**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


**FORM
      10-K**


**(Mark
      One)**





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





For
      the
      fiscal year ended: December 31, 2007





OR





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





For
      the
      transition period from: _______ to ________.





**Commission
      File No. 1-12451**





**NEW
      YORK HEALTH CARE, INC.**


(Exact
      name of registrant as specified in its charter)





New
                York
            
            11-2636089(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)1850
                McDonald Avenue, Brooklyn, New York
            
            11223(Address
                of principal executive offices)
            
            (Zip
                Code)





Registrant’s
                telephone number, including area code:
            718-375-6700





Securities
                issued pursuant to Section 12(b) of the Act:
            None





Name
                of exchange onTitle
                of each class
            
            which
                registered





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





Common
      Stock $.01 par value





(Title
      of
      Class)





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. o Yes **x** No





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. o Yes **x** No





**Note** –
      Checking the box above will not relieve any registrant required to file reports
      pursuant to Section 13 or 15(d) of the Exchange Act from their obligations
      under
      those Sections.





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”) during the preceding 12 months (or for such shorter period that
      the registrant was required to file such reports), and (2) has been subject
      to
      such filing requirements for the past 90 days. **x** Yes o No





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K. o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.




Large
                accelerated filer o
            Accelerated
                filer oNon-accelerated
                filer o (Do not check if
                a smaller reporting company)
            Smaller
                reporting company x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). o Yes **x** No





The
      aggregate market value of the registrant’s common stock held by non-affiliates
      computed by reference to the price at which the common stock was last sold,
      or
      the average bid and asked price of such common stock, as of June 30, 2007,
      the
      last business day of the registrant's most recently completed second fiscal
      quarter,  was
      approximately  $3,538,000.





The
      number of shares outstanding of the registrant’s common stock, as of April 10,
      2008: 33,536,767 .





DOCUMENTS
      INCORPORATED BY REFERENCE: NONE





**FORWARD-LOOKING
      STATEMENTS**





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




The
      following information should be read in conjunction with the Consolidated
      Financial Statements and notes thereto included in this Annual Report. All
      references to fiscal year apply to the Company’s fiscal year which ends on
      December 31, 2007.




**Recent
      Developments:**





As
      of
      December 31, 2007, BioBalance had cash on hand of approximately $38,000, all
      of
      which was available to fund operations. BioBalance management estimates that
      its
      capital requirements for an entire year of operations are approximately
      $5,000,000. This amount includes the cost of the initial up front payment for
      the Phase I/II clinical trial, in the amount of $3,000,000, for the Company's
      lead product PROBACTRIX® that is not expected to be started in 2008. It will be
      necessary for the Company to secure additional funding in order for BioBalance
      to begin the Phase I/II clinical trial, which was approved by FDA on March
      24,
      2006. The Company has not been able to obtain additional funding up to the
      present time and the BioBalance subsidiary has been operating solely by
      utilizing funds from the health care operations, which are insufficient for
      BioBalance's needs. The Company is seeking potential funding sources but no
      agreements with any such funding sources have been entered into. Accordingly,
      since additional funding from outside sources has not been obtained, the Company
      began scaling back the operations of BioBalance at the end of November 2006,
      and
      BioBalance operated on a substantially reduced budget in 2007. BioBalance
      management has taken steps to secure the data from clinical trials and has
      produced an additional master seed of the biological strain of PROBACTRIX® and
      is in the process of placing duplicates in secondary off-site secure storage. Additionally,
      BioBalance surrendered its office space to the landlord in March 2007 in
      exchange for lease cancellation, incurring exit costs and losses on disposal
      or
      value impairments of equipment and fixtures of approximately $74,000 .
      Management has instituted temporary cutbacks in consultant compensation until
      such time as additional funds or a strategic partner can be found. There can
      be
      no assurances that the Company will be able to raise additional capital in
      the
      near term to allow BioBalance to continue its normal level of
      operations.





BioBalance
      has also commenced preliminary studies regarding the use of PROBACTRIX® in the
      treatment of Celiac disease (a dietary gluten intolerance). This study was
      conducted as a small scale pilot study which, while not providing data that
      is
      clinically or statistically useful in demonstrating efficacy, produced
      encouraging preliminary results. The Company is contemplating various options
      including funding costs relating to clinical research and statistical analysis
      for a follow up study.





In
      September 2007, BioBalance completed an international, multi-center, randomized,
      double-blind, placebo-controlled, clinical trial in 129 patients with irritable
      bowel syndrome. PROBACTRIX® was well tolerated. However, due to an unusually
      high placebo response rate (53.1%), there was no statistical difference in
      the
      primary endpoint (relief of abdominal pain and discomfort) when PROBACTRIX® -
      and placebo-treated patients were compared. There were more placebo-treated
      patients who experienced at least one adverse event and who experienced at
      least
      one adverse event related to study product (46 and 15, respectively) than did
      PROBACTRIX® -treated patients (39 and 10, respectively). This study demonstrated
      the safety of PROBACTRIX® when given for long periods of time and is consistent
      with other studies that BioBalance has conducted to assess product safety.
      Despite the unexpected high placebo response rate and its negative impact on
      the
      study's primary endpoint, BioBalance remains encouraged by the strong
      improvements in stool consistency, pain and discomfort, bloating, and stool
      frequency compared to baseline. BioBalance is investigating the use of higher
      concentrations of the probiotic and plans to review the data derived from the
      irritable bowel syndrome study as a knowledge base for new studies in order
      to
      target indications which the company believes on-going research
      supports.


2


On
      March
      30, 2006, the Company was served with a shareholder derivative complaint
      captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murry Englard,
      Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York Health Care,
      Inc. (Supreme Court of State of New York County of Nassau ,Index No. 5125/06).
      The lawsuit alleged that the directors breached their fiduciary duty by
      approving the Emerald Settlement Agreement disclosed in the Company's Form
      8-K
      (Date of Report March 6, 2006) filed with the Securities Exchange Commission
      on
      March 10, 2006. The lawsuit claimed that such breach was a product of their
      respective relationships with Mr. Grossman. The lawsuit also alleged that Mr.
      Grossman and Emerald Asset Management injured the Company by engaging in the
      actions underlying the November 2004 criminal conviction of Mr. Grossman. The
      lawsuit was dismissed in September 2006. A notice of appeal was filed by the
      plaintiff in October 2006 and the plaintiff filed its appeal brief in April
      2007. On January 15, 2008, the court dismissed the appeal.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The Company’s recurring losses and
      negative working capital raises substantial doubt about its ability to continue
      as a going concern. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. Management’s
      plans in connection with this matter include further budget reductions in
      BioBalance, selling unproductive assets and seeking additional equity
      investment.





**PART
      I**


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





**OVERVIEW**





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





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


3


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




For
      more
      information as to the financial performance of our home healthcare and
      BioBalance business segments, see Part II, Item 7, “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations” and Note 13 of Notes
      to Consolidated Financial Statements included elsewhere in this
      report.





**HISTORY,
      DEVELOPMENT AND OVERVIEW**




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





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





BioBalance
      is a development stage biopharmaceutical company incorporated in Delaware in
      May
      2001. BioBalance is focused on the development of innovative treatments for
      various gastrointestinal (GI) disorders with significant unmet needs. BioBalance
      has not generated any revenues to date.




**CORPORATE
      STRATEGY**





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


4


**BIOBALANCE
      BUSINESS**




**Overview**




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




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




Our
      lead
      development product, *PROBACTRIX® ,* is a
      proprietary strain of *E.coli* M-17
      bacteria, which we plan to develop as a prescription drug treatment for
      pouchitis, IBS and other GI disorders.




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




BioBalance
      originally submitted the IND application for the pouchitis indication which
      was
      received by the FDA on January 2, 2005. On March 24, 2006, the FDA gave us
      clearance to proceed with the Phase I/II clinical trial. This study is currently
      on hold, pending the availability of third party funding, as described above
      under “Recent Developments”.





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


5


The
      patented formulation used for *PROBACTRIX®* consists
      of a proprietary strain of non-pathogenic *E.coli M-17* ,
      derived
      from an organism that was originally isolated from the intestinal mircoflora
      of
      healthy volunteers. The technology and the processes comprise conditions that
      preserve *E.coli* M-17, in
      the biologically active form. Patent applications have been filed by BioBalance
      for various
      formulations designed to extend the product’s shelf-life in a liquid
      form.





In
      addition, we received approval of the registration of *PROBACTRIX®* as
      a
      registered trademark in the U.S. on March 1, 2005. Our intellectual property
      portfolio also includes rights to a combination of two patented Bacillus
      strains, *B.
      subtilis* and *B.
      licheniformis* .




We
      have
      contracted for the manufacture of *PROBACTRIX®* with ** Benchmark
      Biolabs Inc. to satisfy our clinical trial needs in a state-of-the-art facility
      located in Lincoln, Nebraska. At the present time, no product is being
      manufactured at this or any other facility.




**Regulatory
      Strategy**





Our
      current regulatory strategy involves pursuing accelerated approval
      for *PROBACTRIX®* under
      the
      auspices of an active IND, for treating patients with chronic pouchitis for
      the
      purpose of preventing relapse of their symptoms. There
      are currently no approved treatments for pouchitis. Additional clinical studies
      can subsequently be conducted to determine whether there is support for broader
      usage.




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




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




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


6


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





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




In
      September 2007, BioBalance completed an international, multi-center, randomized,
      double-blind, placebo-controlled, clinical trial in 129 patients with irritable
      bowel syndrome. PROBACTRIX® was well tolerated. However, due to an unusually
      high placebo response rate (53.1%), there was no statistical difference in
      the
      primary endpoint (relief of abdominal pain and discomfort) when PROBACTRIX® -
      and placebo-treated patients were compared. There were more placebo-treated
      patients who experienced at least one adverse event and who experienced at
      least
      one adverse event related to study product (46 and 15, respectively) than did
      PROBACTRIX® -treated patients (39 and 10, respectively). This study demonstrated
      the safety of PROBACTRIX® when given for long periods of time and is consistent
      with other studies that BioBalance has conducted to assess product safety.
      Despite the unexpected high placebo response rate and its negative impact on
      the
      study's primary endpoint, BioBalance remains encouraged by the strong
      improvements in stool consistency, pain and discomfort, bloating, and stool
      frequency compared to baseline. BioBalance is investigating the use of higher
      concentrations of the probiotic and plans to review the data derived from the
      irritable bowel syndrome study as a knowledge base for new studies in order
      to
      target indications which the company believes on-going research
      supports.




**PRODUCTS**




**PROBACTRIX®**





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





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





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


7


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




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




·
            Rapid
                suppression of pathogenic microorganisms and their
                repulsion.




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




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




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




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




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





**Bacillus
      Product**





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


8


**Prior
      Clinical Studies**




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




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




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




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




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




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





In
      September 2007, BioBalance completed an international, multi-center, randomized,
      double-blind, placebo-controlled, clinical trial in 129 patients with irritable
      bowel syndrome. PROBACTRIX® was well tolerated. There were more placebo-treated
      patients who experienced at least one adverse event and who experienced at
      least
      one adverse event related to study product (46 and 15, respectively) than did
      PROBACTRIX® -treated patients (39 and 10, respectively). This study demonstrated
      the safety of PROBACTRIX® when given for long periods of time and is consistent
      with other studies that BioBalance has conducted to assess product safety.
      Despite the unexpected high placebo response rate and its negative impact on
      the
      study's primary endpoint, BioBalance remains encouraged by the strong
      improvements in stool consistency, pain and discomfort, bloating, and stool
      frequency compared to baseline. BioBalance is investigating the use of higher
      concentrations of the probiotic and plans to review the data derived from the
      irritable bowel syndrome study as a knowledge base for new studies in order
      to
      target indications which the company believes on-going research
      supports.


9


**Veterinary
      Application**





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





**MANUFACTURING**





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





**INTELLECTUAL
      PROPERTY**





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




At
      December 31, 2007, management determined that the value of the PROBACTRIX®
intellectual property was partially impaired due to the unusually high placebo
      response rate in the clinical trial related to the irritable bowel syndrome
      ("IBS") indication. While management believes that further testing may prove
      the
      efficacy of PROBACTRIX® for that indication, further clinical trials would
      require substantial additional funding which is currently unavailable.
      Accordingly, management recorded an impairment loss of $729,792 against
      the intellectual property. The remaining carrying value after recording the
      impairment loss was $628,056 ,
      representing the net carrying amount of the patents and trademarks.





BioBalance
      also previously acquired the global patent rights to a combination of two
      patented Bacillus strains ( *B.
      subtilis* and *B.
      licheniformis* )
      (”NexGen Product Platform”) for $3,850,000 which included a one-time cash
      payment of $250,000 and one million shares of Common Stock of the Company valued
      at $3,600,000. See “Bacillus Product” above. At December 31, 2004 it was
      determined that the investment in the NexGen Product Platform was impaired
      and
      as a result of the impairment analysis, a total of $1,740,326 was expensed
      during the fourth quarter of 2004. The impairment was determined by an
      independent valuation firm using a discounted cash flow model. At the time,
      the
      impairment was felt necessary due to a number of factors including the
      acceleration of the Company’s efforts to obtain regulatory approval and take
      other action necessary to market *PROBACTRIX®* as
      a
      prescription product, overall limited funding available to the Company to
      develop the Bacillus product and available management time.





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


10





**BIOBALANCE
      EMPLOYEES**





The
      only
      employees of BioBalance are the Company's two part-time executive officers,
      Murry Englard, CEO and Stewart W. Robinson, CFO, who divide their time between
      BioBalance and the home health care business as needed. BioBalance outsources
      most of its clinical and regulatory needs through the use of part-time or
      consultants. While BioBalance has no definitive plans with respect to the
      ultimate size of its workforce or persons who will fill specific positions,
      BioBalance plans to evaluate its staffing needs relative to research and
      development, product manufacturing and marketing and finance and administration
      and will seek to retain personnel as employees or consultants based on that
      evaluation.





**HOME
      HEALTH CARE BUSINESS**





**Overview**





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





Our
      services are provided principally by our staff of professionals and
      paraprofessionals (some are bilingual), who provide personal care to patients,
      and, to a lesser extent, by our staff of skilled nurses. Approximately 99%
      of
      our home health revenues in 2007 were attributable to services by our
      paraprofessional staff.





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


11


*Organization
      and Operations*





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





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





*Referral
      Sources*





We
      obtain
      patients primarily through contracts, referrals from hospitals, community-based
      healthcare institutions and social service agencies, case management and
      insurance companies. Referrals from these sources accounted for substantially
      all of our net revenues in 2007. We generally conduct business with most of
      our
      institutional referral sources under one-year contracts that fix the rates
      and
      terms of all referrals but do not require that any referrals be made. Under
      these contracts, the referral sources refer patients to us and we bill the
      referral sources for services provided to patients. Approximately 60 such
      contracts were in effect and active as of December 31, 2007.





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




Referring
                Institution
            
            Percentage
                of Net Revenues for 2007New
                York City Medicaid (HRA)
            
            56.1%Guildnet
                Inc.
            
            5.4%Beth
                Abraham Long Term Home Health Program
            
            6.8%





Overall,
      our 10 largest referring institutions accounted for approximately 88.5% of net
      revenues for 2007.





Days
      Sales Outstanding (“DSO”) is a measure of the average number of days required
      for the Company to collect accounts receivable, calculated from the date
      services are billed. For the year ended December 31, 2007 the Company's DSO
      were
      68 .


12


*Reimbursement*





We
      are
      reimbursed for services, primarily by referring institutions, such as healthcare
      institutions and social service agencies, which in turn receive their
      reimbursement from Medicaid, Medicare and, to a much lesser extent, through
      direct payments by insurance companies and private payers. New York State
      Medicaid programs constitute our largest reimbursement sources, when including
      both direct Medicaid reimbursement and indirect Medicaid payments through many
      of our referring institutions. For 2007, payments from referring institutions
      that receive direct payments from Medicare and Medicaid, together with direct
      reimbursement to us from Medicaid, accounted for approximately 99% of net
      revenues. Direct reimbursements from private insurers, prepaid health plans,
      patients and other private sources accounted for approximately 1% of net revenue
      for 2007.





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





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





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





*Performance
      Improvement*





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


13


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





*Sales
      and Marketing*





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





*Government
      Regulation*





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





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





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





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





Federal
      laws to which we are subject also include the broadly worded fraud and abuse
      provisions of the Social Security Act that are applicable to the Medicare and
      Medicaid programs, which prohibit various transactions involving Medicare or
      Medicaid covered patients or services and the Health Insurance Portability
      and
      Accountability Act of 1996 (“HIPAA”), which is applicable to both public and
      private health care programs. Among other things, these provisions restrict
      referrals by physicians for certain designated health services, including home
      health care, to entities with which the physician or the physician's immediate
      family member has a "financial relationship" 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. They also prohibit false statements, false
      billings and fraudulent conduct. Violations of these provisions may result
      in
      civil or criminal penalties for individuals or entities and/or exclusion from
      participation in the Medicare and Medicaid programs. The future interpretation
      of these provisions and their applicability to our operations cannot be
      predicted.


14


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





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





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





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





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





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





*Competition*





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


15


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





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





**HOME
      HEALTH CARE EMPLOYEES**





At
      March
      9, 2008, our home healthcare business had 1,460 employees, of whom sixty four
      are salaried, including one division officer, a controller, a vice president
      of
      operations, a human resources administrator, an IT specialist, seven
      administrators/branch managers, nine nurses, three accounting staff, eighteen
      clerical staff, and twenty two field staff supervisors. The remaining 1,396
      employees are paid on an hourly basis and consist of professional and
      paraprofessional staff.





None
      of
      our home healthcare or BioBalance employees are compensated on an independent
      contractor basis or represented by a labor union. A local labor union has been
      attempting to organize the Company's home care health aides. The local union
      recently withdrew its request from the labor board to initiate a vote.
      Management believes that the Company has good relations with its employees.


16


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





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





**Risks
      Relating to the BioBalance Business**





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





BioBalance
      was incorporated in May 2001, has generated no revenues from operations, and
      has
      no meaningful assets other than its intellectual property rights and $38,000
      in
      available cash at December 31, 2007. BioBalance faces all of the risks inherent
      in a new business and those risks specifically inherent in the business of
      developing, testing, obtaining regulatory approvals for, manufacturing,
      commercializing and selling a new prescription drug product, with all of the
      unforeseen costs, expenses, problems, and difficulties to which such ventures
      are subject. We cannot assure you that BioBalance will be able to generate
      revenues or profits from operation of its business or that BioBalance will
      be
      able to generate or sustain profitability in the future.





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





BioBalance
      will be required to expend substantial amounts of working capital in order
      to
      develop, test, obtain the requisite regulatory approvals, manufacture and market
      its proposed product and establish the necessary relationships to implement
      its
      business plan. At December 31, 2007, BioBalance had available cash in the amount
      of $38,000. For the year ended December 31, 2007, BioBalance’s operations were
      funded entirely by capital from the Company’s health care operations. BioBalance
      is entirely dependent on existing cash, working capital from the health care
      operations, and its ability to attract and receive additional funding from
      either the sale of securities or outside sources such as private investment
      or a
      strategic partner. See “Recent Developments”. If BioBalance fails to obtain
      additional financing, BioBalance's clinical and regulatory programs will need
      to
      be further scaled back, suspended or cancelled. BioBalance has no firm
      agreements or arrangements with respect to any such financing and we cannot
      assure you that any needed funds will be available to BioBalance on acceptable
      terms or at all. The inability to obtain sufficient funding of BioBalance’s
      operations in the immediate future could cause BioBalance to curtail or cease
      its operations.


17


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





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





As
      previously reported by the Company in its Form 8-K filed with the Securities
      and
      Exchange Commission on September 12, 2006, Mr. Dennis O'Donnell, the Company's
      President and Chief Executive Officer, acting Principal Financial Officer and
      a
      director, resigned from all of his positions with the Company effective
      September 8, 2006. Although the Board has not selected a permanent replacement
      for Mr. O'Donnell, Mr. Murry Englard is presently serving in the capacity of
      Chief Executive Officer and Mr. Stewart Robinson as Principal Financial Officer.
      The Board believes that the part-time participation of these executive officers
      is sufficient for the Company at its present size and form. Should the Board
      determine at a later date that these executive positions should be filled by
      full-time employees, there can be no assurance that the Company will be able
      to
      obtain the services of a qualified Chief Executive Officer or Chief Financial
      Officer in the near term, particularly in light of BioBalance's current
      financial situation, as discussed above under the risk factor “Failure to Secure
      Additional Financing Would Result in Impaired Growth and Inability to
      Operate.”





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





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





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


18


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




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




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




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




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




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


19




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




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




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




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




20




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




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




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




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




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




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




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




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




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




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




21




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




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




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




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




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




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




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




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




22





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




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




**RISKS
      RELATING TO THE HOME HEALTHCARE BUSINESS**





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




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





The
      issue
      was submitted to the Supreme Court and, on January 23, 2006, the Supreme Court
      granted a writ of certiorari, vacated the judgment and remanded the case to
      the
      Second Circuit Court of Appeals to reconsider its decision in light of a
      memorandum issued by the U.S. Department of Labor on December 1, 2005. In that
      memo, the DOL stated that it considers its regulations allowing the
      companionship exemption to be used by third party employers to be “authoritative
      and legally binding”. The Second Circuit Court of Appeals reconsidered and, on
      August 31, 2006, reaffirmed its decision. The Supreme Court again granted a
      writ
      of certiorari on January 5, 2007. In June 2007, the U.S. Supreme Court issued
      its decision which upheld the "companionship exemption" as applying to
      employment by "third party employers", e.g. home care agencies, such as New
      York
      Health Care. Based on this decision, federal law does not require payment of
      premium wages for overtime, but New York State continues to require payment
      of
      one and one-half times the State minimum wage for overtime worked by employees
      falling within the companionship exemption. Federal legislation has been
      introduced that would limit the use of the companionship exemption to persons
      employed “casually” as companions, i.e. to those who do not work full-time and
      do not work for third-party employers such as New York Health Care. If this
      legislation is enacted, challenges for the home care industry will be affording
      higher overtime wages, ensuring patient continuity of care if agencies can
      no
      longer afford to authorize overtime, and retention of workers who cannot secure
      the number of hours of work they desire. All of these factors may cause a higher
      cost per hour serviced thereby adversely affecting profitability.




23




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





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





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





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




24




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





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





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





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





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





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




25




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





The
      development and growth of our home care and nursing businesses depends, to
      a
      significant extent, on our ability to establish close working relationships
      with
      hospitals, clinics, nursing homes, physician groups, HMO's, governmental
      healthcare agencies and other healthcare providers. Many of our contractual
      arrangements with customers are renewable annually. Existing relationships
      may
      not be successfully maintained and additional relationships may not be
      successfully developed and maintained in existing and future markets. Our 10
      largest customers accounted for approximately 88.5% of gross
      revenues during the year ended December 31, 2007. One referral source, New
      York
      City Medicaid, was responsible for approximately 56.1% of our gross revenues
      for
      the year ended December 31, 2007. The loss of, or a significant reduction in,
      referrals by these sources, as well as certain other key sources, would have
      a
      material adverse effect on results of operations of our home healthcare
      business.





**RISKS
      RELATING TO OUR COMMON STOCK**





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




The
      trading price of our Common Stock has been subject to significant fluctuations,
      and there is a limited market for our Common Stock. For the fiscal year 2007,
      the price of our Common Stock has ranged from a high of $0.260 to a low of
      $0.035. The price of our Common Stock is likely to continue to be affected
      by
      various factors, including, but not limited to, the results of our development
      efforts of *PROBACTRIX®* and
      other
      products, variations in quarterly results of operations, announcements of new
      contracts or services, or acquisitions by us or our competitors, governmental
      regulatory action, general trends in the industry, and other factors, such
      as
      extreme price and volume fluctuations which have been generally experienced
      by
      the securities markets from time to time in recent years.




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




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





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




26




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




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




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




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




27




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




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




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




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





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




None.





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





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





Our
      corporate headquarters is located in a building containing approximately 6,000
      square feet located in Brooklyn, New York under a lease expiring in 2010, at
      a
      monthly rental of approximately $10,000, subject to annual increases and rent
      escalations based on increases in real estate taxes. Our home healthcare
      business is administered from our corporate headquarters and 7 branch and
      recruitment offices located in New York under month to month tenancies and
      term
      leases expiring from March 2008 through June 2011 at annual rentals ranging
      from
      approximately $23,000 to $129,000, and additional rent based upon increases
      in
      real estate taxes and other cost escalations.





BioBalance's
      executive office was located at 345 Seventh Avenue, New York, New York under
      a
      five year lease that commenced in April 2006 at a monthly rental of
      approximately $15,200. BioBalance surrendered this office space to the landlord
      in March 2007 in exchange for lease cancellation, incurring exit costs and
      asset
      disposal/impairment losses of approximately $74,000 .




28




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





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





On
      March
      30, 2006, the Company was served with a shareholder derivative complaint
      captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murry
      Englard, Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York
      Health Care, Inc., (Supreme Court of State of New York County of Nassau, (Index
      No. 5125/06). The lawsuit alleged that the directors breached their fiduciary
      duty by approving the Emerald Settlement Agreement disclosed in the Company's
      Form 8-K (Date of Report March 6, 2006) filed with the Securities Exchange
      Commission on March 10, 2006. The lawsuit claimed that such breach was a product
      of their respective relationships with Mr. Grossman. The lawsuit also alleged
      that Mr. Grossman and Emerald Asset Management injured the Company by engaging
      in the actions underlying the November 2004 criminal conviction of Mr. Grossman.
      The lawsuit was dismissed in September 2006. A notice of appeal was filed by
      the
      plaintiff in October 2006 and the plaintiff filed its appeal brief in April
      2007. On January 15, 2008, the court dismissed the appeal.





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





29




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





Not
      applicable.


**PART
      II**




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





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




High
            
            LowFiscal
                2007First
                Quarter
            $
            0.26
            
            $
            0.10Second
                Quarter
            
            0.14
            
            
            0.08Third
                Quarter
            
            0.11
            
            
            0.07Fourth
                Quarter
            
            0.12
            
            
            0.04Fiscal
                2006First
                Quarter
            
            1.17
            
            
            0.61Second
                Quarter
            
            0.86
            
            
            0.49Third
                Quarter
            
            0.65
            
            
            0.25Fourth
                Quarter
            
            0.33
            
            
            0.07


****


**Holders**





At
      March
      13, 2008, we had 212 holders
      of record and approximately 1,400 beneficial holders of our Common
      Stock.





**Dividends**





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




30





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





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




**Item
      6. SELECTED FINANCIAL DATA**





Not
      applicable.





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





**Forward
      Looking Statements**





Certain
      information contained in this report is forward-looking in nature. All
      statements in this report, including those made by the Company and its
      subsidiaries (“we”, “our”, or the “Company”), other than statements of
      historical fact, are forward-looking statements. Examples of forward-looking
      statements include statements regarding the Company's future financial
      condition, operating results, business and regulatory strategies, projected
      costs, services, research and development, competitive positions and plans
      and
      objectives of management for future operations. These forward-looking statements
      are based on management's estimates, projections and assumptions as of the
      date
      hereof and include the assumptions that underlie such statements.
      Forward-looking statements may contain words such as “may,” “will,” “should,”
“would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,”
“potential,” “continue,” or the negative of these terms or other comparable
      terminology. Any expectations based on these forward-looking statements are
      subject to risks and uncertainties and other important factors, including those
      discussed in Item 1A. - Risk Factors. Other risks and uncertainties are
      disclosed in the Company's prior SEC filings. These and many other factors
      could
      affect the Company's future financial operating results, and could cause actual
      results to differ materially from expectations based on forward-looking
      statements made in this report or elsewhere by the Company or on its behalf.
      The
      Company assumes no obligation to update such statements.




31




**Overview**





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





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





**Critical
      Accounting Policies**





The
      Company's critical accounting policies are those it believes are the most
      important in determining its financial condition and results of operations,
      and
      require significant subjective judgment by management as a result of inherent
      uncertainties. A summary of the Company’s significant accounting policies is set
      out in the notes to the consolidated financial statements. Such policies are
      discussed below.





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





**Long-Lived
      Assets and Other Intangible Assets**





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





**Accounting
      for Income Taxes and Valuation Allowances**





We
      currently have significant deferred tax assets, resulting from net operating
      loss carry forwards and differences between financial reporting and tax
      treatment of intangible assets amortization and impairment losses. These
      deferred tax assets may reduce taxable income in future periods. Based on the
      Company’s losses and its accumulated deficit, the Company has provided a full
      valuation allowance against the net deferred tax asset. A valuation allowance
      is
      required when it is more likely than not that all or a portion of a deferred
      tax
      asset will not be realized. Cumulative losses weigh heavily in the overall
      assessment of valuation allowances.





We
      expect
      to continue to maintain a full valuation allowance on future tax benefits until
      an appropriate level of profitability is sustained, or we are able to develop
      tax strategies that would enable us to conclude that it is more likely than
      not
      that a portion of our deferred tax assets would be realizable.




**Classification
      of Amounts Due to HRA**





Historically,
      management has maintained a liability account to show amounts paid to the
      Company under the contract with the City of New York Human Resources
      Administration (“HRA”) which were required to be used for certain employee
      benefits purposes and were to be paid to or on behalf of the home health aid
      employees. In 2006, management determined that approximately $904,000 could
      no
      longer be used for the employee benefit and could not be paid to the employees
      but could be expected to be required to be repaid to HRA. Accordingly, this
      amount was reclassified from general accrued expenses to the caption “Due to
      HRA”.




32




**Recently
      Issued Accounting Pronouncements**




In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), " *Business
      Combinations.* "
      SFAS
      141(R) broadens the guidance of SFAS 141, extending its applicability to all
      transactions and other events in which one entity obtains control over one
      or
      more other businesses. It broadens the fair value measurement and recognition
      of
      assets acquired, liabilities assumed, and interests transferred as a result
      of
      business combinations. SFAS 141(R) expands on required disclosures to improve
      the statement users' abilities to evaluate the nature and financial effects
      of
      business combinations. SFAS 141(R) is effective for our fiscal year beginning
      January 1, 2009. The adoption of SFAS 141(R) is not expected to have a material
      impact on the Company's financial position, results of operations or cash
      flows.





In
      December 2007, the FASB issued SFAS No. 160, " *Noncontrolling
      Interests in Consolidated Financial Statements—an amendment of ARB No.
      51.* "
      SFAS
      160 requires that a noncontrolling interest in a subsidiary be reported as
      equity and the amount of consolidated net income specifically attributable
      to
      the noncontrolling interest be identified in the consolidated financial
      statements. It also calls for consistency in the manner of reporting changes
      in
      the parent's ownership interest and requires fair value measurement of any
      noncontrolling equity investment retained in a deconsolidation. SFAS 160 is
      effective for our fiscal year beginning January 1, 2009. We have not yet
      determined the impact of adopting SFAS 160 on the Company's financial position,
      results of operations or cash flows.





In
      February, 2007, FASB issued SFAS No. 159, *The
      Fair Value Option for Financial Assets and Financial
      Liabilities* including an amendment of FAS 115, or FAS 159. This statement provides companies
      with an option to report selected financial assets and liabilities at fair
      value. This statement is effective for fiscal years beginning after November
      15,
      2007 with early adoption permitted. Management does not believe that adoption
      of
      this statement will have a material impact on the financial position of the
      Company.





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




33




In
      September 2006, the FASB issued SFAS No. 157, " *Fair
      Value Measurements* "
      which
      defines fair value, establishes guidelines for measuring fair value and expands
      disclosures regarding fair value measurements. SFAS 157 does not require any
      new
      fair value measurements but rather eliminates inconsistencies in guidance found
      in various prior accounting pronouncements. SFAS 157 is effective for fiscal
      years beginning after November 15, 2007. However, on February 12, 2008, the
      FASB
      issued proposed FASB Staff Position ("FSP") SFAS No. 157-2, " *Effective
      Date of FASB Statement No. 157* ,"
      which
      defers the effective date for adoption of fair value measurements for
      nonfinancial assets and liabilities to fiscal years beginning after November
      15,
      2008. The Company will adopt SFAS 157 during 2008, except as it applies to
      those
      non-financial assets and non-financial liabilities as noted in proposed FSP
      157-2. The partial adoption of SFAS 157 is not expected to have a material
      impact on the Company's financial position, results of operations or cash
      flows.





In
      June,
      2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
      No. 109, Accounting for Income Taxes* (FIN48),
      to create a single model to address accounting for uncertainty in tax positions.
      FIN 48 clarifies the accounting for income taxes by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest, and penalties, accounting in interim
      periods, disclosure and transition. The Company adopted FIN 48 as of
      January 1, 2007. Based on our evaluation, we have concluded that there are
      no significant uncertain tax positions requiring recognition in our financial
      statements. Our evaluation was performed for the tax years which remain subject
      to examination by major tax jurisdictions as of December 31, 2007. We may from
      time to time be assessed interest or penalties by major tax jurisdictions,
      although any such assessments historically have been minimal and immaterial
      to
      our financial results. In the event we have received an assessment for interest
      and/or penalties, it has been classified in the financial statements as selling,
      general and administrative expense. The Company is currently subject to a three
      year statue of limitations by major tax jurisdictions. The Company and its
      subsidiaries file income tax returns in the U.S. federal jurisdiction, New
      York
      State, New York City and New Jersey.





34




**Results
      of Operations**





The
      following table reflects the results of operations for the years ended December
      31, 2007 and 2006 for each business segment.




**Year
                  Ended**
              
              **Year
                  Ended****December
                  31, 2007**
              
              **December
                  31, 2006****BioBalance**
              
              **Healthcare**
              
              
              
              **BioBalance**
              
              **Healthcare****Segment**
              
              **Segment**
              
              **Total**
              
              **Segment**
              
              **Segment**
              
              **Total**Revenues
              $
              -
              
              $
              44,399,303
              
              $
              44,399,303
              
              $
              -
              
              $
              45,558,331
              
              $
              45,558,331Cost
                  of patient care
              
              -
              
              
              36,626,372
              
              
              36,626,372
              
              
              -
              
              
              36,747,366
              
              
              36,747,366SG&A,
                  including depreciation and amortization
              
              2,096,976
              
              
              6,247,562
              
              
              8,344,538
              
              
              4,083,000
              
              
              6,874,535
              
              
              10,957,535Product
                  Development
              
              648,759
              
              
              -
              
              
              648,759
              
              
              1,637,558
              
              
              -
              
              
              1,637,558Net
                  (loss) income
              $
              (2,745,153
              )
              $
              1,692,802
              
              $
              (1,052,351
              )
              $
              (5,492,072
              )
              $
              1,736,399
              
              $
              (3,755,673
              )





**BioBalance
      Segment**





During
      the years 2007 and 2006, the BioBalance segment had no revenues and no cost
      of
      sales.





Selling,
      general and administrative expenses ("SG&A") for the year ended December 31,
      2007 decreased ($1,986,024) ( 48.64% )
      to
      $ 2,096,976 from
      $ 4,083,000 for
      the
      year ended December 31, 2006. The decrease is attributable largely to
      management's cost cutting efforts with reductions in rents, salaries and
      benefits, share based compensation, public relations and professional fees.
      The
      SG&A expenses for BioBalance include charges for impairment of intangible
      assets of $729,792 in
      2007
      and $926,322 in
      2006.





Product
      development costs for the BioBalance segment for the year ended December 31,
      2007 were $ 648,759 compared
      to $ 1,637,558 for
      2006,
      a decrease of ($988,799) or 60.38% .
      The
      decrease was a result of scaling back operations because of a lack of available
      funding to continue clinical trials.





For
      the
      year ended December 31, 2007, the operations of the BioBalance segment showed
      loss from continuing operations of ($2,745,153) compared
      to a loss of ($5,492,072) in 2006,
      an improvement of $2,746,919 or 50.02% .
      The
      improvement was a result of the cost cutting efforts described above as well
      as
      the scaling back of clinical operations.





**Home
      Healthcare Segment**





Revenues
      the year ended December 31, 2007 decreased by ($1,159,028) or 2.54% to
      $ 44,399,303 from
      $ 45,558,331 in
      2006.
      The 2006 revenue in the home health care segment includes a reversal of debt
      from HRA in the amount of approximately $704,000, which relates to funds that
      HRA agreed not collect for their fiscal year 2002. The Company had previously
      accrued this amount as due to HRA.





Cost
      of
      professional care of patients decreased ($120,994) or 0.33% in 2007
      to $ 36,626,372 from
      $ 36,747,366 in
      2006.





Selling,
      general and administrative expenses (SG&A) decreased by ($626,973) ( 9.12% )
      to
      $ 6,247,562 in
      2007
      as compared to $ 6,874,535 in
      2006.
      This decrease is due to the reduction in personnel costs, and reductions of
      general operating costs at the home health care operations, particularly in
      the
      area of professional fees and executive compensation..




For
      the
      year ended December 31, 2007, the net income from the home health care segment
      was $ 1,692,802 as
      compared to $ 1,736,399 for
      the
      year ended December 31, 2006 a decrease of ($43,597) or -2.51% .




35




**Liquidity
      and Capital Resources**





For
      the
      year ended December 31, 2007, cash used for operating activities on a
      consolidated basis was $88,614 compared
      to $2,717,201 in
      2006,
      an improvement of. $2,628,587 .
      The
      change resulted from a decrease in the net loss for 2007 as compared to 2006
      of $2,703,322 ,
      offset
      by and a decrease in cash from changes in non-cash expenses of ($917,347) and an
      increase in cash provided by changes in components of operating assets and
      liabilities of $842,612 .





Net
      cash
      used in investing activities for the year ended December 31, 2007 totaled $134,934 and
      consisted principally of the acquisition of intangible assets.





**Home
      Healthcare Segment**





At
      December 31, 2007, the Company had no long-term debt.





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





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





On
      September 20, 2007, New York Health Care entered into a Loan and Security
      agreement with CIT Healthcare LLC, as lender (“ Lender ”).
      The
      term of the Loan and Security Agreement is three years. The Loan and Security
      Agreement provides for a revolving line of credit facility under which the
      Company may borrow, repay and re-borrow an amount not exceeding the lesser
      of
      $5,000,000 or the borrowing base, which is an amount that may not exceed 85%
      of
      the estimated net value of the Company's Eligible Accounts, as defined in the
      agreement. As of December 31, 2007, approximately $3,600,000 of the line was
      available for borrowing by the Company. Interest is payable on the outstanding
      principal balance of the credit facility at an annual rate equal to 30-day
      LIBOR
      plus three and one-half percent (3.50%), adjusted monthly in accordance with
      changes in 30-day LIBOR. The Company's obligations to Lender under the Loan
      and
      Security Agreement are secured by a first priority lien on all of the Company's
      accounts receivable, general intangibles, instruments and documents, and the
      proceeds thereof. However, no collateral consists of any assets or property
      of
      BioBalance.





New
      York
      Health Care is prohibited from making dividend, distributions or other
      withdrawals during the term of the credit facility. However, New York Health
      Care is permitted to make loans, advances or contributions to its subsidiary,
      BioBalance, provided that certain liquidity requirements are met. New York
      Health Care is further restricted from mergers and acquisitions, as well as
      asset sales or dispositions outside the ordinary course of business, provided
      that such sale restrictions are not applicable to the capital stock or assets
      of
      BioBalance.





Days
      Sales Outstanding ("DSO") is a measure of the average number of days taken
      by
      the Company to collect its account receivable, calculated from the date services
      are billed. For the year ended December 31, 2007, the DSO of the home care
      segment of the Company was 68, compared to 58 days for the year ended
      December 31, 2006. The increase in DSO was primarily caused by delays in
      collection from one of the Company's contracts. Management has adequately
      reserved for potential losses from this contract.





**BioBalance
      Segment**





As
      of
      December 31, 2007, BioBalance has generated no revenues and has no accounts
      receivable. The assets of BioBalance consist mainly of intangibles related
      to
      the patents it holds on its lead product *PROBACTRIX®.*




36




As
      of
      December 31, 2007, BioBalance had cash on hand of approximately $38,000, all
      of
      which was available to fund operations. BioBalance management estimates that
      its
      capital requirements for an entire year of operations are approximately
      $5,000,000. This amount includes the cost of the initial up front payment for
      the Phase I/II clinical trial, in the amount of $3,000,000, for the Company's
      lead product PROBACTRIX® that is not expected to be started in 2008. It will be
      necessary for the Company to secure additional funding in order for BioBalance
      to begin the Phase I/II clinical trial, which was approved by FDA on March
      24,
      2006. The Company has not been able to obtain additional funding up to the
      present time and the BioBalance subsidiary has been operating solely by
      utilizing funds from the health care operations, which are insufficient for
      BioBalance's needs. The Company is in continuing discussions with potential
      funding sources but no agreements with any such funding sources have been
      entered into. Accordingly, since additional funding from outside sources has
      not
      been obtained, the Company began scaling back the operations of BioBalance
      at
      the end of November 2006, and BioBalance began operating on a substantially
      reduced budget in 2007. BioBalance management has taken steps to secure the
      data
      from clinical trials and has begun the production of a duplicate of the
      biological strain of PROBACTRIX® . Additionally, BioBalance surrendered its
      office space to the landlord in March 2007 in exchange for lease cancellation,
      incurring exit costs through the time the space was fully vacated of
      approximately $38,000 and
      asset
      disposal/impairment losses of approximately $36,000 .
      Management has instituted temporary cutbacks in consultant compensation until
      such time as additional funds or a strategic partner can be found. There can
      be
      no assurances that the Company will be able to raise additional capital in
      the
      near term to allow BioBalance to continue its normal level of
      operations.





**Off-Balance
      Sheet Arrangements**




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





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





Not
      applicable.




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





The
      consolidated financial statements of the Company, together with the Independent
      Registered Public Accounting Firms’ report thereon of Holtz Rubenstein Reminick
      LLP, for the years ended December 31, 2007 and 2006. See Index to “Financial
      Statements.”





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





During
      the fiscal years ended December 31, 2007 and 2006, there were no disagreements
      with Holtz Rubenstein Reminick LLP ("Holtz") on any matter of accounting
      principles or practices, financial statement disclosure, or auditing scope
      or
      procedure, which disagreements, if not resolved to the satisfaction of Holtz,
      would have caused them to make reference in connection with their report to
      the
      subject matter of the disagreement, and Holtz has not advised the Company of
      any
      reportable events as defined in Item 304(a)(1)(v) of Regulation
      S-K.





**Item
      9A (T). Controls and Procedures.**





(a) Evaluation
      of Disclosure Controls and Procedures.





As
      of the
      end of the period covered by this annual report, we carried out an evaluation,
      under the supervision and with the participation of our management, including
      our principal executive officer and principal financial officer, of the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)).
      Based
      upon the foregoing evaluation, our principal executive officer and principal
      financial officer have concluded that our disclosure controls and procedures
      are
      not effective, for the reasons discussed below, to ensure that information
      required to be disclosed by us in the reports that we file or submit under
      the
      Exchange Act is recorded, processed, summarized and reported within the time
      periods specified in the rules and forms of the SEC.




37


(b) Management’s
      Report on Internal Control Over Financial Reporting





Our
      management is responsible for establishing and maintaining adequate internal
      control over financial reporting and for the assessment of the effectiveness
      of
      internal control over financial reporting, as defined in Rule 13a-15(f) under
      the Exchange Act. Internal control over financial reporting is a process
      designed by, or under the supervision of our principal executive officer and
      principal financial officer and effected by our Board of Directors, management
      and other personnel, to provide reasonable assurance regarding the reliability
      of financial reporting and the preparation of the financial statements in
      accordance with U.S. generally accepted accounting principles.





Our
      internal control over financial reporting includes those policies and procedures
      that (1) pertain to the maintenance of records that, in reasonable detail,
      accurately and fairly reflect our transactions and dispositions of our assets;
      (2) provide reasonable assurance that transactions are recorded as necessary
      to
      permit preparation of the financial statements in accordance with U.S. generally
      accepted accounting principles, and that our receipts and expenditures are
      being
      made only in accordance with authorizations of our management and directors;
      and
      (3) provide reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a
      material effect on the financial statements.





Because
      of its inherent limitations, internal control over financial reporting may
      not
      prevent or detect misstatements. Also, projections of any evaluation of
      effectiveness to future periods are subject to the risk that controls may become
      inadequate because of changes in conditions, or that the degree of compliance
      with the policies or procedures may deteriorate.





In
      connection with the preparation of our annual financial statements, management
      has undertaken an assessment of the effectiveness of our internal control over
      financial reporting as of December 31, 2007, based on criteria established
      in *Internal
      Control - Integrated Framework* issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission, or the
      COSO Framework. Management’s assessment included an evaluation of the design of
      our internal control over financial reporting and testing of the operational
      effectiveness of those controls. Due
      to
      the inherent issue of segregation of duties in a small company, we have relied
      heavily on entity or management review controls to lessen the issue of
      segregation of duties.





Based
      on
      this evaluation, management has concluded that our internal control over
      financial reporting was not effective as of December 31, 2007.  Our
      principal executive officer and principal financial officer have concluded
      that
      we have a material weakness in our internal control over financial
      reporting.





A
      material weakness is a deficiency, or combination of deficiencies, in internal
      control over financial reporting, such that there is a reasonable possibility
      that a material misstatement of the Company’s annual or interim financial
      statements will not be prevented or detected on a timely basis. Management
      identified the following material weaknesses as of December 31,
      2007:




Supervision:
        The controller is responsible for making all journal entries relating the
        home
        health care segment. The journal entries made by the controller are not reviewed
        by another person in the organization with sufficient accounting knowledge
        and
        authority. This weakness also has an affect on our period end closing process
        whereby the lack of supervision of the controller results in a substantial
        number of journal entries made during the closing process. We believe that
        if
        this weakness did not exist, there would be far fewer journal entries required
        during the closing process. One of our main goals in remediating this weakness
        is to substantially reduce the number of entries made during the closing
        process, to be fully implemented by the third quarter of 2008. We are
        remediating this weakness by implementing a rearrangement of the work flow
        so
        that other members of the accounting staff will be responsible for preparing
        and
        entering certain journal entries that the controller will review. Entries
        made
        directly by the controller will be reviewed periodically by the Chief Financial
        Officer. Additionally, we are developing a review checklist that will be
        utilized by the Chief Financial Officer to periodically review the work of
        the
        controller at least quarterly, with some aspects being reviewed on a monthly
        basis.


Information
      Technology: Management did not perform tests of information technology controls
      before the year end so we cannot assert that the controls functioned as designed
      as of December 31, 2007. However, we were able to ascertain that the controls
      were in place through certain documentation available relating to bills received
      from our outside computer consultants.


****


This
      annual report does not include an attestation report of the Company's
      independent registered public accounting firm regarding internal control over
      financial reporting. Management's report was not subject to attestation by
      the
      Company's independent registered public accounting firm pursuant to temporary
      rules of the SEC that permit the Company to provide only management’s report on
      internal control in this annual report.





Changes
      in Internal Controls





There
      have been no changes in our internal control over financial reporting during
      our
      most recent fiscal quarter that have materially affected, or are reasonably
      likely to materially affect, our internal control over financial reporting.




38





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





Not
      applicable.


**PART
      III**




**Item
      10.**  **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**





The
      persons who currently serve as executive officers and directors of the Company,
      and who served in such capacities during the 2007 fiscal year, are as
      follows:





Name
            
            Age
            
            PositionMurry
                Englard
            
            
            49
            
            
            Director,
                Chief Executive OfficerStewart
                W. Robinson
            
            
            53
            
            
            Chief
                Financial OfficerHoward
                Berg
            
            
            53
            
            
            DirectorYoram
                Hacohen
            
            
            36
            
            
            Director





Murry
      Englard was designated by the Board as Chief Executive Officer effective August
      1, 2007. Murry Englard has been a director of the Company since September 2005
      and acting Chief Executive Officer since November 20, 2006. Mr. Englard is
      a partner of the accounting firm Harlib, Grossman & Englard, CPA's since
      January 1996. He was managing partner of Englard & Company, CPA, P.C. from
      January 1992 until December 1995 and a partner at Englard & Company CPA from
      January 1985 until December 1991. Mr. Englard is a certified public accountant.
      He received a B.A. in Accounting from Queens College in 1980 and attended
      Bernard Baruch Graduate School of Business concentrating in
      finance.





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




39





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




Since
      January 2008, Yoram Hacohen is a partner in Hacohen Wolf, a law firm in
      Jerusalem, Israel. From January 2007 through December 2007, Yoram Hacohen was
      a
      partner with the firm Jaffe, Fund & Co, Advocates, in Jerusalem, Israel,
      specializing in corporate, commercial and civil law in the fields of
      international trade, tax and real estate. For the preceding five years, Mr.
      Hacohen was an independent practitioner in those fields of law. Mr. Hacohen
      earned his law degree from London Guildhall University, London, England in
      July
      1995.





Michael
      Nafash served as a director of the Company since August 31, 2005. He resigned
      as
      a director of the Company on April 3, 2007. Mr. Nafash is a Certified Public
      Accountant and held various corporate finance positions throughout his career.


40




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





**Audit
      Committee**





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





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





Section
      16(a) of the Exchange Act requires the Company’s directors and executive
      officers and holders of more than 10% of the Company's common stock to file
      reports with the SEC about their ownership of common stock and other securities
      of the Company. These persons are required by SEC rules to furnish the Company
      with copies of all Section 16(a) forms they file. The Company is required to
      identify anyone who filed a required report late during 2007.





Based
      solely on our review of forms we received and written representations from
      reporting persons stating that they were not required to file these forms,
      the
      Company believes, that during 2007, all Section 16(a) filing requirements were
      satisfied on a timely basis.





**Code
      of Ethics**





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


41





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





The
      following table sets forth, for the fiscal years ended December 31, 2007 and
      2006, the cash compensation paid by the Company, as well as certain other
      compensation paid with respect to those fiscal years, to the Company’s Chief
      Executive Officer and to each of the three other most highly compensated
      executive officers of the Company and its BioBalance subsidiary, whose total
      salary and bonuses for the fiscal year 2007, in all capacities in which served,
      was $100,000 or more (collectively, the “Named Executive
      Officers”):


Name and Principal Position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
                Awards
                ($)
              
              Option
                Awards
                ($)
              
              Non-
                Equity
                Incentive
                Plan
                ($)
              
              Change
                  in
                Pension
                Value and
                Non-Qualified
                  Deferred Compensation Earnings
              
              All
                  Other Compensation ($)(a)
              
              (b)
              
              (c)
              
              (d)
              
              (e)
              
              (f)
              
              (g)
              
              (h)
              
              (i)Murry
                  Englard (1)
              
              
              2007
              
              $
              44,231
              
              $
              15,000
              
              
              
              
              $
              12,000
              
              
              
              
              
              
              
              $
              41,026
              
              (1)Director
                  and Chief Executive Officer
              
              
              2006
              
              $
              -
              
              $
              -
              
              
              
              
              $
              25,646
              
              
              
              
              
              
              
              $
              18,000
              
              (1)Stewart
                  W. Robinson (2)
              
              
              2007
              
              $
              144,531
              
              $
              -
              
              
              
              
              
              -
              
              
              
              
              
              
              
              $
              10,293
              
              (2)Chief
                  Financial Officer
              
              
              2006
              
              $
              -
              
              $
              -
              
              
              
              
              
              -
              
              
              
              
              
              
              
              $
              -
              
              (2)Dennis
                  O'Donnell (3)
              
              
              2007
              
              $
              -
              
              $
              -
              
              
              
              
              
              -
              
              
              
              
              
              
              
              $
              -
              
              (3)Former
                  President and
              
              
              2006
              
              
              155,769
              
              
              112,500
              
              
              
              
              
              -
              
              
              
              
              
              
              
              $
              24,444Chief
                  Executive Officer




(1)
            Murry
                Englard has been a director of the Company since September 2005.
                Mr.
                Englard was paid director's fees of $1,000 per month from September
                2005
                through August 2006, increasing to $2,500 per month staring in September
                2006. The total director's fees paid to Mr. Englard were $35,200
                in 2007
                and $18,000 in 2006. Other compensation for Mr. Englard also includes
                $11,026 in expense reimbursements. Effective August 1, 2007, the
                Board
                appointed Mr. Englard as Chief Executive Officer to serve on a part-time
                basis at annual compensation of
                $100,000.




(2)
              Stewart
                  W. Robinson was appointed effective February 5, 2007 to serve as
                  the
                  Company’s Chief Financial Officer on a part-time basis with annual
                  compensation of $65,000 for between 36 and 45 days. By May 3, 2007,
                  Mr.
                  Robinson had already worked 45 days and was paid up to the contract
                  amount. From May 4, 2007 through December 31, 2007, Mr. Robinson
                  worked
                  for the Company for 44 more days and was paid at the per-diem rate
                  agreed
                  to in the contract. Other compensation for Mr. Robinson includes:
                  payment
                  for bookkeeping and clerical services ($4,825) provided by persons
                  employed by him or KBL, LLP; reimbursement for office related expenses
                  incurred of $877; reimbursement for software and related training
                  costs of
                  $2,340 and; continuing education and related travel costs specifically
                  related to his position with the company of
                  $2,251.
 
 (3)
              Dennis
                  O'Donnell became President of BioBalance on November 26, 2003 and
                  the
                  Company's Chief Executive Officer on February 24, 2005. On September
                  9,
                  2006, Mr. O'Donnell resigned from all of his positions with the
                  Company.
                  Other Compensation includes $24,444 of medical insurance premiums
                  paid on
                  behalf of Mr. O'Donnell in
                  2006.


42





**Option/SAR
      Grants in 2007**





275,000 stock
      options were granted to the Named Executive Officers and Directors in
      2007.





**Individual
                Grants**Name
            
            Exercise
                Price
              Per
                Share
              ($/sh)
            
            Expiration Date
            
            Grant
                Date
              Fair
                ValueMurry
                Englard
            
            $
            0.15
            
            
            8/20/2017
            
            $
            12,000Howard
                Berg
            
            $
            0.13
            
            
            2/28/2017
            
            $
            3,250Howard
                Berg
            
            $
            0.15
            
            
            8/20/2017
            
            $
            6,000Yoram
                Hacohen
            
            $
            0.13
            
            
            2/28/2017
            
            $
            3,250





**Outstanding
      Equity Awards at Fiscal Year End**





The
      following table sets forth, for the Named Executive Officers, unexercised
      options; stock that has not vested; and equity incentive plan awards as
      of
      December 31, 2007.


OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
 
 Option Awards
              
              Stock AwardsName
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Exercisable
              
              Number of
                Securities
                Underlying
                Unexercised
                Options (#)
                Unexercisable
              
              Equity
                Incentive Plan
                Awards:
                Number of
                Securities
                Underlying
                Unexercised
                Unearned
                Options (#)
              
              Option
                Exercise
                Price ($)
              
              Option
                Expiration
                Date
              
              Number
                of
                Shares
                or Units
                of Stock
                That
                Have
                Not
                Vested
                (#)
              
              Market
                Value of
                Shares or
                Units of
                Stock That
                Have Not
                Vested ($)
              
              Equity
                Incentive
                Plan
                Awards:
                Number of
                Unearned
                Shares,
                Units or
                Other
                Rights
                That Have
                Not Vested
                (#)
              
              Equity
                Incentive
                Plan
                Awards:
                Market or
                Payout
                Value of
                Unearned
                Shares,
                Units or
                Other Rights
                That Have
                Not Vested
                ($)(a)
              
              (b)
              
              (c)
              
              (d)
              
              (e)
              
              (f)
              
              (g)
              
              (h)
              
              (i)
              
              (j)Murry Englard
              
              
              35,000
              
              
              None
              
              
              None
              
              
              1.20
              
              
              08/30/201015,000
              
              
              None
              
              
              None
              
              
              0.78
              
              
              01/04/2011150,000
              
              
              None
              
              
              None
              
              
              0.37
              
              
              09/20/2016150,000
              
              
              None
              
              
              None
              
              
              0.15
              
              
              08/20/2017
 **Stock
        Option Exercises and Year End Values**





The
      following table sets forth, for the Named Executive Officers, the number of
      shares covered by stock options as of December 31, 2007, and the value of
“in-the-money” stock options, which represents the positive spread between the
      exercise price of a stock option and the market price of the shares subject
      to
      such option on December 31, 2007. No options were exercised by the Named
      Officers in 2007.


43





Name
            
            Shares
                Acquired on Exercise
            
            Value
                Realized
            
            Number
                of Securities Underlying Unexercised Options/SARs at Fiscal Year-End
                Exercisable/Unexercisable
            
            Value
                of Unexercised In- the-Money Options/SARs at Fiscal Year-End
                Exercisable/UnexercisableMurry
                Englard
            
            
            None
            
            
            None
            
            
            370,161/None
            
            
            None/None





**Compensation
      of Directors**





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





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





In
      2007,
      the Company issued an aggregate of 275,000 options to directors as
      follows:





When
      Mr.
      Hacohen and Dr. Berg were appointed directors in February 2007, they each
      received a grant of 25,000 options in consideration for their services.





When
      Mr.
      Englard was appointed Chief Executive Officer in August 2007, he received
      150,000 options.





In
      August
      2007, Dr. Berg received 75,000 options in recognition of his appointment
      non-executive Chairman of Product Development.





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





Stewart
      W. Robinson was appointed effective February 5, 2007 to serve as the Company’s
      Chief Financial Officer on a part-time basis with annual compensation of $65,000
      for between 36 and 45 days. By May 3, 2007, Mr. Robinson had already worked
      45
      days and was paid up to the contract amount.





Mr.
      Robinson's responsibilities and duties in connection with the operations of
      BioBalance and New York Health Care have increased wherein he worked a total
      of
      89 days in 2007 and was paid additional compensation above the contract cap
      at
      the per-diem rate in the contract.





From
      May
      4, 2007 through December 31, 2007, Mr. Robinson worked for the Company for
      approximately 44 more days and was paid at the per-diem rate agreed to in the
      contract. All other compensation for Mr. Robinson includes: payment for
      bookkeeping and clerical services ($4,825) provided by persons employed by
      him
      or KBL, LLP; reimbursement for office related expenses incurred of $877;
      reimbursement for software and related training costs of $2,340 and; continuing
      education and related travel costs specifically related to his position with
      the
      company of $2,251.


44





**Savings
      and Equity Compensation Plans**





**401(k)
      Plan**





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





**Profit
      Sharing Plan:**





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


45





**Equity
      Compensation Plans**





The
      following table summarizes with respect to options and warrants under the
      Company’s equity compensation plans at December 31, 2007:





**Plan
                category**
            
            **Number of**
              **securities to be**
              **issued upon**
              **exercise of**
              **outstanding**
              **options,**
              **warrants and**
              **rights**
            
            **Weighted-average
                exercise price of outstanding options,
                warrants and rights**
            
            **Number of**
              **securities**
              **remaining**
              **available for**
              **future issuance**
              **under equity
                compensation**
              **plans (excluding
                securities**
              **reflected in**
              **column (a))**Equity
                compensation plans approved by security holders(1)
            
            
            3,135,053
            
            $
            1.07
            
            
            6,305,910Equity
                compensation plans not approved by security holders(2)
            
            
            5,726,993
            
            $
            0.78
            
            
            —Total
            
            
            8,862,046





(1)
            Represents
                shares of the Company’s common stock issuable pursuant to the Company’s
                Performance Incentive Plan, as amended (the "Option Plan") and the
                Company’s 2004 Incentive Plan (the “2004 Plan”). The Company's board of
                directors and stockholders approved and adopted the Option Plan in
                March
                1996 and approved the Company’s 2004 Incentive Plan on August 31, 2005.
                The Company’s stockholders approved amendments to the Option Plan
                (previously adopted by the board of directors) in 1998, 1999, 2000
                and
                2002. Under the terms of the amended Option Plan, as amended, up
                to
                5,000,000 shares of common stock may be granted at December 31, 2007.
                The
                Company's board of directors and stockholders approved and adopted
                the
                2004 Incentive Option Plan. The Option Plan is administered by the
                standing compensation committee (the "Committee") of the board of
                directors (the "Committee"), which is authorized to grant incentive
                stock
                options and non-qualified stock options to selected employees of
                the
                Company and to determine the participants, the number of options
                to be
                granted and other terms and provisions of each option. Options become
                exercisable in whole or in part from time to time as determined by
                the
                Committee, but in no event may a stock option be exercisable prior
                to the
                expiration of six months from the date of grant, unless the grantee
                dies
                or becomes disabled prior to the end of the period. Stock options
                have a
                maximum term of 10 years from the date of grant, except that the
                maximum
                term of an incentive stock options granted to an employee who, at
                the date
                of grant, is a holder of more than 10% of the outstanding common
                stock (a
                “10% holder”) may not exceed five years from the date of the grant. The
                exercise price of an incentive stock option or nonqualified option
                granted
                under the Option Plan may not be less than 100% of the fair market
                value
                per share of the common stock at the date of grant, except that the
                exercise price of an incentive stock options granted to a 10% holder
                may
                not be less than 110% of the fair market value. The exercise price
                of
                options must be paid in full on the date of exercise and is payable
                in
                cash or in shares of Common Stock having a fair market value on the
                exercise date.(2)
            5,726,993
                warrants were issued in connection with the Company’s private placement on
                February 25, 2005.


46




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





The
      following table sets forth certain information regarding shares of the Common
      Stock beneficially owned as of March 12, 2008 by (i) each person, known to
      the
      Company, who beneficially owns more than 5% of the Common Stock, (ii) each
      Named
      Executive Officer, (iii) each of the Company’s directors and (iv) all officers
      and directors as a group **:**


Name
                  and Address of
                Beneficial
                  Owner (1)
              
              
              
              Shares
                  Beneficially
                Owned
              
              Percentage
                  of
                Stock
                  Outstanding (1)Murry
                  Englard
              
              
              (2
              )
              
              776,484
              
              
              2.29
              %Yoram
                  Hacohen
              
              
              (3
              )
              
              25,000
              
              
              0.07
              %Howard
                  Berg
              
              
              (4
              )
              
              1,514,246
              
              
              4.44
              %Stewart
                  W. Robinson
              
              
              
              
              
              -
              
              
              0.00
              %Pinchas
                  Stefansky
              
              
              (5
              )
              
              2,024,000
              
              
              6.04
              %Hershey
                  HoldingsLeon
                  HouseSecretary’s
                  LaneP.O.
                  Box 450, GibraltarBernard
                  Korolnick
              
              
              (6
              )
              
              1,729,208
              
              
              5.16
              %KPT
                  Partnersc/o
                  Alton ManagementSplelhof
                  14A, Postach 5368750
                  Glarus, SwitzerlandRivvi
                  Rose
              
              
              (7
              )
              
              1,950,000
              
              
              5.81
              %Nekavim
                  Investors1/1
                  Library RunP.O.
                  Box 317, GibraltarAll
                  executive officers and directors as a group
              
              
              
              
              
              2,315,730
              
              
              6.72
              %





(1)
            The
                shares of Common Stock owned by each person or by the group, and
                the
                shares included in the total number of shares of Common Stock outstanding,
                have been adjusted in accordance with Rule 13d-3 under the Securities
                Exchange Act of 1934, as amended, to reflect the ownership of shares
                issuable upon exercise of outstanding options, warrants or other
                common
                stock equivalents which are exercisable within 60 days. As provided
                in
                such Rule, such shares issuable to any holder are deemed outstanding
                for
                the purpose of calculating such holder's beneficial ownership but
                not any
                other holder's beneficial ownership. Unless otherwise indicated,
                the
                address of each shareholder is c/o the Company.(2)
            Includes
                a total of350,000shares
                issuable upon the exercise of stock options granted to Mr. Englard
                and
                also20,161shares
                issuable upon the exercise of warrants.(3)
            Includes
                a total of 25,000 shares issuable upon the exercise of stock options
                granted to Mr. Hacohen.


47





(4)
            Includes
                a total of100,000shares
                issuable upon the exercise of stock options granted to Mr. Berg and
                also449,192shares
                issuable upon the exercise of warrants.(5)
            All
                shares are owned of record by Hershey Holdings, of which Mr. Stefansky
                holds sole voting and investment
                power.





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





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





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





Not
      applicable.




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




The
      following table presents fees for professional audit services rendered by Holtz
      Rubenstein Reminick LLP, our principal accountants for the audit of the
      Company’s annual financial statements for the years ended December 31, 2007 and
      2006:




Fiscal Year EndedDecember 31,2007
            
            2006Audit
                Fees(1)
            
            $
            264,000
            
            $
            234,524Audit-related
                Fees(2)
            
            
            -
            
            
            -Tax
                service Fees(3)
            
            
            600
            
            
            48,100All
                Other Fees(4)
            
            
            45,209
            
            
            29,000





(1)
            Audit
                Fees consist of fees billed for professional services rendered for
                the
                audit of the Company’s consolidated annual financial statements and review
                of the interim consolidated financial statements included in quarterly
                reports and services that are normally provided in connection with
                statutory and regulatory filings or engagements.(2)
            Audit-Related
                Fees consist of fees billed for assurance and related services that
                are
                reasonably related to the performance of the audit or review of the
                Company’s consolidated financial statements and are not reported under
                “Audit Fees.”(3)
            Tax
                Service Fees consist of fees billed for professional services rendered
                for
                tax compliance, tax advisory and tax planning. These services include
                assistance regarding federal, state and local tax compliance and
                tax
                planning.(4)
            The
                line for all other fees for 2007 and 2006 represents the audit of
                cost
                reports and employee benefit plans performed by Holtz Rubenstein
                Reminick,
                LLP.


48





Policy
      on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
      of
      Independent Auditor.





The
      Board
      of Directors as a whole functions as the Audit Committee. The Audit Committee
      had not adopted a formal pre-approval policy for audit and non-audit services.
      However, the Audit Committee had pre-approved all audit, audit-related, tax
      and
      other services provided by Holtz Rubenstein Reminick, LLP prior to the
      engagement the firm to provide these services.





**PART
      IV**


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





(a)
            The
                following documents are filed as a part of this report:(1)
            Consolidated
                Financial Statements: See Index to Financial Statements on page F-1
                of
                this report for financial statements and supplementary data filed
                as part
                of this report.(2)
            Financial
                Statement SchedulesSchedule
                II - Valuation and Qualifying Accounts for each of the years ended
                December 31, 2007 and 2006.(3)
            Exhibits:The
                exhibits listed in the accompanying Index to Exhibits are filed or
                incorporated by reference as part of this
                report.


49




NEW
      YORK
      HEALTH CARE, INC.


AND
      SUBSIDIARIES





CONSOLIDATED
      FINANCIAL STATEMENTS





FOR
      THE
      YEARS ENDED


DECEMBER
      31, 2007 AND 2006





REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            F-2CONSOLIDATED
                FINANCIAL STATEMENTS:CONSOLIDATED
                BALANCE SHEETS AT DECEMBER 31, 2007 AND 2006
            F-3CONSOLIDATED
                STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2007 AND
                2006
            F-4CONSOLIDATED
                STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
                2007
                AND 2006
            F-5CONSOLIDATED
                STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2007 AND
                2006
            F-6NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            F-7
                - F-24SCHEDULE
                II - VALUATION AND QUALIFYING ACCOUNTS
            F-25




F-1





REPORT
      OF
      INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The
      Board
      of Directors


New
      York
      Health Care, Inc.





We
      have
      audited the accompanying consolidated balance sheets of New York Health Care,
      Inc. and Subsidiaries (the "Company") as of December 31, 2007 and 2006 and
      the
      related consolidated statements of operations, shareholders' deficiency and
      cash
      flows for the two years then ended. Our audits also included the consolidated
      financial statement Schedule II for the years ended December 31, 2007 and 2006.
      These financial statements and schedule are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these consolidated
      financial statements and schedule based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal control
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for the purpose of expressing an
      opinion on the effectiveness of the Company's internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall consolidated financial statement presentation. We believe
      that our audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of New York Health
      Care, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the
      consolidated results of their operations and their cash flows for the two years
      then ended in conformity with accounting principles generally accepted in the
      United States of America. Also, in our opinion, the related financial statement
      schedule, when considered in relation to the basic financial statements taken
      as
      a whole, presents fairly in all material respects the information set forth
      therein.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company’s losses and negative working
      capital raises substantial doubt about its ability to continue as a going
      concern. The consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.




/s/
      Holtz
      Rubenstein Reminick LLP


Holtz
      Rubenstein Reminick LLP




New
      York, NY


April
      10,
      2008




F-2




NEW
      YORK
      HEALTH CARE, INC. AND SUBSIDIARIES


CONSOLIDATED
      BALANCE SHEETS





2007
            
            2006ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            2,246,241
            
            $
            2,469,789Due
                from lending institution
            
            
            -
            
            
            274,934Accounts
                    receivable, net of allowance for uncollectible amounts of $547,887
                    and
                    $579,000, respectively
            
            
            8,298,837
            
            
            7,146,973Unbilled
                services
            
            
            137,079
            
            
            112,186Prepaid
                expenses and other current assets
            
            
            120,857
            
            
            227,625Total
                current assets
            
            
            10,803,014
            
            
            10,231,507Property
                and equipment, net
            
            
            22,090
            
            
            120,898Goodwill,
                net
            
            
            783,000
            
            
            783,000Other
                intangible assets, net
            
            
            628,056
            
            
            1,575,495Other
                assets
            
            
            181,046
            
            
            168,638Total
                assets
            
            $
            12,417,206
            
            $
            12,879,538LIABILITIES
                AND SHAREHOLDERS' DEFICIENCYCurrent
                liabilities:Note
                payable under insurance financing agreement
            
            $
            25,054
            
            $
            -Amounts
                due to related parties
            
            
            27,133
            
            
            -Accrued
                payroll
            
            
            871,171
            
            
            775,808Accounts
                payable and accrued expenses
            
            
            5,541,457
            
            
            5,963,589Income
                tax expense payable
            
            
            28,450
            
            
            -Due
                to HRA
            
            
            8,754,408
            
            
            7,942,757Total
                current liabilities
            
            
            15,247,673
            
            
            14,682,154Commitment
                and contingenciesShareholders'
                deficiency:Preferred
                  stock, $.01 par value, 5,000,000 shares authorized; Class A Preferred,
                  590,375 shares authorized, none outstanding
            
            
            -
            
            
            -Common
                  stock, $.01 par value, 100,000,000 shares authorized;33,536,767
                shares issued and 33,532,722 outstanding as of December
                31, 200733,536,767
                shares issued and 33,782,722 outstanding as of December
                31, 2006
            
            
            335,368
            
            
            335,368Additional
                paid-in capital
            
            
            37,174,185
            
            
            37,149,685Common
                stock and options to be issued
            
            
            774,220
            
            
            774,220Accumulated
                deficit
            
            
            (41,104,767
            )
            
            (40,052,416
            )Less:
                Treasury stock (4,045 common shares at cost)
            
            
            (9,473
            )
            
            (9,473
            )Total
                shareholders' deficiency
            
            
            (2,830,467
            )
            
            (1,802,616
            )Total
                liabilities and shareholders' deficiency
            
            $
            12,417,206
            
            $
            12,879,538





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


F-3





**NEW
      YORK HEALTH CARE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year
                Ended December 31,**2007
            
            2006Net
                patient service revenue
            
            $
            44,399,303
            
            $
            45,558,331Expenses:Professional
                care of patients
            
            
            36,626,372
            
            
            36,747,366Operating
                income before other operating expenses
            
            
            7,772,931
            
            
            8,810,965Other
                operating expenses:General
                and administrative
            
            
            7,151,284
            
            
            9,104,897Product
                development
            
            
            648,759
            
            
            1,637,558Impairment
                of intangible assets
            
            
            729,792
            
            
            926,322Loss
                on disposal and impairment of property and equipment
            
            
            58,840
            
            
            -Bad
                debts expense
            
            
            -
            
            
            253,732Depreciation
                and amortization
            
            
            404,622
            
            
            672,584Total
                other operating expenses
            
            
            8,993,297
            
            
            12,595,093Loss
                from operations
            
            
            (1,220,366
            )
            
            (3,784,128
            )Other
                income (expenses):Interest
                income
            
            
            77,893
            
            
            164,969Interest
                expense
            
            
            (29,066
            )
            
            (61,394
            )Other
                income
            
            
            193,815
            
            
            -Other
                income, net
            
            
            242,642
            
            
            103,575(Loss)
                from operations before provision for income taxes
            
            
            (977,724
            )
            
            (3,680,553
            )Provision
                for income taxes
            
            
            74,627
            
            
            75,120Net
                (loss)
            
            $
            (1,052,351
            )
            $
            (3,755,673
            )Basic
                and diluted income (loss) per share:Net
                (loss) per share:
            
            $
            (0.03
            )
            $
            (0.11
            )Weighted
                and diluted average shares outstanding
            
            
            33,536,767
            
            
            33,250,740




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


F-4





NEW
      YORK
      HEALTH CARE, INC. AND SUBSIDIARIES


CONSOLIDATED
      STATEMENTS OF SHAREHOLDERS' EQUITY


FOR
      THE
      YEARS ENDED DECEMBER 31, 2007, and 2006





Commonstock
                  and
            
            
            
            
            
            
            
            TotalPreferred Stock
            
            Common Stock
            
            Additional Paid-
            
            options to
            
            Accumulated
            
            Treasury Stock
            
            Shareholders'Shares
            
            Amount
            
            Shares
            
            Amount
            
            in
                Capital
            
            be
                issued
            
            Deficit
            
            Shares
            
            Amount
            
            DeficiencyBalance
                at January 1, 2006
            
            
            -
            
            $
            -
            
            
            33,236,767
            
            $
            332,368
            
            $
            36,667,281
            
            $
            990,220
            
            $
            (36,296,743
            )
            
            4,045
            
            $
            (9,473
            )
            $
            1,683,653Shares
                issued in accordance with the Corval Settlement Agreements
            
            
            -
            
            
            -
            
            
            300,000
            
            
            3,000
            
            
            213,000
            
            
            (216,000
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Options
                earned for services
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            269,404
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            269,404Shares
                issued to public relations consultant
            
            
            -
            
            
            -
            
            
            250,000
            
            
            2,500
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            2,500Cancellation
                of shares issued to public relations consultant (actual share cancellation
                effectuated in March 2007)
            
            
            
            
            
            
            
            
            (250,000
            )
            
            (2,500
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,500
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (3,755,673
            )
            
            -
            
            
            -
            
            
            (3,755,673
            )Balance
                at December 31, 2006
            
            
            -
            
            
            -
            
            
            33,536,767
            
            
            335,368
            
            
            37,149,685
            
            
            774,220
            
            
            (40,052,416
            )
            
            4,045
            
            
            (9,473
            )
            
            (1,802,616
            )Options
                earned for services
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            24,500
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            24,500Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,052,351
            )
            
            
            
            
            
            
            
            (1,052,351
            )Balance
                at December 31, 2007
            
            
            -
            
            $
            -
            
            
            33,536,767
            
            $
            335,368
            
            $
            37,174,185
            
            $
            774,220
            
            $
            (41,104,767
            )
            
            4,045
            
            $
            (9,473
            )
            $
            (2,830,467
            )




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




F-5


**NEW
      YORK HEALTH CARE, INC. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**




**For
                the Year Ended****December
                31****2007**
            
            **2006**Cash
                flows from operating activities:Net
                (loss)
            
            $
            (1,052,351
            )
            $
            (3,755,673
            )Adjustments
                  to reconcile net (loss) to net cash used in operations (excluding
                  the
                  effect of disposition) Impairment of intangible
                  assets
            
            
            729,792
            
            
            926,322Stock-based
                compensation
            
            
            24,500
            
            
            269,404Depreciation
                and amortization
            
            
            404,622
            
            
            672,584Bad
                debts expense (recovery)
            
            
            (31,113
            )
            
            208,678Impairment
                of property and equipment
            
            
            58,840
            
            
            27,000Changes
                in operating assets and liabilities, net of effects of
                disposition(Increase)
                decrease in accounts receivable and unbilled services
            
            
            (1,145,644
            )
            
            (108,665
            )Decrease
                (increase) in due from lending institution
            
            
            274,934
            
            
            (75,993
            )Decrease
                in prepaid expenses and other current assets
            
            
            106,768
            
            
            153,838(Increase)
                in other assets
            
            
            (24,481
            )
            
            (111,426
            )Increase
                in note payable under insurance financing agreement
            
            
            25,054
            
            
            -Increase
                in due to related parties
            
            
            27,133
            
            
            -Increase
                in accrued payroll
            
            
            95,363
            
            
            62,614(Decrease)
                in accounts payable and accrued expenses
            
            
            (422,132
            )
            
            (2,768,729
            )Increase
                in due to HRA
            
            
            811,651
            
            
            1,782,845Increase
                in taxes payable
            
            
            28,450
            
            
            -Net
                cash used in operating activities
            
            
            (88,614
            )
            
            (2,717,201
            )Cash
                flows from investing activities:Acquisition
                of property and equipment - net
            
            
            -
            
            
            (43,370
            )Acquisition
                of intangible assets
            
            
            (134,934
            )
            
            (291,728
            )Net
                cash (used in) investing activities
            
            
            (134,934
            )
            
            (335,098
            )Net
                (decrease) in cash and cash equivalents
            
            
            (223,548
            )
            
            (3,052,299
            )Cash
                and cash equivalents at beginning of year
            
            
            2,469,789
            
            
            5,522,088Cash
                and cash equivalents at end of year
            
            $
            2,246,241
            
            $
            2,469,789




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


F-6





**NEW
      YORK HEALTH CARE, INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2007 and 2006**




**NOTE
      1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES**





**Organization
      and Basis of Consolidation and Presentation:**





New
      York
      Health Care, Inc. (“New York Health Care”) was organized under the laws of the
      State of New York in 1983. New York Health Care provides services of registered
      nurses and paraprofessionals to patients throughout New York. The BioBalance
      Corp. (“BioBalance”), a Delaware corporation, was formed in May 2001. BioBalance
      is a biopharmaceutical company focused on the development of treatments for
      gastrointestinal diseases that are poorly addressed by current therapies.
      BioBalance is currently pursuing prescription drug development of its lead
      product, PROBACTRIX® for the prevention of pouchitis. On March 24, 2006, the
      Company received approval from the FDA to start Phase II clinical trials. There
      can be no assurance that BioBalance will be successful in obtaining regulatory
      approval or in marketing any such products. The consolidated entity,
      collectively referred to, unless the context otherwise requires, as the
“Company”, “we”, “our” or similar pronouns, includes New York Health Care and
      its wholly-owned subsidiaries, BioBalance and NYHC Newco Paxxon, Inc. D/B/A
      Helping Hands Healthcare (“Helping Hands”).





On
      January 2, 2003, BioBalance consummated a business combination with New York
      Health Care, Inc., a public company. As a result of the merger BioBalance
      shareholders exchanged all their BioBalance shares for 2,475,154 shares of
      common stock and 590,375 shares of preferred stock of New York Health Care.
      Because the former BioBalance shareholders own a majority of the common stock
      (89.7%) of the merged company, BioBalance is considered to be the accounting
      acquirer in the transaction.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. The Company’s recurring losses and
      negative working capital raises substantial doubt about its ability to continue
      as a going concern. The consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty. Management’s
      plans in connection with this matter include drawing down the line of credit
      as
      necessary and continuing the search for a strategic partner for the BioBalance
      operations.





As
      of
      December 31, 2007, BioBalance had cash on hand of approximately $38,000, all
      of
      which was available to fund operations. BioBalance management estimates that
      its
      capital requirements for an entire year of operations is approximately
      $5,000,000. This amount includes the cost of the initial up front payment for
      the Phase I/II clinical trial, in the amount of $3,000,000, for the Company's
      lead product PROBACTRIX® that is not expected to be started in 2008. It will be
      necessary for the Company to secure additional funding in order for BioBalance
      to begin the Phase I/II clinical trial, which was approved by FDA on March
      24,
      2006. The Company has not been able to obtain additional funding up to the
      present time and the BioBalance subsidiary has been operating solely by
      utilizing funds from the health care operations, which are insufficient for
      BioBalance's needs. Management is continuing to search for potential funding
      sources but none have been found thus far. Accordingly, since additional funding
      from outside sources has not been obtained, the Company began scaling back
      the
      operations of BioBalance at the end of November 2006, and BioBalance began
      operating on a substantially reduced budget in 2007. BioBalance management
      has
      taken steps to secure the data from clinical trials and has begun the production
      of a duplicate of the biological strain of PROBACTRIX®. Additionally, BioBalance
      surrendered its office space to the landlord in March 2007 in exchange for
      lease
      cancellation, incurring exit costs through the time the space was fully vacated
      of $38,998 and asset disposal losses of approximately $36,000 .
      Management has instituted temporary cutbacks in consultant compensation until
      such time as additional funds or a strategic partner can be found. There can
      be
      no assurances that the Company will be able to raise additional capital in
      the
      near term to allow BioBalance to continue its normal level of
      operations.





BioBalance
      has also commenced preliminary studies regarding the use of PROBACTRIX® in the
      treatment of Celiac disease (a dietary gluten intolerance). This study was
      conducted as a small scale pilot study which, while not providing data that
      is
      clinically or statistically useful in demonstrating efficacy, produced
      encouraging preliminary results. The Company is contemplating various options
      including funding costs relating to clinical research and statistical analysis
      for a follow up study.


F-7




**Summary
      of Significant Accounting Policies**





**Estimates:**





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





**Accounts
      Receivable:**





Accounts
      receivable consists of trade receivables recorded at original invoice amount,
      less an estimated allowance for uncollectible accounts. Trade credit is
      generally extended on a short-term basis; thus trade receivables do not bear
      interest, although a finance charge may be applied to receivables that are
      past
      due. Trade receivables are periodically evaluated for collectiblity based on
      past credit history with customers and their current financial condition.
      Changes in the estimated collectiblity of trade receivables are recorded in
      the
      results of operations for the period in which the estimate is revised. Trade
      receivables that are deemed uncollectible are offset against the allowance
      for
      uncollectible accounts. The Company generally does not require collateral for
      trade receivables.





**Revenue
      Recognition:**





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





**Property
      and Equipment:**





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





Machinery
                and equipment
            3-5
                yearsFurniture
                and fixtures
            5-7
                years





**Goodwill
      and Other Intangible Assets:**





Statement
      of Financial Accounting Standards (SFAS No. 142) "Goodwill and Other Intangible
      Assets" requires that goodwill and intangible assets having indefinite lives
      not
      be amortized, but instead be tested for impairment at least annually. Intangible
      assets determined to have definite lives are amortized over their remaining
      useful lives.





**Income
      Taxes:**





The
      Company used the asset and liability method to calculate deferred tax assets
      and
      liabilities. Deferred taxes are recognized based on the differences between
      financial reporting and income tax bases of assets and liabilities using enacted
      income tax rates. Deferred tax assets and liabilities are measured using enacted
      tax rates in effect for the years in which those temporary differences are
      expected to be recovered or settled. The effect on deferred tax assets and
      liabilities of a change in tax rates is recognized in income in the period
      that
      includes the enactment date.


F-8





**Long-Lived
      Assets:**





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





**Cash
      Equivalents:**





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





**Stock
      Based Compensation:**





On
      January 1, 2006 the Company adopted Statement of Financial Accounting
      Standards (SFAS) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS
      123(R)”). SFAS 123(R) requires the Company to recognize expense related to the
      fair value of employee stock option awards and to measure the cost of employee
      services received in exchange for an award of equity instruments based on the
      grant date fair value of the award. This eliminated the exception to account
      for
      such awards using the intrinsic method previously allowable under Accounting
      Principles Board Opinion No. 25, “Accounting for Stock issued to Employees”
(“APB 25”). Prior to January 1, 2006, we accounted for the stock based
      compensation plans under the recognition and measurement provisions of APB
      25,
      as permitted by SFAS No. 123, “Accounting for Stock-Based
      Compensation.”




Effective
      January 1, 2006, the Company adopted the fair value recognition provisions
      of SFAS 123(R), using the modified-prospective-transition method. Under that
      transition method, compensation cost recognized in 2006 and beyond includes:
      (a) compensation cost for all share-based payments granted prior to, but
      not yet vested as of January 1, 2006, based on the grant date fair value
      estimated in accordance with the original provisions of SFAS No. 123, and
      (b) compensation cost for all stock-based payments granted subsequent to
      January 1, 2006, based on the grant-date fair value estimated in accordance
      with the provisions of SFAS 123(R).





**Loss
      Per Share:**





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





Diluted
      earnings per share is computed by dividing income available to common
      shareholders by the weighted average number of common shares outstanding for
      the
      period, adjusted to reflect potentially dilutive securities. Due to losses
      from
      continuing operations for the years ended December 31, 2007 and 2006, potential
      common stock attributable to options, warrants and preferred stock outstanding
      of 8,862,046 for
      2007
      and 8,996,212 for
      2006
      were not included in the computation of diluted earnings per share, because
      to
      do so would be antidilutive. During the years ended December 31, 2007 and 2006
      potential dilutive securities also include common stock and options to be issued
      of 1,500,000.





**Classification
      of Amounts Due to HRA:**




Historically,
      management has maintained a liability account to show amounts paid to the
      Company under the contract with the City of New York Human Resources
      Administration (“HRA”) which were required to be used for certain employee
      benefits purposes and were to be paid to or on behalf of the home health aid
      employees. In 2006, management determined that approximately $904,000 could
      no
      longer be used for the employee benefit and could not be paid to the employees
      but could be expected to be required to be repaid to HRA. Accordingly, this
      amount was reclassified from general accrued expenses to the caption “Due to
      HRA”.





**Recently
      Issued Accounting Pronouncements:**





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), " *Business
      Combinations.* "
      SFAS
      141(R) broadens the guidance of SFAS 141, extending its applicability to all
      transactions and other events in which one entity obtains control over one
      or
      more other businesses. It broadens the fair value measurement and recognition
      of
      assets acquired, liabilities assumed, and interests transferred as a result
      of
      business combinations. SFAS 141(R) expands on required disclosures to improve
      the statement users' abilities to evaluate the nature and financial effects
      of
      business combinations. SFAS 141(R) is effective for our fiscal year beginning
      January 1, 2009. The adoption of SFAS 141(R) is not expected to have a material
      impact on the Company's financial position, results of operations or cash
      flows.





In
      December 2007, the FASB issued SFAS No. 160, " *Noncontrolling
      Interests in Consolidated Financial Statements—an amendment of ARB No.
      51.* "
      SFAS
      160 requires that a noncontrolling interest in a subsidiary be reported as
      equity and the amount of consolidated net income specifically attributable
      to
      the noncontrolling interest be identified in the consolidated financial
      statements. It also calls for consistency in the manner of reporting changes
      in
      the parent's ownership interest and requires fair value measurement of any
      noncontrolling equity investment retained in a deconsolidation. SFAS 160 is
      effective for our fiscal year beginning January 1, 2009. We have not yet
      determined the impact of adopting SFAS 160 on the Company's financial position,
      results of operations or cash flows.


F-9





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





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





In
      September 2006, the FASB issued SFAS No. 157, " *Fair
      Value Measurements* "
      which
      defines fair value, establishes guidelines for measuring fair value and expands
      disclosures regarding fair value measurements. SFAS 157 and eliminates
      inconsistencies in guidance found in various prior accounting pronouncements.
      SFAS 157 is effective for fiscal years beginning after November 15, 2007.
      However, on February 12, 2008, the FASB issued proposed FASB Staff Position
      ("FSP") SFAS No. 157-2, " *Effective
      Date of FASB Statement No. 157* ,"
      which
      defers the effective date for adoption of fair value measurements for
      nonfinancial assets and liabilities to fiscal years beginning after November
      15,
      2008. The Company will adopt SFAS 157 during 2008, except as it applies to
      those
      non-financial assets and non-financial liabilities as noted in proposed FSP
      157-2. The partial adoption of SFAS 157 is not expected to have a material
      impact on the Company's financial position, results of operations or cash
      flows.




In
      June,
      2006, the FASB issued Interpretation No. 48, *Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
      No. 109, Accounting for Income Taxes* (FIN48),
      to create a single model to address accounting for uncertainty in tax positions.
      FIN 48 clarifies the accounting for income taxes by prescribing a minimum
      recognition threshold a tax position is required to meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest, and penalties, accounting in interim
      periods, disclosure and transition. The Company adopted FIN 48 as of
      January 1, 2007. Based on our evaluation, we have concluded that there are
      no significant uncertain tax positions requiring recognition in our financial
      statements. Our evaluation was performed for the tax years which remain subject
      to examination by major tax jurisdictions as of December 31, 2007. We may from
      time to time be assessed interest or penalties by major tax jurisdictions,
      although any such assessments historically have been minimal and immaterial
      to
      our financial results. In the event we have received an assessment for interest
      and/or penalties, it has been classified in the financial statements as selling,
      general and administrative expense. The Company is currently subject to a three
      year statue of limitations by major tax jurisdictions. The Company and its
      subsidiaries file income tax returns in the U.S. federal jurisdiction, New
      York
      State, New York City and New Jersey.




**NOTE
      2 - PROPERTY AND EQUIPMENT**





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





2007
            
            2006Machinery
                and equipment
            
            $
            190,874
            
            $
            280,696Furniture
                and fixtures
            
            
            29,083
            
            
            46,033Leasehold
                improvements
            
            
            52,136
            
            
            52,136272,093
            
            
            378,865Less:
                accumulated depreciation
            
            
            250,003
            
            
            257,967$
            22,090
            
            $
            120,898




Depreciation
      expense for the years ended December 31, 2007 and 2006 was approximately $40,000
      and $52,000 respectively.




F-10


**NOTE
      3 - GOODWILL AND INTANGIBLE ASSETS:**





The
      annual changes in the carrying amount of goodwill relating entirely to the
      home
      healthcare business since 2006 were as follows:





New York
              Health Care
            
            BioBalanceBalance
                as of January 1, 2006
            
            $
            783,000
            
            
            -Impairment
                for year Ended December 31, 2006
            
            
            -
            
            
            -Balance
                as of December 31, 2006
            
            
            783,000
            
            
            -Impairment
                for year Ended December 31, 2007
            
            
            -
            
            
            -Balance
                as of December 31, 2007
            
            $
            783,000
            
            $
            -





The
      major
      classifications of intangible assets and their respective estimated useful
      lives
      are as follows:





December 31, 2007Gross Amount
            
            Accumulated
              Amortization
            
            Net Carrying
              Amount
            
            Estimated
              Useful Life in YearsPatents
                and trademarks
            
            $
            910,195
            
            $
            282,139
            
            $
            628,056
            
            
            10Customer
                base
            
            
            316,000
            
            
            316,000
            
            
            -
            
            
            5$
            1,226,195
            
            $
            598,139
            
            $
            628,056





December 31, 2006Gross Amount
            
            Accumulated
              Amortization
            
            Net Carrying
              Amount
            
            Estimated
              Useful Life inYearsIntellectual
                property
            
            $
            2,036,500
            
            $
            1,103,053
            
            $
            933,447
            
            
            10Patents
                and trademarks
            
            
            775,260
            
            
            196,296
            
            
            578,964
            
            
            10Customer
                base
            
            
            316,000
            
            
            252,916
            
            
            63,084
            
            
            5$
            3,127,760
            
            $
            1,552,265
            
            $
            1,575,495




On
      August 20, 2003, the Company purchased from NexGen Bacterium Inc. ("NexGen")
      certain proprietary technology and intellectual property assets that did not
      constitute a business.


F-11


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





At
      December 31, 2007, management determined that the value of the PROBACTRIX®
intellectual property was partially impaired due to the results of clinical
      studies related to the Irritable Bowel Syndrome ("IBS") indication (unusually
      high placebo response rate). Accordingly, during the year ended December 31,
      2007, management recorded an impairment loss of $729,792. As of December 31,
      2007, the net carrying value of $628,056 of intangible assets representing
      the
      cost of patents net of accumulated amortization, were attributable to
      BioBalance. BioBalance is a research and development company and has had
      significant losses since inception. In November 2006, as described in Note
      1, a
      decision was made to scale back the operations of BioBalance by surrendering
      its
      office space in March 2007 and continuing to operate on a substantially reduced
      budget.





Amortization
      expense for intangible assets amounted to $340,509 and
      $620,061, for the years ended December 31, 2007 and 2006, respectively.
      Amortization of deferred loan costs in 2007 was $12,073.





Future
      amortization of existing intangible assets for their remaining useful
      lives:





For the Years Ending
              December 31,2008
            
            $
            91,3542009
            
            
            91,3542010
            
            
            91,3542011
            
            
            91,3542012
            
            
            91,354Thereafter
            
            
            171,286$
            628,056





**NOTE
      4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:**





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





2007
            
            2006Accounts
                payable
            
            $
            492,446
            
            $
            561,445Accrued
                expenses
            
            
            505,995
            
            
            765,150Accrued
                settlement per consulting agreement
            
            
            1,131,100
            
            
            1,131,100Accrued
                employee benefits (a)
            
            
            3,411,916
            
            
            3,505,894$
            5,541,457
            
            $
            5,963,589





(a)  Accrued
      employee benefits include a component of amounts collected by the Company from
      HRA that is required to be used for employee recruitment and retention. In
      the
      even that the Company does not use these funds for the specified purposes,
      it
      may be required to return those funds to HRA.


F-12


**NOTE
      5 - LINE OF CREDIT:**





On
      September 20, 2007 (amended on December 13, 2007), New York Health Care entered
      into a Loan and Security Agreement with CIT Healthcare LLC, as lender
      (“ Lender ”).
      The
      term of the Loan and Security Agreement is three years. The Loan and Security
      Agreement provides for a revolving line of credit facility under which New
      York
      Health Care may borrow, repay and re-borrow an amount not exceeding the lesser
      of $5,000,000 or the borrowing base, which is an amount that may not exceed
      85.00% of the estimated net value of New York Health Care's Eligible Accounts,
      as defined in the agreement. As of December 31, 2007, approximately $3,600,000
      of the line was available for borrowing by the Company.





Interest
      is payable on the outstanding principal balance of the credit facility at an
      annual rate equal to 30-day LIBOR plus three and one-half percent (3.50%),
      adjusted monthly in accordance with changes in 30-day LIBOR. At December 31,
      2007, the interest rate on this facility was 8.1% .
      Additionally, the Company is required to pay an Unused Line Fee and a Collateral
      Management Fee, the total of which represent 0.50% per annum of the line
      amount.





New
      York
      Health Care's obligations to Lender under the Loan and Security Agreement are
      secured by a first priority lien on all of New York Health Care's accounts
      receivable, general intangibles, instruments and documents, and the proceeds
      thereof. However, no collateral will consist of any assets or property of
      BioBalance.





Beginning
      with the quarter ended September 30, 2007, the Company is subject to meeting
      periodic financial covenants contained in the Loan and Security Agreement.
      As of
      December 31, 2007, the Company was in compliance with all of the specified
      financial covenants.





The
      Company is prohibited from making dividends, distributions and other withdrawals
      during the term of the credit facility. However, New York Health Care is
      permitted to make loans, advances or contributions to its subsidiary, BioBalance
      provided that certain liquidity requirements are met. The Company is further
      restricted from mergers and acquisitions, as well as asset sales or dispositions
      outside the ordinary course of business, provided that such sale restrictions
      are not applicable to the sale of the stock or assets of BioBalance.





As
      of
      December 31, 2007, there was no balance due on this line of credit. For the
      year
      ended December 31, 2007, the company incurred interest expense of $11,492 on
      this line of credit.





New
      York
      Health Care previously had an agreement with G.E. Capital Health Care Financial
      Services ("G.E. Capital") that expired on March 30, 2007 providing for a
      $4,000,000 line of credit and lockbox collection services. The lender did not
      allow any borrowing on this line in 2007 and 2006. At
      December 31, 2006, there was an amount due from G.E. Capital of $274,934 .
      This
      resulted from collections deposited with G.E. Capital through a lockbox and
      then
      transferred to the Company's bank account.





**NOTE
      6 - INCOME TAXES:**





Deferred
      tax attributes resulting from differences between financial accounting amounts
      and tax bases of assets and liabilities at December 31, 2007 and 2006 follows
      (rounded to the nearest thousand).


2007
              
              2006Current
                  assets:Allowance
                  for doubtful accounts
              
              $
              230,000
              
              $
              243,000Prepaid
                  expenses
              
              
              41,000
              
              
              (78,000
              )271,000
              
              
              165,000Valuation
                  allowance
              
              
              (271,000
              )
              
              (165,000
              )Net
                  current deferred tax asset
              
              $
              -
              
              $
              -Noncurrent
                  assets:Net
                  operating loss carryforwards
              
              $
              7,359,000
              
              $
              7,033,000Depreciation
              
              
              (1,000
              )
              
              (7,000
              )Amortization
                  of goodwill
              
              
              -
              
              
              -Amortization
                  of intangibles
              
              
              1,613,000
              
              
              455,0008,971,000
              
              
              7,481,000Valuation
                  allowance
              
              
              (8,971,000
              )
              
              (7,481,000
              )Net
                  deferred deferred tax asset
              
              $
              -
              
              $
              -


F-13


As
      of
      December 31, 2007, the Company had net operating loss carry forwards of
      approximately $17,000,000 which
      expire between 2022 through 2027.





The
      provision (benefit) for income taxes, consist of the following:


Year Ended December 31,2007
              
              2006Current
                  tax expense
              
              $
              74,627
              
              $
              75,120Deferred
                  tax expense (benefit)
              
              
              1,596,000
              
              
              2,370,000Net
                  change in valuation allowance
              
              
              (1,596,000
              )
              
              (2,370,000
              )$
              74,627
              
              $
              75,120





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





Year Ended December 31,2007
            
            2006Current:Federal
                income
            
            $
            -
            
            $
            -State
                income taxes
            
            
            74,627
            
            
            75,120$
            74,627
            
            $
            75,120





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





Year Ended December 31,2007
            
            2006Statutory
                Federal income tax rate
            
            
            34
            %
            
            34
            %State
                taxes, net of Federal tax benefit
            
            
            12
            %
            
            12
            %Valuation
                allowance
            
            
            -45
            %
            
            -45
            %Over/under
                accrual
            
            
            -1
            %
            
            -1
            %0
            %
            
            0
            %





**NOTE
      7 - FAIR VALUE OF FINANCIAL INSTRUMENTS:**





As
      of
      December 31, 2007 and 2006, the carrying amount of cash and cash equivalents,
      accounts receivable, accounts payable and accrued expenses, accrued payroll
      and
      due to HRA, approximates fair value due to their short-term
      nature.


F-14


**NOTE
      8 - SHAREHOLDERS' EQUITY:**





On
      March
      6, 2006, the Company agreed to issue 400,000 shares of common stock (valued
      at
      $312,000) and 1,100,000 options (valued at $462,220) to settle with Emerald
      Asset, who provided services as a consultant to the Company, as part of a final
      settlement with the Emerald Asset. These amounts were recorded as common stock
      and options to be issued at December 31, 2005.





On
      March
      9, 2006, the Company agreed to issue 300,000 shares of Common Stock (valued
      at
      $216,000) to a former consultant of the Company as part of a final settlement
      with the consultant. At December 31, 2005, these shares were recorded as common
      stock and options to be issued. These shares were subsequently issued in October
      2006. Warrants that were previously granted to the consultant expired while
      held
      in suspension by the Company. The consultant has asserted that these warrants
      were wrongfully held in suspension and had expired prior to being released
      by
      the Board of Directors.





In
      July
      2006, the Company issued 250,000 shares to a public relations consultant. All
      of
      the shares were unconditionally returned to the Company in March
      2007.





**NOTE
      9 - STOCK OPTION/WARRANTS:**





For
      the
      years ended December 31, 2007 and 2006, no consultant warrants were issued
      and
      no expense was recognized.





The
      shareholders approved an option plan on August 31, 2005, that allows for the
      issuance of warrants and options to consultants.




**Performance
      Incentive Plan:**





On
      August
      31, 2005, the shareholders approved the Company's 2004 Incentive Plan, (the
      "Incentive Plan"). Under the terms of the Incentive Plan, up to 5,000,000 shares
      of common stock may be granted. The Incentive Plan is administered by the
      Compensation Committee which is appointed by the Board of Directors. The
      Committee determines which key employee, officer or director on the regular
      payroll of the Company, or outside consultants shall receive stock options.
      Granted options are exercisable after the date of grant in accordance with
      the
      terms of the grant up to ten years after the date of the grant. The exercise
      price of any incentive stock option or nonqualified option granted under the
      Incentive Plan may not be less than 100% of the fair market value of the shares
      of common stock of the Company at the time of the grant.





On
      March
      26, 1996, the Company's Board of Directors adopted the Performance Incentive
      Plan, (the "Option Plan"). The Option plan has substantially the same terms
      as
      the Incentive Plan above.


F-15





**Options/Warrants:**





The
      following options and warrants were issued to employees and non-employee Board
      of Directors and consultants in accordance with the Company's Performance
      Incentive Plan. However, they may not be outstanding at each year
      end.




Grant Date
            
            Number of Options
            
            Exercise
              Price
            
            Expiration TermFebruary
                28, 2007
            
            
            50,000
            
            $
            0.13
            
            
            10
                yearsAugust
                20, 2007
            
            
            225,000
            
            $
            0.15
            
            
            10
                yearsJanuary
                4, 2006
            
            
            45,000
            
            $
            0.78
            
            
            5
                yearsMarch
                6, 2006
            
            
            1,100,000
            
            $
            0.78
            
            
            4
                yearsJuly
                19, 2006
            
            
            250,000
            
            $
            0.57
            
            
            5
                yearsJuly
                27, 2006
            
            
            20,000
            
            $
            0.60
            
            
            10
                yearsSeptember
                20, 2006
            
            
            450,000
            
            $
            0.37
            
            
            10
                years





At
      December 31, 2007, the Company has shares of common stock reserved for issuance
      of these options/warrants and for options/warrants granted
      previously.





Valuation
      assumptions for these options are as follows:





2007
            
            2006Risk
                free interest rate
            
            
            4.64%
            
            
            4.3%
                - 5.1%Expected
                volatility of common stock
            
            
            108%
            
            
            0%
                - 102%Dividend
                yield
            
            
            0%
            
            
            0%Expected
                option term
            
            
            10
                years
            
            
            2-5
                years


F-16




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


Shares
                  Under Options/Warrants
              
              Weighted
                  Average Exercise PriceBalance
                  at January 1, 2006
              
              
              7,906,778
              
              $
              0.98Options
                  granted
              
              
              1,865,000
              
              $
              0.65Options
                  exercised
              
              
              -
              
              
              -Options
                  cancelled/expired
              
              
              (775,566
              )
              $
              1.29Balance
                  at December 31, 2006
              
              
              8,996,212
              
              $
              0.93Options
                  granted
              
              
              275,000
              
              $
              0.14Options
                  exercised
              
              
              -
              
              
              -Options
                  cancelled/expired
              
              
              (409,166
              )
              $
              0.81Balance
                  at December 31, 2007
              
              
              8,862,046
              
              $
              0.88


*Includes
      the performance based warrants discussed above.





All
      of
      the options listed in the above table have no intrinsic value as their exercise
      prices are all in excess of the market value of the Company’s common stock as of
      December 31, 2007.





During
      the years ended December 31, 2007 and 2006, the Company incurred $24,500 and
      $ 269,404 of
      stock
      compensation expense, respectively.





On
      November 26, 2003, the Company suspended the 100,000 options granted on March
      7,
      2003, to Paul Stark, the former President of BioBalance. The options are
      considered outstanding but can not be exercised until the Company gives notice
      that they may be exercised. The options have been recorded under the intrinsic
      value method.


F-17


The
      following table summarizes information about options and warrants outstanding
      and exercisable at December 31, 2007:




Options/Warrants
                  Outstanding
              
              
              Options/Warrants
                  ExercisableRange
                  of Exercise Price
              
              
              Options/
                  Warrants Outstanding
              
              
              Weighted
                  Average Remaining Contractual Life
              
              
              Weighted
                  Average Exercise Price
              
              
              Options
                  Warrants Exercisable
              
              
              Weighted
                  Average Options Warrants Exercisable$3.69
              
              
              100,000
              
              
              0.71
              
              $
              3.69
              
              
              100,000
              
              $
              3.69$3.22-3.47
                  (A)
              
              
              48,387
              
              
              0.01
              
              $
              3.31
              
              
              48,387
              
              $
              3.31$3.14
              
              
              160,000
              
              
              5.19
              
              $
              3.14
              
              
              160,000
              
              $
              3.14$2.55
              
              
              75,333
              
              
              0.42
              
              $
              2.55
              
              
              75,333
              
              $
              2.55$2.44
              
              
              6,667
              
              
              0.42
              
              $
              2.44
              
              
              6,667
              
              $
              2.44$1.50
              
              
              51,333
              
              
              0.98
              
              $
              1.50
              
              
              51,333
              
              $
              1.50$1.21
              
              
              150,000
              
              
              2.67
              
              $
              1.21
              
              
              150,000
              
              $
              1.21$1.21
              
              
              50,000
              
              
              3.01
              
              $
              1.21
              
              
              50,000
              
              $
              1.21$1.20
              
              
              105,000
              
              
              2.67
              
              $
              1.20
              
              
              105,000
              
              $
              1.20$1.00
              
              
              200,000
              
              
              3.42
              
              $
              1.00
              
              
              200,000
              
              $
              1.00$0.97
              
              
              66,667
              
              
              1.87
              
              $
              0.97
              
              
              66,667
              
              $
              0.97$0.89
              
              
              133,333
              
              
              3.01
              
              $
              0.92
              
              
              133,333
              
              $
              0.92$0.78
              
              
              5,726,993
              
              
              2.15
              
              $
              0.78
              
              
              5,726,993
              
              $
              0.78$0.78
              
              
              45,000
              
              
              3.01
              
              $
              0.78
              
              
              45,000
              
              $
              0.78$0.78
              
              
              1,100,000
              
              
              2.18
              
              $
              0.78
              
              
              1,100,000
              
              $
              0.78$0.75
              
              
              133,333
              
              
              2.58
              
              $
              0.75
              
              
              133,333
              
              $
              0.75$0.75
              
              
              200,000
              
              
              2.52
              
              $
              0.75
              
              
              200,000
              
              $
              0.75$0.60
              
              
              10,000
              
              
              8.58
              
              $
              0.60
              
              
              10,000
              
              $
              0.60$0.37
              
              
              225,000
              
              
              8.72
              
              $
              0.37
              
              
              225,000
              
              $
              0.37$0.13
              
              
              50,000
              
              
              9.16
              
              $
              0.13
              
              
              50,000
              
              $
              0.13$0.15
              
              
              225,000
              
              
              9.64
              
              $
              0.15
              
              
              225,000
              
              $
              0.15Total
              
              
              8,862,046
              
              
              2.64
              
              $
              0.88
              
              
              8,862,046
              
              $
              0.88


(A)
          -
          Expired on January 1, 2008




**NOTE
      10 - COMMITMENTS AND CONTINGENCIES:**





**Compliance
      with State Securities Laws**





During
      October 2004, it was determined that certain of the shares of Common Stock
      that
      the Company issued to holders of BioBalance stock in connection with the
      Company's January 2003 acquisition of BioBalance may not have been exempt from
      the registration or qualification requirements of the state securities laws
      of
      certain of the states where the holders of BioBalance stock then resided
      although they were registered under the Securities Act of 1933, as amended.
      Although the Company is unable to quantify the actual number of shares involved
      that are still owned by the original recipients of the Company's Common Stock
      received in the BioBalance acquisition, the per share purchase price paid by
      the
      BioBalance holders for the BioBalance shares they exchanged in the acquisition
      ranged from $.03 to $3.00 per share and the Company currently believes that
      the
      purchase price paid by such persons who might have certain statutory rescission
      rights does not exceed approximately $345,000, exclusive of any penalties or
      interest, although no assurance can be given that any such claims will not
      exceed this amount. The Company cannot determine the effect, if any, on its
      operations or financial condition that may occur from the failure to register
      or
      qualify these shares under applicable state securities laws. If it is determined
      that the Company offered Common Stock in connection with the BioBalance
      acquisition without properly registering or qualifying the shares under state
      laws, or securing exemption from registration, regulators could impose on the
      Company monetary fines or other sanctions as provided under these laws. The
      Company is unable to estimate the amount of monetary fines, if any, or the
      nature or scope of any sanctions at this time and is continuing its
      investigation of this matter.


F-18


**Risk
      Factors Associated with Fair Labor Standards Act:**





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





The
      issue
      was submitted to the Supreme Court and, on January 23, 2006, the Supreme Court
      granted a writ of certiorari, vacated the judgment and remanded the case to
      the
      Second Circuit Court of Appeals to reconsider its decision in light of the
      memorandum issued by the U.S. Department of Labor on December 1, 2005. In that
      memo, the DOL stated that it considers its regulations allowing the
      companionship exemption to be used by third party employers to be “authoritative
      and legally binding”. The Second Circuit Court of Appeals reconsidered and, on
      August 31, 2006, reaffirmed its decision. The Supreme Court again granted a
      writ
      of certiorari on January 5, 2007. In June 2007, the U.S. Supreme Court issued
      its decision which upheld the "companionship exemption" as applying to
      employment by "third party employers", e.g. home care agencies, such as New
      York
      Health Care.





**Lease
      Commitments**





The
      Company leases office space under non-cancelable operating leases which expire
      between June 2008 and June 2011.





At
      December 31, 2007, future minimum lease payments due under operating leases
      approximate:





For the Years Ending December 31,2008
            
            $
            285,0002009
            
            
            275,0002010
            
            
            136,0002011
            
            
            43,000Thereafter
            
            
            -$
            739,000





Rent
      expense for Company facilities charged to operations, including real estate
      taxes, was approximately $355,000 and $461,000 for the years ended December
      31,
      2007 and 2006.





In
      April
      2006, the Company entered into a five year non-cancelable operating lease for
      office space in New York, New York at an average annual rental of approximately
      $182,000 for its BioBalance subsidiary. In March 2007, the Company entered
      into
      an agreement with the landlord whereby it was released from its obligation
      under
      the lease going forward from the date of the agreement. Pursuant to the
      agreement, the Company surrendered the premises. The Company incurred a loss
      of
      approximately $101,000 in
      connection with terminating the lease of which $27,000 was charged to property
      impairment in 2006 and approximately $74,000 was
      charged to operations during 2007. Rent expense incurred by the Company relating
      to this lease for the years ended December 31, 2007 and 2006 was approximately $26,000 and
      $118,000, respectively. This lease has been eliminated from the table above
      due
      to its termination in 2007.





**Employment
      Agreements:**





In
      June
      2004, the Company entered into an employment agreement with Dennis O'Donnell
      the
      president and CEO of the Company that expired on May 5, 2006 at an annual
      compensation of $200,000. The board approved an increase of $25,000 upon the
      closing of the Offering of securities that took place on February 24, 2005.
      On
      May 6, 2005, the board of directors approved a bonus of $90,000 and granted
      him
      100,000 options to acquire common stock. In 2006, the Board approved a bonus
      of
      $112,500. On September 6, 2006, Mr. O’Donnell resigned his positions as
      President, Chief Executive Officer and a Director of New York Health Care Inc.
      and its subsidiary BioBalance Corporation.





Effective
      February 5, 2007, Stewart W. Robinson was appointed to serve as the Company’s
      Chief Financial Officer on a part-time basis. The Company has agreed to pay
      Mr.
      Robinson on a per diem basis, with total compensation for the 2007 calendar
      year
      capped at $65,000 for
      36
      days up to a maximum of 45 days per calendar year. Due to increased
      responsibilities not originally contemplated, Mr. Robinson worked approximately
      44 additional days and received additional compensation of $79,531 for
      a
      total salary of $144,531 in
      2007.
      Other compensation for Mr. Robinson includes: payment for bookkeeping and
      clerical services ($4,825) provided by persons employed by him or KBL, LLP;
      reimbursement for office related expenses incurred of $877; reimbursement for
      software and related training costs of $2,340 and; continuing education and
      related travel costs specifically related to his position with the company
      of
      $2,251.


F-19


Effective
      August 20, 2007, the Board of Directors appointed Murry Englard Chief Executive
      Officer of the Company. Prior to such appointment, Mr. Englard was serving
      as
      Acting Chief Executive Officer and a Director. Mr. Englard will continue to
      serve as a Director of the Company. Mr. Englard will receive a monthly salary
      of
      $8,333 for his services as Chief Executive Officer. The term for Mr. Englard’s
      service as Chief Executive Officer will be one year, renewable monthly, and
      the
      Company will continue its search for a full-time Chief Executive Officer. In
      2007, Mr. Englard received salaries of $44,231 ,
      a bonus
      of $15,000 ,
      director's fees of $35,200 and, expense reimbursements of $11,026. In 2006,
      Mr.
      Englard received director's fees of $18,000 .




**401(k)
      Plan:**





The
      Home
      Healthcare segment maintains an Internal Revenue Code Section 401(k) salary
      deferred savings plan (the "Plan") for eligible employees who have been employed
      for at least one year and are at least 21 years old. Subject to certain
      limitations, the Plan allows participants to voluntarily contribute up to 15%
      of
      their pay on a pretax basis. The Company currently contributes 50% of each
      dollar contributed to the Plan by participants up to a maximum of 3% of the
      participant's salary. The Plan also provides for certain discretionary
      contributions by the Company as determined by the Board of Directors. The
      Company's contributions offset by unvested, forfeited matching funds amounted
      to
      approximately $45,000 and $46,000 for the years ended December 31, 2007 and
      2006, respectively.





**Profit
      Sharing Plan:**





The
      Company maintains a qualified profit sharing plan under Internal Revenue Code
      Section 401 whereby it may contribute up to 15% of employee compensation.
      Specified employees are generally eligible for plan participation upon their
      employment commencement date with immediate vesting on the employee’s plan
      entrance date. All contributions to the plan are at the discretion of Company
      management. The Company made contributions to the plan of $162,583 and $169,739
      for the years ended December 31, 2007, and 2006 respectively.




**Bonus
      Plan:**





The
      Home
      Healthcare segment of the Company has established a bonus plan pursuant to
      which
      10% of the Company's pre-tax net income is contributed to a bonus pool which
      is
      available for distribution to all employees as decided by the Company's
      Compensation Committee. All allocated amounts were paid before year end and
      no
      bonus was accrued for 2007 and 2006..




**Concentrations
      of Credit Risk:**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk consist of temporary cash investments, which from time-to-time exceed
      the
      Federal depository insurance coverage and commercial accounts receivable. The
      Company has cash investment policies that restrict placement of these
      investments to financial institutions evaluated as highly creditworthy. Cash
      and
      cash equivalents held in one bank exceed federally insured limits by
      approximately $2,038,000 at
      December 31, 2007. The Company does not require collateral on commercial
      accounts receivable as the customer base generally consists of large,
      well-established institutions.





**Major
      Customers:**





One
      major
      customer accounted for approximately 56% and 55% of net patient service revenue
      for the years ended December 31, 2007 and 2006. In addition, three customers
      represented approximately 41% and 38% of accounts receivable at December 31,
      2007 and 2006, respectively.




**Business
      Risks:**





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





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


F-20


**Cautionary
      Statement**





BioBalance
      operates in a competitive environment that involves a number of risks, some
      of
      which are beyond its control. Although we believe the expectations for
      BioBalance are based on reasonable assumptions, we can give no assurance that
      our expectations will be attained. Factors that could cause actual events or
      results to differ materially from expected results involve both known and
      unknown risks. Key factors include, among others: our need to secure additional
      financing and at acceptable terms; the high cost and uncertainty of clinical
      trials and other development activities involving pharmaceutical products;
      the
      dependence on third parties to manufacture its products; the unpredictability
      of
      the duration and results of regulatory approval for our products; our dependence
      on our lead biotherapeutic agent, PROBACTRIX® and the uncertainty of its market
      acceptance; the possible impairment of, or inability to enforce, intellectual
      property rights and the subsequent costs of defending these rights; and the
      loss
      of key executives or consultants.





**Litigation**





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





On
      March
      30, 2006, the Company was served with a shareholder derivative complaint
      captioned Jay Glatzer v. Yitz Grossman, Emerald Asset Management, Murry Englard,
      Michael Nafash, Stuart Ehrlich, and Dennis O'Donnell and New York Health Care,
      Inc., (Supreme Court of State of New York County of Nassau, (Index No. 5125/06).
      The lawsuit alleged that the directors breached their fiduciary duty by
      approving the Emerald Settlement Agreement disclosed in the Company's Form
      8-K
      (Date of Report March 6, 2006) filed with the Securities Exchange Commission
      on
      March 10, 2006. The lawsuit claimed that such breach was a product of their
      respective relationships with Mr. Grossman. The lawsuit also alleged that Mr.
      Grossman and Emerald Asset Management injured the Company by engaging in the
      actions underlying the November 2004 criminal conviction of Mr. Grossman. The
      lawsuit was dismissed in September 2006. A notice of appeal was filed by the
      plaintiff in October 2006 and the plaintiff filed its appeal brief in April
      2007. On January 15, 2008, the court dismissed the appeal.





On
      March
      9, 2006, the Company entered into a final settlement agreement (the "Corval
      Settlement Agreement") with Mark Olshenitsky related to the resolution of
      disputes under a consulting agreement dated April 14, 2003 (the "Corval
      Consulting Agreement") between the Company and Corval International, Inc.
      ("Corval"). Pursuant to the Corval Consulting Agreement, Corval was issued
      warrants to purchase 500,000 shares of the Company's Common Stock for $2.50
      per
      share until April 21, 2004 (the "Warrants"). Mark Olshenitsky ("Olshenitsky")
      is
      the sole owner of Corval and is the assignee/successor to Corval.





In
      November 2003, the Company suspended the Warrants in response to the indictment
      of one of its directors and officer of BioBalance and a consultant to BioBalance
      as reported in the Company's Form 10-K for the year ended December 31,
      2003.





Both
      Corval and Olshenitsky have continually denied any involvement in the events
      leading up to the indictments and have threatened litigation alleging breach
      of
      contract and related compensatory damages as a result of the suspension of
      the
      Warrants. Neither Corval nor Olshenitsky was indicted.





Pursuant
      to the Corval Settlement Agreements and in order avoid the cost and uncertainty
      of litigation, the Company agreed to issue 300,000 (valued at $216,000) shares
      of common stock to Olshenitsky in return for a general release of all claims
      Corval and Olshenitsky may have against the Company. The common stock are
      "restricted shares" and may only be resold after registration of such shares
      or
      the availability of an exemption from registration, including under Rule 144
      of
      the Securities Act of 1933 as amended (the "Securities Act").





On
      March
      6, 2006, the Company entered into a settlement agreement (the "Emerald
      Settlement Agreement") with Emerald Asset Management, Inc. ("Emerald") and
      Yitz
      Grossman ("Grossman") related to the resolution of disputes under a consulting
      agreement dated June 1, 2001 (the "Emerald Consulting Agreement") between the
      Company and Emerald. Grossman is the sole owner of Emerald. Pursuant to the
      Emerald Consulting Agreement, Emerald was entitled to $250,000 per year through
      2011, additional payments equal to bonuses paid to the Chief Executive Officer
      of the Company and reimbursement for expenses.





In
      November 2003, the Company terminated the Emerald Consulting Agreement in
      response to the indictment of one of its directors and officer of BioBalance,
      and a consultant as reported in the Company's Form 10-K for the year ended
      December 31, 2003. As of September 2004, BioBalance notified the consultant
      in
      writing that the consulting agreement was terminated for cause. At December
      31,
      2004, the Company had accrued had approximately $359,000 relating to this
      consulting agreement as reported in the 2004 10-K.


F-21


Emerald
      and Grossman have threatened litigation alleging breach of contract and related
      compensatory damages as a result of the termination of the Emerald Consulting
      Agreement. Emerald asserts that the Emerald Consulting Agreement was terminated
      "without cause" as defined in the agreement entitling Emerald to certain
      payments that Emerald estimates at approximately $2,225,000.





Pursuant
      to the Emerald Settlement Agreement and in order avoid the cost and uncertainty
      of uncertainty of litigation, the Company agreed to (i) the immediate payment
      of
      $700,000 to Emerald, (ii) payment of $22,000 per month for eighteen months
      beginning January 1, 2006, (iii) the issuance of 400,000 shares of common stock,
      (iv) options to purchase 1,100,000 shares of common stock at $0.78 per share
      until March 1, 2010 and (v) health insurance for Grossman and his family for
      the
      eighteen month period ending June 30, 2008 amounting to approximately $35,100.
      In return, Emerald and Grossman have executed a general release of all claims
      they may have against the Company. The common stock to be issued and the common
      stock issuable pursuant to the options are "restricted shares" and may only
      be
      resold after registration of such shares or the availability of an exemption
      from registration, including under Rule 144 of the Securities Act. The Company
      has granted Emerald a one-time demand registration right and unlimited piggy
      back registrant rights. The Company has not paid any of this liability and
      has
      expensed $1,545,931 for the above settlement during the year ended December
      31,
      2005. As of December 31, 2005, the Company has recorded a liability of
      $1,131,100 and common stock and options to be issued valued at $774,220 as
      of
      March 6, 2006. On April 17, 2006, Emerald Asset and Grossman have agreed not
      to
      demand the cash portion of the settlement agreement until such time as New
      York
      Health Care receives any additional monies from any source.





On August
      21, 2006, the Company unilaterally rescinded the settlement between the Company
      and Emerald Asset and Yitz Grossman. The rescission of the settlement by the
      Company was done without the consent of Emerald Asset and Yitz Grossman.
      Accordingly there may be future litigation brought against the Company by
      Emerald Asset and Yitz Grossman to seek enforcement of the agreement. The
      Company continues to retain the accrual for the settlement agreement on its
      books in its entirety. If there is litigation brought by Emerald Asset and
      Yitz
      Grossman to enforce the settlement agreement, there can be no assurance that
      at
      a future time the accrual that was recorded would be sufficient to offset
      amounts resulting from the future litigation.





**NOTE
      11 - THIRD-PARTY RATE ADJUSTMENTS AND REVENUE AND CERTAIN CONTRACTS RELATED
      TO
      OPERATIONS:**





Approximately
      4% of net patient service revenue was derived under New York State Medicaid
      reimbursement programs during each of the years ended December 31, 2007 and
      2006. These revenues are based, in part, on cost reimbursement principles and
      are subject to audit and retroactive adjustment. Differences between current
      rates and subsequent revisions are reflected in the year that the revisions
      are
      determined.





The
      Company has an agreement with the City of New York acting through the Department
      of Social Services of The Human Resources Administration ("HRA") to provide
      personal care services to certain qualified individuals as determined by HRA.
      The agreement with HRA sets a fixed direct labor cost in the reimbursement
      rate.
      Should the Company incur direct costs of home attendant services below this
      fixed rate, the Company must repay the difference to HRA, subject to final
      audit
      by the City of New York. As of December 31, 2007 and 2006, the amount included
      in due to HRA relating to direct labor costs amounted to $618,589 and
      $1,461,063, respectively. In addition, the City's reimbursement methodology
      for
      general and administrative expenses is based on a fixed amount per client based
      on the number of cases. The Company is reimbursed at an hourly rate. Any amount
      over this fixed rate must be repaid to HRA. As of December 31, 2007 and 2006,
      this amount was $8,135,819 and $6,481,694, respectively, subject to final audit
      by the City of New York. The aggregate amount due to HRA was $8,754,408 and $7,942,757 at
      December 31, 2007 and 2006, respectively. HRA has completed their field work
      relating to the audit for the fiscal year ended June 30, 2004.





In
      January 2003, the New York State Department of Health ("DOH") approved
      additional funding to home healthcare agencies in a form of a rate increase.
      The
      additional funding is to be used exclusively for the recruitment and retention
      of home healthcare employees. Any unspent money relating to recruitment and
      retention is recorded as an accrued liability until such time as it is spent.
      As
      of December 31, 2007 and 2006, the Company accrued approximately $1,484,000
      and
      $1,699,000, respectively, related to recruitment and retention funds not yet
      expended and is included in accrued employee benefits.


F-22


**NOTE
      12- SUPPLEMENTAL CASH FLOW DISCLOSURES:**


Year Ended December 31,2007
              
              2006Supplemental
                  cash flow disclosures:Cash
                  paid during the period for:Interest
              
              $
              29,066
              
              $
              31,394Income
                  Taxes
              
              $
              34,402
              
              $
              62,198Supplemental
                  schedule of noncash investing and financing activities:Issuance
                  of common stock in payment of accrued expenses in connection with
                  Corval
                  Settlement Agreement
              
              $
              -
              
              $
              216,000Shares
                  issued to public relations consultant returned in 2007
              
              $
              (2,500
              )
              $
              2,500


F-23


**NOTE
      13 - SEGMENT REPORTING:**





The
      Company has two reportable business segments: New York Health Care, a home
      health care agency that provides a broad range of health care support services
      to patients in their homes, and BioBalance, a company that is developing a
      patented biotherapeutic agent for the treatment of gastrointestinal disorders.
      BioBalance has not generated any revenue as of December 31, 2007.


Health Care
                Segment
              
              BioBalance
                Segment
              
              Elimination of
                Intersegment
                Activity
              
              Consolidated**Year
                  ended December 31, 2007**Revenue:Net
                  patient service revenue
              
              $
              44,399,303
              
              $
              -
              
              $
              -
              
              $
              44,399,303Total
                  revenue
              
              $
              44,399,303
              
              $
              -
              
              $
              -
              
              $
              44,399,303Income
                  (loss) before provision for income taxes
              
              $
              1,768,204
              
              $
              (2,745,928
              )
              $
              -
              
              $
              (977,724
              )Depreciation
                  and amortization
              
              $
              104,430
              
              $
              300,192
              
              $
              -
              
              $
              404,622Interest
                  income
              
              $
              77,825
              
              $
              68
              
              $
              -
              
              $
              77,893Interest
                  expense
              
              $
              28,803
              
              $
              263
              
              $
              -
              
              $
              29,066Income
                  tax expense
              
              $
              73,852
              
              $
              775
              
              $
              -
              
              $
              74,627Total
                  assets
              
              $
              17,906,954
              
              $
              697,670
              
              $
              (6,187,418
              )
              $
              12,417,206Expenditures
                  for long-lived assets
              
              $
              -
              
              $
              134,934
              
              $
              -
              
              $
              134,934**Year
                  ended December 31, 2006**Revenue:Net
                  patient service revenue
              
              $
              45,558,331
              
              $
              -
              
              $
              -
              
              $
              45,558,331Total
                  revenue
              
              $
              45,558,331
              
              $
              -
              
              $
              -
              
              $
              45,558,331Income
                  (loss) before provision for income taxes
              
              $
              1,811,519
              
              $
              (5,492,072
              )
              $
              -
              
              $
              (3,680,553
              )Depreciation
                  and amortization
              
              $
              97,797
              
              $
              574,787
              
              $
              -
              
              $
              672,584Interest
                  income
              
              $
              160,983
              
              $
              3,986
              
              $
              -
              
              $
              164,969Interest
                  expense
              
              $
              31,394
              
              $
              30,000
              
              $
              -
              
              $
              61,394Income
                  tax expense
              
              $
              75,120
              
              $
              -
              
              $
              -
              
              $
              75,120Total
                  assets
              
              $
              15,706,627
              
              $
              1,898,800
              
              $
              (4,725,889
              )
              $
              12,879,538Expenditures
                  for long-lived assets
              
              $
              -
              
              $
              335,098
              
              $
              -
              
              $
              335,098


F-24




SCHEDULE
      II - VALUATION AND QUALIFYING ACCOUNTS





Column
                A
            
            Column
                B
            
            Column
                C
            
            Column
                D
            
            Column
                EBalance
                at Beginning of Period
            
            Charged
                to Costs and Expenses
            
            Additions
                Charged to Other Accounts
            
            Deductions
            
            Balance
                at End of PeriodDescriptionYear
                ended December 31, 2007Deducted
                from asset accounts:Allowance
                for doubtful accounts
            
            $
            579,000
            
            $
            0
            
            $
            0
            
            $
            (31,113
            )
            $
            547,887Deferred
                tax asset valuation allowance
            
            $
            7,646,000
            
            $
            1,596,000
            
            $
            
            
            $
            -
            
            $
            9,242,000Year
                ended December 31, 2006Deducted
                from asset accounts:Allowance
                for doubtful accounts
            
            $
            465,000
            
            $
            208,678
            
            $
            -
            
            $
            (94,678
            )
            $
            579,000Deferred
                tax asset valuation allowance
            
            $
            5,276,000
            
            $
            2,370,000
            
            $
            -
            
            $
            -
            
            $
            7,646,000


F-25





**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.







**NEW
                YORK HEALTH CARE, INC.**April
                14, 2008
            By:
            /s/ Stewart
                W. RobinsonName:
                Stewart W. RobinsonTitle:
                Chief Financial Officer





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





SIGNATURE
            
            TITLE
            
            DATE/s/
                Murry Englard
            
            Director,
                Chief Executive Officer
            
            April
                14, 2008Murry
                Englard/s/
                Stewart W. Robinson
            
            Chief
                Financial Officer
            
            April
                14, 2008Stewart
                W. Robinson/s/
                Howard Berg
            
            Director
            
            April
                14, 2008Howard
                Berg/s/
                Yoram Hacohen
            
            Director
            
            April
                14, 2008Yoram
                Hacohen





**INDEX
      TO EXHIBITS**





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




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







4.1
            
            Form
                of certificate evidencing shares of Common Stock. (Incorporated by
                reference to Exhibit 4.1 to the Company's Registration Statement
                on Form
                SB-2, SEC File No. 333-08152, declared effective on December 20,
                1996).++10.1
            
            Employment
                Agreement for Dennis O'Donnell. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 10-Q filed on August 16, 2004 for the quarter
                ended
                June 30, 2004).++10.3
            
            Option
                Agreement dated September 14, 2004 between the Company and Dennis
                O'Donnell. (Incorporated by reference to Exhibit 10.1 to the Company's
                Form 10-Q filed on November 22, 2004 for the quarter ended September
                30,
                2004).++10.4
            
            Option
                Agreement between the Company and Dennis O'Donnell dated May 6, 2005.
                (Incorporated by reference to Exhibit 10.2 to the Company's Form
                10-Q
                filed on August 17, 2005 for the quarter ended June 30,
                2005).++10.5
            
            Employment
                Agreement between the Company and A. James Forbes, Jr. dated June
                1, 2005.
                (Incorporated by reference to Exhibit 10.1 to the Company's Form
                10-Q
                filed on August 17, 2005 for the quarter ended June 30,
                2005).++10.6
            
            Amended
                Performance Incentive Plan (Stock Option Plan). (Incorporated by reference
                to Exhibit 10.50 to the Company's Form 10-K filed on March 17, 2003
                for
                the year ended December 31, 2003).++10.7
            
            2004
                Stock Incentive Plan (incorporated by reference to Appendix A to
                the
                Company's Definitive Proxy Statement on Schedule 14A filed on August
                9,
                2005 with respect to the Company's Annual Meeting of Stockholders
                held on
                August 31, 2005).10.8
            
            Loan
                Security Agreement among the Company, NYHC Newco Paxxon, Inc. and
                Heller
                Healthcare Finance, Inc. dated November 28, 2000. (Incorporated by
                reference to Exhibit 10.45 to the Company's Form 8-K filed on December
                8,
                2000).10.9
            
            Amendment
                No. 1 to Loan and Security Agreement and Consent and Waiver with
                Heller
                Healthcare Finance, Inc. dated November 27, 2002. (Incorporated by
                reference to Exhibit 10.49 to the Company's Form 8-K filed on December
                4,
                2002).10.10
            
            Amendment
                No. 2 to Loan and Security Agreement among GE HFS Holding, Inc.,
                the
                Company and Newco Paxxon, Inc. dated March 29, 2004. (Incorporated
                by
                reference to Exhibit 10.2 to the Company's Form 10-Q filed on May
                17, 2004
                for the quarter ended March 31, 2004).10.11
            
            Amendment
                No. 3 to Loan and Security Agreement among GE HFS Holdings, Inc.,
                the
                Company and Newco Paxxon, Inc. dated November 29, 2004 (Incorporated
                by
                reference to Exhibit 10.1 the Company's Form 8-K filed on December
                2,
                2004).10.12
            
            Amendment
                No. 4 to Loan and Security Agreement among the Company, NYHC Newco
                Paxxon,
                Inc. and GE HFS Holdings, Inc. dated January 13, 2005. (Incorporated
                by
                reference to Exhibit 10.1 to the Company's Form 8-K filed on January
                19,
                2005).10.13
            
            Amendment
                No. 5 to Loan and Security Agreement among the Company, NYHC Newco
                Paxxon,
                Inc. and GE HFS Holdings, Inc. dated August 12, 2005. (Incorporated
                by
                reference to Exhibit 10.3 to the Company's Form 10-Q filed on August
                17,
                2005 for the quarter ended June 30,
                2005).







10.14
            
            Amendment
                No. 6 to Loan and Security Agreement among the Company, NYHC Newco
                Paxxon,
                Inc. and GE HFS Holdings, Inc. dated November 29, 2005.10.15
            
            Engagement
                Letter Agreement between the Company and Sterling Financial Investment
                Group, Inc. dated May 6, 2004. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 10-Q filed on May 17, 2004 for the quarter
                ended
                March 31, 2004).10.16
            
            Placement
                Agreement between the Company and Sterling Financial Investment Corp.,
                Inc. dated November 19, 2004. (Incorporated by reference to Exhibit
                10.1
                to the Company's Form 8-K filed on November 23, 2004).10.18
            
            Amendment
                dated February 7, 2005 to the Placement Agreement between the Company
                and
                Sterling Financial Group, Inc. dated November 19, 2004. (Incorporated
                by
                reference to Exhibit 10.2 to the Company's Form 10-Q filed on May
                23, 2005
                for the quarter ended March 31, 2005).10.19
            
            Amendment
                dated February 18, 2005 to the Placement Agreement between the Company
                and
                Sterling Financial Group, Inc. dated November 19, 2004. (Incorporated
                by
                reference to Exhibit 10.3 to the Company's Form 10-Q filed on May
                23, 2005
                for the quarter ended March 31, 2005).10.19
            
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Rockland,
                Westchester and Bronx Counties dated May 8, 1995. (Incorporated by
                reference to Exhibit 10.8 to the Company's Registration Statement
                on Form
                S-4, SEC File No. 333-85054).10.20
            
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Dutchess,
                Orange, Putnam, Sullivan and Ulster Counties dated May 8, 1995.
                (Incorporated by reference to Exhibit 10.9 to the Company's Registration
                Statement on Form S-4, SEC File No. 333-85054).10.21
            
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Nassau,
                Suffolk and Queens Counties dated May 8, 1995. (Incorporated by reference
                to Exhibit 10.10 to the Company's Registration Statement on Form
                S-4, SEC
                File No. 333-85054).10.22
            
            State
                of New York Department of Health Office of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Orange
                and
                Rockland Counties dated July 1, 1995. (Incorporated by reference
                to
                Exhibit 10.11 to the Company's Registration Statement on Form S-4,
                SEC
                File No. 333-85054).10.23
            
            Personal
                Care Aide Agreement by and between the Company and Nassau County
                Department of Social Services dated October 18, 1995. (Incorporated
                by
                reference to Exhibit 10.15 to the Company's Registration Statement
                on Form
                S-4, SEC File No. 333-85054).10.24
            
            State
                of New York Department of Health Offices of Health Systems Management
                Home
                Care Service Agency License for the Company doing business in Bronx,
                Kings, New York, Queens and Richmond Counties dated December 29,
                1995.
                (Incorporated by reference to Exhibit 10.17 to the Company's Registration
                Statement on Form S-4, SEC File No. 333-85054).10.25
            
            Homemaker
                and Personal Care Agreements by and between the Company and the County
                of
                Rockland Department of Social Services dated January 1, 1996.
                (Incorporated by reference to Exhibit 10.19 to the Company's Registration
                Statement on Form S-4, SEC File No. 333-85054).10.26
            
            Termination
                Agreement and Release among the Company, NYHC Newco Paxxon, Inc.,
                New York
                Health Care, LLC, Jerry Braun and Jacob Rosenberg dated July 27,
                2005.
                (Incorporated by reference to Exhibit 10.1 to the Company's Form
                8-K filed
                on August 10, 2005).10.27
            
            Settlement
                Agreement among Corval International, Inc., Mark Olshenitsky and
                the
                Company dated March 9, 2006. (Incorporated by reference to Exhibit
                10.2 to
                the Company's Form 8-K filed on March 10,
                2006).





10.28
              
              Settlement
                  Agreement among Emerald Asset Management, Inc., Yitz Grossman and
                  the
                  Company dated March 1, 2006. (Incorporated by reference to Exhibit
                  10.4 to
                  the Company's Form 8-K filed on March 10, 2006).10.29
              
              Engagement
                  Letter of Corval International Inc. (“Corval”) and BioBalance dated April
                  21, 2003 with warrant agreement in favor of Corval attached (Incorporated
                  by reference to Exhibit 10.1 filed as part of the Company's Form
                  8-K on
                  March 10, 2006).10.30
              
              Consulting
                  Agreement dated June 1, 2001 between The Zig Zag Corp., Emerald
                  Asset
                  Management, Inc. (“Emerald”), and Yitz Grossman (Incorporated by reference
                  to Exhibit 10.3 filed as part of the Company's Form 8-K on March
                  10,
                  2006).10.31
              
              Revival
                  Press Release dated January 17, 2006 (Incorporated by reference
                  to Exhibit
                  10.5 filed as part of the Company's Form 8-K on March 10,
                  2006)10.32
              
              Amendment
                  to Emerald Settlement Agreement dated April 17, 2006 between the
                  Company,
                  Emerald and Yitz Grossman (Incorporated by reference to Exhibit
                  10.1 filed
                  as part of the Company's Form 8-K on April 19, 2006).10.33
              
              Engagement
                  Agreement between Stewart Robinson and the Company dated February
                  5, 2007
                  (Incorporated by reference to Exhibit 10.1 filed as part of the
                  Company's
                  Form 8-K on February 8, 2007).10.34
              
              Non-Qualified
                  Stock Option Agreement dated September 20, 2006 between the Company
                  and
                  Michael Nafash. 2007 (Incorporated by reference to Exhibit 10.34
                  filed as
                  part of the Company's Form 10-K on April 19, 2007).10.35
              
              Non-Qualified
                  Stock Option Agreement dated February 28, 2007 between the Company
                  and
                  Howard Berg. (Incorporated by reference to Exhibit 10.35 filed
                  as part of
                  the Company's Form 10-K on April 19, 2007).10.36
              
              Non-Qualified
                  Stock Option Agreement dated February 28, 2007 between the Company
                  and
                  Yoram Hacohen. (Incorporated by reference to Exhibit 10.36 filed
                  as part
                  of the Company's Form 10-K on April 19, 2007).10.37
              
              Surrender
                  Agreement dated March 8, 2007 between the Company and 345 Seventh
                  Avenue
                  LLC. (Incorporated by reference to Exhibit 10.37 filed as part
                  of the
                  Company's Form 10-K on April 19, 2007).10.38
              
              Loan
                  and Security Agreement, dated September 20, 2007, between New York
                  Health
                  Care, Inc. and CIT
                Healthcare
                  LLC. (Incorporated by reference to Exhibit 10.1 filed as part of
                  the
                  Company's Form 8-K on September 24, 2007).10.39
              
              Revolving
                  Credit Note, dated September 20, 2007, delivered by New York Health
                  Care,
                  Inc. to CIT Healthcare
                LLC.
                  (Incorporated by reference to Exhibit 10.2 filed as part of the
                  Company's
                  Form 8-K on September 24, 2007).14.1
              
              Code
                  of Ethics for Senior Financial Officers. (Incorporated by reference
                  to
                  Exhibit 14.1 of the Company's Form 10-K filed on March 31, 2004
                  for the
                  fiscal year ended December 31, 2003.23.1*
              
              Consent
                  of Holtz Rubenstein Reminick, LLP.31.1
                  and 31.2*
              
              Certification
                  of Chief Executive Officer and Principal Financial Officer Pursuant
                  to
                  Section 302 of the Sarbanes-Oxley Act of 2002.32.1
                  and 32.2*
              
              Certification
                  of Chief Executive Officer and Principal Financial Officer Pursuant
                  to 18
                  U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
                  Act
                  of 2002.





*
      Filed
      herewith.





++
      Compensation plan.