SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended:  December 31, 1997

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

                           Commission File No. 1-12451

                            NEW YORK HEALTHCARE, INC.
                 (Name of small business issuer in its charter)

            New York                                   11-2636089
 (State of other jurisdiction of           (I.R.S. Employer Identification No.)
  incorporation or organization)

1850 McDonald Avenue, Brooklyn, New York                 11223
(Address of principal executive offices)               (Zip Code)

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

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

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

  Common Stock $.01 par value                            Boston Stock Exchange
<PAGE>

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

Common Stock $.01 par value

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

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

State issuer's revenues for its most recent fiscal year.  $13,231,066

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of a specified date within the past sixty
(60) days. $ 2,977,843 (as of 3/16/98).

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

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

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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



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<PAGE>

                           FORWARD LOOKING STATEMENTS

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

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

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

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

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

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


                                     PART I

Item 1. DESCRIPTION OF BUSINESS.

     (a) General Development of Business.

     New York Health Care,  Inc. (the  "Company") is a licensed home health care
agency  engaged  primarily in supplying  the services of  paraprofessionals  who
provide a broad  range of health  care  support  services  to  patients in their
homes.

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

     The Company operates in all five boroughs of New York City and the counties
of Nassau, Westchester, Rockland, Orange, Dutchess, Ulster, Putnam and Sullivan,
in the  State of New York.  The  Company's  services  are  supplied  principally
pursuant to contracts with health care institutions and agencies such as various
county departments of social services, Beth Abraham Health Services in the Bronx
and Westchester County,  Kingsbridge Medical Center, Mt Sinai Medical Center and
New York Methodist Hospital in Brooklyn.

     As a result of recent  acquisitions,  described  elsewhere  in this  annual
report,  the Company  also  operates in West  Orange,  Budd Lake,  Jersey  City,
Shrewsbury,  Toms  River,  East  Orange and  Hackensack,  New  Jersey,  where it
recently  acquired branch offices whose operations are being integrated with the
Company's existing branch office structure.

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

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

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

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


                                       2
<PAGE>

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

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

     On December 8, 1997, a newly-formed wholly-owned subsidiary of the Company,
named  "NYHC  Newco  Paxxon,  Inc.",  a New  York  corporation  ("NYHC  Newco"),
purchased  from  Metro  Healthcare  Services,  Inc.,  a New  Jersey  corporation
("Metro"),  the home care business assets (other than accounts receivable) which
Metro  operated  in West  Orange,  Budd Lake and Jersey  City,  New Jersey for a
purchase price  consisting of $580,000 paid at closing and a promissory  note in
the  principal  sum of $200,000  payable in eight equal  quarterly  installments
commencing  March 5, 1998 together  with accrued  interest at a rate equal to 1%
per annum over the prime  interest rate  published by the Wall Street Journal on
December 8, 1997, adjusted quarterly. The promissory note is subordinated to all
obligations  due to the  Company's  banks or other  institutional  lenders.  The
promissory  note and the covenants of NYHC Newco are  guaranteed by the Company.
As part of the acquisition transaction, NYHC Newco assumed leasehold obligations
for the three offices located in West Orange (expiring  October 31, 2000),  Budd
Lake (expiring November 30, 2001) and Jersey City, New Jersey (expiring June 30,
1998) in the  aggregate  sum of  $5,638.67  per  month,  together  with  various
equipment leases for items of business equipment.

     On February 8, 1998, NYHC Newco purchased from Metro the home care business
assets  (other  than  accounts  receivable)  which  Metro  operated  in  Edison,
Shrewsbury  and Toms  River,  New  Jersey  for a purchase  price  consisting  of
$500,000 paid at closing and a promissory  note in the principal sum of $580,000
payable in twelve equal quarterly  installments  commencing May 5, 1998 together
with  accrued  interest at a rate equal to 1% per annum over the prime  interest
rate  published  by the Wall  Street  Journal  on  February  8,  1998,  adjusted
quarterly.  The promissory  note is  subordinated  to all obligations due to the
Company's  banks or other  institutional  lenders.  The promissory  note and the
covenants  of  NYHC  Newco  are  guaranteed  by  the  Company.  As  part  of the
acquisition  transaction,  NYHC Newco assumed a leasehold obligation for the one
office located in Toms River, New Jersey (expiring May 1, 1998) in the aggregate
sum of $2,400 per month,  together  with various  equipment  leases for items of
business equipment. It also entered into two leases for additional office space;
one in Shrewsbury, New Jersey (expiring February 28, 2001) at a rent of $700 per
month and the other in Edison,  New Jersey  (expiring May 31, 1999) at a rent of
$1,140 per month.

     On March 26,  1998,  NYHC Newco  purchased  from Heart to Heart  Healthcare
Services,  Inc.,  a New Jersey  corporation  ("Heart  to  Heart")  the home care
business assets (other than accounts  receivable)  which Heart to Heart operated
in East Orange and Hackensack,  New Jersey for a purchase price  consisting of a
promissory note in the principal sum of $1,150,000 payable in 24 equal quarterly
installments  commencing June 26, 1998 together with accrued  interest at a rate
equal to 1% per annum over the prime  interest rate published by the Wall Street
Journal  on  March  26,  1998,  adjusted  quarterly.   The  promissory  note  is
subordinated   to  all   obligations   due  to  the  Company's  banks  or  other
institutional  lenders.  The promissory note and the covenants of NYHC Newco are
guaranteed by the Company.  As part of the acquisition  transaction,  NYHC Newco
assumed  leasehold  obligations  for  the two  offices  located  in East  Orange
(expiring August 31, 2002) and Hackensack, New Jersey (expiring May 31, 1998) in
the aggregate sum of $1,815 per month,  together with various  equipment  leases
for items of business equipment. 

     As noted in the Company's  December 20, 1996  prospectus  and in Item 12. -
Certain Relationship and Related Transactions,  certain of its directors are the
sole  stockholders  of  Heart  to  Heart.  The  Company  therefore  obtained  an
independent  opinion that the terms and conditions of the acquisition are, under
all circumstances, fair to the Company.

     The Company is accounting for each of these acquisitions as a "purchase" in
accordance with Generally Accepted Accounting Principles.

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

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

Industry Background.

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


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<PAGE>

   Aging Population.

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

   Cost Effectiveness of Home Health Care Services.

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

   Advances in Technology.

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

   Patient Preference and Physician Acceptance.

     The Company  believes  that,  if possible in any given case, a patient will
prefer to be treated at home rather than in an institutional  setting.  Further,
in the last decade,  the medical profession has shown greater acceptance of home
health care in the clinical management of patients.  As evidence of this greater
acceptance, the American Medical Association Councils on Scientific


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<PAGE>

Affairs and Medical  Education has  recommended  that training in the principles
and  practice  of home  health  care be  incorporated  into  the  undergraduate,
graduate and continuing education of physicians.

   Incidences of AIDS and Cancer.

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

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

     (b) Financial Information About Industry Segments

         Not Applicable

     (c) Narrative Description of Business

     The Company currently offers a broad range of support  services,  including
assistance with personal hygiene, dressing and feeding, meal preparation,  light
housekeeping  and  shopping,  and,  to a limited  extent,  physical  therapy and
standard skilled nursing services such as the changing of dressings, injections,
catheterizations and administration of medications. The Company's personnel also
train  patients in their own care,  monitor  patient  compliance  with treatment
plans,  make  reports to the  physicians  and  process  reimbursement  claims to
third-party  payors.  Among the  paraprofessionals  and nurses  supplied  by the
Company are those  fluent in Spanish,  Yiddish and Russian as well as  personnel
knowledgeable in the requirements and practices of Kosher homes.


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<PAGE>

Home Health Care Services

     The  Company's  home health care services are provided  principally  by its
paraprofessional  staff,  who provide personal care to patients and, to a lesser
extent,  by its skilled nursing staff, who provide various  therapies  employing
medical  supplies  and  equipment  and, to a lesser  extent,  infusion  therapy.
Personal  care and nursing  services for a particular  patient can extend from a
few visits to years of service and can involve  intermittent or continuous care.
Approximately  95% of the Company's total net revenues in 1997 were attributable
to services by its paraprofessional staff.

Certified Paraprofessionals

     The Company's  certified  paraprofessional  staff provide a combination  of
unskilled nursing and personal care services to patients,  as well as assistance
with  daily  living,  tasks  such  as  hygiene  and  feeding,.  Consistent  with
applicable regulations,  all of the Company's aides are certified and work under
the  supervision  of a  licensed  professional  nurse.  Certain  aides have been
specially  trained by the Company to work with patients with  particular  needs,
such as new mothers and their newborn infants, patients with particular diseases
such as cancer,  AIDS or Alzheimer's  Disease and particular classes of patients
such as the developmentally disabled and terminal.

     The Company is approved by the New York State Department of Health to train
"Home Health Aides" and by the New York  Department of Social  Services to train
"Personal Care Aides." Medicaid provides reimbursement for services performed by
both  Home  Health  Aides and  Personal  Care  Aides,  while  Medicare  provides
reimbursement  only for the services  provided by Home Health Aides. In order to
provide a qualified  and  reliable  staff,  the Company  continuously  recruits,
trains, provides continuing education for and offers benefits and other programs
to encourage  retention of its staff.  Recruiting is conducted primarily through
advertising,  direct contact with community groups and employment programs,  and
the use of benefits  programs  designed to encourage  new employee  referrals by
existing employees.

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


                                       6
<PAGE>

     Competition  for  qualified  staff has been  intense in recent  years.  The
Company  competes to attract and retain  personnel on the basis of  compensation
and working  conditions.  Among the benefits  which the Company  provides to its
staff  are  competitive  salaries,  a  401(k)  Plan and  employee-funded  health
insurance. The Company has generally not experienced difficulties in the past in
attracting  and  retaining  personnel.  It  believes  it will be able to compete
effectively in this area and satisfy its overall staffing requirements. However,
there can be no assurance  that  shortages of health care  professionals  in the
future will not occur and such shortages could  materially  effect the Company's
ability to maintain or increase its current commitments.

Licensed Professional Nurses

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

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

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

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


                                       7
<PAGE>

     While the provision of licensed professional nursing services accounted for
less than 5% of the  Company's  net  revenues in 1997,  the  Company  intends to
expand its  maternal/child  care and infusion therapy operations in its existing
markets as well as new Geographic locations. See "Company Strategy."

Company Strategy

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

   Acquisitions

     A major  element of the  Company's  strategy is to acquire home health care
and related companies in order to diversify in additional geographic markets and
to increase  market share in the Company's  current markets and add patients and
referral sources to existing branch offices without adding substantial  overhead
cost. The Company is interested in home health care agencies (which are expected
to cost  between  $500,000 and $ 1,000,000  each),  infusion  therapy  companies
(which are expected to cost between  $750,000 and  $1,500,000  each) and durable
medical  equipment  businesses  (which are expected to cost between $400,000 and
$800,000 each) in the states of New York, New Jersey, Pennsylvania, Connecticut,
North Carolina, Georgia and Florida. However, there can be no assurance that any
such  acquisition  which may be consistent  with the Company's  strategy will be
available or, if  available,  that it will be at a price which the Company deems
to be favorable.

     On December 8, 1997, a newly-formed wholly-owned subsidiary of the Company,
named  "NYHC  Newco  Paxxon,  Inc.",  a New  York  corporation  ("NYHC  Newco"),
purchased  from  Metro  Healthcare  Services,  Inc.,  a New  Jersey  corporation
("Metro"),  the home care business assets (other than accounts receivable) which
Metro  operated  in West  Orange,  Budd Lake and Jersey  City,  New Jersey for a
purchase price  consisting of $580,000 paid at closing and a promissory  note in
the  principal  sum of $200,000  payable in eight equal  quarterly  installments
commencing  March 5, 1998 together  with accrued  interest at a rate equal to 1%
per annum over the prime  interest rate  published by the Wall Street Journal on
December 8, 1997, adjusted quarterly. The promissory note is subordinated to all
obligations  due to the  Company's  banks or other  institutional  lenders.  The
promissory  note and the covenants of NYHC Newco are  guaranteed by the Company.
As part of the acquisition transaction, NYHC Newco assumed leasehold obligations
for the three offices located in West Orange (expiring  October 31, 2000),  Budd
Lake (expiring November 30, 2001) and Jersey City, New Jersey (expiring June 30,
1998) in the  aggregate  sum of  $5,638.67  per  month,  together  with  various
equipment leases for items of business equipment.

     On February 8, 1998, NYHC Newco purchased from Metro the home care business
assets  (other  than  accounts  receivable)  which  Metro  operated  in  Edison,
Shrewsbury  and Toms  River,  New  Jersey  for a purchase  price  consisting  of
$500,000 paid at closing and a promissory  note in the principal sum of $580,000
payable in twelve equal quarterly  installments  commencing May 5, 1998 together
with  accrued  interest at a rate equal to 1% per annum over the prime  interest
rate  published  by the Wall  Street  Journal  on  February  8,  1998,  adjusted
quarterly.  The promissory  note is  subordinated  to all obligations due to the
Company's  banks or other  institutional  lenders.  The promissory  note and the
covenants  of  NYHC  Newco  are  guaranteed  by  the  Company.  As  part  of the
acquisition  transaction,  NYHC Newco assumed a leasehold obligation for the one
office located in Toms River, New Jersey (expiring May 1, 1998) in the aggregate
sum of $2,400 per month,  together  with various  equipment  leases for items of
business equipment. It also entered into two leases for additional office space;
one in Shrewsbury, New Jersey (expiring February 28, 2001) at a rent of $700 per
month and the other in Edison,  New Jersey  (expiring May 31, 1999) at a rent of
$1,140 per month.

     On March 26,  1998,  NYHC Newco  purchased  from Heart to Heart  Healthcare
Services,  Inc.,  a New Jersey  corporation  ("Heart  to  Heart")  the home care
business assets (other than accounts  receivable)  which Heart to Heart operated
in East Orange and Hackensack,  New Jersey for a purchase price  consisting of a
promissory note in the principal sum of $1,150,000 payable in 24 equal quarterly
installments  commencing June 26, 1998 together with accrued  interest at a rate
equal to 1% per annum over the prime  interest rate published by the Wall Street
Journal  on  March  26,  1998,  adjusted  quarterly.   The  promissory  note  is
subordinated   to  all   obligations   due  to  the  Company's  banks  or  other
institutional  lenders.  The promissory note and the covenants of NYHC Newco are
guaranteed by the Company.  As part of the acquisition  transaction,  NYHC Newco
assumed  leasehold  obligations  for  the two  offices  located  in East  Orange
(expiring August 31, 2002) and Hackensack, New Jersey (expiring May 31, 1998) in
the aggregate sum of $1,815 per month,  together with various  equipment  leases
for items of business equipment. 

     As noted in the Company's  December 20, 1996  prospectus  and in Item 12. -
Certain Relationship and Related Transactions,  certain of its directors are the
sole  stockholders  of  Heart  to  Heart.  The  Company  therefore  obtained  an
independent  opinion that the terms and conditions of the acquisition are, under
all circumstances, fair to the Company.

     The Company is accounting for each of these acquisitions as a "purchase" in
accordance with Generally Accepted Accounting Principles.

   Branch Offices

     The home health care industry is, fundamentally,  a local one in which both
the patients and the referral sources (such as hospitals,  home health agencies,
social service agencies and physicians) are located in the local geographic area
in which the  services  are  provided.  The Company  seeks to serve local market
needs  through  its  branch  office  network,  run by  branch  managers  who are
responsible  for  all  aspects  of  local  office   decision-making,   including
recruiting,  training,  staffing,  and marketing.  In December 1997, the Company
acquired  three branch  offices in West Orange,  Budd Lake and Jersey City,  New
Jersey.  In February  1998,  the Company  acquired an  additional  three  branch
offices in Edison,  Shrewsbury  and Toms River,  New Jersey.  In March 1998, the
Company acquired  another two branch offices in East Orange and Hackensack,  New
Jersey. See Item 1(a) - General Development of Business; Item 2 - Description of
Properties; Item 6 - Management's Discussion and Analysis of Financial Condition
and Results of  Operations  - Liquidity  and  Capital  Resources;  and Item 12 -
Certain  Relationships  and Related  Transactions.  The Company  intends to open
additional  branch offices,  using a portion of the net proceeds of its recently
completed public offering in the Counties of Suffolk,


                                       8
<PAGE>

Putnam,  Ulster and Dutchess,  in New York State, subject to entering agreements
with the local New York Department of Social Services agencies. In addition, the
Company hopes to expand further into New Jersey, Pennsylvania and Connecticut in
order  to  offer  a  wider  geographic   coverage  to  the  health   maintenance
organizations  ("HMO's") and health care insurance  organizations  with which it
deals, and to add additional organizations. This further expansion is subject to
the  completion  of market  surveys in the various  locations to  ascertain  the
extent to which  existing  home care medical  needs are not being met as well as
competition and recruitment issues.

   Expansion of Infusion Therapy

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

   Professional Care Resources

     The Company  intends to expand its  maternal/child  care division,  Special
Deliveries,  as well as its  pediatric  care programs in order to meet the needs
which  management  believes are being created by early discharge  programs.  The
existing referral base utilized by the Company from the various agencies, social
workers,  case  managers  and  physicians  will be used to meet what  management
perceives  to be a need not being met by the  current  pool of home  health care
agencies.  The Company  expects that the  expansion of this program will require
the hiring of an additional  services  director with an extensive  background in
pediatrics to assist the  Directors of Nursing in each of the  Company's  branch
offices.  Additional  support  staff  will  also  be  required,  as  well as new
training, materials, assistant directors,  coordinators and marketing staff. The
Company also expects that  expansion  of the Special  Deliveries  division  will
result in the acquisition of additional office facilities.

Organization and Operations

     The  Company  operates  24  hours  a day,  seven  days a week,  to  receive
referrals and coordinate services with physicians,  case managers,  patients and
their  families.  The Company  provides  services  through its 13 principal  and
branch offices and three recruitment and training, offices. The Company seeks to
achieve economies of scale by having each branch office serve a large


                                       9
<PAGE>

patient population.  Each office conducts its own marketing efforts,  negotiates
contracts  with  referral  sources,   recruits  and  trains   professionals  and
paraprofessionals  and coordinates  patient care and care givers. Each office is
typically  staffed  with a  branch  manager,  director  of  nursing,  home  care
coordinators, clerical staff and nursing services staff.

     The Company's  principal  office retains all functions  necessary to ensure
quality of patient care and to maximize financial efficiency. Services performed
at the principal  office  include  billing and  collection,  quality  assurance,
financial and accounting  functions,  policy and procedure  development,  system
design and development,  corporate  development and marketing.  The Company uses
financial  reporting  systems  through  which it  monitors  data for each branch
office, including patient mix, volume,  collections,  revenues and staffing. The
Company's systems also provide monthly budget analysis, financial comparisons to
prior periods and comparisons among the Company's branch offices. The Company is
in the process of acquiring  new computer  hardware and upgrade its software and
other  systems  with  the  intention  of  increasing  its  processing  capacity,
enhancing  its database  capabilities  and clinical  management  capacities  and
improving collections and financial management.

   Work Flow

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

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

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


                                       10
<PAGE>

   Referral Sources

     The Company obtains patients  primarily  through  referrals from hospitals,
community-based health care institutions and social service agencies.  Referrals
from these sources accounted for substantially all of the Company's net revenues
in 1997. The Company generally  conducts business with most of its institutional
referral sources,  including those referred to below,  under one-year  contracts
which fix the rates and terms of all future  referrals  but do not require  that
any  referrals  be made.  Under these  contracts,  the  referral  sources  refer
patients to the Company and the Company bills the referral  sources for services
provided to patients.  These  contracts  also  generally  designate the kinds of
services  to  be  provided  by  the  Company's  employees,  liability  insurance
requirements, billing and recordkeeping responsibilities,  complaint procedures,
compliance with applicable  laws, and rates for employee hours or days depending
on the services to be provided.  A total of 79 such  contracts were in effect as
of December 31, 1997.

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

                                                 Percentage of Net Revenues
   Referring Institution                            1997            1996
   ---------------------                         -----------      ---------

   County Departments of Social Services(l)         23.7%           24.1%
   Beth Abraham Health Services                     10.0%            9.6%
   Revival Home Health Care                          3.0%            5.5%
   Kingsbridge Medical Center                        6.4%            5.3%
   Mt. Sinai Medical Center                          4.0%            5.8%
   Center for Nursing and Rehabilitation             5.0%            4.7%

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

     Overall,  the Company's ten largest  referring  institutions  accounted for
approximately 68% of net revenues for 1997 and 69% of net revenues for 1996.

   Billing and Collection

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


                                       11
<PAGE>

to accelerate the collectibility of its accounts receivable. 

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

     Days Sales  Outstanding  ("DSO") is a measure of the average number of days
taken by the Company to collect its  accounts  receivable,  calculated  from the
date services are billed.  For the years ended  December 31, 1997 and 1996,  the
Company's  DSOs were 122 days and 87 days,  respectively,  an increase of 40.2%.
This increase is due, principally, to the sale of $3.5 million of receivables an
the subsequent growth back to normal levels,  and is, therefore,  not indicative
of any trend.

     The Company licenses the Dataline Home Care System, a computerized  payroll
system  designed to produce  invoices for services  rendered as a by-product  of
employee  compensation.   Automated  schedules  and  staffing  requirements  are
maintained  in the  Company's  offices,  with the ability to enter all  relevant
patient and employee demographic information. The payroll is processed weekly at
the Company's  principal office in Brooklyn.  This office is responsible for the
processing  of  data,   ensuring  the   availability  of  all  required  billing
documentation and its accuracy, and the printing and distributing of payments.

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

     In the  opinion  of  management,  there is no  reason to  believe  that any
computer  system or software  used  internally  by the Company  will  materially
affect transactions with any customer,  supplier or business partner,  now or in
the future.  The Company cannot predict the impact that year 2000 failure of any
computer system  operated by the Company's  suppliers and customers will have on
the Company's operations.

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

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

     Private  patients are required to pay the one week fee for their service in
advance,  as a deposit for services to be provided.  For patients with insurance
covering home health services,  the Company accepts  assignment of the insurance
and submits  claims if the carrier  first  verifies  coverage  and  eligibility.
Payments from private  patients are required to be made weekly,  as invoices are
submitted and, if unpaid over three weeks,  result in follow-up  telephone calls
to ensure prompt


                                       12
<PAGE>

payment.  Requests for terms from private  patients  are  generally  honored and
payment  arrangements  structured based on the patient's financial resources and
ability  to pay.  Unresponsive  accounts  are  referred  to  outside  collection
agencies.

   Reimbursement

     The  Company  is  reimbursed  for  its  services,  primarily  by  referring
institutions,  such as health care  institutions  and social  service  agencies,
which in turn receive their reimbursement from Medicaid, Medicare and, to a much
lesser  extent,  through  direct  payments by  insurance  companies  and private
payers.  New York State  Medicaid  programs  constitute  the  Company's  largest
reimbursement  source,  when including both direct  Medicaid  reimbursement  and
indirect Medicaid payments through many of the Company's referring institutions.
For 1996 and 1997,  payments from  referring  institutions  which receive direct
payments  from  Medicare  and New York  State  Medicaid,  together  with  direct
reimbursement  to the  Company  from  New York  State  Medicaid,  accounted  for
approximately 91% and 94%, respectively,  of net revenues. For the same periods,
a significant  number of referring  institutions  with home health care programs
accounted for approximately 76% and 69%, respectively,  of net revenues for 1996
and 1997. Direct  reimbursements  from private  insurers,  prepaid health plans,
patients and other private sources  accounted for approximately 9% and 6% of net
revenues for the calendar years 1996 and 1997, respectively.

     The New  York  State  Department  of  Health,  in  conjunction  with  local
Departments  of Social  Services,  promulgates  annual  reimbursement  rates for
patients  covered  by  Medicaid.  These  rates are  generally  established  on a
county-by-county  basis, using a complex  reimbursement  formula applied to cost
reports  filed by  providers.  The  Company has filed all  required  annual cost
reports for each of its offices which provide  services to Medicaid  recipients.
Generally,  the first report filed (called a "budgeted" report) uses projections
to develop  the  current  year's  reimbursement  rate,  subject  to  retroactive
recapture  of any  monies  paid by local  Departments  of  Social  Services  for
budgeted  expenses  which are greater  than the actual  expenses  incurred.  The
Company's expenses have always equaled or exceeded the budgeted amounts.

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

     The New York State  Department  of Health issues  Certificates  of Need for
Certified Home Health Agencies  ("CHHA's"),  which provide  post-acute home care
services  for people who have just been  discharged  from a hospital but are not
yet fully recovered, and Long-Term Home


                                       13
<PAGE>

Health Care  Programs  ("LTHHCP's"),  also known as the  "Nursing  Home  Without
Walls,"  which is intended to provide  elderly  people with an  alternative  for
long-term  care other than by  entering a nursing  home at less than the cost of
nursing home care. The Company negotiates its contracts with CHHA's and LTHHCP's
on the basis of services to be provided,  in connection  with  contracts  either
currently in effect with the Company or with other agencies.  Prevailing  market
conditions  are  such  that,  despite  escalating  operating  expenses,  reduced
contract  rates  are  regularly  "demanded"  as  a  result  of  internal  budget
restraints  and  reductions  mandated  by managed  care  contracts  between  the
Company's  clients  and  HMO's  and  other  third  party  administrators.  While
management anticipates that this trend is likely to continue for the foreseeable
future,  it does not expect the impact on the Company to be  significant,  since
its rates are  competitive  and,  therefore,  are expected to be subject to only
minor  reductions.  However,  as  expenditures  in the home  health  care market
continue  to grow,  initiatives  aimed at  reducing  the  costs of  health  care
delivery at non-hospital sites are increasing.  A significant change in coverage
or a reduction in payment  rates by third party  payers,  particularly  New York
State  Medicaid,  would  have a  material  adverse  effect  upon  the  Company's
business.

Quality Assurance

     The Company has established a quality  assurance program to ensure that its
service standards are implemented and that the objectives of those standards are
met.  The  Company  believes  that  it has  developed  and  implemented  service
standards  that comply with or exceed the service  standards  required by JCAHO.
The Company  received  "Accreditation"  from JCAHO after its triannual survey in
November  1997. In February  1996, the Company was selected by the University of
Colorado  Health  Sciences  Center as one of only 22 home health  care  agencies
participating  in a two to  three  year  study  known  as  the  New  York  State
Outcome-Based  Quality  Improvement  in Home Care  Demonstration  project  being
funded by the New York State  Department  of Health,  by reason of the Company's
commitment to both quality assurance and improvement.  The Company believes that
its  reputation  for  quality  patient  care has been and will  continue to be a
significant factor in its success.  An adverse  determination by JCAHO regarding
the Company on any branch office could adversely affect the Company's reputation
and competitive position.

     The Company's quality assurance program includes the following:

     Quality Advisory Board.  The Company maintains a Quality Advisory Board for
its branch offices,  which consists of a physician,  nursing  professionals  and
representatives  of branch  management.  The Quality  Advisory Board  identifies
problems and  suggests  ways to improve  patient care based on internal  quality
compliance audits and clinical and personnel record reviews.

     Internal Quality  Compliance Review Process.  Periodic internal reviews are
conducted  by  the   Company's   management  to  ensure   compliance   with  the
documentation and


                                       14
<PAGE>

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

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

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

Sales and Marketing

     The Company's  executive  officers,  Jerry Braun and Jacob  Rosenberg,  are
principally responsible for the marketing of the Company's services. Each branch
office director is also  responsible for sales activities in the branch office's
local  market  area.  The  Company  attempts  to  cultivate  strong,   long-term
relationships  with referral  sources through high quality service and education
of local health care personnel about the appropriate role of home health care in
the clinical management of patients.

Government Regulation

     The federal government and the States of New York and New Jersey, where the
Company currently operates, regulates various aspects of the Company's business.
Changes in the law or new  interpretations  of existing laws can have a material
effect on permissible  activities of the Company,  the relative costs associated
with doing  business and the amount of  reimbursement  by  government  and other
third-party payers.

     The Company is licensed by New York State as a home care  services  agency.
The  state  requires  approval  by the New  York  State  Public  Health  Council
("Council")  of any  change in "the  controlling  person"  of an  operator  of a
licensed  home  care  services  agency ( a  "LHCSA").  Control  of an  entity is
presumed to exist if any person owns, controls or holds the power to vote 10% or
more of the voting  securities  of the LHCSA.  A person  seeking  approval  as a
controlling  person of a LHCSA, or of an entity that is the operator of a LHCSA,
must  file an  application  for  Council  approval  within  30 days of  becoming
controlling  person and, pending a decision by the Council,  such person may not
exercise  control of the LHCSA. If any person should become the owner or holder,
or  acquire  control  of or the  right  to vote  10% or more of the  issued  and
outstanding Common


                                       15
<PAGE>

Stock of the Company,  such person could not exercise  control of the  Company's
LHCSA until an application for approval of such  ownership,  control or holding,
has been submitted to the Council and approved. In the event such an application
is not approved,  such owner or holder may be required to reduce their ownership
or  holding to less than 10% of the  Company's  issued  and  outstanding  Common
Stock.

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

     The Company's healthcare operations  potentially subject it to the Medicare
and  Medicaid  anti-kickback  provisions  of  the  Social  Security  Act.  These
provisions are broadly worded and often vague, and the future  interpretation of
these provisions and their  applicability to the Company's  operations cannot be
fully predicted with certainty.  There can be no assurance that the Company will
be able to arrange its  acquisitions or business  relationships  so as to comply
with these laws or that the Company's  present or future  operations will not be
accused of violating',  or be determined to have violated, such provisions.  Any
such result could have a material adverse effect on the Company.

     Various Federal and state laws regulate the relationship among providers of
healthcare services,  including employment or service contracts,  and investment
relationships.  These laws include the broadly worded fraud and abuse provisions
of the Social  Security  Act that are  applicable  to the  Medicare and Medicaid
programs,  which prohibit various  transactions  involving  Medicare or Medicaid
covered  patients or services.  Among other things,  these  provisions  restrict
referrals for certain  designated health services by physicians to entities with
which the physician or the physician's  immediate family member has a "financial
relationship"  and the  receipt of  remuneration  by anyone in return for, or to
induce,  the  referral  of a patient  for  treatment  or  purchasing  or leasing
equipment  or services  that are paid for,  in whole or in part,  by Medicare or
Medicaid.  Violations  of these  provisions  may  result  in  civil or  criminal
penalties for individuals or entities and/or exclusion from participation in the
Medicare and Medicaid  programs.  The future  interpretation of these provisions
and their  applicability to the Company's  operations  cannot be fully predicted
with certainty.

     In May 1991,  the United  States  Department  of Health and Human  Services
adopted  regulations  creating  certain "safe harbors" from federal criminal and
civil  penalties by  identifying  certain types of joint venture and  management
arrangements that would not be treated as violating


                                       16
<PAGE>

the federal  anti-kickback  laws  relating to referrals of patients for services
paid by the  Medicare and Medicaid  programs.  It is not possible to  accurately
predict the ultimate impact of these regulations on the Company's business.

     New York and other states also have  statutes and  regulations  prohibiting
payments for patient  referrals and other types of financial  arrangements  with
health  care  providers  which,  while  similar in many  respects to the federal
legislation,  vary from state to state,  are often  vague and have  infrequently
been  interpreted by courts or regulatory  agencies.  Sanctions for violation of
these state  restrictions  may include loss of licensure  and civil and criminal
penalties.  In addition,  the  professional  conduct of  physicians is regulated
under  state  law.  Under  New York  law,  it is  unprofessional  conduct  for a
physician to receive, directly or indirectly, any fee or other consideration for
the  referral  of a patient.  Finally,  under New York law, a  physician  with a
financial  interest in a health care provider must disclose such  information to
the patients and advise them of alternative providers.

     The Company believes that the foregoing  arrangements in particular and its
operations in general comply in all material  respects with  applicable  federal
and state laws relating to  anti-kickbacks,  and that it will be able to arrange
its  future  business  relationships  so as to  comply  with the fraud and abuse
provisions.

     Management  believes that the trend of federal and state  legislation is to
subject  the  home  health  care  and  nursing  services   industry  to  greater
regulation,  particularly  in  connection  with  third-party  reimbursement  and
arrangements  designed  to induce or  encourage  the  referral  of patients to a
particular  provider  of  medical  services.  The  Company is  attempting  to be
responsive  to such  regulatory  climate.  However,  the  Company  is  unable to
accurately  predict  the  effect,  if any,  of  such  regulations  or  increased
enforcement activities on the Company's future results of operations.

     In addition, the Company is subject to laws and regulations which relate to
business corporations in general,  including antitrust laws, occupational health
and safety laws and environmental laws (which relate, among other things, to the
disposal,  transportation and handling of hazardous and infectious wastes). None
of these  laws  and  regulations  have  had a  material  adverse  effect  on the
Company's business or competitive position or required material  expenditures on
the part of the  Company,  although  no  assurance  can be given  that such will
continue to be the case in the future.

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

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


                                       17
<PAGE>

Competition

     The  home  health  care  market  is  highly   fragmented  and   significant
competitors  are  often  localized  in  particular   geographical  markets.  The
Company's  largest  competitors  include U.S. Home Care,  Inc.,  Star Multicare,
Inc.,  TransWorld  Home Health Care,  Inc.,  Patient  Care,  Inc.,  Plaza Nurses
Agency,  Inc. and Personal Touch Home Care  Services,  Inc. The home health care
business is marked by low entry  costs.  The Company  believes  that,  given the
increasing  level  of  demand  for  nursing  services,   significant  additional
competition can be expected to develop in the future. Some of the companies with
which the Company  presently  competes  in home  health care have  substantially
greater  financial  and human  resources  than the  Company.  The  Company  also
competes with many other small temporary medical staffing agencies.

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

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

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


                                       18
<PAGE>

Employees

     At March 31, 1998, the Company had 1200 employees, of whom 79 are salaried,
including  3  executive  officers,  1 regional  manager,  1  assistant  regional
manager,  10 branch  managers,  12  directors  of  nursing,  1 director  of high
tech/infusion,  1 director of patient services,  1 assistant director of patient
services, 1 director of business development, 8 accounting/clerical staff and 40
field staff  supervisors.  The  remaining  1121  employees are paid on an hourly
basis and consist of professional and  paraprofessional  employees.  None of the
Company's  employees are  compensated on an independent  contractor  basis.  The
Company  believes that its employee  relations  are good.  None of the Company's
employees is represented by a labor union.

Other Matters

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

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

Common Stock

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

Preferred Stock

     The  Board  of  Directors  of the  Company  is  authorized  to  issue up to
2,000,000 shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including the dividend rights,
dividend rate, conversion rights, voting rights, terms of


                                       19
<PAGE>

redemption  (including  sinking fund  provisions),  redemption  price or prices,
liquidations preferences and the number of shares constituting any series or the
designations  of  such  series,  without  any  further  vote  or  action  by the
stockholders. It would be possible for the Board of Directors to issue shares of
such preferred stock in a manner which would make  acquisition of control of the
Company, other than as approved by the Board, exceedingly difficult.

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

Transfer Agent

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

Item 2.  DESCRIPTION OF PROPERTIES.

     The  Company's  principal  place  of  business  is a  one-story  commercial
building of  approximately  6,000 square feet located at 1850  McDonald  Avenue,
Brooklyn, New York 11223, which is leased from an unaffiliated person. The lease
is for a period  ending  March 31,  2000 and is subject to a renewal  option for
five years in favor of the Company.  The rent is $5,200 per month and is subject
to annual  increases,  beginning  April 1, 1997,  equal to 4% of the total prior
year's  monthly rent and all increases in real estate taxes for the original and
renewal  terms.  The  Company  sublets  approximately  2,500  square  feet to an
unaffiliated third party for a period and with a renewal option the same as that
in the  Company's  lease.  The rent is $2,860 per month and is subject to annual
increases  beginning  June 1, 1997 equal to 4% of the total prior years  monthly
rent and 30% of all  increases in real estate taxes for the original and renewal
term.

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


                                       20
<PAGE>

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

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

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

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

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

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

Orange County
Branch Office
45 Grand Street
Newburgh, NY 11250               9/92      1,500           8/31/98     $12,000

Queens Recruitment
   Office
91-31 Queens Blvd.
Elmhurst, NY 11373              10/95        500          10/31/00     $11,400

Staten Island
Recruitment Office
37 New Dorp Plaza
Staten Island, NY 10306          6/97        500           5/31/98     $ 9,300

West Orange Branch Office
111 Northfield Avenue
Suite 310
West Orange, NJ 07052           12/97      1,500          12/31/99     $28,424

Jersey City Branch Office
955 Westside Avenue
Jersey City, NJ 07306           12/97      1,000           6/30/98     $19,200

Budd Lake Branch Office
389 Route 46
Budd Lake, NJ 07828             12/97      1,700          11/30/01     $19,200

Shrewsbury Branch Office
167 Avenue at the Commons,
Suite 11B
Shrewsbury, NJ 07702             2/98        700           2/28/01     $ 8,400

Toms River Branch Office
617 Highway 37 West
Toms River, NJ 08753             2/98      2,400           5/01/98     $28,800

Edison Branch Office
85 Route 27
Edison, NJ 08820                 2/98      1,500           5/31/99     $13,680

East Orange Branch Office
60 Evergreen Place
East Orange, NJ 07018            3/98      1,500           8/31/02     $ 1,500

Hackensack Recruitment Office
144 Main Street
Suite 212
Hackensack, NJ 07601             3/98        300           5/31/98     $   315

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

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


                                       21
<PAGE>

Item 3. LEGAL PROCEEDINGS

     The Company is 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 the Company's results of operations or financial position.

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

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

     No matters were  submitted to a vote of security  holders during the fourth
quarter of the fiscal year ended December 31, 1997 through the  solicitation  of
proxies or otherwise.

                                     PART II

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

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

                            High          Low
                            ----          ---
Fiscal 1997
-----------
First  Quarter              4-5/8         3-3/8
Second Quarter              4-1/8         2-5/8
Third  Quarter              4-7/8         2-3/4
Fourth Quarter              3-1/4         1-1/8

Fiscal 1998
-----------
First  Quarter              3-1/2         1-1/2


     At March 31,  1998 the  Company  had 18 holders of record and more than 820
beneficial holders of its shares of Common Stock.

     On March 31,  1998,  the last sale price of the  shares of Common  Stock as
reported by NASDAQ was $1.50 per share.


                                       22
<PAGE>

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

Results of Operations

         Fiscal Year Ended December 31, 1997 Compared
         With Fiscal Year Ended December 31, 1996

         Revenues for the year ended December 31, 1997 ("1997")  increased 11.0%
to $13,231,000  from  $11,920,000 for the year ended December 31, 1996 ("1996").
The increased  revenues are  attributable  to new contracts,  increased hours of
service provided to existing  contracts and the purchase of three offices in New
Jersey which accounted for approximately $130,000 in revenue in December, 1997.

         Cost of  professional  care of  patients  for 1997  increased  13.2% to
$9,248,000  from  $8,173,000  in  1996.  The  increase  is  attributable  to the
increased hours of services provided.  The cost of professional care of patients
as a  percentage  of revenue  remained  stable at 70% and 69% for 1997 and 1996,
respectively.

         Selling,   general  and  administrative  expenses  increased  27.3%  to
$3,586,000 in 1997 from $2,818,000 in 1996. The increase in selling, general and
administrative   expenses   resulted   primarily  from   increased   management,
recruitment  and  staffing  expenses  to manage the  supervision  of the care of
patients  requiring  extended  nursing  and  technical  support,  the  hiring of
additional office staff to support  anticipated growth in the Company's business
(including a Director of Business Development and a Director of Patient Services
toward  the end of 1996  and a  Regional  Manager  in  1997)  and  approximately
$200,000 in increased  professional  fees. These fees are the result  additional
reporting  requirements  associated  with  being  a  public  company  and  costs
associated with potential acquisitions.

         Interest expense,  net of interest income decreased  $178,000 resulting
in net  interest  income of $24,000  compared to a net  expense of $154,000  for
1996. This is primarily a result of the temporary paydown of the working capital
line of credit with proceeds from the public offering that occurred in December,
1996.

         The current  provision for taxes increased to $232,000 from $168,000 in
1996, as a result of the termination of the Company's  Subchapter S tax basis on
December  17, 1996 and the accrual of Federal and New York State taxes on income
for the entire year as compared to the period  from  December  18, 1996  through
December 31, 1996. The deferred tax credit decreased to $45,000 from $184,000 in
1996.  The  unusually  large  credit in 1996 was the result of the change in tax
status that occurred on December 17, 1996.

         In view of the  foregoing,  net  income  for  1997  decreased  67.7% to
$184,000, compared to $571,000 in 1996.


                                       23

<PAGE>

Liquidity and Capital Resources

         For 1997, net cash used in operations was $1,413,000 as compared to the
$1,430,000 in 1996, a decrease of 1.2%. The cash for operations in 1997 and 1996
was  primarily  the result of the $3.5 million sale of  receivables  in 1996 and
therefore not indicative of any trend. Net cash provided by financing activities
for 1997  increased to  $1,132,000,  as compared to $691,000  used in 1996.  The
borrowings  from the line of credit  were  primarily  the  result of the sale of
receivables in 1996 and the need to fund operations as the  receivables  grew to
their normal levels, as well as approximately  $650,000 in costs associated with
a December 8, 1997 aquisition. The cash used in 1996 was primarily the result of
the payment of S Corporation  distributions to the Company's  stockholders which
aggregated  $3,225,000 during that year;  repayment of bank notes payable during
1996 of $1,225,000 offset by the approximately $3,766,000 proceeds received from
issuance of Common Stock in December 1996.

         As of December 31, 1997, approximately  $4,748,000  (approximately 74%)
of the  Company's  total assets  consisted of accounts  receivable  derived from
payments  made to  contractors  by  third-party  payors,  compared to $2,979,000
(approximately  63%) as of December  31, 1996,  an increase of 60%.  Such payors
generally require substantial documentation in order to process claims.

         Days Sales  Outstanding  ("DSO") is a measure of the average  number of
days taken by the Company to collect its accounts  receivable,  calculated  from
the date  services are billed.  For the years ended  December 31, 1997 and 1996,
the  Company's  DSOs were 122 days and 87 days,  respectively,  an  increase  of
40.2%.  This  increase  is due  principally  to the  sale  of  $3.5  million  of
receivables and the subsequent growth back to normal levels and is therefore not
indicative of any trend.

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


                                       24
<PAGE>
 
                           NEW YORK HEALTH CARE, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


NEW YORK HEALTH CARE, INC.:

    Independent Auditors' Report                                          26

    Consolidated Balance Sheet at December 31, 1997                       27

    Consolidated Statements of Income for the Years Ended
      December 31, 1996 and 1997                                          28

    Consolidated Statements of Shareholders' Equity for the
      Years Ended, 1996 and 1997                                          29
                                             
    Consolidated Statements of Cash Flows for the Years Ended
      December 31, 1996 and 1997                                          30

    Notes to Consolidated Financial Statements                           31-44


                                       25
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying  consolidated  balance sheet of New York Health
Care, Inc. and Subsidiary (the  "Corporation")  as of December 31, 1997, and the
related consolidated  statements of income,  shareholders' equity and cash flows
for the years ended December 31, 1996 and 1997.  These financial  statements are
the  responsibility of the Corporation's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects,  the financial position of New York Health Care, Inc. and
Subsidiary as of December 31, 1997,  and the results of its  operations  and its
cash flows for the years ended  December  31, 1996 and 1997 in  conformity  with
generally accepted accounting principles.

                                              M.R. Weiser & Co. LLP
                                              Certified Public Accountants


New York,  NY 
March 23, 1998, except for the
second  paragraph  of Note 16 for
which the date is March 26, 1998


                                       26

<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 1997

                                   A S S E T S

Current assets:
   Cash                                                               $  171,859
   Accounts receivable, net of allowance for
     uncollectible accounts of $149,770                                4,439,772
   Unbilled services                                                     356,228
   Prepaid expenses                                                      124,994
   Deferred tax asset                                                     45,000
                                                                      ----------
         Total current assets                                          5,137,853

Accounts receivable, due after one year                                  180,604
Property and equipment, net                                              254,604
Goodwill                                                                 824,728
Acquisition costs, net                                                    19,406
Deposits                                                                  26,799
                                                                      ----------
         Total assets                                                 $6,443,994
                                                                      ==========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accrued payroll                                                    $  357,474
   Note payable - bank                                                 1,150,000
   Current maturities of long term debt                                  101,465
   Accounts payable and accrued expenses                                 308,531
   Income taxes payable                                                  103,033
                                                                      ----------
         Total current liabilities                                     2,020,503
                                                                      ----------
Long-term debt, less current maturities                                  100,000
                                                                      ----------

Commitments, contingencies and other comments

Shareholders' equity :
   Preferred stock $.01 par value, 2,000,000 shares
     authorized; no shares issued or outstanding
   Common stock, $.01 par value, 12,500,000 shares authorized
     3,750,000 shares issued and outstanding                              37,500
   Additional paid-in capital                                          4,064,807
   Retained earnings                                                     221,184
                                                                      ----------

         Total shareholders' equity                                    4,323,491
                                                                      ----------
         Total liabilities and shareholders' equity                   $6,443,994
                                                                      ==========

           See accompanying notes to consolidated financial statements
 

                                       27

<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME

                                                       For the Years Ended
                                                           December 31,
                                                   ----------------------------
                                                        1996           1997
                                                   ------------    ------------
Net patient service revenue                        $ 11,920,017    $ 13,231,066
                                                   ------------    ------------
Expenses:
   Professional care of patients                      8,172,859       9,248,446
   General and administrative                         2,661,516       3,534,955
   Bad debts expense                                    155,764          51,000
   Depreciation and amortization                         31,953          75,461
                                                   ------------    ------------
         Total operating expenses                    11,022,092      12,909,862
                                                   ------------    ------------
Income from operations                                  897,925         321,204
                                                   ------------    ------------
Nonoperating income (expenses):
   Interest income                                        9,480          45,190
   Other income                                          15,000          26,391
   Loss on sale of accounts receivable                 (204,137)           --
   Interest expense                                    (163,630)        (21,622)
                                                   ------------    ------------
         Nonoperating income, net                      (343,287)         49,959
                                                   ------------    ------------

Income before provision for income taxes                554,638         371,163
                                                   ------------    ------------

Provision (credit) for income taxes:
   Current                                              168,000         232,300
   Deferred                                            (184,000)        (45,000)
                                                   ------------    ------------
                                                        (16,000)        187,300
                                                   ------------    ------------
Net income                                         $    570,638    $    183,863
                                                   ============    ============

Pro forma (unaudited):
    Historical income before provision for 
      income taxes                                 $    554,638
    Pro forma provision for income taxes                238,000
                                                   ------------
    Pro forma net income                           $    316,638
                                                   ============
Basic and diluted earnings per share (pro forma
    for the year ended December 31, 1996)          $        .09    $        .05
                                                   ============    ============
Weighted average shares outstanding                   3,386,032       3,750,000
                                                   ============    ============

           See accompanying notes to consolidated financial statements


                                       28


<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

               For The Years Ended December 31, 1996 and 1997 (a)

<TABLE>
<CAPTION>

                                       Common Stock            Additional
                                   ---------------------         Paid-In         Retained
                                    Shares       Amount         Capital          Earnings          Total
                                    ------       ------         -------          --------          -----
<S>                <C>               <C>           <C>         <C>              <C>              <C>       
Balance at January 1, 1996           2,500,000     $25,000     $     5,000      $3,010,694       $3,040,694

Net income                                                                         570,638          570,638

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

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

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

Balance at December 31, 1996         3,750,000      37,500       4,076,783          37,321        4,151,604

Net income                                                                         183,863          183,863

Additional costs of initial
    public offering of
    common shares                                                  (11,976)                         (11,976)
                                     ---------     -------      ----------      ----------       ----------
Balance at December 31, 1997         3,750,000     $37,500      $4,064,807      $  221,184       $4,323,491
                                     =========     =======      ==========      ==========       ==========
</TABLE>

(a)  Retroactive effect has been given to the March 26, 1996, October 17, 1996
     and December 4, 1996 recapitalizations referred to in Note 12.

          See accompanying notes to consolidated financial statements.


                                       29

<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Years Ended
                                                                              December 31,
                                                                    ------------------------------
                                                                        1996               1997
                                                                    -----------      -------------
<S>                                                                <C>                 <C>        
Cash flows from operating activities:
   Net income                                                      $    570,638        $   183,863
   Adjustments to reconcile net income to net cash
     used in operating activities:
       Depreciation and amortization                                     45,881             61,532
       Bad debts expense                                                155,764             51,000
       Deferred tax credit                                             (184,000)           (45,000)
       Loss on sale of accounts receivable                              204,137               --
       Changes in operating assets and liabilities:
         Increase in accounts receivable and unbilled services       (2,409,210)        (1,749,179)
         Decrease in due from shareholders                              145,000               --
         (Increase) decrease in prepaid expenses                       (135,170)            57,043
         Increase in deposits                                            (5,870)            (1,110)
         (Decrease) increase in accrued payroll                         (33,120)           102,571
         Increase in accounts receivable due after one year                               (180,604)
         Increase in accounts payable and accrued expenses               88,081            161,312
         Increase (decrease) in income taxes payable                    127,833            (54,537)
                                                                     ----------        -----------
              Net cash used in operating activities                  (1,430,036)        (1,413,109)
                                                                     ----------        -----------
Cash flows from investing activities:
   Acquisition of fixed assets                                         (143,170)          (108,488)
   Proceeds from sale of accounts receivable                          3,150,000               --
   Payment for purchase acquisition and associated costs                                  (624,728)
   Costs incurred for future acquisitions                                                   (2,577)
   Decrease in note receivable - shareholder                            125,000
                                                                     ----------        -----------
              Net cash provided by (used in) investing activities     3,131,830           (735,793)
                                                                     ----------        -----------
Cash flows from financing activities:
   Net (repayments) borrowings under notes payable                   (1,225,000)         1,150,000
   Repayment of long-term debt                                           (6,304)            (5,713)
   Additional net proceeds from issuance of common stock              3,765,703               --
   Net charges from issuance of common stock                                               (11,976)
   Distributions                                                     (3,225,431)              
                                                                     ----------        -----------
              Net cash (used in) provided by financing activities      (691,032)         1,132,311
                                                                     ----------        -----------

Net increase (decrease) in cash and cash equivalents                  1,010,762         (1,016,591)

Cash and cash equivalents at beginning of year                          177,688          1,188,450
                                                                     ----------        -----------

Cash and cash equivalents at end of year                             $1,188,450        $   171,859
                                                                     ==========        ===========
</TABLE>
           See accompanying notes to consolidated financial statements


                                       30
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

       Basis of Consolidation and the Company:

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

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

       On December 8, 1997,  Helping Hands purchased the assets of three offices
       in the State of New Jersey from Metro  Health  Care  Services,  Inc.  The
       acquisition was accounted for as a purchase and, accordingly,  the assets
       acquired have been recorded at their estimated fair values at the date of
       acquisition.  The  excess  of cost  over  fair  values  of the  purchased
       business has been  allocated to goodwill and is being  amortized  over 25
       years.  Operating  results  of the  business  have been  included  in the
       consolidated  financial  statements of the Corporation  since the date of
       acquisition.

       The sum of the purchase price of $780,000 (cash in the amount of $580,000
       and a note in the amount of $200,000)  plus costs  incurred in making the
       acquisition ($74,728) aggregating $854,728 exceeded the fair value of the
       net assets of the three offices  acquired at the date of  acquisition  by
       $824,728;  $30,000  of  the  purchase  price  was  assigned  to  acquired
       furnitures and fixtures.

       The following  unaudited pro forma summary for 1996 and 1997 combines the
       results of operations of the Corporation  and the three offices  acquired
       as if the  acquisition  had  occurred on January 1, 1996.  The  unaudited
       proforma summary is not necessarily  indicative  either of the results of
       operations that would have occurred had the purchase been made during the
       periods  presented,  or of future  results of  operations of the combined
       companies:

                           Unaudited                      1996          1997
      ---------------------------------------------   -----------    -----------
      Proforma revenues                               $13,909,000    $15,571,100
      Proforma net income                                 276,400        180,000
      Proforma basic and diluted earnings per share          $.08           $.05


                                       31
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Estimates:

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

       Revenue Recognition:

       The  Corporation  recognizes  net  patient  service  revenue  on the date
       services are rendered.  In 1997, the Corporation  entered into a contract
       that has payment terms  greater than one year.  For these  services,  the
       Corporation  records the accounts  receivable at the present value of the
       face  amount  of the bill on the date  services  are  rendered.  Unbilled
       services  represent  amounts  due for  services  rendered  which were not
       billed at the end of each period.

       Property, Plant and Equipment:

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

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

       Acquisition Costs:

       On March 17, 1988, the Corporation purchased the customer lists, employee
       lists and other intangible assets of National Medical Home Care at a cost
       of $139,273.  This cost is being amortized using the straight-line method
       over a period  of ten  years.  At  December  31,  1997,  the  accumulated
       amortization was $136,371.

       As referred to above, on December 7, 1997, the Corporation  purchased the
       customer  lists,  employee  lists  and other  intangible  assets of three
       offices of Metro  Healthcare  Services,  Inc. at a cost of $780,000.  The
       Company  also  incurred  costs of  approximately  $75,000  related to the
       acquisition.  Except for $30,000 which was allocated to fixed assets, the
       aggregate  of the purchase  price and these costs have been  allocated to
       goodwill,  which is being amortized using the straight-line method over a
       period  of  twenty-five  years.  See Note 16 for  information  concerning
       subsequent purchases.


                                       32
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Long-lived Assets:

       The Corporation's  policy is to evaluate long-lived assets,  goodwill and
       certain identifiable  intangibles for possible impairment whenever events
       or changes in  circumstances  indicate  that the carrying  amount of such
       assets may not be  recoverable.  This  evaluation is based on a number of
       factors,  including  expectations  for operating  income and undiscounted
       cash flows that will result from the use of such assets.  The Corporation
       has not identified any such impairment or losses.

       Income Taxes:

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

       The Corporation uses the asset and liability method to calculate deferred
       tax assets and  liabilities.  Deferred taxes are recognized  based on the
       differences  between  financial  reporting and income tax bases of assets
       and liabilities  using enacted income tax rates.  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.

       As a result  of its  change  in tax  status  in 1996,  the  deferred  tax
       liability  at  the  date  of   termination   of  S   Corporation   status
       (approximately  $184,000)  was  recorded as a credit to the  deferred tax
       provision.

       Cash Equivalents:

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

       Pro Forma Statement of Income Adjustment:

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


                                       33
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Stock Based Compensation:

       The   Corporation   applies   SFAS  123   "Accounting   for  Stock  Based
       Compensation"  in accounting  for its stock based  compensation  plan. In
       accordance with SFAS 123, the Corporation  applies Accounting  Principles
       Board Opinion No. 25 and related interpretations for expense recognition.

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

       Earnings Per Share:

       As of December 31, 1997, the Corporation  adopted  Statement of Financial
       Accounting  Standards  No.  ("SFAS")  128,  "Earnings  Per Share."  Basic
       earnings per share excludes dilution and is computed by dividing earnings
       available to common shareholders by the weighted average number of common
       shares outstanding for the period.

       Diluted earnings per share is computed by dividing earnings  available to
       common  shareholders  by the  weighted  average  number of common  shares
       outstanding  for the  period,  adjusted to reflect  potentially  dilutive
       securities.  Options and warrants were not included in the computation of
       diluted  earnings per share  because the exercise  price was greater than
       the market price of the stock.

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

       New Accounting Pronouncements:

       In  1997,  SFAS  130,  "Reporting  Comprehensive  Income"  and  SFAS  131
       "Disclosures  about  Segments of an Enterprise  and Related  Information"
       were issued.  These standards which will become  effective in 1998 expand
       or  modify  disclosures  and,  accordingly,  will  have no  effect on the
       Corporation's financial position, results of operations or cash flows.


                                       34
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     PROPERTY AND EQUIPMENT:

       Property and equipment consist of the following at December 31, 1997:

              Machinery and equipment                            $227,973
              Furniture and fixtures                              128,609
              Leasehold improvements                               97,350
                                                                 --------
                                                                  453,932
              Less accumulated depreciation and amortization      199,328
                                                                 --------
                                                                 $254,604
                                                                 ========
3.     NOTE PAYABLE - BANK:

       The  Corporation is liable under a line of credit  agreement with a bank.
       Under the agreement,  the  Corporation  may borrow up to $3,500,000.  The
       line of credit is collateralized by the Corporation's accounts receivable
       and  is  guaranteed  by  certain  shareholders.  At  December  31,  1997,
       $1,150,000  was  outstanding.  Borrowings  under  the  agreement  are due
       January 30, 1998 and bear  interest at 9.25%.  On January 26,  1998,  the
       Corporation  entered into a new bank  agreement and paid off the existing
       line. Under the new agreement, the Corporation has available a $6,000,000
       line of credit.

       Available  borrowings  are  based  on  a  formula  of  eligible  accounts
       receivable.  The line is collateralized by all property and assets of the
       Corporation. The Corporation has also guaranteed the line of credit.

4.     THIRD-PARTY RATE ADJUSTMENTS AND REVENUE:

       Approximately  24% of net patient  service  revenue was derived under New
       York State  third-party  reimbursement  programs during each of the years
       ended December 31, 1996 and 1997.  These revenues are based,  in part, on
       cost  reimbursement  principles and are subject to audit and  retroactive
       adjustment by the respective third-party fiscal intermediaries. Provision
       for estimated  amounts due to/from the  Corporation  has been made in the
       financial  statements.  Differences  between  estimated revised rates and
       subsequent  revisions will be reflected in the statement of income in the
       year revisions are calculated.


                                      35
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. LONG-TERM DEBT:

       Long-term debt consists of the following at December 31, 1997:

       Capital leases collateralized by various machinery
          and equipment are payable through April 1998.            $  1,465
       Note payable (a)                                             200,000
                                                                   --------
                                                                    201,465
       Less current maturities                                      101,465
                                                                   --------
                                                                   $100,000
                                                                   ========

      (a)   At December 31, 1997, the Corporation is obligated on a note payable
            related  to  the  acquisition  of  offices  from  Metro   Healthcare
            Services,  Inc.  referred  to in Note 1.  The note is  payable  in 8
            quarterly  installments of varying amounts through December 1, 1999.
            Interest  is payable at 1% per annum over the prime  rate,  adjusted
            quarterly  (9.5% at December 31, 1997).  The note is subordinated to
            all obligations  due to the Company's  banks or other  institutional
            lender.

6.     FAIR VALUE OF FINANCIAL INSTRUMENTS:

       As of December 31, 1997,  the  carrying  amount of long-term  and current
       accounts receivable was approximately  $4,827,000,  and the fair value of
       accounts receivable was estimated to be $4,770,000.  The lower fair value
       reflects a discount of $57,000,  computed at an interest rate of 8.5% per
       annum,  for certain  receivables  that will be collected over an extended
       period.  The  carrying  amount of accounts  payable  and accrued  payroll
       approximates  fair  value  due  to the  short-term  maturities  of  these
       instruments.

7.     STOCK BASED COMPENSATION:

       The fair value of the options on the date of grant,  granted  during 1996
       (See Note 12), was $.81 per share.  Consistent  with the  methodology  of
       SFAS No. 123,  the  Corporation's  proforma  net income and  earnings per
       share would have been reduced to pro forma amounts indicated below:

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

           Basic and diluted earnings per share           $.09            $.08
                                                          ====            ====


                                       36
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



           The fair value of the option  included in the proforma  amounts shown
           above was  estimated  as of the grant  date  using the  Black-Scholes
           option-pricing model with the following  assumptions:  dividend yield
           of zero  percent,  expected  volatility  of zero  percent,  risk-free
           interest rate of 6.38%, and expected life of 5 years.

8.     INCOME TAXES:

       The  components  of deferred  tax assets as of  December  31, 1997 are as
       follows:

              Deferred tax assets:
                Accounts receivable reserve                        $21,000
                Unamortized discount on accounts receivable         24,000
                                                                   -------
                                                                   $45,000
                                                                   =======

       Differences   between  book  and  tax  are  primarily  due  to  temporary
       differences resulting from use of direct write-off method for receivables
       for  tax  purposes  and  recording  revenue  at the  face  amount  on the
       long-term receivables.

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

                                               1996                 1997
                                             ---------            --------
              Current:
                Federal                      $  27,000            $164,200
                State                          141,000              68,100
                                             ---------            --------
                                               168,000             232,300
                                             ---------            --------
              Deferred:
                Federal                       (181,000)            (26,000)
                State                           (3,000)            (19,000)
                                             ---------            --------
                                              (184,000)            (45,000)
                                             ---------            --------
                                             $ (16,000)           $187,300
                                             =========            ========

       The  statutory  Federal  income  tax rate and the  effective  rate of the
       provision for income taxes is reconciled as follows:

                                                          1996
                                                       (Pro forma)        1997
                                                       -----------        ----
          Statutory Federal income tax rate                34%             34%
          State taxes, net of Federal tax benefit           9              16
                                                           --              --

                                                           43%             50%
                                                           ==              ==


                                       37
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9.     PERFORMANCE INCENTIVE PLAN AND 401(K) PLAN:

       Performance Incentive Plan:

       On March 26,  1996,  the  Corporation's  Board of  Directors  adopted the
       Performance  Incentive Plan (the "Option  Plan").  Under the terms of the
       Option Plan,  262,500  shares of common stock may be granted.  The Option
       Plan  will be  administered  by a  Committee  appointed  by the  Board of
       Directors.  The Committee will determine  which key employee,  officer or
       director on the  regular  payroll of the  Company,  shall  receive  stock
       options.   Granted   options  are   exercisable  in  three  equal  annual
       installments,  commencing six months after the date of grant,  and expire
       ten years after the date of grant.  The exercise  price of any  incentive
       stock option or nonqualified option granted under the Option Plan may not
       be less than 100% of the fair market  value of the shares of common stock
       of the  Company at the time of the grant.  No options  have been  granted
       under the Option Plan.

       401 (K) Plan:

       NYHC maintains an Internal  Revenue Code Section  401(k) salary  deferred
       savings plan (the "Plan") for eligible  employees  who have been employed
       for at least one year and are at least 21 years  old.  Subject to certain
       limitations, the Plan allows participants to voluntarily contribute up to
       15%  of  their  pay  on  a  pre-tax  basis.  The  Corporation   currently
       contributes 50% of each dollar contributed to the Plan by participants up
       to a maximum of 6% of the  participants'  salary.  The Plan also provides
       for certain discretionary  contributions by the Corporation as determined
       by the Board of Directors.  The Corporation's  contributions  amounted to
       approximately  $43,000 and $42,000 for the years ended  December 31, 1996
       and 1997, respectively.

10.    COMMITMENTS, CONTINGENCIES AND OTHER COMMENTS:

       Lease Commitments:

       The Corporation leases office space under noncancellable operating leases
       in New York and New Jersey that expire between December 1998 and November
       2002.

       On October 8, 1996, the Corporation  entered into an agreement to acquire
       a lease,  for new office  space,  and a  sub-lease  from an  unaffiliated
       person for $90,000.  The lease is for a term expiring March 31, 2000, and
       is subject to renewal by the  Corporation  for an additional  five years.
       The rent is  $62,400  per  annum,  and is  subject  to  annual  increases
       beginning  April 1, 1997.  The  Corporation  sub-leases  a portion of the
       space for  approximately  $36,000 per annum.  The sub-lease is subject to
       the same renewal option and annual increases as the Corporation's lease.


                                       38
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


       At December 31, 1997,  future minimum lease payments due under  operating
       and capital leases approximate:

                                           Rental Expense
                                             Operating       Rental     Capital
                                               Leases        Income      Leases
                                               ------        ------      ------
           1998                               $218,000       $36,000     $1,415
           1999                                196,000        38,000   
           2000                                108,000        19,000   
           2001                                 43,000                 
           2002                                 25,000                 
                                              --------       -------     ------
           Total minimum future payments      $590,000       $93,000      1,465
                                              ========       =======   
           Less amounts representing interest                               200
                                                                         ------
                                                                       
           Present value of net minimum lease                          
              payments                                                   $1,265
                                                                         ======
                                                                     
       Rental  expense  charged to  operations  was  approximately  $128,000 and
       $181,000 for the years ended  December  31, 1996 and 1997,  respectively.
       Rental  income under the sublease  agreement in the amounts of $3,400 and
       $36,000  for the years ended  December  31, 1996 and 1997 has been offset
       against rental expense.

       Employment Agreements:

       In 1996, the  Corporation  entered into  employment  agreements  with two
       officers,  with terms expiring in 1999. The agreements call for aggregate
       annual  compensation  of  approximately  $315,000 and provide for certain
       additional benefits.

       Bonus Plan:

       In 1996, the  Corporation  established a bonus plan pursuant to which 10%
       of the  Corporation's  pre-tax net income is  contributed to a bonus pool
       which is available for  distribution  to all employees as decided upon by
       the  Corporation's  Compensation  Committee.  The Corporation has accrued
       approximately $65,000 and $41,000 for its contributions to the bonus pool
       for 1996 and 1997.


                                       39
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Concentrations of Credit Risk:

       Financial  instruments  which  potentially  subject  the  Corporation  to
       concentrations  of  credit  risk  consist  primarily  of  temporary  cash
       investments  which  from  time  to time  exceed  the  Federal  depository
       insurance coverage and commercial  accounts  receivable.  The Corporation
       has cash investment policies that restrict placement of these investments
       to financial institutions evaluated as highly creditworthy. Cash and cash
       equivalents  exceeding federally insured limits approximated  $101,000 at
       December  31,  1997.  The  Corporation  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  9.6%  and 10% of net
       patient  service  revenue for the year ended  December 31, 1996 and 1997,
       respectively.

       Business Risks:

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

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

11.    RELATED PARTY TRANSACTIONS:

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


                                       40
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       In January 1996, the Corporation  entered into a Service Agreement with a
       company affiliated  through common ownership.  The Corporation has agreed
       to  provide  administrative   services  relating  to  payroll,   benefits
       management and data processing to the company through  December 31, 1998.
       The fee for these services approximated $15,000 and $26,000 for the years
       ended December 31, 1996 and 1997, respectively. In addition, during 1997,
       the affiliate  prepaid  $36,000 on account of its 1998 processing fee. As
       referred to in Note 16, the Corporation,  subsequent to December 31, 1997
       purchased certain of the intangible assets of this company.

12. SHAREHOLDERS' EQUITY:

       Common Stock and Recapitalization:

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

       On December  27,  1996,  the  Corporation  completed  the initial  public
       offering of 1,250,000  shares of its common stock at $4.00 per share. The
       proceeds  received  by the  Corporation  of  $3,753,527  are net of costs
       (including $11,976 paid in 1997) relating to the offering of $1,245,273.

       Preferred Stock:

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


                                      41
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

       Options and Warrants:

       On March 26, 1996, the  Corporation  issued an option to purchase  93,750
       shares of common stock to the President of the Corporation at an exercise
       price of $3.00 per share. The option may be exercised at any time through
       March 26, 2006. During 1997, there were no options granted or canceled.

       In  connection  with the initial  public  offering  of the  Corporation's
       common stock, the underwriter acquired for nominal consideration warrants
       to purchase an aggregate of 125,000 shares of common stock.  The warrants
       are exercisable at a price of $5.20 for a period of four years commencing
       one year from  December  20,  1996.  These  warrants  grant to the holder
       certain "piggyback"  registration rights for a period of seven years from
       December 20, 1997,  and demand  registration  rights for a period of five
       years from December 20, 1996 with respect to the  registration  under the
       Securities  Act of the  securities  issuable  upon  the  exercise  of the
       warrants.

       Dividend Policy:

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

       Reclassification of S-Corporation Earnings:

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

       Reserves:

       The  Corporation  has reserved an  aggregate of 193,750  shares of common
       stock for the  exercise  of the options  issued and future  options to be
       issued for service.


                                       42
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    EARNINGS PER SHARE:

       Earnings per share are computed as follows:

                                                        For The Years Ended
                                                            December 31,
                                                        1996            1997
                                                     ---------        ---------

        Basic and diluted earnings per share:
           Earnings:
             Net income applicable to common stock
               (Proforma for 1996)                  $  316,638     $    183,863
                                                    ==========     ============

           Shares:
               Weighted average number of common
                  shares outstanding                 2,504,032        3,750,000
                Additional shares whose proceeds
                   would be necessary to pay the
                    S Corporation dividend             882,000
                                                     ---------        ---------
                Weighted average shares outstanding  3,386,032        3,750,000
                                                     =========        =========
        Basic and diluted earnings per share
          (Proforma for 1996)                             $.09             $.05
                                                          ====             ====

14.    SUPPLEMENTAL CASH FLOW DISCLOSURES:

                                                        For The Years Ended
                                                            December 31,
                                                     --------------------------
                                                        1996            1997
                                                     ---------        ---------
       Cash paid during the year for:
         Interest                                     $163,630          $20,567
                                                      ========          =======

         Income taxes                                  $10,430         $268,062
                                                       =======         ========
         Non cash financing activity:
           Issuance  of a  promissory  note  in  
           connection  with acquisition referred 
           to in Note 1                                                $200,000
                                                                       ========


                                       43
<PAGE>

                    NEW YORK HEALTH CARE, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.    SALE OF ACCOUNTS RECEIVABLE:

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

16.    SUBSEQUENT EVENTS:

       On February 8, 1998,  the  Corporation  purchased the customer  lists and
       other  intangible  assets of an additional  three offices in the State of
       New Jersey from Metro Healthcare  Services,  Inc. for $500,000 cash and a
       promissory note in the amount of $580,000.

       On March 26, 1998, the Corporation purchased the customer lists and other
       intangible  assets  of  another  entity.  The  entity is  related  to the
       Corporation  through  common  ownership  and  management.  The  aggregate
       purchase price is $1,150,000.  This amount was paid through issuance of a
       promissory note.


                                       44

<PAGE>

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

          None

                                    PART III

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

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

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

Jerry Braun                    40       President, Chief Executive Officer and
                                          Director

Jacob Rosenberg                40       Vice President, Chief Operating Officer,
                                        Secretary and Director

David Grossman                 30       Chief Financial Officer and Chief
                                        Accounting Officer

Samson Soroka                  41       Director

Hirsch Chitrik                 69       Director

Sid Borenstein                 44       Director

H. Gene Berger                 57       Director

Charles J. Pendola             52       Director

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

     Jacob  Rosenberg,  has been  Secretary  and a Director  since the Company's
inception in 1983, and Vice President and Chief Operating Officer since February
1995.

     David  Grossman has been the Company's  chief  financial  officer and chief
accounting  officer since  December 1997.  From 1991 to 1997,  Mr.  Grossman was
employed as a certified public accountant at M.R. Weiser & Co., LLP, who are the
independent  auditors  of the  Company.  Mr.  Grossman  is a  graduate  of  Pace
University (BBA, Public Accounting, 1991).


                                       45

<PAGE>

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

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

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

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

     Charles J. Pendola has been a director of the Company since  February 1998.
Since April 1997, Mr. Pendola has been an independent  management  consultant to
various  organizations  in the health care  industry.  From August 1996 to March
1997 Mr. Pendola was the president and chief executive  officer of First Medical
Corporation,  an international health care management firm providing services to
health  care  networks,   managed  care  organizations  and  independent  health
providers  in the United  States and Europe.  From April 1989 to June 1996,  Mr.
Pendola  was the  president  and chief  executive  officer of  Preferred  Health
Network,  a  not-for-profit  corporation  which managed a  diversified  group of
health care providers and health related organizations including five acute care
hospitals and 20  ambulatory  care centers.  Mr.  Pendola is a certified  public
accountant.

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

     The  Company's  Board of Directors met a total of 9 times during the fiscal
year ended December 31, 1997. Each of the directors attended at least 90% of the
aggregate of the total meetings of the Board of Directors.

     The Company has an Audit  Committee  which was formed in February  1998 and
consists of three non-employee  directors:  Mr. Borenstein,  Mr. Pendola and Mr.
Berger.  The Audit  Committee  assists in selecting  the  independent  auditors,
designating   services   they  are  to   perform   and   maintaining   effective
communications  with  those  auditors.  
 
Employment Agreements

     On March 26, 1996,  the Company  entered into  employment  agreements  with
Jerry Braun and Jacob Rosenberg, each of which is for a term ending December 31,
1999. 

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


                                       46
<PAGE>

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

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

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

     During the  Company's  fiscal year ended  December 31,  1997,  Jerry Braun,
Jacob Rosenberg,  Samson Soroka,  Hirsch Chitrik and Sid Borenstein did not file
on a timely  basis  reports  on Forms 4 and 5 required  by Section  16(a) of the
Securities Exchange Act of 1934.


                                       47
<PAGE>

Item 10.  EXECUTIVE COMPENSATION

Summary Compensation Table

     The  following  table sets forth,  for the fiscal years ended  December 31,
1997 and 1998,  the cash  compensation  paid by the Company,  as well as certain
other  compensation  paid with  respect to those years,  to the chief  executive
officer  and,  to the extent  applicable,  each of the three  other most  highly
compensated  executive  officers of the Company in all  capacities in which they
served.

<TABLE>
<CAPTION>
                                            Annual Compensation                            Long-Term Compensation
                           -------------------------------------------   -----------------------------------------------------------
                                                                            Awards                                       Payouts
                                                                         ---------------                             ---------------
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           Securities
Name and                                                 Other Annual      Restricted      underlying     LTIP         All other
Principal Position(1)      Year   Salary($)  Bonus($)   Compensation($)  Stock Awards($)  options/SARs  Payouts(#)   compensation($)
----------------------     ----   ---------  --------   ---------------  ---------------  ------------  ----------   ---------------
<S>                        <C>    <C>                     <C>                                <C>   
Jerry Braun                1995   $116,177     ---        $16,699(1)
 President and Chief       1996   $123,558                $22,124(1)                         93,750
 Executive Officer         1997   $175,737   $36,530      $22,721(1)                         Shares
                           
Jacob Rosenberg            1995   $100,096     ---        $17,885(2)
 Chief Operating Officer   1996   $ 97,115                $23,231(2)  
                           1997   $140,267   $24,255      $26,209(2)  

Gilbert Barnett(3)         1996   $ 79,751                 $2,760(3)
 Chief Financial and       1997   $ 65,386                 $1,242(3)
 Accounting Officer

Jack Margareten(4)         1997   $ 26,223                 $4,385
Chief Financial and
   Accounting Officer

David Grossman(5)          1997   $  3,923
Chief Financial and
   Accounting Officer
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

-----------
(1)    Includes $13,290,  $10,413 and $8,8 17 of medical insurance premiums paid
       on behalf of such  individual for each of the years ended 1997,  1996 and
       1995  respectively,   $5,931,   $8,211  and  $7,882  for  automobile  and
       automobile-related costs, including insurance, incurred on behalf of such
       individual, respectively, for each of the years ended 1997, 1996 and 1995
       and $3,500 in expense  allowance  for each of the fiscal years ended 1997
       and 1996.

(2)  Includes $17,290,  $10,413 and $8,817 of medical insurance premiums paid on
     behalf of such individual for each of the years ended 1997,  1996, and 1995
     respectively,    $9,419,    $9,318   and   $9,068   for    automobile   and
     automobile-related  costs, including insurance,  incurred on behalf of such
     individual,  respectively,  for each of the years ended 1997, 1996 and 1995
     and $3,500 in expense allowance for each of the fiscal years ended 1997 and
     1996.

(3)  Includes  medical  insurance  premiums  paid on  behalf of such  individual
     for the fiscal year ended 1997.  Mr. Barnett resigned  from the  Company in
     August 1997.

(4)  Includes medical  insurance  premiums paid on behalf of such individual for
     the fiscal year ended 1997. Mr.  Margareten joined the Company in September
     1997 and resigned in December 1997.

(5)  Mr. Grossman joined the Company in December 1997.


                                       48


<PAGE>

Directors Compensation

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

Savings and Stock Option Plans

   401(k) Plan

     The Company  maintains  an Internal  Revenue  Code  Section  401(k)  salary
deferral  savings plan (the  "Plan") for all of its eligible New York  employees
who  have  been  employed  for at least  one year and are at least 21 years  old
(effective July 1, 1996,  field staff  employees at the Company's  Orange County
branch office in Newburgh,  New York ceased being eligible to participate in the
Plan).  Subject  to  certain  limitations,   the  Plan  allows  participants  to
voluntarily  contribute  up to 15% of their  pay on a pre-tax  basis.  Under the
Plan,  the  Company  may make  matching  contributions  on behalf of the pre-tax
contributions made by participants. For 1995 and for the first half of 1996, the
Company  contributed 50% of each dollar  contributed to the Plan by participants
up to a maximum of 6% of the  participant's  salary.  All participants are fully
vested in their  accounts  in the Plan with  respect  to their  salary  deferral
contributions  and are vested in Company  matching  contributions at the rate of
20% per year for two years  through  four years of  service,  with 100%  vesting
after five years of  service.  However,  participants  who are first hired after
December 31, 1994 will not be vested in the Company matching contributions until
the completion of five years service,  when they become 100% vested. The Company
has agreed with the Underwriter that no discretionary  contributions to the Plan
may be made for officers or stockholders of the Company.

   Stock Option Plan

     In March 1996, the Company's Board of Directors and  stockholders  approved
and adopted the New York  Health  Care,  Inc.  Performance  Incentive  Plan (the
"Option  Plan").  Under the terms of the Option Plan,  options to purchase up to
262,500  shares of Common Stock may be granted to key  employees of the Company.
To date,  no options have been granted under the Plan.  Moreover,  the Company's
Board of Directors  has approved a resolution  which  proposes to provide for an
increase in the number of shares of Common Stock available for options under the
Option Plan equal to an  additional  262,500  shares for each of two  additional
years,  subject to approval by the  Company's  shareholders  at the first annual
meeting of shareholders. The Option Plan is to be administered by a Compensation
Committee to be appointed by the Board of Directors (the "Committee"),  which is
authorized to grant incentive stock options and  non-qualified  stock options to
selected employees of the Company and to determine the participants,  the number
of options to be granted and other terms and provisions of each option.

     The exercise  price of any incentive  stock option or  nonqualified  option
granted under the Option Plan may not be less than 100% of the fair market value
of the shares of Common Stock


                                       49

<PAGE>

of the Company at the time of the grant.  In the case of incentive stock options
granted  to holders of more than 10% of the  voting  power of the  Company,  the
exercise price may not be less than 110% of the fair market value.

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

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

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


                                       50

<PAGE>

                      Option/SAR Grants in Last Fiscal Year

                                Individual Grants

--------------------------------------------------------------------------------
                Number of       % of Total  
                Securities      Options/SARs
                Underlying      Granted to
                Options/SARs    Employees in   Exercise or Base
Name            Granted         Fiscal Year    Price             Expiration Date
-----------     -------------   ------------   -----------       --------------
     -                -               -             -                  -
--------------------------------------------------------------------------------

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

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

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


                                       51


<PAGE>

Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information  regarding shares of the
Common Stock beneficially  owned as of March 31, 1998 by (i) each person,  known
to the Company,  who  beneficially  owns more than 5% of the Common Stock,  (ii)
each of the Company's directors and (iii) all officers and directors as a group:

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

         Jerry Braun(2)                        944,248         24.57%
         929 East 28th Street
         Brooklyn, NY  11210

         Jacob Rosenberg                       385,401         10.28%
         932 East 29th Street
         Brooklyn, NY  11210

         Samson Soroka                         440,911         11.76%
         1228 East 22nd Street
         Brooklyn, NY  11210

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

         Sid Borenstein                        107,175          2.86%
         1246 East 10th Street
         Brooklyn, NY  11230

         All officers and directors
            as a group (5 persons)(1)(2)     2,377,735         61.86%

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

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


                                       52


<PAGE>

Item 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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

      Jerry  Braun,  Jacob  Rosenberg,  Samson  Soroka,  Hirsch  Chitrik and Sid
Borenstein, who are directors of the Company, have been the sole stockholders of
a New Jersey corporation named Heart to Heart Health Care Services, Inc. ("Heart
to Heart"),  which began its home health care  business in 1995 in northern  New
Jersey,  but not in the State of New York, and sold its assets to the Company on
March 26, 1998.  Heart to Heart had net revenues of $1,950,890 in the year ended
December  31,  1997.  Since  its  inception,  Heart  to Heart  utilized  Company
personnel  for  its  administrative   functions   regarding  payroll,   benefits
management  and data  processing.  The  Company and Heart to Heart had a Service
Agreement  pursuant  to  which  the  Company  provided  administrative  services
relating to  payroll,  benefits  management  and data  processing  for which the
Company was  reimbursed  for all expenses  attributable  to such  operations  of
approximately $15,000 per year.

     On March 26, 1998,  NYHC Newco, a  wholly-owned  subsidiary of the Company,
purchased  Heart to Heart's  home care  business  assets  (other  than  accounts
receivable)  for a  purchase  price  consisting  of a  promissory  note  in  the
principal  sum  of  $1,150,000  payable  in  24  equal  quarterly   installments
commencing  June 26, 1998 together  with accrued  interest at a rate equal to 1%
per annum over the prime  interest rate  published by the Wall Street Journal on
March 26, 1998, adjusted  quarterly.  The promissory note is subordinated to all
obligations  due to the  Company's  banks or other  institutional  lenders.  The
promissory  note and the covenants of NYHC Newco are  guaranteed by the Company.
As part of the acquisition transaction, NYHC Newco assumed leasehold obligations
for the two  offices  located in East  Orange  (expiring  August  31,  2002) and
Hackensack,  New Jersey  (expiring  May 31, 1998) in the aggregate sum of $1,815
per  month,  together  with  various  equipment  leases  for  items of  business
equipment.  Because  directors  of the Company are the owners of Heart to Heart,
the Company obtained an independent opinion that the terms and conditions of the
acquisition agreement with Heart to Heart are, under all circumstances,  fair to
the Company.

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

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


                                       53

<PAGE>

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

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

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

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

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

     On July 30, 1997, the Company  entered into a consulting  agreement with H.
Gene Berger, who became a member of the Company's Board of Directors in February
1998.  The agreement  provides Mr.  Berger's  services as a healthcare  industry
consultant. In the event Mr. Berger introduces an acquisition transaction to the
Company  which  is  completed,  a fee will be due upon  closing  based  upon the
"Lehman  Formula" equal to 5% of the first $5 million of purchase  price,  4% of
the next $1 million, 3% of the next $1 million, 2% of the next $1 million and 1%
of the balance of the purchase  price. In January 1998 Mr. Berger received a fee
of $39,000 from the Company by reason of his  introduction to the Company of the
December 8, 1997  acquisition of the home care business  assets of three offices
in New Jersey from Metro.

     In September  1997, the Company entered into an oral agreement with Charles
J. Pendola,  who became a member of the Company's Board of Directors in February
1998. The agreement  provides Mr.  Pendola's  services as a healthcare  industry
consultant,  with particular attention to new business,  for a fee of $1,000 per
month.  During  1997 Mr.  Pendola  recieved  consulting  fees  from the  Company
totaling $3,000 pursuant to his agreement.

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

                                       54


<PAGE>

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

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

          (1)  FINANCIAL STATEMENTS:

               Report of Independent Certified Public Accountants.

               Balance Sheet as at December 31, 1997.

               Statements  of Income for the Years Ended  December  31, 1997 and
               1996.

               Statements of  Stockholders'  Equity for the Years Ended December
               31, 1997 and 1996.

               Statements  of Cash Flows for the Years Ended  December  31, 1997
               and 1996.

               Notes to Financial Statements.

     (2)  FINANCIAL STATEMENT SCHEDULES.

               NONE

     (3)  EXHIBITS

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

     2.1              Purchase and Sale  Agreement dated  December 7, 1997 among
                      NYHC   Newco   Paxxon,   Inc.   and    Metro    Healthcare
                      Services, Inc.**
        
     2.2              Purchase and Sale  Agreement  dated February 8, 1998 among
                      NYHC     Newco    Paxxon,    Inc.  and   Metro  Healthcare
                      Services, Inc.***

     2.3              Purchase and Sale Agreement dated  February 25, 1998 among
                      NYHC Newco Paxxon,  Inc.  and Heart to  Heart   Healthcare
                      Services, Inc.***
     
     3.1              Certificate of Incorporation of the Company.*
     
     3.2              Restated Certificate of Incorporation of the
                      Company.*
     
     3.3              Certificate of Correction of Restated Certificate of
                      Incorporation of New York Health Care, Inc.*
     
     3.4              Amendment to the Certificate of Incorporation filed
                      October 17, 1996.*
 

                                       55


<PAGE>

     3.5              By-laws of the Company.*

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

     4.1              Form of certificate evidencing shares of Common
                      Stock.*

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

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

    10.2              Lease for 105 Stevens Avenue, White Plains, New
                      York by and between the Company and Vincent
                      Rippa as receiver dated October 30, 1992.*

    10.3              Lease for 175 Fulton Avenue, Suite 30IA, Hempstead,
                      New York by and between and the Company and
                      Hempstead Associates Limited Partnership dated July
                      22, 1993.*

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

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

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

    10.7              Agreement for Provisions of Home Health Aide and
                      Personal Care Worker Services by and between the
                      Company and Kingsbridge Heights Health Facilities
                      Long Term Home Health Care Program dated
                      November 2, 1994.*


                                       56

<PAGE>
   
    10.8              State of New York Department of Health Office of
                      Health Systems Management Home Care Service
                      Agency License for the Company doing business in
                      Rockland, Westchester and Bronx Counties dated
                      May 8, 1995.*

    10.9              State of New York Department of Health Office of
                      Health Systems Management Home Care Service
                      Agency License for the Company doing business in
                      Dutchess, Orange, Putnam, Sullivan and Ulster
                      Counties dated May 8, 1995.*

    10.10             State of New York Department of Health Office of
                      Health Systems Management Home Care Service
                      Agency License for the Company doing business in
                      Nassau, Suffolk and Queens Counties dated May 8,
                      1995.*

    10.11             State of New York Department of Health Office of
                      Health Systems Management Home Care Service
                      Agency License for the Company doing business in
                      Orange and Rockland Counties dated July 1. 1995.*

    10.12             Lease Renewal for 45 Grand Street, Newburgh, New
                      York by and between the Company and Educational
                      and Charitable Foundation of Eastern Orange County,
                      Inc. dated July 12, 1995.*

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

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

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

                                       57


<PAGE>

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

    10.17             State of New York Department of Health Office of
                      Health Systems Management Home Care Service
                      Agency License for the Company doing business in
                      Bronx, Kings, New York, Queens and Richmond
                      Counties dated December 29, 1995.*

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

    10.19             Homemaker and Personal Care Agreements by and
                      between the Company and the County of Rockland
                      Department of Social Services dated January 1,
                      1996.*

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

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

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

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

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

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


                                       58


<PAGE>

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

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

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

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

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

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

    10.32             401 (k) Plan for the Company.*

    10.33             Performance Incentive Plan for the Company.*

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

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

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


                                       59


<PAGE>

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

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

    10.39             Forms of Merger & Acquisition Agreement and
                      Indemnification with H.J. Meyers & Co., Inc.*

    10.40             Consulting Agreement by and between the Company and 
                      H. Gene Berger dated July 30, 1997.

    11                Computation of Earnings Per Common Share of the
                      Company.


*    Incorporated  by  reference  to  Exhibits  filed  as part of the  Company's
     Registration Statement on Form SB-2 under S.E.C. File No. 333-08152,  which
     was declared effective on December 20, 1996.

**   Incorporated  by reference to Exhibit filed as part of the  Company's  Form
     8-K report with an event date of December 8, 1997.

***  Incorporated  by reference to Exhibits  filed as part of the Company's Form
     8-K report with an event date of February 8, 1998.

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

     (b)  Reports on Form 8-K.  The  Company  filed Form 8-K reports on July 22,
1997, January 21, 1998 and March 31, 1998.


                                       60

<PAGE>

                                   SIGNATURES

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

April 9, 1998

                                    NEW YORK HEALTH CARE, INC.

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

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

/s/ Jerry Braun                 President, Chief Executive         April 9, 1998
-------------------------       Officer and Director                    
Jerry Braun                              

/s/ Jacob Rosenberg             Vice President, Chief Operating    April 9, 1998
-------------------------       Officer, Secretary and Director         
Jacob Rosenberg          

/s/ David Grossman              Chief Accounting                   April 9, 1998
-------------------------       and Financial Officer
David Grossman                          

/s/ Samson Soroka               Director                           April 9, 1998
------------------------
Samson Soroka

/s/ Hirsch Chitrik              Director                           April 9, 1998
------------------------
Hirsch Chitrik

/s/ Sid Borenstein              Director                           April 9, 1998
------------------------
Sid Borenstein

/s/ H. Gene Berger              Director                           April 9, 1998
------------------------
H. Gene Berger

/s/ Charles J. Pendola          Director                           April 9, 1998
------------------------
Charles J. Pendola


                                       61