot be
fully predicted with certainty.  There can be no assurance that the Company will
be able to arrange its  acquisitions or business  relationships  so as to comply
with these laws or that the Company's  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 the Company.

     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 the Company's  operations  cannot be fully predicted
with certainty.

     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


                                       16
<PAGE>

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 the Company's 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  which,  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.

     The Company believes that the foregoing  arrangements in particular and its
operations in general comply in all material  respects with  applicable  federal
and state laws relating to  anti-kickbacks,  and that it will be able to arrange
its  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.  The  Company is  attempting  to be
responsive  to such  regulatory  climate.  However,  the  Company  is  unable to
accurately  predict  the  effect,  if any,  of  such  regulations  or  increased
enforcement activities on the Company's future results of operations.

     In addition, the Company is 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  have  had a  material  adverse  effect  on the
Company's business or competitive position or required material  expenditures on
the part of the  Company,  although  no  assurance  can be given  that such will
continue to be the case in the future.

     The Company is unable to accurately predict what additional legislation, if
any,  may be enacted in the future  relating  to the  Company's  business or the
health care industry,  including third-party  reimbursement,  or what effect any
such legislation may have on the Company.

     The Company has never been denied any license it has sought to obtain.  The
Company  believes that its operations are in material  compliance with all state
and federal regulations and licensing requirements.


                                       17
<PAGE>

Competition

     The  home  health  care  market  is  highly   fragmented  and   significant
competitors  are  often  localized  in  particular   geographical  markets.  The
Company's  largest  competitors  include U.S. Home Care,  Inc.,  Star Multicare,
Inc.,  TransWorld  Home Health Care,  Inc.,  Patient  Care,  Inc.,  Plaza Nurses
Agency,  Inc. and Personal Touch Home Care  Services,  Inc. The home health care
business is marked by low entry  costs.  The Company  believes  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 the Company  presently  competes  in home  health care have  substantially
greater  financial  and human  resources  than the  Company.  The  Company  also
competes with many other small temporary medical staffing agencies.

     The home  infusion  therapy  market is highly  competitive  and the Company
expects that the competition will intensify.  As the Company seeks to expand its
provision of infusion therapy  services,  it will compete with a large number of
companies and programs in the areas in which its 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 Olsten Kimberly QualityCare,
Inc., Coram Health Care Corp., Staff Builders, Inc. and Interim Personnel,  Inc.
In addition,  certain hospitals,  clinics and physicians,  who traditionally may
have been referral sources for the Company, have entered or may enter the market
with local programs.

     The Company believes 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.  The  Company  believes  that its
competitive  strengths have been the quality,  responsiveness,  flexibility  and
breadth of services and staff it offers,  and to some extent price  competition,
as well as its reputation with physicians, referral sources and patients.

     The United  States  health  care  industry  generally  faces a shortage  of
qualified  personnel.  Accordingly,  the Company experiences intense competition
from other companies in recruiting  qualified health care personnel for its home
health  care  operations.  The  Company's  success  to date has  depended,  to a
significant  degree,  on its ability to recruit and retain qualified health care
personnel.   Most  of  the  registered  and  licensed  nurses  and  health  care
paraprofessionals  who are employed by the Company are also registered with, and
may accept placements from time to time through, competitors of the Company. The
Company   believes  it  is  able  to  compete   successfully   for  nursing  and
paraprofessional   personnel  by  aggressive   recruitment   through   newspaper
advertisements,   flexible   work   schedules   and   competitive   compensation
arrangements.  There can be no assurance, however, that the Company will be able
to continue to attract and retain qualified  personnel.  The inability to either
attract or retain such qualified  personnel would have a material adverse effect
on the Company's business.


                                       18
<PAGE>

Employees

     At  December  31,  1996,  the  Company  had 623  employees,  of whom 49 are
salaried,  including 3 executive  officers,  1 director of operations,  5 branch
managers,  6  directors  of  nursing,  1 director of  maternal/child  health,  1
director  of  patient   services,   1  director  of  business   development,   8
accounting/clerical  staff and 23 field staff  supervisors.  The  remaining  574
employees  are  paid  on  an  hourly  basis  and  consist  of  professional  and
paraprofessional  employees.  None of the Company's employees are compensated on
an  independent  contractor  basis.  The  Company  believes  that  its  employee
relations are good.  None of the Company's  employees is  represented by a labor
union.

Other Matters

     The Company's  authorized  capital stock  consists of 12,500,000  shares of
Common Stock,  par value $.01 per share and 2,000,000 shares of Preferred Stock,
par value $.01 per share. The authorized  shares of capital stock give effect to
a 56,625 for 1 stock split  effected  March 26,  1996,  a 1.25 for 1 stock split
effected October 17, 1996 and a .8830022 for 1 stock split effected  December 4,
1996.

     In  December  1996 the Company  successfully  completed  an initial  public
offering ("IPO") with H.J. Meyers & Co., Inc., as underwriter (the"Underwriter")
in which it issued  1,250,000  shares  of  Common  Stock at a price of $4.00 per
share. This offering resulted in net proceeds to the Company,  after the payment
of all costs relating to the offering, of $3,765,703.

Common Stock

     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,
as and if  declared by the Board of  Directors  out of funds  legally  available
therefor.  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.

Preferred Stock

     The  Board  of  Directors  of the  Company  is  authorized  to  issue up to
2,000,000 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


                                       19
<PAGE>

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.

     The Company currently has no plans to issue any shares of Preferred Stock.

Transfer Agent

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

Item 2.  DESCRIPTION OF PROPERTIES.

     The  Company's  principal  place  of  business  is 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 31,  2000 and is subject to a renewal  option for
five years in favor of the Company.  The rent is $5,200 per month and is subject
to annual  increases,  beginning  April 1, 1997,  equal to 4% of the total prior
year's  monthly rent and all increases in real estate taxes for the original and
renewal  terms.  The  Company  sublets  approximately  2,500  square  feet to an
unaffiliated third party for a period and with a renewal option the same as that
in the  Company's  lease.  The rent is $2,860 per month and is subject to annual
increases  beginning  June 1, 1997 equal to 4% of the total prior years  monthly
rent and 30% of all  increases in real estate taxes for the original and renewal
term.

     The Company  acquired the lease and sublease  from an  unaffiliated  person
pursuant to an agreement dated October 8, 1996 in consideration for $90,000.


                                       20
<PAGE>

         The table below sets forth certain  information with respect to each of
the Company's  existing  branch office  locations,  all of which are leased from
non-affiliated lessors.

                                                               Lease Terms
                                           Approximate   ----------------------
                                Opening    Square         Expiration   Annual
         Location               Date       Footage        Date         Rental(l)
         --------               ----       -------        ----         ---------

Kings County (2)
Branch Office
1667 Flatbush Avenue
Brooklyn, NY 11210              11/95      2,000          10/31/00     $37,800

Nassau County
Branch Office
175 Fulton Avenue
Hempstead, NY 11550              9/93      1,600          10/31/98     $20,187

Westchester County
Branch Office
6 Gramatan Avenue
Mt. Vernon, NY 10550            12/96      2,000          12/31/01     $25,200

Rockland County
Branch Office
49 South Main Street
Spring Valley, NY 10977         10/94      1,500           9/30/98     $16,200

Orange County
Branch Office
45 Grand Street
Newburgh, NY 11250               9/92      1,500           8/31/97     $12,000

Queens Recruitment
   Office
91-31 Queens Blvd.
Elmhurst, NY 11373              10/95        750           9/30/97     $17,400

----------
(1)  The leases  provide for  additional  rentals  based upon  increases in real
     estate taxes and other cost escalations.

(2)  The Company's  Kings County Branch Office  occupies two of the three floors
     of a commercial  building  owned by 1667 Flatbush  Avenue,  LLC, a New York
     limited liability company owned by the Company's current stockholders.  See
     "Certain Relationships and Related Transactions." The lease is subject to a
     renewal option for five years in favor of the Company.  The rent is subject
     to annual increases,  beginning  November 1, 1997, equal to 5% of the total
     prior year's  monthly rent for the original  term and all renewal  terms of
     the lease.


                                       21
<PAGE>

Item 3. LEGAL PROCEEDINGS

     To the  best  of the  Company's  knowledge,  there  are no  material  legal
proceedings pending or threatened against the Company or its properties.

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 1996 through the  solicitation  of
proxies or otherwise.

                                     PART II

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

     The  Company's  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 the  Company's  Common  Stock  for the  periods
indicated.  Quotations do not necessarily present actual transactions and do not
reflect related mark-ups, mark-downs or commissions:

                           High          Low
                           ----          ---

Fiscal 1996
-----------

Fourth Quarter             4-5/8          4

Fiscal 1997
-----------

First Quarter              4-5/8         3-3/8


     At March 19,  1997 the  Company  had 14 holders of record and more than 870
beneficial holders of its shares of Common Stock.

     On March 19,  1997,  the last sale price of the  shares of Common  Stock as
reported by NASDAQ was $4.00 per share.


                                       22
<PAGE>

Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS

Results of Operations

        Fiscal Year Ended  December 31, 1996  Compared  With Fiscal Year Ended
        December 31, 1995

     Revenues for the year ended  December 31, 1996 ("1996")  increased  1.0% to
$11,920,000 from $11,810,000 for the year ended December 31, 1995 ("1995").  The
increased  revenues are  attributable to increased hours of service  provided to
existing contracts.

     Cost of professional care of patients for 1996 increased 0.6% to $8,173,000
from  $8,127,000 in 1995. The increase is attributable to the increased hours of
services provided.  The cost of professional care of patients as a percentage of
revenue remained stable at 69% for both years.

     Selling,  general and administrative expenses increased 19.5% to $2,818,000
in  1996  from  $2,358,000  in  1995.  The  increase  in  selling,  general  and
administrative   expenses   resulted   primarily  from   increased   management,
recruitment  and  staffing  expenses  to manage the  supervision  of the care of
patients  requiring  extended  nursing  and  technical  support,  the  hiring of
additional office staff to support  anticipated growth in the Company's business
(including  a  Director  of  Business  Development  and a  Director  of  Patient
Services) and a provision for doubtful accounts in the amount of $156,000.

     Interest  expense,  net of  interest  income,  increased  87.8% to $154,000
compared to $82,000 for 1995,  primarily as a result of an increase in borrowing
in 1996 to finance an increase in accounts  receivable  that occurred during the
month of December 1995,  distributions  to  shareholders  during the first three
quarters of 1996 and operations during the third and fourth quarters of 1996 (as
a result of the July 5, 1996 sale of receivables  for which payment was received
during August, September and October 1996).

     The current  provision  for New York State and New York City taxes for 1996
increased to $168,000 from $35,000 in 1995, as a result of increased  cash basis
taxable income for the period up to the termination of the Company's  Subchapter
S tax basis on December 17 and the accrual of taxes from  December  18th through
the year end, as well as a deferred tax credit of $184,000 for 1996, compared to
a deferred tax  provision of $46,000 for 1995.  As a result of the change in tax
status, the net tax for 1996 decreased $97,000 from 1995.

     The Company  recognized a non-recurring  net charge to earnings of $204,000
during the third quarter as a result of the Receivables Sale Agreement  pursuant
to which accounts receivable


                                       23
<PAGE>

aggregating  $3,500,000 was sold to a related company for $3,150,000,  which was
less than their face value.

     In view of the foregoing,  net income for 1996 decreased 49.4% to $571,000,
compared to $1,128,000 in 1995.

         Fiscal Year Ended December 31, 1995 Compared
         With Fiscal Year Ended December 31, 1994

     Revenues for the year ended December 31, 1995 ("1995")  increased  31.5% to
approximately  $11,810,000  from  approximately  $8,981,000  for the year  ended
December 31, 1994 ("1994").  The increase resulted primarily from an increase in
services provided to existing clients and increased new business.

     Cost  of   professional   care  of  patients  for  1995  increased  29%  to
approximately  $8,127,000 from  approximately  $6,301,000 for 1994. The increase
resulted  primarily from the hiring of additional  home health care personnel to
service the increased new business and increase in services rendered to existing
clients.  The cost of professional  care of patients as a percentage of revenues
approximate 69% for 1995 as compared to 70% of 1994.

     Selling,  general and  administrative  expenses for 1995 increased 33.3% to
approximately  $2,358,000 from  approximately  $1,769,000 for 1994. The increase
resulted primarily from the hiring of additional office support staff to support
the growth in the Company's business.

     Interest  expense for 1995  decreased  3.7% to  approximately  $82,000,  as
compared to approximately $85,000 for 1994, primarily as a result of a reduction
in borrowings resulting from the Company's increased cash flow.

     In  view  of  the  foregoing,  net  income  for  1995  increased  46.3%  to
approximately $1,128,000, as compared to approximately $771,000 for 1994.

Liquidity and Capital Resources

     For 1996,  net cash used in  operations  was  $1,430,000 as compared to the
$698,000 provided by operations for 1995, a decrease of 304.9%.  This $2,128,000
decrease  in net cash from  operations  was  primarily  a result  of the  430.7%
increase in accounts receivable and unbilled services to $2,409,000, compared to
an increase of $454,000 for 1995. Net cash used in financing activities for 1996
increased 77.7% to $691,000, as compared to $389,000 used in 1995, primarily the
result of payment of S Corporation  distributions to the Company's  stockholders
which aggregated  $3,225,000  during the year, as compared to $695,000 for 1995,
an  increase  of  364.1%;  repayment  of  bank  notes  payable  during  1996  of
$1,225,000, as compared to $325,000 provided by bank


                                       24
<PAGE>

borrowings  during  1995,  an  increase  of  277.0%;   offset  by  approximately
$3,766,000 of proceeds received from issuance of Common Stock in December 1996.

     As of December 31, 1996,  approximately  $2,979,000  (approximately 63%) of
the  Company's  total  assets  consisted  of accounts  receivable  derived  from
payments  made to  contractors  by  third-party  payors,  compared to $3,974,000
(approximately  82%) as of December  31,  1995,  a decrease of 25%.  Such payors
generally require substantial documentation in order to process claims.

     Days Sales  Outstanding  ("DSO") is a measure of the average number of days
taken by the Company to collect its  accounts  receivable,  calculated  from the
date services are billed.  for the years ended  December 31, 1996 and 1995,  the
Company's  DSOs were 87 days and 130 days,  respectively,  a reduction of 33.1%.
This decrease is due,  principally,  to the sale of $3.5 million of receivables,
and is, therefore, not indicative of any trend.

     The Company's  liquidity and long-term capital  requirements  depend upon a
number of  factors,  including  the lag time to realize  collections  of amounts
billed to clients  for  services  provided,  the rate at which new  offices  and
facilities are established and acquisitions,  if any, are completed. The Company
believes  that the  development  and  start-up  costs  for a new  branch  office
aggregate  approximately  $100,000,  including  leasehold  improvements,   lease
deposits,  office equipment,  marketing,  recruiting,  labor and operating costs
during the  pre-opening  and start-up  phase,  and also the provision of working
capital to fund accounts  receivable.  Such costs will vary  depending  upon the
size and location of each facility and, accordingly, may vary substantially from
these estimates.

     Although the Company does not have any pending  commitment  to purchase any
home health company,  it is actively pursuing  potential  acquisitions.  Further
expansion of the Company's  business may require the Company to incur additional
debt or offer additional equity if internally  generated funds, cash on hand and
amounts  available under its bank credit  facilities are inadequate to meet such
needs.  There can be no assurance  that such  additional  debt or equity will be
available to the Company,  or, if available,  will be on terms acceptable to the
Company.

Inflation

     Inflation has not had a significant  impact on the Company's  operations to
date.

Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See pages 26-41 of this Annual Report on Form 10-KSB.


                                       25
<PAGE>

                           NEW YORK HEALTH CARE, INC.

                          INDEX TO FINANCIAL STATEMENTS

NEW YORK HEALTH CARE, INC.:

    Independent Auditors' Report                                            27

    Balance Sheet at December 31, 1996                                      28

    Statements of Income for the Years
       Ended December 31, 1995 and 1996                                     29

    Statements of Shareholders' Equity for
       the Years Ended December 31,
       1995 and 1996                                                        30

    Statements of Cash Flows for the Years
       Ended December 31, 1995 and 1996                                     31

    Notes to Financial Statements                                          32-41


                                       26
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the  accompanying  balance  sheet of New York Health Care,  Inc.
(the  "Corporation")  as of December 31,  1996,  and the related  statements  of
income,  shareholders'  equity and cash flows for the years ended  December  31,
1995  and  1996.  These  financial  statements  are  the  responsibility  of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial position of New York Health Care, Inc. as
of December 31, 1996,  and the results of its  operations and its cash flows for
the years ended December 31, 1995 and 1996 in conformity with generally accepted
accounting principles.

                                            /s/  M. R. Weiser & Co. LLP
                                            ---------------------------
                                            CERTIFIED PUBLIC ACCOUNTANTS

New York, NY
February 3, 1997


                                       27
<PAGE>

                           NEW YORK HEALTH CARE, INC.
                                  BALANCE SHEET

                                DECEMBER 31, 1996

                                   A S S E T S

Current assets:
   Cash (Notes 2 and 8)                                           $1,188,450
   Accounts receivable, net of allowance
     for uncollectible amounts of $100,000
     (Notes 4, 8 and 13)                                           2,850,159
   Unbilled services (Note 2)                                        247,662
   Prepaid expenses                                                  182,037
                                                                  ----------

         Total current assets                                      4,468,308

Property and equipment, net (Notes 2 and 3)                          207,648
Acquisition costs, net (Note 2)                                       16,829
Deposits                                                              25,689
                                                                  ----------

         Total assets                                             $4,718,474
                                                                  ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

   Accrued payroll                                                $  254,903
   Accounts payable and accrued expenses (Note 8)                    147,219
   Income taxes payable (Note 2)                                     157,570
   Current maturities of long term debt (Note 6)                       5,650
                                                                  ----------

         Total current liabilities                                   565,342
                                                                  ----------

Long-term debt, less current maturities (Note 6)                       1,528
                                                                  ----------

Commitments, contingencies and other comments (Note 8)

Shareholders' equity (Notes 2, 7 and 10):
   Preferred stock $.01 par value, 2,000,000 shares
     authorized; no shares issued or outstanding
   Common stock, $.01 par value, 12,500,000
     shares authorized; 3,750,000 shares issued
     and outstanding                                                  37,500
   Additional paid-in capital                                      4,076,783
   Retained earnings                                                  37,321
                                                                  ----------

         Total shareholders' equity                                4,151,604
                                                                  ----------

         Total liabilities and shareholders' equity               $4,718,474
                                                                  ==========

                 See accompanying notes to financial statements


                                       28
<PAGE>

                           NEW YORK HEALTH CARE, INC.
                              STATEMENTS OF INCOME

                                                        For the Years Ended
                                                            December 31,
                                                  -----------------------------
                                                      1995              1996
                                                  -----------       -----------

Net patient service revenue (Note 2)              $11,809,728       $11,920,017
                                                  -----------       -----------

Expenses:
   Professional care of patients                    8,127,447         8,172,859
   General and administrative                       2,358,487         2,661,516
   Bad debts expense                                                    155,764
   Depreciation                                        32,455            31,953
                                                  -----------       -----------
         Total operating expenses                  10,518,389        11,022,092
                                                  -----------       -----------

Income from operations                              1,291,339           897,925
                                                  -----------       -----------

Nonoperating income (expenses):
   Interest income                                                        9,480
   Other income                                                          15,000
   Loss on sale of accounts receivable
      (Note 13)                                                        (204,137)
   Interest expense                                   (82,328)         (163,630)
                                                  -----------       -----------
         Nonoperating expenses, net                   (82,328)         (343,287)
                                                  -----------       -----------

Income before provision for income taxes            1,209,011           554,638
                                                  -----------       -----------

Provision (credit) for income taxes (Note 2):
   Current                                             35,000           168,000
   Deferred                                            46,000          (184,000)
                                                  -----------        ----------
                                                       81,000           (16,000)
                                                  -----------       -----------

Net income                                        $ 1,128,011       $   570,638
                                                  ===========       ===========

Pro forma (unaudited) (See Note 2):
    Historical income before provision
      for income taxes                            $ 1,209,011       $   554,638
    Pro forma provision for income taxes              520,000           238,000
                                                  -----------       -----------

    Pro forma net income                          $   689,011       $   316,638
                                                  ===========       ===========

    Pro forma net income per common share
      and common share equivalents                $       .20       $       .09
                                                  ===========       ===========

    Pro forma weighted average number
      of common shares and common
      share equivalents                             3,405,437         3,409,469
                                                  ===========       ===========

                 See accompanying notes to financial statements

                                       29
<PAGE>

                           NEW YORK HEALTH CARE, INC.
                       STATEMENTS OF SHAREHOLDERS' EQUITY

               For The Years Ended December 31, 1995 and 1996 (a)

<TABLE>
<CAPTION>
                                           Common Stock            Additional
                                    --------------------------      Paid-In        Retained
                                       Shares         Amount        Capital        Earnings        Total
                                    -----------    -----------    -----------    -----------    -----------
<S>                                   <C>          <C>            <C>            <C>            <C>
Balance at January 1, 1995            2,500,000    $    25,000    $     5,000    $ 2,722,715    $ 2,752,715

Net income                                                                         1,128,011      1,128,011

Distributions ($.34 per share)                                                      (840,032)      (840,032)
                                    -----------    -----------    -----------    -----------    -----------

Balance at December 31, 1995          2,500,000         25,000          5,000      3,010,694      3,040,694

Net income                                                                           570,638        570,638

Distributions ($1.29 per share)                                                   (3,225,431)    (3,225,431)

Net proceeds from issuance
  of common shares                    1,250,000         12,500      3,753,203                     3,765,703

Reclassification of S-Corporation
  earnings (Note 10)                                                  318,580       (318,580)
                                    -----------    -----------    -----------    -----------    -----------

Balance at December 31, 1996          3,750,000    $    37,500    $ 4,076,783    $    37,321    $ 4,151,604
                                    ===========    ===========    ===========    ===========    ===========
</TABLE>

(a)  Retroactive  effect has been given to the March 26, 1996,  October 17, 1996
     and December 4, 1996 recapitalizations referred to in Note 10.

                 See accompanying notes to financial statements.


                                       30

<PAGE>

                           NEW YORK HEALTH CARE, INC.
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                For the Years Ended
                                                                     December 31,
                                                             --------------------------
                                                                 1995           1996
                                                             -----------    -----------
<S>                                                          <C>            <C>
Cash flows from operating activities:
 Net income                                                  $ 1,128,011    $   570,638
 Adjustments to reconcile net income to net cash
  provided by (used in) operating activities:
   Depreciation and amortization                                  59,403         45,881
   Bad debts expense                                                            155,764
   Deferred tax expense (credit)                                  46,000       (184,000)
   Loss on sale of accounts receivable                                          204,137
   Changes in operating assets and liabilities:
    Increase in accounts receivable and unbilled services       (453,893)    (2,409,210)
    Decrease in due from affiliate                                68,149
    (Increase) decrease in due from shareholders                (145,000)       145,000
    Decrease (increase) in prepaid expenses                        7,159       (135,170)
    Increase in deposits                                          (3,600)        (5,870)
    Decrease in sundry assets                                      2,000
    Increase (decrease) in accrued payroll                        95,374        (33,120)
    (Decrease) increase in accounts payable and
      accrued expenses                                          (135,563)        88,081
    Increase in income taxes payable                              29,737        127,833
                                                             -----------    -----------
       Net cash provided by (used in) operating activities       697,777     (1,430,036)
                                                             -----------    -----------

Cash flows from investing activities:
 Acquisition of fixed assets                                     (27,416)      (143,170)
 Proceeds from sale of accounts receivable                                    3,150,000
 (Increase) decrease in note receivable - shareholder           (125,000)       125,000
                                                             -----------    -----------
       Net cash (used in) provided by investing activities      (152,416)     3,131,830
                                                             -----------    -----------

Cash flows from financing activities:
 Net borrowings (repayments) under note payable                  325,000     (1,225,000)
 Repayment of long-term debt                                     (18,887)        (6,304)
 Net proceeds from issuance of common stock                                   3,765,703
 Distributions                                                  (695,105)    (3,225,431)
                                                             -----------    -----------
       Net cash used in financing activities                    (388,992)      (691,032)
                                                             -----------    -----------

Net increase in cash and cash equivalents                        156,369      1,010,762
Cash and cash equivalents at beginning of year                    21,319        177,688
                                                             -----------    -----------
Cash and cash equivalents at end of year                     $   177,688    $ 1,188,450
                                                             ===========    ===========
</TABLE>

     (See Note 12)

                 See accompanying notes to financial statements

                                       31

<PAGE>

                           NEW YORK HEALTH CARE, INC.

                          NOTES TO FINANCIAL STATEMENTS

1.   THE COMPANY:

     New York Health Care, Inc. (the "Corporation") was incorporated in February
     1983 under the laws of the State of New York. The Corporation was formed to
     provide the services of  registered  nurses and nurses aides to  hospitals,
     nursing homes and other  healthcare  providers and patients  within the New
     York metropolitan area.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     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 net patient service revenue based upon the date
     services  are  rendered.  Net  patient  service  revenue is reported at the
     estimated net  realizable  amounts from  patients,  third-party  payers and
     others. Unbilled services represent amounts due for services rendered which
     were not billed at the end of each period.

     Property, Plant and Equipment:

     Property,  plant and equipment is carried at cost and is being  depreciated
     under the straight-line method over the following estimated useful lives of
     the assets or the life of the lease, whichever is shorter.

               Machinery and equipment                     5 years
               Furniture and fixtures                      7 years
               Leasehold improvements                      9 years

     Acquisition Costs:

     On March 17, 1988, the Corporation  purchased the customer lists,  employee
     lists and other  intangible  assets of National Medical Home Care at a cost
     of $139,273.  This cost is being amortized using the  straight-line  method
     over a  period  of  ten  years.  At  December  31,  1996,  the  accumulated
     amortization was $122,444.


                                       32


<PAGE>

     Income Taxes:

     The Corporation changed its tax status from nontaxable to taxable effective
     December 17, 1996. Previously, its earnings and losses were included in the
     personal tax returns of the stockholders,  and the Company did not record a
     federal income tax provision.  Effective with the change,  income taxes are
     provided  for the tax effects of  transactions  reported  in the  financial
     statements and consist of taxes currently due plus deferred 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.  Prior to December 17, 1996,
     deferred  state and city income  taxes arose from the use of the cash basis
     of accounting for income tax purposes.

     As a result of its change in tax status,  the deferred tax liability at the
     date of termination of S Corporation  status  (approximately  $184,000) was
     recorded as a credit to the deferred tax provision.

     Pro forma Information (Unaudited):

     a.   Pro forma Net Income Per Common Share and Common Share Equivalents:

          Pro forma net income per common share and common share equivalents has
          been  computed  based upon the weighted  average  number of shares and
          common share  equivalents  outstanding  during each year. Common share
          equivalents  recognize the potential  dilutive effects of the exercise
          of  outstanding  options and  warrants to acquire  common  stock.  The
          Corporation  has used the initial  public  offering price of $4.00 per
          common share for each year  presented  for  purposes of computing  the
          potential dilutive effects of common share  equivalents.  The issuance
          of a stock option had the effect of  increasing  the weighted  average
          shares  outstanding for each year by 23,437 shares calculated by using
          the treasury stock method.  The issuance of the warrants (see Note 10)
          had an  antidilutive  effect  and were not  included  in the  weighted
          average shares outstanding.

          Pursuant  to the  rules of the  Securities  and  Exchange  Commission,
          dividends  declared in the latest  twelve month period would be deemed
          to be in contemplation of the offering with the intention of repayment
          out of  offering  proceeds to the extent  that the  dividend  exceeded
          earnings during the previous twelve months.  The shares whose proceeds
          would be necessary to pay the  S-Corporation  distribution paid during
          the year  ended  December  31,  1996 of  $3,225,431  has the pro forma
          effect of increasing the weighted average shares  outstanding for each
          year by approximately 882,000 shares.


                                       33


<PAGE>

     b.   Pro Forma Statement of Income Adjustment:

          The pro forma statement of income  information  presents the pro forma
          effects on the historical  financial  information of the Corporation's
          termination  of its S  corporation  status on December 17,  1996.  The
          unaudited  proforma  adjustment  included in the  statements of income
          gives  effect to a charge in lieu of income taxes that would have been
          included in the  provision for income taxes had the  Corporation  been
          taxed as a C Corporation.

     Cash Equivalents:

     For purposes of the statement of cash flows, the Corporation  considers all
     highly  liquid  investments  with  maturities  of three months or less when
     purchased to be cash equivalents.

     Stock Based Compensation:

     a.   Effective  January 1, 1996,  the  Corporation  adopted  SFAS No.  123,
          "Accounting for Stock- Based  Compensation."  This statement defines a
          fair  value  based  method of  accounting  for the  issuance  of stock
          options  and  other  equity   instruments.   However,  it  allows  the
          Corporation  to continue to account  for such  transactions  using the
          intrinsic  value based method of  accounting  prescribed by Accounting
          Principles Board Opinion ("APB") No. 25,  "Accounting for Stock Issued
          to Employees." Under the fair value based method, compensation cost is
          measured at the grant date based on the fair value of the award and is
          recognized  over the  service  period,  which is usually  the  vesting
          period.  Under the intrinsic value based method,  compensation cost is
          the  excess,  if any, of the quoted  market  price of the stock at the
          grant date,  or other  measurement  date,  over the amount an employee
          must pay to acquire the stock. The Corporation has elected to continue
          to account for employee stock-based transactions under APB Opinion No.
          25.

          Warrants have not been considered for this computation  since they are
          not deemed to be an employee stock based transaction and the effect of
          their exercise,  under the fair value based method, would have been to
          reduce  the  proceeds  of the  offering  rather  than as a  charge  to
          operations. The estimated fair value of the warrants was determined to
          be  insignificant  and,  accordingly,  has not been  reflected  on the
          balance sheet at December 31, 1996.


                                       34

<PAGE>

     b.   Had  compensation  cost for the option  granted on March 26, 1996 (see
          Note 10) been  determined  based on the fair  value at the grant  date
          ($.81 per share for 93,750 shares)  consistent with the method of SFAS
          No. 123, the Corporation's proforma net income and earnings per common
          share and common share equivalents would have been reduced to proforma
          amounts indicated below:

                                                                        SFAS
                                                                       No. 123
                                                       As Reported    Pro forma
                                                       -----------    ---------
          Pro forma net income                           $316,638      $272,893
                                                         ========      ========

          Pro forma net income per common
            share and common share equivalents               $.09          $.08
                                                             ====          ====

          Under SFAS No. 123,  the fair value of the option is  estimated on the
          date of grant using the  Black-Scholes  option-pricing  model with the
          following  assumptions:  dividend  yield  of  zero  percent,  expected
          volatility of zero  percent,  risk-free  interest  rate of 6.38%,  and
          expected life of 5 years.

     Accounting  for the  Impairment  of  Long-Lived  Assets and for  Long-Lived
     Assets to be Disposed Of:

     The Company has adopted Statement of Financial Accounting Standards ("FAS")
     No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets and for
     Long-Lived Assets to be Disposed Of," in the first quarter of 1996. FAS No.
     121  establishes  new accounting  standards for measuring the impairment of
     long-lived  assets.  The  adoption  of this  new  standard  does not have a
     significant effect on the Corporation's financial statements.

3.   PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following at December 31, 1996:

           Machinery and equipment                                   $173,136
           Furniture and fixtures                                      81,524
           Leasehold improvements                                      90,783
                                                                     --------
                                                                      345,443

           Less accumulated depreciation and amortization             137,795
                                                                     --------
                                                                     $207,648
                                                                     ========

4.   NOTE PAYABLE - BANK:

     On May 9, 1996,  the  Corporation  entered into a promissory  note with its
     bank which  increased its line of credit from  $2,000,000 to $3,500,000 and
     adjusted the  interest  payable to .75% above the market prime as posted in
     the Wall Street Journal (8.25% at December 31, 1996). The line of credit is
     collateralized by the Corporation's  accounts  receivable and is guaranteed
     by certain  shareholders.  The line of credit is renewable in May 1997.  At
     December 31, 1996, no amount was outstanding to the bank.


                                       35


<PAGE>

5.   THIRD-PARTY RATE ADJUSTMENTS AND REVENUE:

     Approximately  27% and 24% of net patient service revenue was derived under
     New York State  third-party  reimbursement  programs during the years ended
     December 31, 1995 and 1996,  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.
     Provision for estimated  amounts due to/from the  Corporation has been made
     in the financial  statements.  Differences  between estimated revised rates
     and  subsequent  revisions  will be reflected in the statement of income in
     the year revisions are calculated.

6.   LONG-TERM DEBT:

     Long-term debt consists of the following at December 31, 1996:

     Capital leases collateralized by various machinery
       and equipment are payable through April 1998.             $7,178
       Less current maturities                                    5,650
                                                                 ------
                                                                 $1,528
                                                                 ======

7.   PERFORMANCE INCENTIVE PLAN 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
     Option Plan, 262,500 shares of common stock may be granted. The Option Plan
     will be  administered  by a Committee  appointed by the Board of Directors.
     The Committee will determine which key employee, officer or director on the
     regular  payroll of the  Company,  shall  receive  stock  options.  Granted
     options are exercisable in three equal annual installments,  commencing six
     months  after the date of grant,  and  expire  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  Company at the time of
     the grant. No options have been granted under the Option Plan.

     401 (K) Plan:

     The Corporation  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  pre-tax  basis.  The  Corporation  currently
     contributes  50% of each dollar  contributed to the Plan by participants up
     to a maximum of 6% of the participants'  salary. The Plan also provides for
     certain discretionary contributions by the Corporation as determined by the
     Board of Directors. The Corporation's contributions amounted to $41,900 and
     $34,000 for the years ended December 31, 1995 and 1996, respectively.


                                       36

<PAGE>

8.   COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS:

     Lease Commitments:

     The Corporation leases office space under  noncancellable  operating leases
     in the New York  metropolitan  area that expire  between  December 1996 and
     November 2000.

     On October 8, 1996, the Corporation  entered into an agreement to acquire a
     lease,  for new office space,  and a sub-lease from an unaffiliated  person
     for  $90,000.  The  lease is for a term  expiring  March 31,  2000,  and is
     subject to renewal by the  Corporation  for an additional  five years.  The
     rent is $62,400  per annum,  and is subject to annual  increases  beginning
     April 1,  1997.  The  Corporation  sub-leases  a  portion  of the space for
     $34,320 per annum.  The sublease is subject to the same renewal  option and
     annual increases as the Corporation's lease.

     At December 31, 1996, future minimum lease payments due under operating and
     capital leases approximate:

                                                          Operating    Capital
                                                            Leases     Leases
                                                          ---------    -------
          1997                                             $103,770     $7,394
          1998                                               99,435      1,447
          1999                                               73,681
          2000                                               46,187
                                                          ---------    -------

          Total minimum future payments                    $323,073      8,841
                                                           ========
          Less amounts representing interest                             1,663
                                                                       -------
          Present value of net minimum lease payments                   $7,178
                                                                       =======

     Rental expense charged to operations was approximately $86,000 and $128,000
     for the years ended December 31, 1995 and 1996, respectively.

     Employment Agreements:

     In 1996, the  Corporation  entered into  employment  agreements  with three
     officers,  with terms expiring in 1999.  The agreements  call for aggregate
     annual  compensation  of  approximately  $395,000  and  provide for certain
     additional benefits.

     Bonus Plan:

     In 1996, the Corporation  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 upon by the
     Corporation's  Compensation Committee.  The Corporation has accrued $65,000
     for its contribution to the bonus pool for 1996.


                                       37

<PAGE>

     Concentrations of Credit Risk:

     Financial   instruments  which  potentially   subject  the  Corporation  to
     concentrations   of  credit  risk  consist   primarily  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  exceeding federally insured limits approximated  $1,100,000 at
     December  31,  1996.  The  Corporation  does  not  require   collateral  on
     commercial  accounts  receivable  as the customer  base  consists of large,
     well-established  institutions. No concentrations of credit risk existed at
     December 31, 1996 (see Note 13).

     Major Customers:

     One  major  customer  accounted  for  approximately  12.5%  and 9.6% of net
     patient  service  revenue for the years ended  December  31, 1995 and 1996,
     respectively.

     Business Risks:

     Certain factors relating to the industry in which the Corporation  operates
     and  the  Corporation's  business  should  be  carefully  considered.   The
     Company'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.

9.   RELATED PARTY TRANSACTIONS:

     In September  1995,  the  Corporation  entered into a loan agreement with a
     shareholder wherein the Corporation lent the shareholder $125,000. The note
     was due at the  earlier  of (i) 30 days  after  notice  of the  filing of a
     registration  statement,  or (ii) September 28, 1997.  Interest was payable
     monthly at the rate charged by the Corporation's  lender. (See Note 4). The
     shareholder's  stock  certificates  were being held as  collateral  for the
     note. The note was repaid on August 1, 1996.

     In January 1996, the  Corporation  entered into a Service  Agreement with a
     company affiliated through common ownership.  The Corporation has agreed to
     provide  administrative  services relating to payroll,  benefits management
     and data  processing to the company through June 30, 1997. The company will
     be reimbursed for all expenses  attributable to such operations,  presently
     totaling $15,000 per year.


                                       38

<PAGE>

     On November 1, 1995,  the  Corporation  transferred  the land and  building
     which it had acquired on April 18, 1994 to a company related through common
     ownership. As a result of the transaction,  the Corporation was relieved of
     its  mortgage  obligation  of  $146,250  and the  shareholders  received  a
     non-cash  distribution  in 1995 of $144,927 which  represented the net book
     value of the land and  building.  No gain or loss was  recognized  upon the
     transfer.

10.  SHAREHOLDERS' EQUITY:

     Common Stock and Recapitalization:

     As effected on March 26,  1996,  the  shareholders  and Board of  Directors
     authorized an increase in the number of  authorized  shares of common stock
     from 200 to 10,000,000, an increase in par value to $.01 per share, a stock
     split of 56,625 for 1 of the Corporation's common stock outstanding,  and a
     stock split of 48,343.75 for 1 of the Corporation's  unissued common stock.
     On October 17, 1996,  the  shareholders  and Board of Directors  effected a
     stock split of 1.25 for 1 of the Corporation's common stock and an increase
     in the  number of  authorized  shares of common  stock from  10,000,000  to
     12,500,000.  On December 4, 1996, the  shareholders  and Board of Directors
     effected a stock split of .8830022 for 1 of the Corporation's  common stock
     issued and  outstanding.  As a result,  all historic  share amounts and per
     share amounts in the accompanying  financial statements and notes have been
     adjusted to reflect the stock splits and increase in par value.

     On December 27, 1996, the Corporation completed the initial public offering
     of 1,250,000  shares of its common  stock at $4.00 per share.  The proceeds
     received by the  Corporation of $3,765,703 are net of costs relating to the
     offering of $1,234,297.

     Preferred Stock:

     On March 26, 1996,  the  shareholders  and Board of Directors  approved the
     authorization  of a total of 2,000,000  shares of preferred stock which may
     be  issued  in one  or  more  series  with  rights  and  preferences  to be
     determined by the Board of Directors.

     Options and Warrants:

     On March 26,  1996,  the  Corporation  issued an option to purchase  93,750
     shares of common stock to the President of the  Corporation  at an exercise
     price of $3.00 per share.  The option may be  exercised at any time through
     March 26, 2006. (See Note 2 - Stock Based Compensation).


                                       39

<PAGE>

     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 125,000  shares of common stock.  The warrants are
     exercisable  at a price of $5.20 for a period of four years  commencing one
     year from December 20, 1996.  These  warrants  grant to the holder  certain
     "piggyback"  registration  rights for a period of seven years from December
     20, 1997,  and demand  registration  rights for a period of five years from
     December 20, 1996 with respect to the registration under the Securities Act
     of the securities issuable upon the exercise of the warrants. (See Note 2 -
     Stock Based Compensation.)

     Dividend Policy:

     The  Corporation  had  operated  as an S  Corporation  prior to the  public
     offering effected December 20, 1996 and has paid out a substantial  portion
     of its earnings to its current shareholders as S Corporation distributions.
     The Board of Directors  intends to retain and reinvest any future  earnings
     into the development of the business.  Any future payment of dividends will
     be subject to the discretion of the Board of Directors.

     Reclassification of S-Corporation Earnings:

     As of December 17, 1996, S Corporation  undistributed  earnings of $318,580
     has been reclassified from retained earnings to additional paid-in-capital.
     This reclassification  assumes a constructive dividend to the S Corporation
     shareholders followed by a contribution to the capital of the Corporation.

11.  FAIR VALUE OF FINANCIAL INSTRUMENTS:

     The amounts  included in the balance  sheet at December  31, 1996 for cash,
     accounts receivable,  unbilled services,  accrued payroll, accounts payable
     and accrued expenses,  and current maturities of long-term debt approximate
     fair  value  because of the  short-term  nature of these  instruments.  The
     carrying  value of long-term  debt  approximates  the estimated  fair value
     because  the  long-term  debt is at  interest  rates  comparable  to  notes
     currently  available  to the  Company  for  debt  with  similar  terms  and
     remaining maturities.


                                       40

<PAGE>

12.  SUPPLEMENTAL CASH FLOW DISCLOSURES:

                                                          For the Years Ended
                                                              December 31,
                                                          ---------------------
                                                            1995         1996
                                                          ---------    --------
      Cash paid during the year for:
       Interest                                           $  93,439    $163,630
                                                          =========    ========

       Income taxes                                       $   --       $ 10,430
                                                          =========    ========

      Supplemental disclosure of non-cash investing
       and financing activities:

          Transfer of ownership of building to a
           separate corporation:
           Decrease in fixed assets                       $ 291,177

           Decrease in long-term debt                       146,250
                                                          ---------

           Non-cash distribution to shareholders          $ 144,927
                                                          =========
          Reclassification of S-Corporation earnings      $ 318,580
                                                          =========

13.  SALE OF ACCOUNTS RECEIVABLE:

     On July 8,  1996,  the  Corporation  entered  into an  agreement  with 1667
     Flatbush LLC ("1667  Flatbush") a limited  liability  company  owned by the
     Corporation's  officers  and  directors,  whereby 1667  Flatbush  purchased
     $3,500,000 of the Corporation's accounts receivable for a purchase price of
     $3,150,000.  As a result of the Corporation's  sale of accounts  receivable
     for less than their face value, the Corporation  recognized a net charge to
     its  earnings  during the year  ended  December  31,  1996 in the amount of
     $204,137.  The purchase price was  represented  by a negotiable  promissory
     note which bore  interest  at the rate of 12% per  annum,  and was  payable
     $1,100,000 on August 1, 1996, $1,100,000 on September 1, 1996, and $950,000
     at the  earlier  of October 1, 1996 or the  effective  date of the  initial
     public  offering.  The note was  collateralized  by a lien on the  accounts
     receivable purchased from the Corporation, and was personally guaranteed by
     each of the members of 1667 Flatbush. The final installment of the note was
     paid in full on September 30, 1996.


                                       41

<PAGE>

Item 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
          ON ACCOUNTING AND FINANCIAL DISCLOSURES

          None

                                    PART III

Item 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

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

        Name                   Age                        Position
        ----                   ---                        --------

Jerry Braun                    39       President, Chief Executive Officer and
                                          Director

Jacob Rosenberg                39       Vice President, Chief Operating Officer,
                                        Secretary and Director

Gilbert Barnett                51       Chief Financial Officer and Chief
                                        Accounting Officer

Samson Soroka                  40       Director

Hirsch Chitrik                 68       Director

Sid Borenstein                 42       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.

     Gilbert Barnett has been the Chief  Accounting  Officer and Chief Financial
Officer of the Company  since April 1995.  From 1989 to 1995, he was Director of
Finance for the Mt. Sinai Medical Center in New York,  where he was  responsible
for the Patient  Accounting  Department.  From 1981 to 1988, Mr. Barnett was the
President of Grand Graham Medical Center,  a shared health  facility  located in
Brooklyn, New York. In 1981, he was the treasurer of Accredited Care, Inc., a


                                       42


<PAGE>

licensed home care company in White Plains, New York. Mr. Barnett is a Certified
Public Accountant,  a Fellow of the Health Care Financial Management Association
and a Certified Manager of Patient Accounts.

     Samson  Soroka has been a Director of the Company  since its  inception  in
1983.  From 1988 to February 1995, Mr. Soroka was employed by the Company as its
Chief  Financial  Officer.  Since  then,  Mr.  Soroka  has been  employed  as an
independent consultant. Mr. Soroka is a graduate of Brooklyn College of the City
University of New York (BS, Accounting and Computer Science, 1979).

     Hirsch  Chitrik has been a Director of the Company since May 1995. For more
than the last five years,  Mr.  Chitrik has been the  President of Citra Trading
Corporation,  a  privately-held  company  in New  York  engaged  in the  jewelry
business.

     Sid  Borenstein has been a Director of the Company since May 1995. For more
than the last five years, Mr.  Borenstein,  a Certified Public  Accountant,  has
been a General Partner in Sid Borenstein & Co., CAPS, in Brooklyn, New York.

     There are no  committees of the Board of  Directors.  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." The Company intends to appoint a Compensation  Committee
in fiscal 1997.

Employment Agreements

     On March 26, 1996,  the Company  entered into  employment  agreements  with
Jerry Braun and Jacob Rosenberg, each of which is for a term ending December 31,
1999. On August 27,1996,  the Company entered into an employment  agreement with
Gilbert Barnett, its Chief Financial and Accounting Officer,  with a term ending
July 30, 1999.

     Mr.  Braun's  agreement  provides that he will serve as President and Chief
Executive  Officer  in  consideration  of (i)  initial  annual  compensation  of
$175,000;  (ii)  reimbursement  of  authorized  business  expenses  incurred  in
connection with the conduct of the Company's  business;  (iii)  participation in
the  Company's  401  (k)  Plan  and  stock  option  plan;   (iv)  an  automobile
reimbursement  allowance  of $500 per month toward  automobile  leasing cost and
reimbursement of automobile  insurance cost; (v) an allowance of $3,500 per year
towards the cost of $500,000 of term life insurance,  and disability  insurance;
(vi) four weeks paid  vacation;  and (vii) annual  increase in salary of 10% for
each year.  He is  required  to devote a majority  of his  business  time to the
Company's  affairs and is permitted  to devote a limited  amount of his business
time to the affairs of


                                       43

<PAGE>

Heart to Heart,  provided  those  activities  do not compete with the  Company's
business. See "Certain Relationships and Related Transactions."

     Mr. Rosenberg's  agreement has the same general terms and conditions as Mr.
Braun's,  except that he will serve as Chief Operating  Officer,  and the annual
compensation is $140,000.

     Mr.  Barnett's  agreement  provides  that he will serve as Chief  Financial
Officer in  consideration  of (i) initial annual  compensation of $80,000;  (ii)
reimbursement of authorized  business  expenses  incurred in connection with the
conduct of the Company's  business;  (iii) participation in the Company's 401(k)
Plan; (iv) a reimbursement allowance of $1,000 per year toward professional dues
and continuing professional education;  and (v) up to three weeks paid vacation.
He is required to devote his entire business time to the Company's affairs.

     Mr. Braun,  Mr. Rosenberg and Mr. Barnett 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.

     During the  Company's  fiscal year ended  December 31,  1996,  Jerry Braun,
Jacob Rosenberg,  Samson Soroka,  Hirsch Chitrik and Sid Borenstein did not file
on a timely basis reports on Form 3 required by Section 16(a) of the  Securities
Exchange Act of 1934.


                                       44

<PAGE>

Item 10.  EXECUTIVE COMPENSATION

Summary Compensation Table

     The  following  table sets forth,  for the fiscal years ended  December 31,
1996 and 1995,  the cash  compensation  paid by the Company,  as well as certain
other  compensation  paid with  respect to those years,  to the chief  executive
officer  and,  to the extent  applicable,  each of the three  other most  highly
compensated  executive  officers of the Company in all  capacities in which they
served.

<TABLE>
<CAPTION>
                                            Annual Compensation                            Long-Term Compensation
                           -------------------------------------------   -----------------------------------------------------------
                                                                            Awards                                       Payouts
                                                                         ---------------                             ---------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Securities
Name and                                                 Other Annual      Restricted      underlying     LTIP         All other
Principal Position(1)      Year   Salary($)  Bonus($)   Compensation($)  Stock Awards($)  options/SARs  Payouts(#)   compensation($)
----------------------     ----   ---------  --------   ---------------  ---------------  ------------  ----------   ---------------
<S>                        <C>    <C>                     <C>                                <C>
Jerry Braun                1996   $123,558                $22,124(1)                         93,750
 President and Chief       1995   $116,177                $16,699(1)                         Shares
 Executive Officer

Jacob Rosenberg            1996   $ 97,115                $23,231(2)
 Chief Operating Officer   1995   $100,096                $17,885(2)

Gilbert Barnett(3)         1996   $ 79,751                 $2,760(3)
 Chief Financial and       1995   $ 57,692                 $  851
 Accounting Officer
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

-----------
(1)  Includes $10,413 and $8,817 of medical insurance premiums paid on behalf of
     such  individual  for each of the years ended 1996 and 1995,  respectively,
     $8,211 and $7,882 for automobile and  automobile-related  costs,  including
     insurance, incurred on behalf of such individual, respectively, for each of
     the years ended 1996 and 1995 and 1994 and $3,500 in expense  allowance for
     the fiscal year ended 1996.

(2)  Includes $10,413 and $8,817 of medical insurance premiums paid on behalf of
     such  individual  for each of the years ended 1996 and 1995,  respectively,
     $9,318 and $9,068 for automobile and  automobile-related  costs,  including
     insurance, incurred on behalf of such individual, respectively, for each of
     the years  ended  1996 and 1995 and  $3,500 in  expense  allowance  for the
     fiscal year ended 1996.

(3)  Included  $2,760  of  medical  insurance  premiums  paid on  behalf of such
     individual  for the fiscal year ended 1996.  Mr. Barnett joined the Company
     in April 1995.


                                       45


<PAGE>

Directors Compensation

     The Company  currently  reimburses  each  non-employee  director  for their
expenses in connection with attending meetings.

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  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.  For 1995 and for the  first  half of 1996,  the  Company
contributed  50% of each dollar  contributed to the Plan by participants up to a
maximum of 6% of the participant's  salary. All participants are fully vested in
their accounts in the Plan with respect to their salary  deferral  contributions
and are vested in Company matching contributions at the rate of 20% per year for
two years  through four years of service,  with 100% vesting after five years of
service. However,  participants who are first hired after December 31, 1994 will
not be vested in the Company matching contributions until the completion of five
years  service,  when they become 100%  vested.  The Company has agreed with the
Underwriter  that no  discretionary  contributions  to the  Plan may be made for
officers or stockholders of the Company.

   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").  Under the terms of the Option Plan,  options to purchase up to
262,500  shares of Common Stock may be granted to key  employees of the Company.
To date,  no options have been granted under the Plan.  Moreover,  the Company's
Board of Directors  has approved a resolution  which  proposes to provide for an
increase in the number of shares of Common Stock available for options under the
Option Plan equal to an  additional  262,500  shares for each of two  additional
years,  subject to approval by the  Company's  shareholders  at the first annual
meeting of shareholders. The Option Plan is to be administered by a Compensation
Committee to be 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


                                       46

<PAGE>

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.

     The underwriting agreement between the Company and the underwriter provides
that,  until December 20, 1999, the Company will not adopt,  propose to adopt or
otherwise permit to exist any employee,  officer,  director or compensation plan
or arrangement permitting the grant, issue or sale of any shares of Common Stock
or other  securities  of the Company in an amount  greater than 262,500  shares,
other  than the  proposed  increase  in the Option  Plan  described  above.  The
underwriting  agreement  also provides  that,  (i) for the three year period the
exercise price for any option  granted  pursuant to the Option Plan or otherwise
during such period  cannot be less than the greater of the fair market value per
share of the  Common  Stock on the date of grant or $4.00  per share and (ii) if
the Company's  shareholders  approve an increase of an additional 262,500 shares
for each of two  additional  years,  then any option  granted in the three years
following such an increase will have an exercise price no lower than the greater
of the fair  market  value per share of the  Common  Stock  upon the date of the
option grant or $4.00 per share.


                                       47

<PAGE>

                      Option/SAR Grants in Last Fiscal Year

                                Individual Grants

--------------------------------------------------------------------------------
                Number of       % of Total
                Securities      Options/SARs
                Underlying      Granted to
                Options/SARs    Employees in   Exercise or Base
Name            Granted         Fiscal Year    Price             Expiration Date
-----------     -------------   ------------   -----------       --------------
Jerry Braun     93,750 Shares       100%       $3.00/Share       March 31, 2006
--------------------------------------------------------------------------------

               Aggregated Option/SAR Exercises in Last fiscal Year
                     and Fiscal Year-End Option/SAR Values

--------------------------------------------------------------------------------
                                               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
-----------  ---------------  --------------   -------------     -------------
Jerry Braun         -                -         93,750/0 Shares   $93,750/0
--------------------------------------------------------------------------------

     Other than the stock  option  which has been  issued  outside of the Option
Plan to Jerry  Braun for  93,750  shares  of the  Company's  Common  Stock at an
exercise price of $3.00 per share,  the Company has not issued any options under
the Option Plan,  or  otherwise.  The Company  does not have any other  existing
stock option or other deferred  compensation  plans, but may adopt such plans in
the future.  However,  the Company has agreed with the  Underwriter not to adopt
any other stock  option or deferred  compensation  plans  during the  three-year
period  commencing  on the  Effective  Date  without the written  consent of the
underwriter of its public offering completed in December 1996.


                                       48


<PAGE>

Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information  regarding shares of the
Common  Stock  beneficially  owned as of December  31, 1996 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:

                                             Shares           Percentage
         Name and Address of                 Beneficially     of Stock
         Beneficial Owner                    Owned(l)         Outstanding(l)
         ----------------                    --------         --------------

         Jerry Braun(2)                      1,014,248         26.39%
         929 East 28th Street
         Brooklyn, NY  11210

         Jacob Rosenberg                       430,401         11.48%
         932 East 29th Street
         Brooklyn, NY  11210

         Samson Soroka                         460,401         12.28%
         1228 East 22nd Street
         Brooklyn, NY  11210

         Hirsch Chitrik                        500,000         13.33%
         1401 President Street
         Brooklyn, NY  11213

         Sid Borenstein                        125,000          3.33%
         1246 East 10th Street
         Brooklyn, NY  11230

         All officers and directors
            as a group (5 persons)(1)(2)     2,530,050         67.47%

----------
(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  93,750  shares of Common  Stock  issuable  upon the exercise of a
     stock option granted to Mr. Braun at an exercise price of $3.00 per share.


                                       49


<PAGE>

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The Company  operated as an S Corporation  prior to the end of 1996 and has
paid out a  substantial  portion of its  earnings to the  current  stockholders.
These distributions  aggregated $100,230,  $840,302 and $3,225,431 for the years
ended December 31, 1994, 1995 and 1996, respectively.

     The  Company's  directors  are  the  sole  stockholders  of  a  New  Jersey
corporation named Heart to Heart Health Care Services,  Inc. ("Heart to Heart"),
with offices located at 7 Glenwood Avenue,  East Orange, New Jersey 07017. Heart
to Heart,  which began its  operations in 1995,  engages in the home health care
business in northern New Jersey,  but not in the State of New York,  and had net
revenues of $1,181,174 in the year ended December 31, 1996. Since its inception,
Heart to Heart has utilized Company personnel for its  administrative  functions
regarding  payroll,  benefits  management and data  processing.  The Company and
Heart to Heart have  entered  into a Service  Agreement,  pursuant  to which the
Company  will  provide  administrative  services  relating to payroll,  benefits
management and data  processing for a term of 18 months ending June 30, 1997 for
which the Company  will be  reimbursed  for all  expenses  attributable  to such
operations,  presently totalling  approximately $15,000 per year. The Company is
not a Guarantor of any  obligations of Heart to Heart,  nor is it engaged in any
business or financing, transactions with Heart to Heart, other than as described
herein.

     On February 13, 1995,  Samson Soroka resigned as Chief Financial Officer of
the Company.  Mr. Soroka entered into a Settlement Agreement and General Release
with the Company on September 28, 1995 (the "Settlement Agreement"), pursuant to
which the  Company  agreed to pay his base  salary of $85,000  per year  through
August 13, 1995 and continue his medical insurance coverage through February 13,
1996.  In  addition,  the  Company  agreed to  advance  to Mr.  Soroka,  without
interest,  the sum of  $25,000  against  the cash  distributions  payable to the
Company's  current  stockholders  and loaned to Mr.  Soroka the sum of $125,000,
bearing interest at the same rate charged to the Company under its credit lines.
Mr. Soroka has since repaid his loan, together with accrued interest. Mr. Soroka
agreed to keep confidential all commercial,  financial or technical  information
concerning the Company which he learned during his  employment.  The Company and
Mr. Soroka also entered into mutual releases of all claims which they might have
had against each other.

     On May 8, 1995, Jerry Braun,  Jacob Rosenberg and Samson Soroka contributed
back to the  Company  an  aggregate  of 625,000  shares of Common  Stock and the
Company  issued 500,000 shares of its Common Stock to Hirsch Chitrik and 125,000
shares of Common  Stock to Sid  Borenstein  in  consideration  for their  having
obtained a bank line of credit for the  Company of not less than  $800,000 at an
interest rate no greater than 2% over the prime rate of Citibank N.A. The credit
line was obtained in 1988 pursuant to a March 31, 1988  agreement  between Jerry
Braun, Jacob Rosenberg,  Samson Soroka,  Hirsch Chitrik,  Sid Borenstein and the
Company, in which they subscribed to purchase shares of Common Stock, subject to
New York State Department of Health


                                       50

<PAGE>

and Public Health Council  approval  (which was granted on March 24, 1995),  and
which provided to Messrs.  Chitrik and Borenstein nonvoting equity distributions
of 20% and 5%, respectively.

     On November 1, 1995, the Company  transferred the land and building located
at 1667  Flatbush  Avenue,  Brooklyn,  New York,  which  houses its Kings County
Branch office, to 1667 Flatbush. This transfer,  which relieved the Company of a
first mortgage obligation  aggregating $146,250,  was a non-cash distribution to
the current  stockholders  of S  Corporation  earnings in the  aggregate  sum of
$144,927.  The Company  leases its Kings County Branch office from 1667 Flatbush
until October 31, 2000 for $3,150 per month in rent,  which is subject to annual
increases  beginning  November 1, 1997 equal to 5% of the prior  year's  monthly
rent.  Management  believes that the terms of the lease are no less favorable to
the Company than could have been obtained from unaffiliated third parties.

     On March 26, 1996,  the Company  issued a stock option to its President and
Chief Executive  Officer,  Jerry Braun, for the purchase of 93,750 shares of the
Company's Common Stock at an exercise price of $3.00 per share during the period
ending March 31, 2006. See "Management Savings and Stock Option Plans."

     On March 26, 1996,  the Company  entered into  employment  agreements  with
Jerry Braun and Jacob Rosenberg. See "Management - Employment Agreements."

     On July 8, 1996, the Company  entered into the  Receivables  Sale Agreement
with 1667 Flatbush pursuant to which 1667 Flatbush  purchased  $3,500,000 of the
Company's accounts  receivable for a purchase price of $3,150,000.  The purchase
price was represented by a negotiable promissory note which bore interest at the
rate of 12% per annum and was payable  $1,100,000 on August 1, 1996,  $1,100,000
on  September   1,  1996  and  $950,000  on  October  1,  1996.   The  note  was
collateralized by a lien on the accounts  receivable  purchased from the Company
and was personally guaranteed by each of the members of 1667 Flatbush.  The note
was paid in full on September  30, 1996.  As a result of the  Company's  sale of
accounts receivable for less than their face value, the Company recognized a net
charge to its earnings during 1996 in the amount of $204,137.

     The transactions  described above involve actual or potential  conflicts of
interest  between the Company and its officers or directors.  In order to reduce
the potential for conflicts of interest between the Company and its officers and
directors,  prior to entering into any transaction in which a potential material
conflict  of  interest  might  exist,  the  Company's  policy  has been and will
continue to be that the Company does not enter into  transactions with officers,
directors or other  affiliates  unless the terms of the transaction are at least
as  favorable to the Company as those which would have been  obtainable  from an
unaffiliated  source.  The  Company  has no plans to enter  into any  additional
transactions which involve actual or potential conflicts of interest between the
Company  and its  officers  or  directors  and  will  not  enter  into  any such
transactions in the future without first  obtaining an independent  opinion with
regard to the  fairness to the Company of the terms and  conditions  of any such
transaction.

                                       51


<PAGE>

Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
         AND REPORTS ON FORM 8-K

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

          (1)  FINANCIAL STATEMENTS:

               Report of Independent Certified Public Accountants.

               Balance Sheet as at December 31, 1996.

               Statements  of Income for the Years Ended  December  31, 1996 and
               1995.

               Statements of  Stockholders'  Equity for the Years Ended December
               31, 1996 and 1995.

               Statements  of Cash Flows for the Years Ended  December  31, 1996
               and 1995.

               Notes to Financial Statements.

     (2)  FINANCIAL STATEMENT SCHEDULES.

               NONE

     (3)  EXHIBITS

     Exhibit
     Number           Description of Exhibit
     ------           ----------------------
     1.1              Form of Underwriting Agreement.*

     3.1              Certificate of Incorporation of the Company.*

     3.2              Restated Certificate of Incorporation of the
                      Company.*

     3.3              Certificate of Correction of Restated Certificate of
                      Incorporation of New York Health Care, Inc.*

     3.4              Amendment to the Certificate of Incorporation filed
                      October 17, 1996.*


                                       52


<PAGE>

     3.5              By-laws of the Company.*

     3.6              Amendment to the Certificate of Incorporation of the
                      Company filed December 4, 1996.*

     4.1              Form of certificate evidencing shares of Common
                      Stock.*

     4.2              Underwriter's Warrant Agreement and Form of
                      Underwriter's Warrant.*

    10.1              Purchase and Sale Agreement by and between the
                      Company, National Medical Homecare, Inc., Jerry
                      Braun and Sam Soroka dated March 18, 1988.*

    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.*

    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
                      22, 1993.*

    10.4              Deed for 1667 Flatbush Avenue, Brooklyn, New York
                      from Tiara Realty Co. to the Company dated April 22,
                      1994.*

    10.5              Agreement between Jerry Braun, Jacob Rosenberg,
                      Samson Soroka, Hirsch Chitrik, Sid Borenstein and
                      the Company dated March 31, 1988.*

    10.6              Lease for 49 South Main Street, Spring Valley, New
                      York by and between the Company and Joffe
                      Management dated November 1, 1994.*

    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.*


                                       53

<PAGE>

    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.*

    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.*

    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.*

    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.*

    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.*

    10.13             Lease for 91-31 Queens Boulevard, Elmhurst, New
                      York by and between the Company and Expressway
                      Realty Company dated September 15, 1995.*

    10.14             Settlement Agreement and General Release by and
                      between the Company and Samson Soroka dated
                      September 28, 1995.*

    10.15             Personal Care Aide Agreement by and between the
                      Company and Nassau County Department of Social
                      Services dated October 18, 1995.*

                                       54


<PAGE>

    10.16             Lease for 1667 Flatbush Avenue, Brooklyn, New
                      York by and between the Company and 1667 Flatbush
                      Avenue LLC dated November 1, 1995.*

    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.*

    10.18             Home Health Agency Agreement by and between the
                      Company and the Center for Nursing and
                      Rehabilitation dated January 1, 1996.*

    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.*

    10.20             Home Health Aide/ Personal Care Worker Services
                      Agreement by and between the Company and Beth
                      Abraham Hospital dated January 12, 1996.*

    10.21             Homemaker Services Agreement by and between the
                      Company and the Orange County Department of
                      Social Services dated February 16, 1996.*

    10.22             Personal Care Service Agreement by and between the
                      Company and the Orange County Department of
                      Social Services dated February 16, 1996.*

    10.23             Certified Home Health Agency Agreement by and
                      between the Company and New York Methodist
                      Hospital dated February 28, 1996.*

    10.24             Employment Agreement by and between the
                      Company and Jacob Rosenberg dated March 26,
                      1996.*

    10.25             Employment Agreement by and between the
                      Company and Jerry Braun dated March 26, 1996.*


                                       55


<PAGE>

    10.26             Stock Option Agreement by and between the
                      Company and Jerry Braun dated March 26, 1996.*

    10.27             Home Health Agency Agreement by and between the
                      Company and the Mount Sinai Hospital Home Health
                      Agency dated April 1, 1996.*

    10.28             Absolute, Unconditional, Irrevocable and Limited
                      Continuing Guaranty of Payment by and between
                      Jacob Rosenberg and United Mizrahi Bank and Trust
                      Company dated May 9, 1996.*

    10.29             Absolute, Unconditional, Irrevocable and Limited
                      Continuing Guaranty of Payment by and between
                      Jerry Braun and United Mizrahi Bank and Trust
                      Company dated May 9, 1996.*

    10.30             Continuing General Security Agreement by and
                      between the Company and United Mizrahi Bank and
                      Trust Company dated May 9, 1996.*

    10.31             Agreement for the Purchase of Accounts Receivable
                      between the Company and 1667 Flatbush Avenue
                      LLC dated July 8, 1996.*

    10.32             401 (k) Plan for the Company.*

    10.33             Performance Incentive Plan for the Company.*

    10.34             Services Agreement between the Company and Heart
                      to Heart Health Care Services, Inc., dated January 1,
                      1996.*

    10.35             Employment Agreement by and between the
                      Company and Gilbert Barnett dated August 27,
                      1996.*

    10.36             Assignment of lease dated October 8, 1996, lease
                      dated March 31, 1995 and sublease dated May 1995
                      among the Company, as tenant, Prime Contracting
                      Design Corp., as assignor, Bellox Realty Corp., as
                      landlord and Nutriplus Corp., as subtenant.*


                                       56


<PAGE>

    10.37             Lease for 6 Gramatan Avenue, Mount Vernon, New
                      York, 10550 by and between the Company and 6
                      Gramatan Avenue Corp. dated December 1, 1996.*

    10.38             Form of Financial Consulting Agreement with H.J.
                      Meyers & Co., Inc.*

    10.39             Forms of Merger & Acquisition Agreement and
                      Indemnification.*

    11                Computation of Earnings Per Common Share of the
                      Company.


*    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.

     (b)  Reports on Form 8-K. The Company has not yet filed any reports on Form
          8-K.

                                       57

<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 27, 1997

                                    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  has  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 27, 1997
-------------------------       Officer and Director
Jerry Braun

/s/ Jacob Rosenberg             Vice President, Chief Operating   March 27, 1997
-------------------------       Officer, Secretary and Director
Jacob Rosenberg

/s/ Gilbert Barnett             Chief Accounting                  March 27, 1997
-------------------------       and Financial Officer
Gilbert Barnett

/s/ Samson Soroka               Director                          March 27, 1997
------------------------
Samson Soroka

/s/ Hirsch Chitrik              Director                          March 27, 1997
------------------------
Hirsch Chitrik

/s/ Sid Borenstein              Director                          March 27, 1997
------------------------
Sid Borenstein

                                       58