HOME HEALTH CORP OF AMERICA INC \PA\, S-1, 1996-11-01

HOME HEALTH CORP OF AMERICA INC \PA\
S-1, 1996-11-01
HOME HEALTH CARE SERVICES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1996

REGISTRATION NO. 333-

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

---------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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HOME HEALTH CORPORATION OF AMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

PENNSYLVANIA 8082 23-2224800
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

2200 RENAISSANCE BOULEVARD
SUITE 300
KING OF PRUSSIA, PA 19406
(610) 272-1717
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

BRUCE J. FELDMAN, PRESIDENT AND CEO
HOME HEALTH CORPORATION OF AMERICA, INC.
2200 RENAISSANCE BOULEVARD
SUITE 300
KING OF PRUSSIA, PA 19406
(610) 272-1717
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

---------------

COPIES TO:
FRED BLUME, ESQUIRE JOHN J. HUBER, ESQUIRE
SOL GENAUER, ESQUIRE LATHAM & WATKINS
BLANK ROME COMISKY & MCCAULEY 1001 PENNSYLVANIA AVENUE
1200 FOUR PENN CENTER PLAZA SUITE 1300
PHILADELPHIA, PENNSYLVANIA 19103 WASHINGTON, DC 20004
(215) 569-5500 (202) 637-2200

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, no par
value.................. 4,167,025 shares $12.50 $52,087,813 $15,784
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</TABLE>
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(1) Includes 543,525 shares which the Underwriters have the option to purchase
to cover over-allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee.
Calculated in accordance with Rule 457(c) under the Securities Act and
based upon the last sale price reported for the Common Stock on the Nasdaq
National Market on October 29, 1996.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
Dated November 1, 1996

3,623,500 SHARES

[LOGO OF HOME HEALTH CORPORATION OF AMERICA APPEARS HERE]

COMMON STOCK

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Of the 3,623,500 shares of Common Stock offered hereby (the "Shares"), 3,000,000
shares are being offered by Home Health Corporation of America, Inc. (the
"Company" or "HHCA"), and 623,500 shares are being offered by certain
stockholders of the Company (the "Selling Stockholders"). See "Principal and
Selling Stockholders."

-----------

The Common Stock is included in the Nasdaq National Market under the symbol
"HHCA." On October 29, 1996, the last reported sales price for the Common Stock
on the Nasdaq National Market was $12.50 per share. See"Price Range of Common
Stock."
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SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
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<S> <C> <C> <C> <C>
PER SHARE $ $ $ $
TOTAL (3) $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the several Underwriters a 30-day option to
purchase up to an additional 543,525 shares of Common Stock to cover over-
allotments, if any. If all such shares are purchased, the total price to
public, underwriting discounts and commissions, proceeds to Company and
proceeds to Selling Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."

-----------

The Shares are offered by the several Underwriters named herein when, as and
if received and accepted by them subject to their right to reject any order in
whole or in part and subject to certain other conditions. It is expected that
delivery of the Shares will be made in New York, New York, on or about ,
1996.

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DEAN WITTER REYNOLDS INC.
VOLPE, WELTY & COMPANY
WHEAT FIRST BUTCHER SINGER

, 1996
<PAGE>

MAP OF BRANCH AND REGIONAL LOCATIONS
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IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

<PAGE>

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
REGISTERED SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 3
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
The Company.............................................................. 12
Use of Proceeds.......................................................... 13
Price Range of Common Stock.............................................. 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Selected Consolidated Financial Data..................................... 16
Unaudited Pro Forma Consolidated Financial Statements.................... 18
Management's Discussion and Analysis
of Financial Condition and Results of Operations........................ 26
Business................................................................. 33
Management............................................................... 44
Certain Transactions..................................................... 48
Principal and Selling Stockholders....................................... 49
Description of Capital Stock............................................. 50
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Index to Financial Statements............................................ F-1
</TABLE>

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ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Shares offered hereby. This Prospectus, which constitutes part
of the Registration Statement, omits certain of the information contained in
the Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Shares, reference is made to
the Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference
is made to the contract or other document filed as an exhibit to the
Registration Statement, and incorporated by reference herein. The Company is
subject to the informational requirements of the Exchange Act and in
accordance therewith files reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, DC 20549; and at the Commission's New York Regional Office, Seven
World Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional
Office, Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and copies of such material can be obtained from the public
reference section of the Commission at its Washington address upon payment of
the fees prescribed by the Commission, or may be examined without charge at
the offices of the Commission, or accessed through the Commission's Internet
address at http://www.sec.gov.

3
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
notes thereto, appearing elsewhere in this Prospectus. Unless the context
otherwise requires, references in this Prospectus to the "Company" and "HHCA"
refer to Home Health Corporation of America, Inc. and its subsidiaries, and
references to the "Pending Acquisitions" refer to the four acquisitions
described under "The Company--Pending Acquisitions." Except as otherwise
specified, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. References to a particular fiscal year of
the Company are to the year which ends on June 30.

THE COMPANY

The Company is a leading provider of comprehensive home health care services
and products, delivering nursing and related patient services, respiratory
therapy, infusion therapy and durable medical equipment. The Company operates
28 branch locations in Florida, Pennsylvania, Delaware, New Jersey and
Maryland. Assuming the consummation of the Pending Acquisitions, the Company
will operate 50 branch locations providing services and products in ten states,
including New Hampshire, Massachusetts, Illinois, Texas and Virginia, and the
District of Columbia. The Company generated $87.7 million of net revenues in
fiscal 1996 ($148.2 million on a pro forma basis after giving effect to certain
acquisitions completed during fiscal 1996 and 1997 and the Pending
Acquisitions).

The Company's growth objective is to enhance its position as a leading
provider of quality, cost-effective, comprehensive home health care services
and products by: (i) offering payors access to comprehensive home health care
services and products which are provided directly by the Company; (ii) cross-
selling its services and products through Coordinated Care Centers and home-
based evaluations of patient needs; (iii) developing managed care referral
sources; and (iv) expanding through acquisitions in existing and new markets.

The Company seeks to provide a "one-stop-shop" of cost-effective
comprehensive home health care services and products. The Company's regional
Coordinated Care Centers serve as focal points for managed care organizations
to efficiently arrange for Company services and products. The Coordinated Care
Centers and home-based evaluations conducted by the Company's nurses enhance
the Company's ability to cross-sell its comprehensive range of services and
products. The Company's nurses are trained to identify at the time of the
evaluation in the patient's home any additional need for Company services and
products. The Company believes that it is well-positioned to benefit from the
increasing preference of payors and referral sources, particularly managed care
organizations, to use home health care providers that both offer and coordinate
the delivery of a full range of home health care services and products.

The Company intends to continue to expand its operations through acquisitions
in existing and new markets. Since July 1, 1995, the Company has completed
eight acquisitions in its existing markets. In entering a new market, the
Company generally acquires a home nursing company (primarily Medicare-based)
and adds additional services and products through internal growth and
subsequent acquisitions in order to offer a full range of home health care
services and products to patients, physicians and payors, including managed
care organizations. Upon consummation of the Pending Acquisitions, the Company
will enter the Texas and New England markets through the acquisition of two
nursing companies (primarily Medicare-based) and increase its presence and
range of services and products offered in existing markets.

4
<PAGE>

million in fiscal 1994 to $87.7 million in fiscal 1996 (of which 65.6%
represented nursing and related patient services net revenues), and the
Company's net income increased from $928,000 in fiscal 1994 to $2.2 million in
fiscal 1996 (which includes certain nonrecurring items). The Company
experienced internal growth rates in net revenues of 24%, 29% and 19% for
fiscal years 1994, 1995 and 1996, respectively. The Company's internal growth
in net revenues was primarily the result of cross-selling its services and
products, expanding the range of services and products offered, increasing
patient referrals, particularly from managed care organizations, and opening
new branch locations. The percentage of the Company's net revenues from managed
care organizations and other payors increased from 24.9% in fiscal 1994 to
34.5% in fiscal 1996. The Company expects the percentage of net revenues from
managed care organizations to continue to increase.

The importance of home health care is increasing as a result of significant
economic pressures within the health care industry. The ongoing pressure to
contain health care costs, while maintaining quality care, is accelerating the
growth of alternate site care, such as home health care, that reduces hospital
admissions and lengths of hospital stays. In addition, home health care has
grown rapidly as a result of (i) advances in medical technology, which have
facilitated the delivery of services in alternate sites; (ii) demographic
trends, such as an aging population; and (iii) a strong preference among
patients to receive health care in their homes. Furthermore, the currently
fragmented home health care industry is undergoing rapid consolidation as local
providers generally do not offer a comprehensive range of cost-effective
services and products and lack access to capital to expand their operations or
their range of services offered. The home health care industry had total
expenditures in 1995 of approximately $36.0 billion. Approximately 17,000
providers currently serve about 7 million patients per year in their homes.

THE OFFERING

<TABLE>
<S> <C> <C>
Common Stock Offered by the Company......... 3,000,000 shares
Common Stock Offered by the Selling Stock-
holders.................................... 623,500 shares
Common Stock Outstanding After the Offer-
ing........................................ 11,090,007 shares (1)(2)
Use of Proceeds by the Company.............. To repay indebtedness and
pay a portion of the cash
consideration for the
Pending Acquisitions. See
"Use of Proceeds."
Nasdaq National Market Symbol............... "HHCA"
</TABLE>
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(1) Does not include 635,000 shares of Common Stock reserved for issuance under
the Company's stock option plans (of which options to purchase 536,000
shares of Common Stock at a weighted average exercise price of $8.33 per
share have been granted and options to purchase 217,914 shares of Common
Stock were exercisable at September 30, 1996) and 25,000 shares of Common
Stock at an exercise price of $2.54 per share reserved for issuance under
certain warrants which expire on or, under certain conditions, before June
30, 1997.
(2) Does not include 751,917 shares issuable in connection with the Pending
Acquisitions, assuming the price at closing used to determine the number of
shares issuable was $12.50 per share. See "The Company--Pending
Acquisitions" and Unaudited Pro Forma Consolidated Financial Statements.

5
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
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1996
----------------------------------
PRO PRO FORMA
1992 1993 1994 1995 ACTUAL(1) FORMA(2) AS ADJUSTED(3)
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<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net revenues............ $22,128 $28,543 $36,104 $55,965 $87,694 $148,154 $148,154
Operating costs and
expenses............... 20,954 27,312 34,769 53,510 81,958 142,448 139,304
Income before income
taxes, extraordinary
item and cumulative
effect of change in
accounting principle... 1,174 1,231 1,335 2,455 5,736 5,755 8,899
Income before
extraordinary item and
cumulative effect of
change in accounting
principle.............. 634 694 718 1,389 3,388 3,335 5,190
Net income.............. $ 634 $ 694 $ 928 $ 1,389 $ 2,227 -- --
Net income per common
and common equivalent
share before
extraordinary item and
cumulative effect of
change in accounting
principle(4)........... $ 0.25 $ 0.18 $ 0.20 $ 0.38 $ 0.39 $ 0.34 $ 0.42
Net income per common
and common equivalent
share(4)............... $ 0.25 $ 0.18 $ 0.26 $ 0.38 $ 0.21 -- --
Weighted average common
and common equivalent
shares outstanding..... 2,072 3,356 3,377 3,491 6,468 7,329 10,329
OPERATING DATA:
Number of branch
locations.............. -- -- 10 18 26 50 --
Net revenues by payor:
Medicare............... -- -- 70.9% 59.5% 53.0% 59.3% --
Medicaid............... -- -- 4.2 9.1 12.5 10.0 --
Managed care and
other................. -- -- 24.9 31.4 34.5 30.7 --
------- ------- ------- --------
100.0% 100.0% 100.0% 100.0%
======= ======= ======= ========
Sources of net revenues:
Nursing and related
patient services:
Medicare............... -- -- 64.7% 51.8% 40.9% 45.6% --
Non-Medicare........... -- -- 14.0 23.8 24.7 19.8 --
Respiratory therapy.... -- -- 7.7 8.5 10.9 9.1 --
Infusion therapy....... -- -- 6.9 8.6 7.2 14.1 --
Durable medical
equipment............. -- -- 6.7 7.3 16.3 11.4 --
------- ------- ------- --------
100.0% 100.0% 100.0% 100.0%
======= ======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------
PRO PRO FORMA
ACTUAL FORMA(5) AS ADJUSTED(6)
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<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,331 $ 1,763 $ 1,763
Working capital................................. 19,983 28,428 28,428
Total assets.................................... 66,170 105,911 105,911
Long-term debt, net............................. 16,137 44,727 9,789
Total stockholders' equity...................... 38,348 44,866 79,804
</TABLE>
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(1) Net income per common and common equivalent share, before nonrecurring
bridge financing expenses, preferred stock dividends, write-off of discount
on bridge financing preferred stock and extraordinary item, was $0.61 in
fiscal 1996. See Unaudited Pro Forma Consolidated Financial Statements.
(2) Gives effect to four acquisitions completed during fiscal 1996 and 1997 and
the Pending Acquisitions as if such acquisitions occurred as of July 1,
1995. See Unaudited Pro Forma Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Gives effect to footnote (2) and the receipt and application of the net
proceeds from the sale of the shares of Common Stock offered by the Company
hereby at an assumed offering price of $12.50 per share, as if such
transactions occurred as of July 1, 1995. See Unaudited Pro Forma
Consolidated Financial Statements.
(4) Net income available to common and common equivalent stockholders is
reduced by dividends on preferred stock for all fiscal years presented and
the write-off of a discount on preferred stock of approximately $787,000 in
fiscal 1996 in connection with bridge financing related to an acquisition.
(5) Gives effect to two acquisitions completed during fiscal 1997 and the
Pending Acquisitions as if such transactions occurred as of June 30, 1996.
See Unaudited Pro Forma Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(6) Gives effect to footnote (5) and the receipt and application of the net
proceeds from the sale of the shares of Common Stock offered by the Company
hereby at an assumed offering price of $12.50 per share, as if such
transactions occurred as of June 30, 1996. See Unaudited Pro Forma
Consolidated Financial Statements.

6
<PAGE>

RISK FACTORS

Prospective investors should carefully consider the following risk factors,
in addition to the other information contained in this Prospectus, in
evaluating an investment in the Shares offered hereby. This Prospectus
contains certain statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Prospective
investors are cautioned that such statements are only predictions and that
actual events or results may differ materially. In evaluating such statements,
prospective investors should specifically consider the various factors
identified in this Prospectus, including the matters set forth below, which
could cause actual results to differ materially from those indicated by such
forward-looking statements.

Pricing Pressures. Medicare, Medicaid and other payors, including managed
care organizations and traditional indemnity insurers, are attempting to
control and limit increases in health care costs and, in some cases, are
decreasing reimbursement rates. While the Company's net revenues from managed
care organizations have increased and are expected to continue to increase,
payments per visit from managed care organizations typically have been lower
than cost-based reimbursement from Medicare and reimbursement from other
payors for nursing and related patient services, resulting in reduced
profitability on such services. In addition, payors and employer groups are
exerting pricing pressure on home health care providers, resulting in reduced
profitability. Such pricing pressures could have a material adverse effect on
the Company's financial condition or results of operations. See "Business--
Payor Mix" and "--Government Regulation."

Medicare Reimbursement. The Company derived more than 50% of its revenues
from Medicare in each of the last three fiscal years. The federal government
is considering significant reductions in planned Medicare spending. The Senate
and the House of Representatives in the 104th Congress passed budget
resolutions calling for reductions of $256 billion and $280 billion,
respectively, in forecasted Medicare program expenditures over the next seven
years. While the resolutions do not provide for specific means of achieving
these reductions, actions under discussion include the addition of a 20%
copayment for Medicare beneficiaries for home health care services. Another
proposal would change Medicare reimbursement for skilled nursing facilities,
rehabilitation services and the first 60 days of home health care services by
"bundling" payments for these services into a single prospective payment to
hospitals to cover "post-acute" care for beneficiaries who are discharged from
a hospital. The adoption of such proposals or similar proposals could have a
material adverse effect on the Company's financial condition or results of
operations.

The federal government is examining a number of proposed changes to the
Medicare reimbursement system for home health services, including changing
home health reimbursement from a retrospective cost-based system to a
prospective payment system. Currently, Medicare reimburses participating home
health agencies for the reasonable costs incurred to provide covered visits to
eligible beneficiaries, subject to certain cost limits which vary according to
geographic regions of the country. The Company believes that reimbursement
under a prospective payment system would consist of either an established fee
for a specific clinical diagnosis or a fixed per diem amount for providing
service. Implementation of a Medicare prospective payment system by its nature
would increase Medicare's ability to better control reimbursements. The impact
of such change, if implemented, on the Company's results of operations cannot
be predicted with any certainty and would depend, to a large extent, on the
reimbursement rates for home health services established under the prospective
payment system. There can be no assurance that such reimbursement rates, if
enacted, would cover the costs incurred by the Company to provide home health
care services. In addition, the Health Care Financing Administration ("HCFA")
of the Department of Health and Human Services ("HHS") can implement
reductions in reimbursement for services and products provided by the Company.
HCFA is currently proposing reductions in reimbursement for oxygen systems and
aerosol medications. The Company cannot predict the number, type, timing or
amount of any change in reimbursement that may occur. While the Company
believes that a reimbursement reduction in a single product or service, such
as oxygen systems, would not have a material adverse effect on its financial
condition or results of operations, no assurance can be given that a reduction
in reimbursement for more than one product would not have such a material
adverse effect. See "Business--Government Regulation."

7
<PAGE>

Reimbursement Payments. The Company is paid for its services by Medicare,
Medicaid, managed care organizations and other third-party payors. The home
health care industry is generally characterized by long collection cycles for
accounts receivable due to the complex and time consuming requirements for
obtaining reimbursement from private and governmental third party payors. In
addition, reimbursement from Medicare and Medicaid for certain services is
subject to audit and retroactive adjustment. Retroactive adjustments made to
prior year cost reports could have a material adverse effect on the Company's
financial condition or results of operations. See "Business--Payor Mix" and
"--Government Regulation."

Health Care Reform. The health care industry has experienced extensive and
dynamic regulatory change. Changes in the law or new interpretations of
existing laws may have a dramatic effect on the definition of permissible or
impermissible activities, the relative costs associated with doing business
and the amount of payment for medical care by both governmental and other
payors. Health care reform proposals have been formulated by federal and state
governments. Government officials can be expected to continue reviewing and
assessing alternative health care delivery systems and payment methodologies,
and public debate of these issues can be expected to continue in the future.
The Company cannot predict whether any reform measures will be enacted, or, if
enacted, the nature of such reforms. There can be no assurance that any reform
measure, if enacted, will not restrict the Company's operations, limit
expansion of its business or impose compliance costs which cannot be recovered
through price increases.

Potential Risks Associated with Acquisitions. The Company intends to
continue to expand its operations through acquisitions of home health care
companies, including the Pending Acquisitions. In attempting to make
acquisitions, the Company often competes with other potential acquirors, many
of whom have greater financial and operational resources. Competition for
acquisitions may intensify due to the ongoing consolidation in the industry,
which may increase the costs of capitalizing on such opportunities. In
addition, since the consideration for acquired businesses may involve cash,
notes or the issuance of shares of Common Stock, options or warrants, existing
stockholders may experience dilution in the value of their shares of Common
Stock in connection with such acquisitions. There can be no assurance that the
Company will be able to successfully negotiate, finance or integrate any such
acquisitions. Acquisitions involve numerous short- and long-term risks,
including loss of referral sources, diversion of management's attention,
failure to retain key personnel, loss of net revenues of the acquired
companies, inability to integrate acquisitions (particularly management
information systems) without material disruptions and unexpected expenses, the
possibility of the acquired businesses becoming subject to regulatory
sanctions, potential undisclosed liabilities and the continuing value of
acquired intangible assets. There can be no assurance that any given
acquisition, including the Pending Acquisitions, will be consummated or, if
consummated, will not materially adversely affect the Company's financial
condition or results of operations. See "--Risks Related to Goodwill," "The
Company--Pending Acquisitions" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Potential Risks Associated with Geographic Expansion. In pursuing its growth
strategy, the Company intends to expand its operations into new geographic
markets. When entering new geographic markets, the Company will need to
establish relationships with new or additional referral sources and will be
reliant on local management, who have important relationships with local
referral sources. As a result, it will be necessary for the Company to give a
significant amount of autonomy to local managers. In addition, the Company
will be required to comply with laws and regulations of states that differ
from those in which the Company currently operates, and may face competitors
with greater knowledge of such local markets. There can be no assurance that
the Company will be able to establish referral sources, realize management
efficiencies or otherwise establish a presence in these new geographic
markets. See "Business --Strategy."

Risks Related to Goodwill. At June 30, 1996 on a pro forma basis after
giving effect to two acquisitions completed in fiscal 1997 and the Pending
Acquisitions reflected in the Unaudited Pro Forma Consolidated Financial
Statements, the Company's total assets were approximately $105.9 million, of
which approximately

8
<PAGE>

$51.4 million, or approximately 48.5% of pro forma total assets, was goodwill
relating to acquisitions. Goodwill is the excess of cost over the fair value
of the net assets of businesses acquired. There can be no assurance that the
value of such goodwill will ever be realized by the Company. This goodwill is
being amortized on a straight-line basis over 20 years. The Company evaluates
on a regular basis whether events and circumstances have occurred that
indicate all or a portion of the carrying amount of goodwill may no longer be
recoverable, in which case an additional charge to earnings would become
necessary. Although at June 30, 1996 the net unamortized balance of goodwill
is not considered to be impaired, any such future determination requiring the
write-off of a significant portion of unamortized goodwill could have a
material adverse effect on the Company. See Unaudited Pro Forma Consolidated
Financial Statements and Note 1 to the Consolidated Financial Statements.

Management of Rapid Growth. The Company has experienced rapid growth in its
business and number of employees. Continued rapid growth may impair the
Company's ability to efficiently provide its home health care services and
products and to adequately manage its employees. While the Company is taking
steps to manage its rapid growth, future results of operations could be
materially adversely affected if it is unable to do so effectively.

Competition. The home health care industry is highly competitive and
includes national, regional and local providers. The Company competes with a
large number of companies in all areas in which its operations are located.
The Company's competitors include major national and regional companies,
hospital-based programs, numerous local providers and nursing agencies. Some
current and potential competitors have or may obtain significantly greater
financial and marketing resources than the Company. In addition, relatively
few barriers to entry exist in the home health care industry. Accordingly,
other companies, including managed care organizations, hospitals, long-term
care providers and health care providers that currently are not serving the
home health care market, may become competitors. As a result, the Company
could encounter increased competition in the future that may limit its ability
to maintain or increase its market share or otherwise materially adversely
affect the Company's financial condition or results of operations. See
"Business--Competition."

Regulatory Environment. As a provider of services under Medicare and
Medicaid, the Company is subject to extensive regulation at both the federal
and state level which provides for civil and criminal penalties, loss of
licensure and exclusion from participation in the Medicare and Medicaid
programs. At the federal level, such laws include both the anti-kickback
provisions of the Medicare Patient and Program Protection Act of 1987
(the "Anti-kickback Statute"), which generally prohibit the offer, payment,
solicitation or receipt of any remuneration in return for the referral of
items or services paid for in whole or in part under the Medicare or Medicaid
programs, as well as the law known as "Stark II," which generally prohibits
referrals by a physician to providers of "designated health services" where
the physician has a financial relationship with the provider. "Designated
health services" include home health care services and products provided by
the Company. The federal government, private insurers and various state
enforcement agencies have increased their scrutiny of provider business
practices and claims, particularly in the areas of home health care and
durable medical equipment, in an effort to identify and prosecute parties
engaged in fraudulent and abusive practices. In May 1995, the Clinton
Administration instituted Operation Restore Trust, a health care fraud and
abuse initiative focusing on nursing homes, home health care agencies and
durable medical equipment companies. Operation Restore Trust which initially
focused on companies located in California, Florida, Illinois, New York and
Texas, the states with the largest Medicare populations, has been expanded to
all fifty states. While the Company believes that it is in material compliance
with such laws, there can be no assurance that the practices of the Company,
if reviewed, would be found to be in full compliance with such laws, as such
laws ultimately may be interpreted. It is the Company's policy to monitor its
compliance with such laws and to take appropriate actions to ensure such
compliance. Many states have also adopted statutes and regulations in various
forms which prohibit provider referrals to an entity in which the provider has
a financial interest, remuneration or fee-splitting arrangements between
health care providers for patient referrals and other types of financial
arrangements with health care providers. Sanctions for violations of these
state regulations include loss of licensure and civil and criminal penalties.
In addition, the federal government and all states regulate various aspects of
the home health care industry. Such regulations include federal and state laws
covering the dispensing of drugs and the operation of pharmacies, as well as
state laws which may impose licensure requirements on home health care
agencies and

9
<PAGE>

on certain types of health care practitioners employed by the Company. The
failure of the Company to comply with such laws and regulations or to obtain,
renew or maintain any of the required federal, state or local regulatory
approvals or licenses could materially adversely affect the Company's
financial condition or results of operations. There can be no assurance that
either the federal government or the states will not change current
interpretations of existing regulations or impose additional regulations on
the Company's activities which also could adversely affect the Company's
financial condition or results of operations. See "Business--Government
Regulation."

Dependence on Relationships with Referral Sources. The Company's growth and
profitability depend on its ability to establish and maintain close working
relationships with referral sources, including payors, hospitals, physicians
and other health care professionals. Managed care organizations, which are
exerting increasing influence over the health care industry, have been
consolidating to enhance their ability to deliver health care services on a
cost-effective basis. As managed care organizations continue to increase their
market share in regions in which the Company operates, these organizations
will continue to become increasingly important to the Company as referral
sources. HHCA's net revenues derived from managed care organizations and other
payors increased from 24.9% in fiscal 1994 to 34.5% in fiscal 1996. There can
be no assurance that the Company will be able to successfully maintain
existing referral sources or develop new referral sources. The loss of any
significant existing referral sources or the failure to develop any new
referral sources could have a material adverse effect on the Company's
financial condition or results of operations. See "Business--Sales and
Marketing."

Geographic Concentration. Approximately $40.5 million, or 46.2%, of the
Company's net revenues in fiscal 1996 and approximately $48.6 million, or
33.0%, of the Company's pro forma net revenues in fiscal 1996 were derived
from the Company's operations in Florida and approximately $69.5 million, or
79.2%, of the Company's net revenues in fiscal 1996 and approximately $82.6
million, or 56.0%, of the Company's pro forma net revenues in fiscal 1996 were
derived from the Company's operations in Florida and Pennsylvania. Unless and
until the Company's operations become more diversified geographically (as a
result of acquisitions or internal expansion), adverse economic, regulatory,
or other developments in Florida or Pennsylvania could have a material adverse
effect on the Company's financial condition or results of operations.

Quarterly Fluctuations in Operating Results; Potential Volatility in Stock
Price. Results of operations for any quarter are not necessarily indicative of
results of operations for any future period or for a full fiscal year. The
Company has experienced and expects to continue to experience lower net
revenues during the first fiscal quarter as compared to the preceding quarter
due to fewer referrals during such quarter. However, the results for the first
quarter of fiscal 1996 do not reflect, and the results for the first quarter
of fiscal 1997 are not expected to reflect, this seasonality due to
acquisitions. There can be no assurance that results of operations will not
fluctuate significantly from period to period. There has been significant
volatility in the market price of securities of health care companies that
often has been unrelated to the operating performance of such companies. The
Company believes that certain factors, such as legislative and regulatory
developments, quarterly fluctuations in the actual or anticipated results of
operations of the Company, net revenues or earnings of the Company lower than
those anticipated by securities analysts, the overall economy and the
financial markets, could cause the price of the Common Stock to fluctuate
substantially. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results."

Dependence on Key Personnel. The Company's success is highly dependent on
its President, Chief Executive Officer and Chairman of the Board, Bruce J.
Feldman; its Chief Financial Officer, Bruce J. Colburn; its Chief Operating
Officer, Fred J. Nicholas, and a number of its other key management and
professional personnel. The loss of one or more of these personnel could have
a material adverse effect on the Company's financial condition or results of
operations. The Company's success will also depend in part on its ability to
attract and retain additional qualified management and professional personnel.
Competition for such personnel in the home health care industry is strong.
There can be no assurance that the Company will be successful in attracting or
retaining the personnel it requires. See "Business--Employees" and
"Management."

10
<PAGE>

Potential Liability. Participants in the home health care industry,
including the Company, are sometimes the subject of lawsuits alleging
negligence, product liability and other legal theories, many of which involve
large claims and significant defense costs. Although the Company currently
maintains liability insurance intended to cover such claims and believes that
its coverage is adequate, there can be no assurance that the coverage limits
of such insurance policies will be adequate or that such claims will be
covered by insurance. While the Company has been able to obtain liability
insurance in the past, such insurance varies in cost, may be difficult to
obtain and may not be available in the future on terms acceptable to the
Company. While the Company is typically indemnified by sellers in acquisitions
against certain losses relating to the businesses acquired for negotiated
amounts, no assurance can be given that the indemnification will be available,
that the amounts will be sufficient or that the agreements are enforceable.
Claims, regardless of their merit or eventual outcome, as well as the
inability of the Company to be adequately indemnified, may have a material
adverse effect on the Company's financial condition or results of operations.
See "Business--Insurance."

Potential Effect of Anti-Takeover Provisions; Issuance of Preferred
Stock. Certain provisions of the Pennsylvania Business Corporation Law, the
Company's Amended Articles of Incorporation and the Company's Restated Bylaws,
such as a staggered board of directors and limitations on stockholder actions
and proposals, may have the effect of discouraging, delaying or preventing a
change of control of the Company which could adversely affect the market price
of the Common Stock. In addition, the Board of Directors has the authority to
issue shares of preferred stock (the "Preferred Stock") without shareholder
approval and upon such terms as the Board of Directors may determine. While
the Company has no present plans to issue any shares of Preferred Stock, the
rights of the holders of Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be
issued in the future. See "Description of Capital Stock" and "Management."

11
<PAGE>

THE COMPANY

GENERAL

The Company was incorporated in Pennsylvania in December 1982. The Company
has grown significantly both internally and through acquisitions. Since July
1, 1992, the Company has completed 13 acquisitions. Acquisitions completed
prior to fiscal 1996 enhanced the Company's presence in Pennsylvania,
Delaware, Maryland and New Jersey. During fiscal 1996, the Company expanded
its operations into the Tampa/ St. Petersburg, Florida market with four
acquisitions. Since July 1, 1996, the Company has completed four acquisitions
of home health care companies with operations in Pennsylvania, Florida and
Maryland. The Pending Acquisitions would extend the Company's operations to
the District of Columbia, Illinois, Massachusetts, New Hampshire, Texas and
Virginia. The Company's principal executive offices are located at 2200
Renaissance Boulevard, Suite 300, King of Prussia, Pennsylvania 19406 and its
telephone number is (610) 272-1717.

RECENTLY COMPLETED ACQUISITIONS

In fiscal 1997, the Company acquired the assets of (i) Dailey Resources,
Ltd., a provider of durable medical equipment and respiratory therapy services
with approximately $1.8 million in aggregate net revenues for the twelve month
period ended December 31, 1995, and operations in Scranton, Pennsylvania; (ii)
National Home Infusion, Inc., a provider of infusion therapy services with
approximately $1.3 million in aggregate net revenues for the twelve month
period ended September 30, 1995, and operations in Sarasota, Florida (the "NHI
Acquisition"); (iii) Eastern Shore Health Services, Inc., a provider of home
nursing services with approximately $3.6 million in aggregate net revenues for
the twelve month period ended June 30, 1996, and operations in Berlin and
Salisbury, Maryland; and (iv) Medical Express, Inc., a provider of durable
medical equipment and respiratory therapy services with approximately $2.3
million in net revenues for the twelve month period ended December 31, 1995,
and operations in Bristol, Pennsylvania (the "MEI Acquisition") (collectively,
the "Fiscal 1997 Acquisitions"). The aggregate consideration paid by the
Company for the Fiscal 1997 Acquisitions was $8.5 million, consisting of $4.7
million in cash, $2.6 million in notes and 99,802 shares of Common Stock.

In fiscal 1996, the Company acquired (i) Preferred Diagnostic and Medical
Services, Inc., a provider of respiratory therapy, durable medical equipment
and mobile diagnostic services with approximately $8.7 million in aggregate
net revenues for the twelve month period ended June 30, 1995, and operations
in Tampa/St. Petersburg, Florida (the "Tampa Acquisition"); (ii) Dependable
Nurses, Inc., a provider of home nursing services with approximately $4.5
million in aggregate net revenues for the twelve month period ended December
31, 1995, and operations in Tampa/St. Petersburg, Florida, (the "DNI
Acquisition"); (iii) Progressive Development Services, Inc., a provider of
nursing services with approximately $2.5 million in aggregate net revenues for
the twelve month period ended December 31, 1995, and operations in Tampa/St.
Petersburg, Florida; and (iv) Mobilsonix, Inc., a provider of mobile
diagnostic services with approximately $1.0 million in aggregate net revenues
for the twelve month period ended December 31, 1995, and operations in Palm
Harbor, Florida (collectively, the "Fiscal 1996 Acquisitions"). The aggregate
consideration paid by the Company for the Fiscal 1996 Acquisitions was $22.7
million, consisting of $16.0 million in cash, $2.4 million in notes and
501,401 shares of Common Stock.

PENDING ACQUISITIONS

On September 10, 1996, the Company entered into a definitive agreement for
the acquisition through merger of Home Health Systems, Inc., a provider of
durable medical equipment and infusion and respiratory therapy services with
approximately $8.2 million in net revenues for the twelve month period ended
June 30, 1996 and operations in New Jersey, Pennsylvania, Maryland and
Illinois (the "HHSI Acquisition"). Based on certain assumptions, the Company
expects to issue approximately 455,237 shares of Common Stock in connection
with the HHSI Acquisition. The HHSI Acquisition is expected to be accounted
for as a pooling of interests.

On October 31, 1996, the Company entered into a definitive agreement to
acquire the capital stock of R.S.D. Management Services, Inc., a provider of
primarily Medicare-reimbursed nursing and related patient services with
approximately $18.3 million in net revenues for the twelve month period ended
June 30, 1996 and operations in Massachusetts and New Hampshire (the "RSD
Acquisition"). The aggregate consideration payable for the RSD Acquisition,
subject to certain adjustments, is approximately $11.9 million, consisting of

12
<PAGE>

approximately $5.1 million in assumption of liabilities, $5.0 million in cash,
$1.0 million in notes, and the balance in shares of Common Stock.

On September 16, 1996, the Company entered into a letter of intent to acquire
the assets of Alternative Home Care, Inc., a provider of infusion therapy
services with approximately $6.3 million in net revenues for the twelve month
period ended December 31, 1995 and operations in Maryland, Delaware, the
District of Columbia and Virginia (the "AHC Acquisition"). The aggregate
consideration payable for the AHC Acquisition, subject to certain adjustments,
is $6.5 million, consisting of $4.5 million in cash, $1.0 million in notes and
the balance in shares of Common Stock.

On October 9, 1996, the Company entered into a letter of intent to acquire
substantially all of the assets of LHS Holdings, Inc., a provider of primarily
Medicare-reimbursed nursing and related patient services and, to a lesser
extent, infusion therapy services with approximately $16.0 million in net
revenues for the twelve month period ended June 30, 1996 and operations in
Texas (the "LHS Acquisition"). The aggregate consideration for the LHS
Acquisition is $9.0 million, including a contingent amount estimated at $2.7
million based upon four and one-half times the earnings before interest, taxes,
depreciation and amortization of certain of the companies being acquired in the
LHS Acquisition for the twelve month period ending December 31, 1997. The
aggregate consideration for the LHS Acquisition (less the contingent amount)
consists of $5.1 million in cash, $1.0 million in notes and the balance in
shares of Common Stock.

The aggregate consideration payable for the Pending Acquisitions is
approximately $33.5 million, consisting of $21.5 million in cash, $3.0 million
in notes and the balance in shares of Common Stock. Consummation of the Pending
Acquisitions is subject to certain contingencies and conditions including, with
respect to the LHS Acquisition and the AHC Acquisition, the negotiation and
execution of definitive agreements. Accordingly, there can be no assurance that
the Company will be able to consummate any of the Pending Acquisitions. See
Unaudited Pro Forma Consolidated Financial Statements.

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the 3,000,000
shares of Common Stock offered hereby at an assumed offering price of $12.50
per share will be approximately $34.9 million (approximately $41.4 million if
the Underwriters' over-allotment is exercised in full). Approximately $23.3
million of the net proceeds will be used to repay indebtedness under the
Company's Second Amended and Restated Credit Agreement (the "Second Credit
Agreement"), and the balance of net proceeds will be used to pay a portion of
the cash consideration for the Pending Acquisitions. The remainder of the cash
consideration for the Pending Acquisitions will be provided by borrowings under
the Second Credit Agreement. If any of the Pending Acquisitions are not
consummated, the proceeds which would have been used to pay the purchase price
for such acquisitions will be used for working capital, general corporate
purposes and other acquisitions. Pending such uses, the net proceeds of this
offering will be invested in short-term, interest bearing, investment grade
securities.

The Second Credit Agreement with a syndicate of lenders led by CoreStates
Bank, N.A. consists of (i) a revolving facility with a commitment of up to
$20.0 million for general corporate purposes, which includes a commitment to
issue up to $10.0 million of letters of credit, and (ii) an acquisition
facility with a commitment of up to $30.0 million for permitted acquisitions,
as defined in the Second Credit Agreement. The Second Credit Agreement matures
on August 22, 1999. The Company elected various rates on the initial
outstanding borrowing under the Second Credit Agreement representing a weighted
average interest rate of 6.7% per annum as of October 30, 1996. As of October
30, 1996, the Company had approximately $23.3 million of debt outstanding.
Borrowings under the Second Credit Agreement have been used to refinance
borrowings under prior indebtedness of the Company, pay the purchase price for
certain acquisitions and provide working capital. The Second Credit Agreement
provides that the Company may reborrow funds which it has previously borrowed
and repaid. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

The Company will not receive any proceeds from the sale of the shares offered
by the Selling Stockholders. See "Principal and Selling Stockholders."

13
<PAGE>

PRICE RANGE OF COMMON STOCK

The Common Stock is traded on the Nasdaq National Market under the symbol
"HHCA." The following table sets forth the high and low sales prices of the
Common Stock on the Nasdaq National Market for each quarter since the Common
Stock commenced trading on November 8, 1995.

<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended June 30, 1996
Second Quarter (from November 8, 1995)........................... $11.25 $ 7.25
Third Quarter.................................................... 12.50 8.25
Fourth Quarter................................................... 15.38 11.00
Fiscal Year Ended June 30, 1997
First Quarter.................................................... 13.88 9.13
Second Quarter (through October 29, 1996)........................ $13.00 $12.00
</TABLE>

On October 29, 1996, the last reported sale price of the Common Stock on the
Nasdaq National Market was $12.50 per share. As of October 29, 1996, there
were 8,090,007 shares of the Common Stock outstanding and approximately 85
holders of record of Common Stock. This number does not include an
indeterminate number of stockholders whose shares are held by brokers in
"street name."

DIVIDEND POLICY

The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain any future earnings for funding growth
and, therefore, does not anticipate declaring or paying any cash dividends on
its Common Stock for the foreseeable future. In addition, the Second Credit
Agreement does not permit the payment of dividends on the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

14
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company (i) as of
June 30, 1996; (ii) on a pro forma basis to give effect to two of the
acquisitions completed during fiscal 1997 and the Pending Acquisitions
reflected in the Unaudited Pro Forma Consolidated Financial Statements; and
(iii) as further adjusted to give effect to the sale of the shares of Common
Stock offered by the Company hereby and the application of the net proceeds
therefrom as described under "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements and notes thereto, the
Unaudited Pro Forma Consolidated Financial Statements and "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."

<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term debt........... $ 1,801 $ 1,853 $ 1,853
======= ======= =======
Long-term debt, net............................ 16,137 44,727 9,789
Common Stock, redeemable; no par value; 100,000
shares issued and outstanding, redemption
value of $5.00 per share...................... 500 500 500
Stockholders' equity:
Preferred Stock, no par value, 10,000,000
shares authorized; no shares issued and
outstanding................................. -- -- --
Common Stock, no par value, 20,000,000 shares
authorized, 7,890,205 shares issued and
outstanding, actual; 8,751,284 shares issued
and outstanding, pro forma; and 11,751,284
shares issued and outstanding, pro forma as
adjusted (1)................................ 33,725 40,760 75,698
Retained earnings............................ 4,641 4,124 4,124
Stock subscriptions receivable............... (18) (18) (18)
------- ------- -------
Total stockholders' equity................. 38,348 44,866 79,804
------- ------- -------
Total capitalization..................... $54,985 $90,093 $90,093
======= ======= =======
</TABLE>
- --------
(1) Does not include 635,000 shares of Common Stock reserved for issuance
under the Company's stock options plans (of which options to purchase
536,000 shares of Common Stock at a weighted average exercise price of
$8.33 per share have been granted and options to purchase 217,914 shares
of Common Stock were exercisable at September 30, 1996) and 25,000 shares
of Common Stock at an exercise price of $2.54 per share reserved for
issuance under certain warrants which expire on or, under certain
conditions, before June 30, 1997.

15
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below as of June 30, 1995
and 1996, and for each of the years in the three-year period ended June 30,
1996, have been derived from the Consolidated Financial Statements, which were
audited by Coopers & Lybrand L.L.P., independent accountants, and are included
elsewhere in this Prospectus. The selected consolidated financial data set
forth below as of June 30, 1992, 1993, 1994 and for the years ended June 30,
1992 and 1993 have been derived from the Consolidated Financial Statements
which are not included in this Prospectus. This data should be read in
conjunction with the Consolidated Financial Statements and notes thereto, and
the Unaudited Pro Forma Consolidated Financial Statements included elsewhere
in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------------
1996
---------------------------------
PRO PRO FORMA
1992 1993 1994 1995 ACTUAL(1) FORMA(2) AS ADJUSTED(3)
------- ------- ------- ------- --------- -------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Net revenues........... $22,128 $28,543 $36,104 $55,965 $87,694 $148,154 $148,154
Operating costs and
expenses:
Patient care costs..... 10,105 13,105 16,992 28,423 42,050 75,539 75,539
General and
administrative........ 9,555 12,656 15,987 21,536 32,893 53,853 53,853
Provision for doubtful
accounts.............. 523 681 698 1,528 2,848 3,871 3,871
Depreciation........... 272 251 296 419 784 1,321 1,321
Amortization........... 76 96 125 231 1,016 2,446 2,446
Interest expense,
net................... 423 523 671 1,373 1,454 4,505 1,361
Bridge financing....... -- -- -- -- 913 913 913
------- ------- ------- ------- ------- -------- --------
Total expenses....... 20,954 27,312 34,769 53,510 81,958 142,448 139,304
------- ------- ------- ------- ------- -------- --------
Income before minority
interest, income
taxes, extraordinary
item and cumulative
effect of change in
accounting
principle............. 1,174 1,231 1,335 2,455 5,736 5,706 8,850
Minority interest...... -- -- -- -- -- 49 49
------- ------- ------- ------- ------- -------- --------
Income before income
taxes, extraordinary
item and cumulative
effect of change in
accounting
principle............. 1,174 1,231 1,335 2,455 5,736 5,755 8,899
Provision for income
taxes................. 540 537 617 1,066 2,348 2,420 3,709
------- ------- ------- ------- ------- -------- --------
Income before
extraordinary item
and cumulative effect
of change in
accounting
principle............. 634 694 718 1,389 3,388 $ 3,335 $ 5,190
======== ========
Extraordinary item..... -- -- -- -- 1,161
------- ------- ------- ------- -------
Income before
cumulative effect of
change in accounting
principle............. 634 694 718 1,389 2,227
Cumulative effect of
change in accounting
for income taxes...... -- -- 210 -- --
------- ------- ------- ------- -------
Net income............. $ 634 $ 694 $ 928 $ 1,389 $ 2,227
======= ======= ======= ======= =======
Net income available to
common and common
equivalent
stockholders before
extraordinary item and
cumulative effect of
change in accounting
principle(4).......... $ 514 $ 614 $ 661 $ 1,326 $ 2,550 $ 2,497 $ 4,352
======= ======= ======= ======= ======= ======== ========
Net income per common
and common equivalent
share before
extraordinary item and
cumulative effect of
change in accounting
principle(4).......... $ 0.25 $ 0.18 $ 0.20 $ 0.38 $ 0.39 $ 0.34 $ 0.42
======= ======= ======= ======= ======= ======== ========
Net income available to
common and common
equivalent
stockholders(4)....... $ 514 $ 614 $ 871 $ 1,326 $ 1,390
======= ======= ======= ======= =======
Net income per common
and common equivalent
share(4).............. $ 0.25 $ 0.18 $ 0.26 $ 0.38 $ 0.21
======= ======= ======= ======= =======
Weighted average common
and common equivalent
shares outstanding.... 2,072 3,356 3,377 3,491 6,468 7,329 10,329
======= ======= ======= ======= ======= ======== ========
</TABLE>

16
<PAGE>

<TABLE>
<CAPTION>
JUNE 30,
-------------------------------------------------------------
1996
-------------------------------
PRO PRO FORMA
1992 1993 1994 1995 ACTUAL FORMA(5) AS ADJUSTED(6)
------ ------ ------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $4,018 $4,100 $ 7,630 $10,022 $19,983 $ 28,428 $ 28,428
Total assets............ 8,854 9,869 15,025 30,605 66,170 105,911 105,911
Long-term debt, net .... 1,375 2,569 5,514 12,588 16,137 44,727 9,789
Redeemable stock........ 2,717 1,867 1,873 2,377 500 500 500
Total stockholders'
equity................. 1,693 2,164 3,124 5,478 38,348 44,866 79,804
</TABLE>
- --------
(1) Net income per common and common equivalent share, before nonrecurring
bridge financing expenses, preferred stock dividends, write-off of
discount on bridge financing preferred stock and an extraordinary item,
was $0.61 per share in fiscal 1996. See Unaudited Pro Forma Consolidated
Financial Statements.
(2) Gives effect to four acquisitions completed during fiscal 1996 and 1997
and the Pending Acquisitions as if such acquisitions occurred as of July
1, 1995. See Unaudited Pro Forma Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(3) Gives effect to footnote (2) and the receipt and application of the net
proceeds from the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $12.50 per share, as if
such transactions occurred as of July 1, 1995. See Unaudited Pro Forma
Consolidated Financial Statements.
(4) Net income available to common and common equivalent stockholders is
reduced by dividends on preferred stock for all fiscal years presented and
the write-off of a discount on preferred stock of approximately $787,000
in fiscal 1996 in connection with bridge financing related to an
acquisition.
(5) Gives effect to two acquisitions completed during fiscal 1997 and the
Pending Acquisitions as if such transactions occurred as of June 30, 1996.
See Unaudited Pro Forma Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(6) Gives effect to footnote (5) and the receipt and application of the net
proceeds from the sale of the shares of Common Stock offered by the
Company hereby at an assumed offering price of $12.50 per share, as if
such transactions occurred as of June 30, 1996. See Unaudited Pro Forma
Consolidated Financial Statements.

17
<PAGE>

UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

The unaudited pro forma consolidated statements of income for the year ended
June 30, 1996 reflect (i) the operations of the companies acquired in fiscal
1996 in the Tampa Acquisition and the DNI Acquisition; (ii) the operations of
the companies acquired in fiscal 1997 in the NHI Acquisition and the MEI
Acquisition; (iii) the operations of the companies that will be acquired upon
consummation of the Pending Acquisitions (collectively with the Tampa
Acquisition, the DNI Acquisition, the NHI Acquisition and the MEI Acquisition,
the "Acquisitions"); and (iv) the application of the estimated net proceeds
from the sale of the shares of Common Stock offered by the Company hereby, as
if the Acquisitions and the consummation of this offering had occurred as of
July 1, 1995. The unaudited pro forma consolidated statements of income for
each of the years ended June 30, 1995 and 1994 reflect the operations of the
HHSI Acquisition as if that acquisition had occurred as of July 1, 1994 and
July 1, 1993, respectively. The HHSI Acquisition is accounted for as a pooling
of interests. All other acquisitions are accounted for as purchases. Four
insignificant acquisitions completed in fiscal 1996 and 1997 have not been
included in the unaudited pro forma consolidated statements of income for the
fiscal year ended June 30, 1996.

The unaudited pro forma consolidated balance sheets at June 30, 1996 reflect
the accounts of the companies acquired in the NHI Acquisition, MEI Acquisition
and the Pending Acquisitions as if those transactions had occurred on June 30,
1996. Two insignificant acquisitions completed in fiscal 1997 have not been
included in the unaudited pro forma consolidated balance sheets as of June 30,
1996.

The Unaudited Pro Forma Consolidated Financial Statements do not purport to
represent what the Company's actual results of operations or financial
condition would have been had the Acquisitions occurred as of such dates, or
to project the Company's results of operations or financial condition for any
period or date, nor does it give effect to any matters other than those
described in the notes thereto. In addition, the allocations of purchase price
to the assets and liabilities of the companies acquired in the Acquisitions
are preliminary and the final allocations may differ from the amounts
reflected therein. The pro forma adjustments are based upon available
information and upon certain assumptions that management believes are
reasonable. These adjustments are directly attributable to the Acquisitions
and are expected to have a continuing impact on the financial condition and
results of operations of the Company. The Unaudited Pro Forma Consolidated
Financial Statements and notes thereto should be read in conjunction with the
respective historical financial statements of the Company, the LHS Acquisition
and the RSD Acquisition and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

18
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
OPERATIONS
HHCA AND ACQUISITIONS RETAINED
HHSI HHSI (EXCLUDING BY PRO
HHCA(1) ACQUISITION(2) ADJUSTMENTS ACQUISITION HHSI)(4) SELLER(5) ADJUSTMENTS FORMA
------- -------------- ----------- ----------- ------------ ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ 1,331 $ 364 $ -- $ 1,695 $ 1,017 $ (55) $ (894)(6) $ 1,763
Accounts
receivable, net.. 25,964 2,078 -- 28,042 11,199 (587) (2,031)(6) 36,623
Inventories...... 1,359 224 -- 1,583 215 -- -- 1,798
Prepaid expenses
and other........ 657 526 -- 1,183 534 (80) -- 1,637
Deferred income
taxes............ 862 350 -- 1,212 299 -- (299)(6) 1,212
------- ------ ------- ------- ------- ------- ------- --------
Total current
assets........... 30,173 3,542 -- 33,715 13,264 (722) (3,224) 43,033
Property and
equipment, net.... 8,447 498 -- 8,945 1,535 (21) -- 10,459
Goodwill, net..... 26,540 -- -- 26,540 2,333 (246) 22,723 (6) 51,350
Other assets,
net............... 1,010 52 -- 1,062 1,576 (115) (1,454)(6) 1,069
------- ------ ------- ------- ------- ------- ------- --------
Total assets.... $66,170 $4,092 $ -- $70,262 $18,708 $(1,104) $18,045 $105,911
======= ====== ======= ======= ======= ======= ======= ========
LIABILITIES
Current
liabilities:
Current
maturities of
long-term debt... $ 1,801 $1,887 $(1,819)(3) $ 1,869 $ 8,585 $ (323) $(8,279)(6) $ 1,853
Accounts
payable.......... 2,668 467 -- 3,135 2,253 (84) (935)(6) 4,369
Accrued
salaries......... 2,161 258 -- 2,419 2,929 (360) (1,828)(6) 3,159
Other accrued
expenses......... 3,007 175 -- 3,182 1,638 (276) 22 (6)(7) 4,564
Income taxes
payable.......... 553 106 -- 659 327 (84) (243)(6) 660
------- ------ ------- ------- ------- ------- ------- --------
Total current
liabilities...... 10,190 2,893 (1,819) 11,264 15,732 (1,127) (11,263) 14,605
Long-term debt,
net............... 16,137 150 -- 16,287 1,457 (67) 27,050 (7) 44,727
Other non-current
liabilities....... 869 184 -- 1,053 615 (171) (444)(6) 1,053
Deferred income
taxes............. 126 34 -- 160 -- -- -- 160
------- ------ ------- ------- ------- ------- ------- --------
Total
liabilities...... 27,322 3,261 (1,819) 28,764 17,804 (1,365) 15,343 60,545
Redeemable common
stock, no par..... 500 -- -- 500 -- -- -- 500
Convertible
redeemable
preferred stock... -- 1,244 (1,244)(3) -- -- -- -- --
STOCKHOLDERS'
EQUITY
Common stock, no
par............... 33,725 104 3,063 (3) 36,892 99 -- 3,768 (6)(7) 40,760
Retained
earnings.......... 4,641 (517) -- 4,124 805 261 (1,066)(6) 4,124
Stock
subscriptions
receivable........ (18) -- -- (18) -- -- -- (18)
------- ------ ------- ------- ------- ------- ------- --------
Total
stockholders'
equity.......... 38,348 (413) 3,063 40,998 904 261 2,702 44,866
------- ------ ------- ------- ------- ------- ------- --------
Total liabilities
and stockholders'
equity........... $66,170 $4,092 $ -- $70,262 $18,708 $(1,104) $18,045 $105,911
======= ====== ======= ======= ======= ======= ======= ========
<CAPTION>
PRO FORMA
ADJUSTMENTS(8) AS ADJUSTED
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents...... $ -- $ 1,763
Accounts
receivable, net.. -- 36,623
Inventories...... -- 1,798
Prepaid expenses
and other........ -- 1,637
Deferred income
taxes............ -- 1,212
-------------- -----------
Total current
assets........... -- 43,033
Property and
equipment, net.... -- 10,459
Goodwill, net..... -- 51,350
Other assets,
net............... -- 1,069
-------------- -----------
Total assets.... $ -- $105,911
============== ===========
LIABILITIES
Current
liabilities:
Current
maturities of
long-term debt... -- $ 1,853
Accounts
payable.......... -- 4,369
Accrued
salaries......... -- 3,159
Other accrued
expenses......... -- 4,564
Income taxes
payable.......... -- 660
-------------- -----------
Total current
liabilities...... -- 14,605
Long-term debt,
net............... (34,938) 9,789
Other non-current
liabilities....... -- 1,053
Deferred income
taxes............. -- 160
-------------- -----------
Total
liabilities...... (34,938) 25,607
Redeemable common
stock, no par..... -- 500
Convertible
redeemable
preferred stock... -- --
STOCKHOLDERS'
EQUITY
Common stock, no
par............... 34,938 75,698
Retained
earnings.......... -- 4,124
Stock
subscriptions
receivable........ -- (18)
-------------- -----------
Total
stockholders'
equity.......... 34,938 79,804
-------------- -----------
Total liabilities
and stockholders'
equity........... $ -- $105,911
============== ===========
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

19
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEAR ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
ADJUSTMENTS
FOR
HHCA AND ACQUISITIONS OPERATIONS
HHSI HHSI (EXCLUDING RETAINED PRO
HHCA(9) ACQUISITION(11) ADJUSTMENTS ACQUISITION HHSI)(16) BY SELLER(17) ADJUSTMENTS FORMA
------- --------------- ----------- ----------- ------------ ------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues..... $87,694 $8,184 $ -- $95,878 $54,730 $(3,263) $ 809 (18) $148,154
Operating costs
and expenses:
Patient care
costs........... 42,050 4,162 (69)(12) 46,143 30,709 (1,313) -- 75,539
General and
administrative.. 32,893 3,257 (902)(12) 35,248 21,025 (2,195) (225)(19) 53,853
Provision for
doubtful
accounts........ 2,848 615 -- 3,463 408 -- -- 3,871
Depreciation.... 784 115 -- 899 379 -- 43 (20) 1,321
Amortization.... 1,016 5 -- 1,021 140 (22) 1,307 (20) 2,446
Interest
expense, net.... 1,454 125 (146)(13) 1,433 977 (60) 2,155 (21) 4,505
Bridge
financing....... 913 -- 913 -- -- -- 913
------- ------ ------- ------- ------- ------- ------- --------
Total expenses... 81,958 8,279 (1,117) 89,120 53,638 (3,590) 3,280 142,448
------- ------ ------- ------- ------- ------- ------- --------
Income (loss)
before minority
interest,
provision for
income
taxes and
extraordinary
item............ 5,736 (95) 1,117 6,758 1,092 327 (2,471) 5,706
Minority interest
in losses of
subsidiaries..... -- 49 -- 49 -- -- -- 49
------- ------ ------- ------- ------- ------- ------- --------
Income (loss)
before provision
for income taxes
and
extraordinary
item............ 5,736 (46) 1,117 6,807 1,092 327 (2,471) 5,755
Provision
(benefit) for
income taxes..... 2,348 (88) 458 (14) 2,718 -- (12) (286)(14) 2,420
------- ------ ------- ------- ------- ------- ------- --------
Income from
continuing
operations...... $ 3,388 $ 42 $ 659 $ 4,089 $ 1,092 $ 339 $(2,185) $ 3,335
======= ====== ======= ======= ======= ======= ======= ========
Per share data:
Income from
continuing
operations
available to
common
stockholders.... $ 2,550 $ 3,251 $ 2,497
======= ======= ========
Earnings per
share from
continuing
operations...... $ 0.39(10) $ 0.47(10) $ 0.34(10)
======= ======= ========
Weighted average
common and
common
equivalent
shares
outstanding..... 6,468 6,923(15) 7,329(22)
======= ======= ========
<CAPTION>
PRO FORMA
ADJUSTMENTS(23) AS ADJUSTED
--------------- --------------
<S> <C> <C>
Net revenues..... $ -- $148,154
Operating costs
and expenses:
Patient care
costs........... -- 75,539
General and
administrative.. -- 53,853
Provision for
doubtful
accounts........ -- 3,871
Depreciation.... -- 1,321
Amortization.... -- 2,446
Interest
expense, net.... (3,144) 1,361
Bridge
financing....... -- 913
--------------- --------------
Total expenses... (3,144) 139,304
--------------- --------------
Income (loss)
before minority
interest,
provision for
income
taxes and
extraordinary
item............ 3,144 8,850
Minority interest
in losses of
subsidiaries..... -- 49
--------------- --------------
Income (loss)
before provision
for income taxes
and
extraordinary
item............ 3,144 8,899
Provision
(benefit) for
income taxes..... 1,289 3,709
--------------- --------------
Income from
continuing
operations...... $ 1,855 $ 5,190
=============== ==============
Per share data:
Income from
continuing
operations
available to
common
stockholders.... $ 4,352
==============
Earnings per
share from
continuing
operations...... $ 0.42(10)
==============
Weighted average
common and
common
equivalent
shares
outstanding..... 10,329(24)
==============
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

20
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FISCAL YEARS ENDED JUNE 30, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1995 YEAR ENDED JUNE 30, 1994
----------------------------------- -----------------------------------
HHCA AND HHCA AND
HHSI HHSI HHSI HHSI
HHCA ACQUISITION(25) ACQUISITION HHCA ACQUISITION(25) ACQUISITION
------- --------------- ----------- ------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............ $55,965 $ 8,184 $64,149 $36,104 $10,603 $46,707
Operating costs and
expenses:
Patient care costs.... 28,423 3,955 32,378 16,992 4,769 21,761
General and
administrative....... 21,536 4,857 26,393 15,987 5,672 21,659
Provision for doubtful
accounts............. 1,528 199 1,727 698 618 1,316
Depreciation.......... 419 134 553 296 154 450
Amortization.......... 231 13 244 125 23 148
Interest expense,
net.................. 1,373 79 1,452 672 131 803
------- ------- ------- ------- ------- -------
Total expenses.......... 53,510 9,237 62,747 34,770 11,367 46,137
------- ------- ------- ------- ------- -------
Income (loss) before
minority interest,
provision for income
taxes and change in
accounting........... 2,455 (1,053) 1,402 1,334 (764) 570
Minority interest in
losses of
subsidiaries........... -- 99 99 -- 336 336
------- ------- ------- ------- ------- -------
Income (loss) before
provision for income
taxes and change in
accounting........... 2,455 (954) 1,501 1,334 (428) 906
Provision (benefit) for
income taxes........... 1,066 (343) 723 616 (152) 464
------- ------- ------- ------- ------- -------
Income (loss) from
continuing
operations........... $ 1,389 $ (611) $ 778 $ 718 $ (276) $ $442
======= ======= ======= ======= ======= =======
Per share data:
Income from continuing
operations available
to common
stockholders ........ $ 1,326 $ 884(26) $ 661 $ 620(26)
======= ======= ======= =======
Earnings per share
from continuing
operations........... $ 0.38 $ 0.22 $ 0.20 $ 0.16
======= ======= ======= =======
Weighted average
common and common
equivalent shares
outstanding.......... 3,491 3,946(27) 3,377 3,832(27)
======= ======= ======= =======
</TABLE>

See Notes to Unaudited Pro Forma Consolidated Financial Statements.

21
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

PRO FORMA CONSOLIDATED BALANCE SHEETS

(1) HHCA's consolidated historical balance sheet includes the Tampa
Acquisition, the DNI Acquisition and other insignificant acquisitions
consummated prior to June 30, 1996. These acquisitions were accounted for as
purchases.

(2) Represents the consolidated balance sheet of the HHSI Acquisition as if
such transaction occurred as of June 30, 1996. The HHSI Acquisition, a Pending
Acquisition, is accounted for as a pooling of interests in the pro forma
consolidated balance sheets.

(3) Reflects the assumed conversion into shares of Common Stock of certain
notes and preferred stock held by noteholders and shareholders of the
companies acquired in the HHSI Acquisition.

(4) Represents the historical balance sheets as of June 30, 1996 of (i) the
NHI Acquisition and the MEI Acquisition, completed during fiscal 1997, and
(ii) three of the Pending Acquisitions, the RSD Acquisition, the LHS
Acquisition, and the AHC Acquisition. These acquisitions are accounted for as
purchases in the pro forma consolidated balance sheets. Total assets for each
are as follows:

<TABLE>
<CAPTION>
ACQUISITION TOTAL ASSETS
----------- ------------
<S> <C>
NHI Acquisition ............................................... $ 583,644
MEI Acquisition ............................................... 1,271,116
RSD Acquisition ............................................... 6,430,424
LHS Acquisition ............................................... 7,848,248
AHC Acquisition ............................................... 2,574,432
-----------
Total ....................................................... $18,707,864
===========
</TABLE>

(5) Reflects adjustments to the LHS Acquisition to eliminate net assets
attributable to certain operations and subsidiaries of LHS which will not be
acquired by HHCA.

(6) Adjusts assets and liabilities of the NHI Acquisition, the MEI
Acquisition, the RSD Acquisition, the LHS Acquisition and the AHC Acquisition
to fair market value and eliminates certain assets and liabilities not assumed
in these acquisitions. Goodwill resulting from these acquisitions is as
follows:

<TABLE>
<CAPTION>
ACQUISITION GOODWILL
----------- -----------
<S> <C>
NHI Acquisition ................................................ $ 1,782,504
MEI Acquisition ................................................ 2,619,375
RSD Acquisition ................................................ 6,890,000
LHS Acquisition ................................................ 6,682,135
AHC Acquisition ................................................ 4,748,810
-----------
$22,722,824
===========
</TABLE>

(7) Reflects the aggregate consideration for the NHI Acquisition, the MEI
Acquisition, the RSD Acquisition, the LHS Acquisition and the AHC Acquisition
which includes $24.4 million in cash, $4.4 million of notes payable to the
sellers with interest at 8.0% per annum, and Common Stock valued at $3.9
million and reflects estimated transaction costs of $500,000. The cash portion
of the consideration and transaction costs are assumed to have been financed
through the Company's Second Credit Agreement. The aggregate consideration for
each acquisition is as follows:

22
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
AGGREGATE
ACQUISITION CONSIDERATION
----------- -------------
<S> <C>
NHI Acquisition .............................................. $ 2,038,000
MEI Acquisition .............................................. 3,233,606
RSD Acquisition .............................................. 11,862,966
LHS Acquisition .............................................. 9,046,488
AHC Acquisition .............................................. 6,540,000
-----------
$32,721,060
===========
</TABLE>

(8) Reflects the receipt and application of the net proceeds from the sale
of the shares of Common Stock offered by the Company hereby at an assumed
offering price of $12.50 per share, as if such transaction occurred as of June
30, 1996. The pro forma offering adjustments assume the net proceeds from the
shares of Common Stock offered by the Company hereby were used to reduce
outstanding indebtedness and the indebtedness assumed to have been incurred in
connection with the Pending Acquisitions.

PRO FORMA CONSOLIDATED STATEMENTS OF INCOME

(9) Includes the Tampa Acquisition, the DNI Acquisition and other
insignificant acquisitions consummated prior to June 30, 1996. The results of
operations of the companies acquired in these acquisitions have been included
in the Company's June 30, 1996 consolidated historical operating results since
their respective acquisition dates. These acquisitions were accounted for as
purchases.

(10) Earnings per share from continuing operations before certain
nonrecurring bridge financing expenses, preferred stock dividends and the
write-off of the discount on bridge financing preferred stock was $0.61,
$0.67, $0.53 and $0.56, for the Company's earnings per share, the Company's
earnings per share adjusted for the HHSI Acquisition, Pro Forma earnings per
share and Pro Forma As Adjusted earnings per share, respectively. Pro Forma
and Pro Forma As Adjusted earnings per share include a charge of approximately
$787,000, or $0.07 and $0.04 per share, respectively, representing prior
fiscal year Medicare cost report adjustments recorded in fiscal 1996
pertaining to the RSD Acquisition.

(11) Represents the consolidated historical results of operations of the
HHSI Acquisition for the fiscal year ended June 30, 1996. The HHSI Acquisition
is accounted for as a pooling of interests in the pro forma consolidated
statements of income.

(12) Reflects implementation of management's plan to eliminate certain
corporate office and branch location duplicate operating expenses, including
certain salaries and benefits, as a result of consolidation of certain
operations of the HHSI Acquisition with the Company. Transaction costs of
approximately $250,000 have not been reflected.

(13) Reflects adjustments to interest expense for assumed conversion of
certain notes in connection with the HHSI Acquisition, as if such conversion
occurred as of July 1, 1995.

(14) Reflects the adjustments to income taxes which would have been provided
on the pro forma income before provision for income taxes and extraordinary
item using the Company's effective tax rate of 41%.

(15) Reflects 455,237 shares of Common Stock issued in connection with the
HHSI Acquisition assuming conversion of all convertible notes and convertible
redeemable preferred stock, as if the HHSI Acquisition occurred as of July 1,
1995.

(16) Represents the historical results of operations of (i) the Tampa
Acquisition and the DNI Acquisition from July 1, 1995 to their respective
acquisition dates during fiscal 1996; (ii) the NHI Acquisition and the MEI
Acquisition, completed during fiscal 1997, from July 1, 1995 to June 30, 1996;
and (iii) three of the Pending Acquisitions, the RSD Acquisition, the LHS
Acquisition, and the AHC Acquisition from July 1, 1995 to June 30, 1996. These
acquisitions are accounted for as purchases in the pro forma consolidated
statements of income.

23
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Results of operations of the companies acquired in the Acquisitions
(excluding the HHSI Acquisition) are as follows:

<TABLE>
<CAPTION>
NET INCOME
ACQUISITION ACQUISITION DATE NET REVENUES (LOSS)
----------- ------------------ ------------ -----------
<S> <C> <C> <C>
Tampa Acquisition............... September 29, 1995 $ 2,266,864 $ 845,300
DNI Acquisition................. May 1, 1996 4,563,533 542,755
NHI Acquisition................. August 13, 1996 1,302,519 168,196
MEI Acquisition................. October 1, 1996 2,580,817 785,824
RSD Acquisition................. Pending 18,349,585 (1,209,810)
LHS Acquisition................. Pending 19,399,354 (437,154)
AHC Acquisition................. Pending 6,267,152 396,853
----------- -----------
Total........................... $54,729,824 $ 1,091,964
=========== ===========
</TABLE>

Net loss for the twelve month period ended June 30, 1996 related to the RSD
Acquisition included a $787,000 charge for prior fiscal year Medicare cost
report adjustments recorded in fiscal 1996 and certain other expenses that are
expected to be eliminated. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Results of Operations."

(17) Reflects adjustments to the LHS Acquisition to eliminate the results of
operations attributable to certain operations and subsidiaries of LHS which
will not be acquired by HHCA.

(18) Reflects increases in net revenues for cost-based Medicare-reimbursed
home health agencies which results from the pro forma allocation of corporate
overhead expenses.

(19) Reflects elimination of certain compensation paid to the previous
owners of the companies acquired in the RSD Acquisition.

(20) Reflects increases (decreases) in depreciation resulting from the
revaluation in purchase accounting of fixed assets and the amortization of
goodwill over 20 years, as follows:

<TABLE>
<CAPTION>
GOODWILL
ACQUISITION DEPRECIATION AMORTIZATION
----------- ------------ ------------
<S> <C> <C>
Tampa Acquisition.................................. $(55,163) $ 176,816
DNI Acquisition.................................... (10,348) 125,692
NHI Acquisition.................................... (9,953) 89,125
MEI Acquisition.................................... 106,540 130,969
RSD Acquisition.................................... (7,552) 344,500
LHS Acquisition.................................... 12,613 202,891
AHC Acquisition.................................... 6,461 237,441
-------- ----------
Total............................................ $ 42,599 $1,307,434
======== ==========
</TABLE>

(21) Reflects the additional interest expense that would have been incurred
if the Acquisitions (excluding the HHSI Acquisition) had occurred as of July
1, 1995. The interest rate of 9% per annum used to calculate pro forma
interest expense on the debt required to fund the cash payments for these
acquisitions reflects the Company's weighted average borrowing rate on its
Senior Credit Facilities for the fiscal year ended June 30, 1996. The interest
rate used to calculate pro forma interest expense on the seller notes of 8.0%
per annum represents the rate of interest on those notes. The pro forma
adjustments to interest expense are as follows:

<TABLE>
<CAPTION>
ACQUISITION INTEREST EXPENSE
----------- ----------------
<S> <C>
Tampa Acquisition........................................ $ 405,816
DNI Acquisition.......................................... 175,914
NHI Acquisition.......................................... 148,911
MEI Acquisition.......................................... 229,268
RSD Acquisition.......................................... 526,642
LHS Acquisition.......................................... 247,602
AHC Acquisition.......................................... 420,530
----------
Total.................................................. $2,154,683
==========
</TABLE>

24
<PAGE>

NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(22) The weighted average shares outstanding used in calculating pro forma
net income per share gives effect to footnote (14) and reflects shares issued
as partial consideration for the Acquisitions as if such shares had been
issued as of July 1, 1995. The shares issuable in connection with the RSD
Acquisition, the LHS Acquisition and the AHC Acquisition assume the price at
closing used to determine the number of shares issuable was $12.50 per share.
The pro forma adjustments to the weighted average shares outstanding are as
follows:

<TABLE>
<CAPTION>
ACQUISITION ADDITIONAL SHARES
----------- -----------------
<S> <C>
Tampa Acquisition....................................... --
DNI Acquisition......................................... 32,139
NHI Acquisition......................................... 38,483
MEI Acquisition......................................... 38,540
RSD Acquisition......................................... 80,000
LHS Acquisition......................................... 112,680
AHC Acquisition......................................... 104,000
-------
Total................................................. 405,842
=======
</TABLE>

(23) Adjusted to give effect to a reduction in interest expense of
approximately $3.1 million resulting from the receipt and application of net
proceeds from the sale of the shares of Common Stock offered by the Company
hereby at an assumed offering price of $12.50 per share, as if such
transaction occurred as of July 1, 1995. The pro forma offering adjustments
assume the proceeds from the sale of shares of Common Stock offered by the
Company hereby were used to reduce pro forma indebtedness incurred in
connection with the Pending Acquisitions and also reflects the related
increase of approximately $1.3 million in income tax expense resulting from
the reduction in interest expense, using the Company's effective tax rate of
41%, as if this offering occurred as of July 1, 1995.

(24) Assumes issuance of 3,000,000 shares of Common Stock by the Company in
this offering, as if such transaction had occurred as of July 1, 1995.

(25) Represents the consolidated historical results of operations of the
HHSI Acquisition for the fiscal years ended June 30, 1995 and 1994, as this
acquisition is accounted for as a pooling of interests in the pro forma
consolidated statements of income.

(26) Reflects increases in net income available to common stockholders for
interest expense of $169,338 and $200,600 in fiscal 1995 and 1994,
respectively, relating to the assumed conversion into 374,386 shares of Common
Stock of certain notes of the companies acquired in the HHSI Acquisition.

(27) Reflects issuance of 455,237 shares of Common Stock as of the beginning
of the fiscal year in connection with the HHSI Acquisition.

25
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

HHCA is a leading provider of comprehensive home health care services and
products, delivering nursing and related patient services, respiratory
therapy, infusion therapy and durable medical equipment. From fiscal 1994 to
1996, the Company generated a compound annual growth rate in net revenues of
55.9% through a combination of acquisitions and internal growth. The Company
experienced internal growth rates in net revenues of 24%, 29% and 19% for
fiscal years 1994, 1995 and 1996, respectively. The Company's internal growth
in net revenues was primarily the result of cross-selling its services and
products, expanding the range of services and products offered, increasing
patient referrals, particularly from managed care organizations, and opening
new branch locations.

The Company seeks to establish and increase market share by acquiring other
home health care businesses in existing and new markets. Since July 1, 1992,
the Company has completed 13 acquisitions. Acquisitions completed in fiscal
1995 (the "Fiscal 1995 Acquisitions") enhanced the Company's presence in
Delaware, Maryland and New Jersey. During fiscal 1996, the Company expanded
its operations into the Tampa/ St. Petersburg, Florida market with four
acquisitions. Since July 1, 1996, the Company has completed four acquisitions
of home health care companies with operations in Pennsylvania, Florida and
Maryland. The Company has entered into definitive agreements to acquire two
home health care companies and letters of intent to acquire two additional
home health care companies with operations in Virginia, Delaware, New Jersey,
Maryland, Illinois, New Hampshire, Massachusetts and Texas.

The results of operations of the companies acquired in the Fiscal 1996
Acquisitions and the Fiscal 1995 Acquisitions are included in the Company's
consolidated results of operations from their respective acquisition dates,
which occurred at various times during fiscal 1995 and 1996. Accordingly, the
operating results for any fiscal year are not necessarily comparable with the
results for any past or future fiscal year.

Net revenues are derived from the provision of nursing and related patient
services, respiratory therapy, infusion therapy and durable medical equipment.
See Note 1 of the Company's Consolidated Financial Statements. Patient care
costs are comprised of salaries and related benefits for patient care
personnel, cost of sales for durable medical equipment and supplies and
depreciation on equipment held for rental. General and administrative expenses
are comprised of administrative and support staff salaries and benefits, and
occupancy and other operating costs. The provision for doubtful accounts
consists principally of an estimate of net revenues that may prove to be
uncollectible. These potentially uncollectible revenues are primarily derived
from services subject to patient self-payment, which include copayments from
patients insured by third-party payors. Amortization expense includes the
amortization of goodwill and other intangible assets.

The following table shows the percentage of net revenues represented by each
of the Company's services and products for the periods presented and pro forma
for fiscal 1996 after giving effect to four acquisitions completed during
fiscal 1996 and 1997 and the Pending Acquisitions reflected in the Unaudited
Pro Forma Consolidated Financial Statements:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996
-----------------
1994 1995 ACTUAL PRO FORMA
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Nursing and related patient services:
Medicare................................... 64.7% 51.8% 40.9% 45.6%
Non-Medicare............................... 14.0 23.8 24.7 19.8
----- ----- ----- -----
78.7 75.6 65.6 65.4
Respiratory therapy.......................... 7.7 8.5 10.9 9.1
Infusion therapy............................. 6.9 8.6 7.2 14.1
Durable medical equipment.................... 6.7 7.3 16.3 11.4
----- ----- ----- -----
Total.................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

26
<PAGE>

Non-Medicare nursing and related patient services increased as a percentage
of net revenues in fiscal 1995 and 1996 primarily as a result of the increase
in the portion of Medicare patients enrolled in managed care plans,
particularly in the Florida market. Nursing and related patient services
decreased as a percentage of net revenues from fiscal 1995 to fiscal 1996
primarily as a result of the Tampa Acquisition which increased the portion of
services attributable to respiratory therapy and durable medical equipment.
See "--Results of Operations" for comparison of fiscal 1996 pro forma and
actual net revenues represented by each of the Company's services and
products.

The following table sets forth the visits and hours for nursing and related
patient services for the periods presented and pro forma for fiscal 1996 after
giving effect to the four acquisitions completed during fiscal 1996 and 1997
and the Pending Acquisitions reflected in the Unaudited Pro Forma Consolidated
Financial Statements:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------
1996
-----------------
1994 1995 ACTUAL PRO FORMA
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Medicare nursing visits.................... 313,000 391,000 434,000 1,085,000
Non-Medicare nursing services:
Hourly based............................. 153,000 373,000 438,000 581,000
Visit based.............................. 28,000 97,000 120,000 125,000
</TABLE>

The increase in Medicare and non-Medicare nursing hours and visits from
fiscal 1994 to 1996 resulted from acquisitions and, to a lesser extent,
internal growth. The increase in non-Medicare nursing hours and visits from
fiscal 1994 to 1996 also resulted from the enrollment of Medicare patients in
managed care plans, particularly in the Florida market, and increased
referrals.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected
financial information expressed as a percentage of net revenues:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------------
1996
-------------------
PRO FORMA
1994 1995 ACTUAL AS ADJUSTED
----- ----- ------ -----------
<S> <C> <C> <C> <C>
Net revenues............................. 100.0% 100.0% 100.0% 100.0%
Operating costs and expenses:
Patient care costs..................... 47.1 50.8 48.0 51.0
General and administrative expenses.... 44.3 38.5 37.4 36.4
Provision for doubtful accounts........ 1.9 2.7 3.2 2.6
Depreciation .......................... 0.8 0.7 0.9 0.9
Amortization........................... 0.3 0.4 1.2 1.6
Interest, net.......................... 1.9 2.5 1.7 0.9
----- ----- ----- -----
Income from operations, before bridge
financing............................... 3.7 4.4 7.6 6.6
Bridge financing expense............... -- -- 1.0 0.6
Provision for income taxes............. 1.7 1.9 2.7 2.5
----- ----- ----- -----
Income from continuing operations........ 2.0 2.5 3.9 3.5
Nonrecurring items(1).................. 0.6 -- (1.4) (0.8)
----- ----- ----- -----
Net income............................... 2.6% 2.5% 2.5% 2.7%
===== ===== ===== =====
</TABLE>
- --------
(1) Includes a cumulative effect of a change in accounting principle in fiscal
1994 and an extraordinary item in fiscal 1996 on an actual and pro forma
as adjusted basis.

FISCAL 1996 (PRO FORMA) COMPARED WITH FISCAL 1996

Net Revenues. Pro forma net revenues for fiscal 1996 increased 69.0% to
$148.2 million compared with $87.7 million for actual fiscal 1996. Pro forma
total net revenues from infusion therapy increased 14.1% from

27
<PAGE>

7.2% on an actual basis for fiscal 1996 as a result of the acquisition of the
companies acquired in the HHSI Acquisition and NHI Acquisition which are
primarily infusion therapy companies. Net revenues from Medicare-reimbursed
nursing and related patient services as a percentage of total net revenues
were 45.6% on a pro forma basis compared with 40.9% on an actual basis for
fiscal 1996 primarily as a result of acquisition of the companies acquired in
the RSD Acquisition and LHS Acquisition which primarily provide Medicare-
reimbursed home nursing services. The acquisition of these companies also
represents the entrance of the Company into the New England and Texas markets.

Patient Care Costs. Patient care costs as a percentage of net revenues
increased to 51.0% on a pro forma basis compared with 48.0% on an actual basis
for fiscal 1996. This increase resulted principally from the higher portion of
pro forma net revenues relating to Medicare nursing and related patient
services, which typically have higher costs as a percentage of net revenues
compared with the Company's other services and products. Operating results of
the RSD Acquisition in fiscal 1996 were negatively affected by a $787,000
settlement of prior year Medicare cost reports. See "Business--Strategy."

General and Administrative Expenses. General and administrative costs as a
percentage of net revenues decreased to 36.4% on a pro forma basis from 37.4%
on an actual basis for fiscal 1996. The Company anticipates a reduction of
$902,000 of corporate overhead costs relating to the HHSI Acquisition and may
achieve additional reductions in fiscal 1997 in general and administrative
expenses in connection with the other Pending Acquisitions. The Company
expects to realize a reduction of $902,000 by implementing a plan to reduce
corporate overhead costs at HHSI. While no assurance can be given, the Company
anticipates realizing further reductions during fiscal 1997 by centralizing
administrative functions being performed at the companies acquired in
connection with the Fiscal 1997 Acquisitions and the Pending Acquisitions.

Income from Operations, Before Bridge Financing. In fiscal 1996, income from
operations, before nonrecurring bridge financing expenses, increased $3.3
million to $9.7 million or 6.6% of net revenues on a pro forma basis from $6.6
million or 7.6% of net revenues on an actual basis. Of this increase, $1.0
million related to income from operations of the HHSI Acquisition and $3.1
million related to the reduction in interest expense resulting from the
receipt and application of net proceeds from the shares of Common Stock
offered by the Company hereby. These increases were offset by an aggregate of
$1.5 million of losses from operations relating to the Acquisitions, excluding
the HHSI Acquisition, of which an operating loss of $1.6 million related to
the RSD Acquisition. Because the operations of the RSD Acquisition, a nursing
and related patient services company, are primarily reimbursed on a cost basis
by Medicare, its prospective losses should approximate its pro forma
nonreimburseable expenses. See "Business--Business Strategy" and "--Payor
Mix."

Income from Continuing Operations. Income from continuing operations as a
percentage of net revenues was 3.5% on a pro forma basis and 3.9% on an actual
basis for fiscal 1996. Such decrease was due to higher patient care costs
offset slightly by a decrease in general and administrative costs. Management
has not provided pro forma adjustments for (i) the effects of cross-selling of
services and products relating to any additional home health care companies
that may be acquired in the markets served by the companies to be acquired in
the RSD Acquisition and the LHS Acquisition; (ii) a $787,000 settlement of
prior year cost reports included in the fiscal 1996 operations of companies to
be acquired in the RSD Acquisition; and (iii) increases in the profitability
of non-Medicare nursing service businesses purchased in connection with the
Pending Acquisitions.

FISCAL 1996 COMPARED WITH FISCAL 1995

Net Revenues. In fiscal 1996, net revenues increased to $87.7 million. This
represented an increase of $31.7 million, or 57%, over fiscal 1995. Of this
increase, $22 million, or 69%, was attributable to the Fiscal 1996
Acquisitions and a full year of operations from the Fiscal 1995 Acquisitions.
The balance of the increase was due to internal growth of 19%, resulting from
volume growth at existing branch locations. Net revenues from nursing and
related patient services increased from $42.3 million in fiscal 1995 to $57.5
million in fiscal 1996, a 35.9% increase. Total Medicare nursing visits
increased 11% to approximately 434,000 visits in fiscal 1996. Total non-
Medicare nursing hourly and visit volume increased 17% and 24%, respectively,
to approximately 438,000 hours and 120,000 visits, respectively, in fiscal
1996. Acquisitions, effective cross-selling of other services, and increased
referrals contributed to these volume increases. Respiratory therapy, infusion

28
<PAGE>

therapy and durable medical equipment net revenues increased $16.5 million, or
120%, to $30.2 million from $13.7 million in fiscal 1995 as a result of
effective cross-selling of these services and products to the Company's
nursing patients, increased referrals and acquisitions. Managed care
organizations and other payors accounted for 31.5% and 34.5% of the Company's
net revenues in fiscal 1995 and 1996, respectively. The Company expects
revenues from managed care organizations to continue to increase. See "Risk
Factors--Pricing Pressures."

Patient Care Costs. In fiscal 1996, patient care costs increased to $42.1
million. This represented an increase of $13.6 million, or 48%, over fiscal
1995. This increase was principally related to the increases in net revenues.
Patient care costs decreased as a percentage of net revenues from 50.8% to
48.0% due to the increase in the portion of net revenues from higher-margin
non-nursing and related patient services, principally due to acquisitions, and
improved management of nursing labor costs. See "Business--Payor Mix."

General and Administrative Expenses. In fiscal 1996, general and
administrative expenses increased to $32.9 million. This represented an
increase of $11.4 million, or 53%, over fiscal 1995. This increase was
principally related to increases in net revenues. General and administrative
expenses decreased as a percentage of net revenues from 38.5% to 37.5% as
certain general and administrative costs did not increase with increases in
net revenues.

Provision for Doubtful Accounts. In fiscal 1996, the provision for doubtful
accounts increased to $2.8 million. This represented an increase of $1.3
million, or 86%, over fiscal 1995. This increase was due principally to the
increases in net revenues. The provision for doubtful accounts increased as a
percentage of net revenues from 2.7% to 3.2% primarily due to an increase in
net revenues from managed care organizations whose approval process for
authorization and payment for services is more complex than other payors
resulting in more coverage and payment denials. In addition, managed care
organizations generally require patients to be responsible for copayments
which are difficult to collect.

Depreciation. In fiscal 1996, depreciation expense increased to
approximately $784,000. This represented an increase of $365,000, or 87%, over
fiscal 1995. Of this increase, $278,000 was attributable to fixed assets
acquired in connection with acquisitions with the remainder resulting from
capital expenditures related to vehicles, management information systems and
equipment in support of the Company's internal growth.

Amortization. In fiscal 1996, amortization increased to $1.0 million. This
represented an increase of $785,000 over fiscal 1995, which was entirely
attributable to amortization of goodwill arising from the Fiscal 1996
Acquisitions and a full year of amortization of goodwill relating to the
Fiscal 1995 Acquisitions.

Interest, Net. In fiscal 1996, interest, net, increased to $1.5 million.
This represented an increase of $81,000, or 6%, over fiscal 1995. This
increase was comprised principally of increases of $251,000 from indebtedness
incurred in connection with acquisitions and $185,000 from increased
indebtedness under the Senior Credit Facilities to fund growth at the existing
branch locations. This increase was offset by a decrease of $447,000 due to
the repayment of approximately $10 million in outstanding indebtedness during
November 1995 with a portion of the net proceeds from the Company's initial
public offering (the "IPO").

Bridge Financing Expenses. Nonrecurring bridge financing expenses of
$913,000 were comprised of (i) $605,000 pertaining to the write-off of
deferred financing fees and the unamortized discount on a bridge financing
note payable; (ii) interest expense of $186,000; and (iii) other costs of
$122,000. These expenses were recorded in connection with the Tampa
Acquisition and the IPO.

Provision for Income Taxes. The Company's effective tax rate decreased to
40.9% of pretax income from 43.4%, principally as a result of reduced pretax
income as a percentage of total pretax income relating to states with higher
income tax rates.

Nonrecurring Items. Nonrecurring items in fiscal 1996 represents an
extraordinary charge of $1.2 million relating to the extinguishment of
indebtedness with a portion of the net proceeds from the IPO which was

29
<PAGE>

recorded in the second quarter of fiscal 1996, net of an estimated income tax
benefit of $660,000. The charge consisted primarily of a write-off of deferred
financing costs of $294,000 and a write-off of the remaining unamortized
discounts of $1.5 million on the senior subordinated indebtedness incurred in
connection with a Fiscal 1995 Acquisition (the "Senior Subordinated Debt").

FISCAL 1995 COMPARED WITH FISCAL 1994

Net Revenues. In fiscal 1995, net revenues increased to $56.0 million. This
represented an increase of $19.9 million, or 55%, over fiscal 1994, of which
$10.6 million resulted from internal growth of 29%, with the remainder of $9.3
million resulting from the Fiscal 1995 Acquisitions. Net revenues from nursing
and related patient services increased from $28.4 million in fiscal 1994 to
$42.3 million in fiscal 1995, a 48.9% increase. The internal growth resulted
from volume growth at existing branch locations. Total Medicare nursing visits
increased 25% to approximately 391,000 visits in fiscal 1995. Total non-
Medicare nursing hourly and visit volume in fiscal 1995 increased 44% and 22%,
respectively, to approximately 373,000 hours and 97,000 visits, respectively.
Acquisitions, effective cross-selling of other services and products, and
increased referrals contributed to these volume increases. Respiratory
therapy, infusion therapy and durable medical equipment net revenues increased
$6.0 million, or 78%, to $13.7 million from $7.7 million in fiscal 1994 as a
result of acquisitions, increased referrals, and effective cross-selling of
these services to the Company's nursing patients.

Patient Care Costs. In fiscal 1995, patient care costs increased to $28.4
million. This represented an increase of $11.4 million, or 67%, over fiscal
1994. This increase was due principally to the increases in net revenues.
Patient care costs increased as a percentage of net revenues from 47.1% to
50.8%. This increase was principally a result of increases in the portion of
respiratory therapy, infusion therapy, and durable medical equipment generated
from managed care contracts which increased the related costs of goods sold as
a percentage of net revenues from these lines of businesses. See "Business--
Payor Mix."

General and Administrative Expenses. In fiscal 1995, general and
administrative expenses increased to $22.0 million. This represented an
increase of $5.7 million, or 35%, over fiscal 1994. This increase was due
principally to the increases in net revenues. General and administrative
expenses decreased as a percentage of net revenues from 44.3% to 38.5% as
certain general and administrative costs did not increase with increases in
net revenues.

Provision for Doubtful Accounts. In fiscal 1995, the provision for doubtful
accounts increased to $1.5 million. This represented an increase of $830,000,
or 119%, over fiscal 1994. This increase was due principally to the increases
in net revenues. The provision for doubtful accounts increased as a percentage
of net revenues from 1.9% to 2.7% primarily due to an increase in net revenues
from managed care organizations whose approval process for authorization and
payment for services is more complex than other payors resulting in more
coverage and payment denials. In addition, managed care organizations
generally require patients to be responsible for copayments which are
difficult to collect.

Depreciation. Depreciation expense increased to $419,000. This represented
an increase of $124,000, or 42%, over fiscal 1994. This increase was due
principally to the additional fixed assets acquired in connection with the
Fiscal 1995 Acquisitions with the remainder resulting from capital
expenditures related to vehicles, management information systems, and
equipment in support of the Company's internal growth.

Amortization. In fiscal 1995, amortization increased to $231,000. This
represented an increase of $105,000, or 84%, over fiscal 1994, which was
attributable to amortization of goodwill arising from the Fiscal 1995
Acquisitions.

Interest, Net. In fiscal 1995, interest, net, increased to $1.4 million.
This represented an increase of $702,000, or 104%, over fiscal 1994. This
increase was attributable principally to indebtedness incurred in

30
<PAGE>

connection with the Fiscal 1995 Acquisitions and increased indebtedness under
the Senior Credit Facilities to fund costs associated with opening a new
branch location and growth at existing branch locations.

Provision for Income Taxes. The Company's effective tax rate decreased to
43.4% of pretax income from 46.2%, principally as a result of reduced pretax
income as a percentage of total pretax income relating to states with higher
income tax rates.

QUARTERLY RESULTS

The following table presents selected unaudited quarterly operating results
for the Company for each of the four quarters in fiscal 1995 and 1996. The
Company believes that the following information includes all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation.
Historically, the Company has experienced lower net revenues during the first
fiscal quarter which ends on September 30 as compared with that of the
preceding quarter due to fewer referrals during the summer months. However,
the results for the first quarter of fiscal 1996 do not reflect this
seasonality because of the growth in volume following a significant
acquisition in March 1995. Net income did not increase proportionately to net
revenues as a result of duplicative costs relating to the acquisition which
were not yet eliminated. The Company anticipates that the effects of
seasonality will continue for the foreseeable future. Although the Company's
net revenues tend to be affected by seasonality, quarterly revenues and
profitability may also be affected by other factors, including internal
growth. Results of operations for any period are not necessarily indicative of
results of operations for the full fiscal year or predictive of future
periods. See "Risk Factors--Quarterly Fluctuation in Operating Results;
Potential Volatility in Stock Price."

<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1994 1994 1995 1995 1995 1995 1996 1996
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $10,810 $12,070 $14,928 $18,157 $18,808 $21,380 $22,777 $24,729
Income before income
taxes and extraordinary
item................... 411 491 702 852 709 662 1,986 2,379
Income before
extraordinary item..... 231 284 422 453 391 377 1,192 1,427
Net income (loss)....... $ 231 $ 284 $ 422 $ 453 $ 391 $ (783)(1) $ 1,192 $ 1,427
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
common and common
equivalent share....... $ 0.06 $ 0.08 $ 0.12 $ 0.12 $ 0.10 $ (0.27)(1) $ 0.15 $ 0.18
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Net income and net income per common and common equivalent share for the
quarter ended December 31, 1995 reflects (i) nonrecurring bridge financing
expense; (ii) discount on redemption of certain preferred stock; and (iii)
an extraordinary item due to the early extinguishment of debt. Prior to
such charges, net income and net income per common and common equivalent
share for the quarter ended December 31, 1995 were $1.2 million and $0.14
per share, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Consistent with its growth strategy, the Company has significantly expanded
its operations over the past three fiscal years through a combination of
internal expansion and acquisitions. Historically, this growth has been
principally financed through cash flow from operations, bank borrowings,
installments notes and Common Stock issued to sellers in connection with the
acquisitions and, more recently, in the IPO.

In November 1995, the Company sold 3,693,192 shares of Common Stock in the
IPO raising net proceeds of $24.5 million which were used principally to repay
the bridge financing incurred in connection with the Tampa Acquisition, the
Senior Subordinated Debt, a portion of the debt incurred under the Senior
Credit Facilities and to redeem preferred stock issued in connection with the
Tampa Acquisition and other preferred stock issued in

31
<PAGE>

1992. Additionally, the Company received proceeds aggregating $300,000 from
the exercise of options and warrants during fiscal 1996.
Working capital increased to $20.0 million at June 30, 1996 from $10.0
million at June 30, 1995, an increase of $10.0 million. Approximately $1.5
million of this increase was due to the Fiscal 1996 Acquisitions. The
remainder primarily resulted from a $5.7 million increase in accounts
receivable and a $3.0 million reduction in current liabilities at branch
locations existing prior to the Fiscal 1996 Acquisitions. The growth in net
revenues during fiscal 1996 was accompanied by an increase in accounts
receivable. Accounts receivable increased by $8.4 million, or 47.7%, to $26.0
million at the end of fiscal 1996 from $17.6 million at the end of fiscal
1995. This increase was principally due to acquisitions, internal growth and
an increase in days net revenues outstanding from 89 to 93 due to a higher
portion of managed care net revenues in fiscal 1996. Cash provided by
operating activities was $455,000 for fiscal 1995. Cash used in operating
activities was $1.7 million and $2.0 million for fiscal 1994 and 1996,
respectively, and was primarily attributable to the increase in accounts
receivable. The Company expects to continue to acquire home health care
businesses. Cash flow from operations from acquisitions may be adversely
affected if delays are encountered in obtaining required Medicare provider
numbers or licenses or in meeting other payor requirements. In addition, in
acquisitions in which accounts receivable are not purchased the Company will
fund the working capital requirements of the acquired business until cash
collections become adequate for such purpose.

Cash expenditures for acquisitions were approximately $5.0 million and $15.7
million for fiscal 1995 and 1996, respectively. There were no acquisitions in
fiscal 1994. Goodwill was $26.5 million at June 30, 1996. The Company recorded
goodwill of $7.2 million with respect to four acquisitions completed in fiscal
1997. Consummation of the Pending Acquisitions is expected to increase
goodwill by an additional $18.3 million. Annualized amortization of goodwill
resulting from the Acquisitions is expected to be approximately $1.3 million.
It is anticipated that expenditures for acquisitions will increase in fiscal
1997 as the Company continues to implement its growth strategy. Expenditures
for purchases of capital equipment were $735,000, $1.6 million and $3.2
million for fiscal 1994, 1995 and 1996, respectively, and are expected to
increase to between $5.5 million and $6.0 million in fiscal 1997 as the
Company expands its operations, which includes continuing investments in
equipment held for rental and in management information systems.

On August 22, 1996, the Company refinanced the Senior Credit Facilities by
entering into the Second Credit Agreement with a syndicate of lenders led by
CoreStates Bank, N.A. The Second Credit Agreement consists of a revolving
facility with a commitment of up to $20.0 million for general corporate
purposes, which includes a commitment to issue up to $10.0 million of letters
of credit and an acquisition facility with a commitment of up to $30.0 million
for permitted acquisitions, as defined in the Second Credit Agreement. The
Second Credit Agreement matures on August 22, 1999. The Company elected
various rates on the initial outstanding borrowing under the Second Credit
Agreement representing a weighted average interest rate of 6.7% per annum as
of October 30, 1996. As of October 30, 1996, the Company had approximately
$23.3 million of debt outstanding. In addition to refinancing the Senior
Credit Facilities, borrowings under the Second Credit Agreement have been used
to pay the cash portion of the purchase price for certain acquisitions and
provide working capital. The Second Credit Agreement provides that the Company
may reborrow funds which it has previously borrowed and repaid. Under the
Second Credit Agreement the Company is required to obtain approval for any
acquisition having a purchase price in excess of $5.0 million and for all
acquisitions in any fiscal year once the Company has completed in such fiscal
year acquisitions having an aggregate purchase price in excess of $20.0
million. Indebtedness under the Second Credit Agreement is collateralized by a
pledge of 100% of the stock of all existing and future subsidiaries of the
Company. See Note 5 to the Consolidated Financial Statements.

Approximately $23.3 million of the net proceeds from the shares of Common
Stock offered by the Company hereby will be used to repay indebtedness under
the Second Credit Agreement and the balance of net proceeds will be used to
pay substantially all of the cash consideration for the Pending Acquisitions
which is estimated to be $21.5 million.

Management anticipates the Company's available lines of credit and cash flow
generated from operations will be adequate to enable the Company to fund its
operations, capital expenditures and anticipated growth for at least the next
fiscal year.

32
<PAGE>

BUSINESS

GENERAL

The Company is a leading provider of comprehensive home health care services
and products, delivering nursing and related patient services, respiratory
therapy, infusion therapy and durable medical equipment. The Company operates
28 branch locations in Florida, Pennsylvania, Delaware, New Jersey and
Maryland. Assuming the consummation of the Pending Acquisitions, the Company
will operate 50 branch locations providing services and products in ten
states, including New Hampshire, Massachusetts, Illinois, Texas and Virginia,
and the District of Columbia. The Company generated $87.7 million of net
revenues in fiscal 1996 ($148.2 million on a pro forma basis after giving
effect to certain acquisitions completed during fiscal 1996 and 1997 and the
Pending Acquisitions).

The Company seeks to provide a "one-stop-shop" of cost-effective,
comprehensive home health care services and products. The Company's regional
Coordinated Care Centers serve as focal points for managed care organizations
to efficiently arrange for Company services and products. The Coordinated Care
Centers and home-based evaluations conducted by the Company's nurses enhance
the Company's ability to cross-sell its comprehensive range of services and
products. The Company's nurses are trained to identify at the time of the
evaluation in the patient's home any additional need for Company services and
products. The Company believes that it is well-positioned to benefit from the
increasing preference of payors and referral sources, particularly managed
care organizations, to use home health care providers that both offer and
coordinate the delivery of a full range of home health care services and
products.

The Company intends to continue to expand its operations through
acquisitions in existing and new markets. Since July 1, 1995, the Company
completed eight acquisitions in existing markets. In entering new markets, the
Company generally acquires a home nursing company (primarily Medicare-based)
and adds additional services and products through internal growth and
subsequent acquisitions in order to offer a full range of home health care
services and products to patients, physicians and payors, including managed
care organizations. Upon consummation of the Pending Acquisitions, the Company
will enter the Texas and New England markets through the acquisition of two
nursing companies (primarily Medicare-based) and increase its presence and
range of services and products provided in existing markets.

From fiscal 1994 to 1996, the Company generated a compound annual growth
rate in net revenues of 55.9% through a combination of acquisitions and
internal growth. The Company's net revenues increased from $36.1 million in
fiscal 1994 to $87.7 million in fiscal 1996 (of which 65.6% represented
nursing and related patient services net revenues), and the Company's net
income increased from $928,000 in fiscal 1994 to $2.2 million in fiscal 1996
(which includes certain nonrecurring items). The Company experienced internal
growth rates in net revenues of 24%, 29% and 19% for fiscal years 1994, 1995
and 1996, respectively. The Company's internal growth in net revenues was
primarily the result of cross-selling its services and products, expanding the
range of services and products offered, increasing patient referrals,
particularly from managed care organizations, and opening new branch
locations. The percentage of the Company's net revenues from managed care
organizations and other payors increased from 24.9% in fiscal 1994 to 34.5% in
fiscal 1996.

INDUSTRY OVERVIEW

The importance of home health care is increasing as a result of significant
economic pressures within the health care industry. Total expenditures within
the health care industry, which have increased at twice the rate of inflation
in recent years, were approximately $1.1 trillion in 1995. The ongoing
pressure to contain health care

33
<PAGE>

costs, while maintaining quality care, is accelerating the growth of alternate
site care, such as home health care, that reduces hospital admissions and
lengths of hospital stays. The home health care industry had total
expenditures in 1995 of approximately $36.0 billion, including $22.8 billion
for nursing and related patient services, $5.8 billion for infusion therapy
services, $4.8 billion for respiratory therapy services, and $1.1 billion for
durable medical equipment. Approximately 17,000 providers currently serve
approximately 7 million patients per year in their homes.

The growth in home health care is also due to its increased acceptance by
payors, patients and the medical community, including physicians, hospitals
and other providers. Home health care often results in lower costs, which is
increasingly important under managed care. In addition, home health care has
grown rapidly as a result of (i) advances in medical technology, which have
facilitated the delivery of services in alternate sites; (ii) demographic
trends, such as an aging population; and (iii) a strong preference among
patients to receive health care in their homes.

The home health care industry is highly fragmented and characterized by
local providers that typically do not offer a comprehensive range of cost-
effective services. These local providers often do not have the capital
necessary to expand their operations or the range of services offered which
limits their ability to compete for managed care contracts and other referrals
and to realize efficiencies in their operations. As managed care has become
more prevalent, payors increasingly are seeking home health care providers
that offer a "one-stop-shop" of cost-effective, comprehensive services in each
market served, which further inhibits the ability of local providers to
compete effectively. As a result of these economic and competitive pressures,
the home health care industry is undergoing rapid consolidation.

STRATEGY

The Company's growth objective is to enhance its position as a leading
provider of quality, cost-effective, comprehensive home health care services
and products by continuing to pursue the following strategy:

Offer Payors a Comprehensive Range of Services and Products. The Company
offers managed care organizations and other payors access to cost-effective,
comprehensive home health care services and products provided directly by the
Company's employees, without having to coordinate with other providers. If an
acquired business does not provide all of the services and products generally
offered by the Company, those services and products are generally introduced
over time. The Company believes that offering comprehensive home health care
services and products provides payors with an efficient "one-stop-shop" that
enhances referrals, particularly from managed care organizations.

Cross-Sell Services and Products. The Company cross-sells its services and
products through its Coordinated Care Centers and home-based patient
evaluations conducted by the Company's nurses. The Company's two regional
Coordinated Care Centers serve as focal points for managed care organizations
to efficiently arrange for Company services and products. The Company's nurses
are trained to identify at the time of the nurse evaluation in the patient's
home any additional need for Company services and products. The Company
anticipates establishing additional Coordinated Care Centers in its existing
and new regions. See "The Company--Pending Acquisitions."

Develop Managed Care Referral Sources. Managed care organizations, which are
an increasingly significant source of referrals for home health care services,
accounted for 31.4% and 34.5% of the Company's net revenues in fiscal 1995 and
1996, respectively. Each of the Company's 28 branch locations is accredited by
the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO").
The Company intends to apply for JCAHO accreditation for each of the branch
locations of the Pending Acquisitions which are not accredited. The Company
believes JCAHO accreditation enhances its ability to obtain contracts with
certain managed care organizations. The Company is also targeting referrals
from managed care organizations by offering disease management programs for
the treatment of asthma, diabetes and other chronic illnesses, as well as
outcome and

34
<PAGE>

utilization reports. The Company expects that managed care contracts will
generate an increasing number of referrals as the penetration of managed care
accelerates in its markets.

Expand Through Acquisitions in Existing and New Markets. The Company seeks
to acquire home health care businesses in existing and new markets. The
Company's acquisition strategy in existing markets generally is to target
companies which broaden the Company's geographic coverage and which complement
and expand the Company's services and products. The Company's acquisition
strategy in entering new markets generally is focused on initially acquiring
larger companies which provide home nursing services. Assuming consummation of
the Pending Acquisitions, the Company will acquire in the Texas and New
England markets the operations of two Medicare home nursing companies with net
revenues for the twelve month period ended June 30, 1996 of $16.0 million and
$18.3 million, respectively. The Company believes that its acquisition of
companies which provide primarily nursing services at the time of acquisition
can enhance the Company's net revenues as related services and products are
introduced by the Company into the new market through additional acquisitions.
The Company believes there are a substantial number of acquisition
opportunities in target markets due to the fragmentation of the home health
care industry. See "--Industry Overview."

SERVICES

The Company derives substantially all of its net revenues through the
provision of nursing and related patient services, respiratory therapy,
infusion therapy and durable medical equipment. The following table shows the
percentage of net revenues represented by each of the Company's services and
products for the periods presented and pro forma for fiscal 1996 after giving
effect to the four acquisitions completed during fiscal 1996 and 1997 and the
Pending Acquisitions reflected in the Unaudited Pro Forma Consolidated
Financial Statements:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996
-----------------
1994 1995 ACTUAL PRO FORMA
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Nursing and related patient services:
Medicare................................... 64.7% 51.8% 40.9% 45.6%
Non-Medicare............................... 14.0 23.8 24.7 19.8
----- ----- ----- -----
78.7 75.6 65.6 65.4
Respiratory therapy.......................... 7.7 8.5 10.9 9.1
Infusion therapy............................. 6.9 8.6 7.2 14.1
Durable medical equipment.................... 6.7 7.3 16.3 11.4
----- ----- ----- -----
Total ................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

Nursing and Related Patient Services. The Company offers a broad range of
nursing and related patient services, including:

Registered nurses who provide a broad range of nursing care, including
pain management, respiratory therapy, infusion therapy, skilled observation
and assessment and teaching procedures.

Licensed practical nurses who perform technical nursing procedures, such
as injections and dressing changes.

Home health aides who provide personal care, such as bathing or
assistance with walking.

Physical therapists who help patients restore strength and range of joint
motion.

Occupational therapists who help patients regain their ability to perform
the activities of daily living, such as feeding, dressing, hygiene and
social activities.

Speech therapists who retrain patients to overcome speech, swallowing,
language or hearing impediments.

35
<PAGE>

Social workers who help patients and their families deal with financial,
personal and social concerns that arise from health problems.

Homemakers/companions who assist with meal preparation and housekeeping.

Respiratory Therapy Services. The Company provides respiratory therapy
services to patients who suffer from a variety of conditions, including
asthma, chronic obstructive pulmonary diseases (for example, emphysema and
bronchitis), cystic fibrosis and neurologically-related respiratory
conditions. The Company offers the following respiratory therapy services
together with training by, and assistance from, licensed personnel:

Oxygen systems of which there are three types: (i) oxygen concentrators,
which are stationary units that extract oxygen from ordinary air to provide
a continuous flow of oxygen, (ii) liquid oxygen systems, which are
portable, thermally insulated containers of liquid oxygen, and (iii) high
pressure oxygen cylinders, which are used for portability with oxygen
concentrators.

Nebulizers which deliver aerosol medication to patients to treat asthma,
chronic obstructive pulmonary diseases, cystic fibrosis and neurologically
related respiratory problems.

Home ventilators which sustain a patient's respiratory function
mechanically when a patient can no longer breathe normally.

Continuous positive airway pressure therapy which forces air through
respiratory passage-ways during sleep.

Apnea monitors which monitor and warn parents of apnea episodes in
newborn infants as a preventive measure against sudden infant death
syndrome.

Sleep studies which are used to detect sleep disorders and the magnitude
of such disorders.

Infusion Therapy Services. The Company provides the following infusion
therapy services together with training by, and assistance from, licensed
personnel:

Enteral nutrition which is the infusion of nutrients through a feeding
tube inserted directly into the functioning portion of a patient's
digestive tract. This long-term therapy is often prescribed for patients
who are unable to eat or drink normally.

Antibiotic therapy which is the infusion of antibiotic medications into a
patient's bloodstream typically to treat a variety of serious infections
and diseases.

Total parenteral nutrition which is the long-term provision of nutrients
through surgically implanted central vein catheters or through peripherally
inserted central catheters, for patients who cannot absorb adequate
nutrients internally due to chronic gastrointestinal conditions.

Pain management which involves the infusion of certain drugs into the
bloodstream of patients suffering from acute or chronic pain.

Chemotherapy which is the infusion of drugs into a patient's bloodstream
to treat various forms of cancer.

Other therapies including new delivery technologies and medications to
address a broad range of patient conditions, such as the side effects
associated with transplants, HIV/AIDS and cancer.

Durable Medical Equipment. The Company provides durable medical equipment to
serve the needs of its patients, including hospital beds, wheelchairs,
ambulatory aids, bathroom aids, patient lifts and rehabilitation equipment.

36
<PAGE>

OPERATIONS

Branch Locations. The Company operates 28 branch locations in its two
regions encompassing five states and, upon consummation of the Pending
Acquisitions, will operate 50 branch locations in four regions encompassing 10
states and the District of Columbia. The Company leases its corporate
headquarters and each of its branch locations. The location of the Company's
branches and the services and products provided at each branch are indicated
in the following chart:
<TABLE>
<CAPTION>
SERVICES AND PRODUCTS PROVIDED
------------------------------------------
NURSING AND
DATE RELATED RESPIRATORY INFUSION DURABLE
OPENED OR PATIENT THERAPY THERAPY MEDICAL
REGION BRANCH LOCATION ACQUIRED SERVICES SERVICES SERVICES EQUIPMENT
------ --------------- --------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
MID-ATLANTIC
Southern PA and Pennsauken, NJ 5/95 X X
Southern NJ Bristol, PA 10/96 X X
King of Prussia, PA(3)(4) 5/92 X X X X
Philadelphia, PA 10/88 X X X X
Northeastern PA Dupont, PA(3) 3/93 X X X X
Scranton, PA(2) 2/95 X
Stroudsburg, PA 11/92 X X X X
Wilkes-Barre, PA 12/94 X X X X
Chicago, IL(1) -- X X X
DE and Eastern Dover, DE 3/95 X X X X
MD Newark, DE 3/95 X X X
Newark, DE 3/95 X
Seaford, DE 6/95 X X X X
Belaire, MD(1) -- X
Berlin, MD 9/96 X
Columbia, MD(1) -- X X X
Salisbury, MD 3/95 X X X X
Salisbury, MD 9/96 X
FLORIDA
Southeastern FL Boca Raton 3/95 X X X X
Ft. Pierce 9/90 X X X X
Lauderhill 8/86 X X X X
Pompano Beach(2)(3)(4) 3/93 X X X
Vero Beach 10/93 X X X X
W. Palm Beach 8/90 X X X X
Western FL Kenneth City 5/96 X
Largo 5/96 X
Sarasota(3) 8/96 X
St. Petersburg 5/96 X
Tampa 10/95 X X
Tampa 5/96 X
Tarpon Springs 5/96 X
NEW ENGLAND Salem, NH(1)(2) -- X
New London, NH(1) -- X
Danvers, MA(1) -- X
Arlington, MA(1) -- X
Maynard, MA -- X
Malden, MA(1) -- X
Newton, MA(1) -- X
Lowell, MA(1) -- X
</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
SERVICES AND PRODUCTS PROVIDED
------------------------------------------
NURSING AND
DATE RELATED RESPIRATORY INFUSION DURABLE
OPENED OR PATIENT THERAPY THERAPY MEDICAL
REGION BRANCH LOCATION ACQUIRED SERVICES SERVICES SERVICES EQUIPMENT
- ------ --------------- --------- ----------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
TEXAS Abilene(1) -- X
Amarillo(1) -- X
Austin(1) -- X
Dallas(1)(2)(3) -- X X
Fort Worth(1) -- X
Granbury(1) -- X
Odessa(1) -- X
San Angelo(1) -- X
Sherman(1) -- X
Stephenville(1) -- X
Temple(1) -- X
</TABLE>
- --------
(1) To be acquired upon consummation of the Pending Acquisitions.
(2) Regional office.
(3) Regional institutional pharmacy servicing the infusion requirements of
branch locations.
(4) Regional Coordinated Care Center.

Organization. The Company's operations are organized into a Mid-Atlantic
region and Florida region. Two Regional Vice Presidents, who report to the
Company's Chief Operating Officer, are responsible for managing the operations
of their respective regions. Regional support staff generally are organized by
either nursing and related patient services or other services or products.
Each region has two locations providing pharmacy services, primarily for
infusion therapy, and a Coordinated Care Center to coordinate the delivery of
the Company's services and products to patients referred by managed care
organizations. Management functions, such as professional services oversight,
finance and accounting, sales training and support, product development,
policy and procedure development, and management information systems are
centralized at the corporate headquarters. The Company manages the integration
of the operations of acquired companies through a team of experienced
operations personnel. This team plans and coordinates the transition for each
acquired company to the Company's centralized accounting, billing, payroll and
other systems.

Coordinated Care Centers. The Company has a Coordinated Care Center in each
of its two operating regions and plans to establish additional Coordinated
Care Centers in existing and new regions. Coordinated Care Centers serve as
focal points for managed care organizations to arrange for Company services
from a Company home care coordinator. The home care coordinator facilitates
the delivery of the comprehensive range of services and products to patients
referred to the Company by managed care organizations. After receiving the
referral, the Company's home care coordinator reviews the patients' medical
history, confirms insurance coverage and arranges for physician-prescribed
home health care services and products to be delivered to the patient.

Management Information Systems. The Company maintains several management
information systems to support (i) billing operations for the Company's
services and products, including an integrated clinical database, (ii)
accounting and financial operations, and (iii) data transfer among the
Company's branch locations, regional Coordinated Care Centers, regional
offices, and corporate headquarters. Capital expenditures for management
information systems are for maintaining and upgrading existing operations,
enhancing the Company's ability to track clinical data, including outcomes
measurement data, and improving data transfer.

SALES AND MARKETING

The Company's marketing department provides planning and development, market
research, public and community relations support and educational program
development for all of the Company's branch locations.

38
<PAGE>

As of October 30, 1996, the Company employed 37 sales representatives whose
primary responsibilities are to generate referrals from payors, hospitals,
physicians and other health care professionals.

The Company focuses its marketing efforts and sales resources on referral
sources. The Company generates referrals from managed care organizations,
hospitals, physicians, discharge planners and other health care professionals.
The Company offers managed care organizations a comprehensive range of
products and services delivered in a coordinated manner, disease management
programs for the treatment of asthma, diabetes and other chronic illnesses,
continuing education seminars, as well as outcome and utilization reports. The
Company has contracts with numerous managed care organizations, including
organizations affiliated with Humana Health Care Plans, Inc., HIP Network of
Florida, Inc., Aetna Health Plans of Central and Eastern Pennsylvania, Inc.,
Independence Blue Cross, Keystone Health Plan East, U.S. Healthcare, Inc. and
Prudential Health Care Plan Inc.

COMPETITION

The home health care industry is highly competitive and includes national,
regional and local providers. The Company competes with a large number of home
health care providers in all areas in which its branches operate. The
Company's competitors include major national and regional companies, hospital-
based programs, numerous local providers and nursing agencies. Some current
and potential competitors have or may obtain significantly greater financial
and marketing resources than the Company. In addition, relatively few barriers
to entry exist in the home health care industry. Accordingly, other companies,
including managed care organizations, hospitals, long-term care providers and
health care providers that currently are not serving the home health care
market, may become competitors. As a result, the Company could encounter
increased competition in the future that may limit its ability to maintain or
increase its market share or otherwise materially adversely affect its
financial condition or results of operations. The Company believes that the
principal competitive factors in the industry are quality of care, including
responsiveness of services and quality of professional personnel, breadth of
services offered, cost of services and general reputation with patients,
payors and the medical community, including physicians, hospitals and other
health care providers.

PAYOR MIX

The Company derives substantially all of its net revenues from Medicare,
Medicaid and private payors, which include managed care organizations,
including health maintenance organizations ("HMOs") and preferred provider
organizations ("PPOs"), traditional indemnity insurers and third party
administrators ("TPAs"). While Medicare will continue to represent a
significant component of net revenues, the Company anticipates net revenues
from managed care organizations will increase significantly. The following
table outlines the payor mix for the Company's net revenues for the periods
presented and pro forma for fiscal 1996 after giving effect to the four
acquisitions completed during fiscal 1996 and 1997 and the Pending
Acquisitions reflected in the Unaudited Pro Forma Consolidated Financial
Statements:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-------------------------------
1996
-----------------
1994 1995 ACTUAL PRO FORMA
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Medicare...................................... 70.9% 59.5% 53.0% 59.3%
Medicaid...................................... 4.2 9.1 12.5 10.0
Managed care and other........................ 24.9 31.4 34.5 30.7
----- ----- ----- -----
Total....................................... 100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
</TABLE>

A majority of the Company's business is, and is expected to continue to be,
reimbursed by Medicare and Medicaid. Medicare is a federally-funded health
program which provides health insurance coverage for certain disabled persons
and persons age 65 or older. Medicaid is a health insurance program, jointly
funded by the federal and state governments, which provides health insurance
coverage for certain financially or medically

39
<PAGE>

needy persons regardless of age. Medicaid benefits supplement Medicare
benefits for financially needy persons age 65 or older. Congress has provided,
through the Medicare program, for coverage of home health care services
including part-time or intermittent skilled nursing care; physical,
occupational, or speech therapy; medical social services under the direction
of a physician; part-time or intermittent services of a home health aide;
medical supplies (but not drugs or biologicals except for osteoporosis drugs)
and durable medical equipment. Medicare reimburses the Company for the
services it renders under Parts A and B of the Medicare program. Medicare Part
A reimburses the Company on a "cost basis" based on the lower of the Company's
allowable cost, as defined by Medicare regulations, not to exceed annual cost
limits or the Company's actual charges. Allowable cost is the actual cost
directly related to providing home health care services, plus an overhead
allocation. Cost reports evidencing the fiscal year allowable costs, visit
data, charges and other financial information are filed annually and are
subject to audit. Medicare Part B is paid on a fixed fee-for-service basis
similar to other third-party payors, such as managed care organizations. See
"Risk Factors--Medicare Reimbursement."

In the states in which the Company operates, Medicaid provides reimbursement
for certain home health care services for eligible recipients primarily on a
fee-for-service basis. Services provided by the Company to Medicaid-eligible
patients are primarily to pediatric patients under a special program
established by Medicaid for specific types of patients. Reimbursement rates
for such services generally are higher than otherwise allowed under the
Medicaid programs.

The Company operates nine Medicare nursing agencies, of which six receive
periodic interim payments ("PIPs") from the Medicare program for services
provided. PIPs are biweekly payments, the amounts of which are revised
quarterly to reflect increases or decreases in the volume of nursing services
provided. Because PIPs are paid biweekly, the arrangement has a substantially
more favorable effect on the Company's cash flow than other payment
arrangements. Should the Medicare program discontinue PIPs, either in
connection with the implementation of a prospective payment system or
otherwise, there could be a material adverse effect on the Company's cash
flow. See "Risk Factors--Reimbursement Payments."

GOVERNMENT REGULATION

The Company's business is subject to extensive federal, state and local
regulation.

Permits and Licensure. Many states require companies providing certain home
health care services to be licensed as home health agencies. The Company
currently is licensed as a home health agency where required by the law of the
states in which it operates. In addition, certain of the Company's pharmacy
operations require state licensure and are also subject to federal and other
state laws and regulations governing pharmacies and the packaging and
repackaging and dispensing of drugs (including oxygen). Federal laws may
require registration with the Drug Enforcement Administration of the United
States Department of Justice and the satisfaction of certain requirements
concerning security, record keeping, inventory controls, prescription order
forms and labeling. In addition, certain health care practitioners employed by
the Company require state licensure and/or registration and must comply with
laws and regulations governing standards of practice. The failure to obtain,
renew or maintain any of the required regulatory approvals or licenses could
adversely affect the Company's business. There can be no assurance that either
the states or the federal government will not impose additional regulations
upon the Company's activities which might adversely affect its business,
results of operations or financial condition.

Certificates of Need. Certain states require companies seeking to provide
home health care services to obtain a certificate of need issued by a state
health planning agency. Some states require such certificates of need only for
Medicare-certified home health agencies. The Company has nine Medicare-
certified home health agencies in its existing operations and anticipates that
two Medicare-certified home health agencies will be added to its operations
upon consummation of the Pending Acquisitions. Where required by law, the
Company has obtained certificates of need from those states in which it has
sought to operate. There can be no assurance that the Company will be able to
obtain any certificates of need which may be required in the future if the
Company expands its operations or if state laws change to impose additional
certificate of need requirements. Any attempt to obtain additional
certificates of need will cause the Company to incur certain expenses.

40
<PAGE>

JCAHO Accreditation. All of the Company's branch locations have been
accredited by JCAHO, a nationally-recognized organization that develops
standards for various health care industry segments and monitors compliance
with those standards through voluntary surveys of participating providers. As
the home health care industry has grown, the need for objective quality
measurements has increased. Not all providers have chosen to undergo the
accreditation process because of its expense and time burden. Consequently,
the Company has positioned itself to procure managed care contracts in part
because of its choice to undergo rigorous review of its operations.

Fraud and Abuse Laws. The Company is also subject to federal and state laws
prohibiting direct or indirect payments for patient referrals, prohibiting
referrals to an entity in which the referring provider has a financial
interest, and regulating reimbursement procedures and practices under
Medicare, Medicaid and state programs as well as in relation to private
payors. While the Company believes that it is in material compliance with such
laws, it continues to monitor its compliance.

The provisions of the Anti-kickback Statute prohibit the offer, payment,
solicitation or receipt of any remuneration in return for the referral of
items or services paid for in whole or in part under the Medicare or Medicaid
programs (or certain other state health care programs). To date, courts and
government agencies have interpreted the Anti-kickback Statute to apply to a
broad range of financial relationships between providers and referral sources,
such as physicians and other practitioners. HHS has adopted regulations
creating "safe harbors" from federal criminal and civil penalties under the
Anti-kickback Statute by exempting certain types of ownership interests and
other financial arrangements that do not appear to pose a threat of Medicare
and Medicaid program abuse. Transactions covered by the Anti-kickback Statute
that do not conform to an applicable safe harbor are not necessarily in
violation of the Anti-kickback Statute, but the practice may be subject to
increased scrutiny and possible prosecution. The criminal penalty for
conviction under the Anti-kickback Statute is a fine of up to $25,000 and/or
up to five years imprisonment. In addition, conviction mandates exclusion from
participation in the Medicare and Medicaid programs. Such exclusion can also
result from conviction under other federal laws which impose civil and
criminal penalties for submitting false claims, such as claims for services
not provided as alleged. Several health care reform proposals have included an
expansion of the Anti-kickback Statute to apply to referrals of any patients
regardless of payor source.

The federal government has enacted the so-called "Stark Law," which
generally prohibits referrals by physicians to certain entities with which
they have a financial relationship. More recently, the Stark Law was broadly
expanded by Stark II, which provides that where a physician has a "financial
relationship" with a provider of "designated health services" (including,
among other things, the provision of parenteral and enteral nutrients,
equipment and supplies, home health services, ultrasound services, physical
therapy services, occupational therapy, and durable medical equipment), the
physician will be prohibited from making a referral to the health care
provider and the provider will be prohibited from billing for the designated
health service for which Medicare or Medicaid payment would otherwise be made.
Certain exceptions are available under Stark II, which may or may not be
available to the Company for arrangements in which the Company may be
involved. Submission of a claim that a provider knows or should know is for
services for which payment is prohibited under Stark II could result in
refunds of any amounts billed, civil money penalties of not more than $15,000
for each such service billed, and possible exclusion from the Medicare and
Medicaid programs. Furthermore, Medicare regulations contain similar self-
referral restrictions which provide that unless certain conditions are met, a
plan of care for home health services generally may not be certified by a
physician who has a significant ownership interest in, or a significant
financial or contractual relationship with, that home health agency. It is the
Company's policy to monitor its compliance with Stark II and to take
appropriate actions to ensure such compliance. A violation of Stark II could
result in civil penalties and exclusion from participation in Medicare and
Medicaid programs.

Many states have adopted statutes and regulations, which vary from state to
state, prohibiting provider referrals to an entity in which the provider has a
financial interest, direct or indirect remuneration or fee-splitting
arrangements between health care providers for patient referrals, and other
types of financial arrangements with

41
<PAGE>

health care providers. Sanctions for violation of these state restrictions may
include loss of licensure and civil and criminal penalties. Certain states,
including Pennsylvania, also require health care practitioners to disclose to
patients any financial relationship with a provider and advise patients of the
availability of alternative providers.

The federal government has increased significantly the financial and human
resources allocated to enforcing the fraud and abuse laws. In addition,
federal law permits private causes of action for violation of the fraud and
abuse laws. In May 1995, the Clinton Administration instituted Operation
Restore Trust, a health care fraud and abuse initiative focusing on nursing
homes, home health care agencies and durable medical equipment companies
located in the five states with the largest Medicare populations. The targeted
states include California, Florida, Illinois, New York and Texas. Operation
Restore Trust and other similar initiatives have been responsible for millions
of dollars in civil and criminal restitution, fines, recovery of overpayments
and the exclusion of a number of individuals and corporations from the
Medicare program. Operation Restore Trust has since been expanded to cover all
fifty states. While the Company believes that it is in material compliance
with such laws, there can be no assurance that the practices of the Company,
if reviewed, would be found to be in full compliance with such laws, as such
laws ultimately may be interpreted. It is the Company's policy to monitor its
compliance with such laws and to take appropriate actions to ensure such
compliance. Although the Company does not believe it has violated any
regulatory requirements, there can be no assurance that future related
legislation, either health care or budgetary, related regulatory changes or
interpretations of such regulations, will not have a material adverse effect
on the future operations of the Company. Private insurers and various state
enforcement agencies also have increased their scrutiny of health care
providers' practices and claims, particularly in the home health and durable
medical equipment areas. No assurance can be given that the practices of the
Company, if reviewed, would be found to be in compliance with the requirements
of private insurers, current laws or with any future laws, as such laws
ultimately may be interpreted. See "Risk Factors--Regulatory Environment."

Current Developments. Political, economic and regulatory influences are
subjecting the health care industry in the United States to fundamental
change. Although Congress has failed to pass comprehensive health care reform
legislation, the Company anticipates that Congress and state legislatures will
continue to review and assess alternative health care delivery and payment
systems and may in the future propose and adopt legislation effecting
fundamental changes in the health care delivery system. Legislative debate is
expected to continue in the future. In addition, the level of net revenues and
profitability of the Company, like those of other health care providers, will
be affected by the continuing efforts of payors to contain or reduce the costs
of health care by lowering reimbursement rates, increasing case management
review of services and negotiating reduced contract pricing and capitation
arrangements.

HCFA, the federal agency responsible for the rules governing Medicare and
Medicaid, is currently examining a number of proposed changes to the Medicare
reimbursement system for nursing services, including changing nursing
reimbursement from a retrospective cost-based system to a prospective payment
system. Currently, Medicare reimburses participating nursing home health
agencies for the reasonable costs incurred to provide covered visits to
eligible beneficiaries, subject to certain cost limits which vary according to
geographic regions of the country. The impact of such a change, if
implemented, on the Company's financial condition or results of operations
cannot be predicted with any certainty at this time and would depend, to a
large extent, on the reimbursement rates for home nursing established under
the prospective payment system. There can be no assurances that such
reimbursement rates, if enacted, would cover the costs incurred by the Company
to provide home nursing services.

In August 1996, HCFA submitted a proposal to HHS to reduce oxygen
reimbursement to providers by 40%. A reduction in oxygen reimbursement is not
expected to have a significant effect on the Company's results of operations
as oxygen therapy services represented less than 5% of net revenues in fiscal
1996. However, as the Company cannot be certain of the timing or level of such
reductions in Medicare oxygen reimbursement, the effect of such reductions
cannot be predicted with any level of certainty. See "Risk Factors--
Reimbursement Payments."

42
<PAGE>

EMPLOYEES

As of October 30, 1996, the Company employed approximately 995 full- and
part-time employees. Of these employees, approximately 225 are nurses and
approximately 75 are employed at the Company's executive offices. In addition,
the Company maintains registries of approximately 1,822 licensed nurses,
therapists, home health aides and other home health care providers who are
available for staffing assignments on a temporary basis. The Company believes
that its employee relations are good. The Company's employees are not
represented by a labor union.

INSURANCE

The Company maintains a commercial general liability policy which includes
product liability coverage on the medical equipment that it sells or rents
with both a per-occurrence and annual aggregate coverage limit of $1.0
million. In addition, the Company has an umbrella liability or "excess" policy
with a single limit of $1.0 million for any one occurrence in excess of
certain minimum amounts. The umbrella policy excludes professional liability.
The Company maintains a health care agency professional liability insurance
policy with limits of $1.0 million per occurrence and an annual aggregate
limit of $3.0 million. Health care professionals with whom the Company has
contracted must provide evidence that they carry at least $1.0 million of
insurance coverage, although there is no assurance that such providers will
continue to do so, or that such insurance is, or will continue to be, adequate
or available to protect the Company, or that the Company will not have
liability independent of that of such providers and/or their insurance
coverage. While the Company believes that it has adequate insurance coverage,
there can be no assurance that any such insurance will be sufficient to cover
any judgments, settlements or costs relating to any pending or future legal
proceedings (including any related judgments, settlements or costs) or that
any such insurance will be available to the Company in the future on
satisfactory terms, if at all. Any judgments, settlements or costs relating to
pending or future legal proceedings which are not covered by insurance could
have a material adverse effect on the Company's results of operations or
financial condition. See "Risk Factors--Potential Liability."

LEGAL PROCEEDINGS

While the Company is periodically involved in litigation incidental to its
business, there are no material legal proceedings to which the Company or any
of its subsidiaries is a party or to which any of their properties are
subject.

43
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

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

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Bruce J. Feldman(1)(5).......................... 47 President, Chief
Executive Officer and
Chairman of the Board
Bruce J. Colburn................................ 42 Chief Financial Officer
Fred J. Nicholas................................ 51 Chief Operating Officer
James J. Swiniuch............................... 39 Vice President, Mergers,
Acquisitions and
Business Development
Colleen M. Lederer.............................. 40 Vice President,
Professional Services
Joseph J. Grilli................................ 45 Vice President, Mid-
Atlantic Region
Thomas T. Quinn................................. 48 Vice President, Florida
Region
G. Michael Bellenghi(1)(2)(4)................... 48 Director
Harvey Machaver(1)(2)(5)........................ 71 Director
Joseph F. Trustey(2)(3)......................... 34 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Class A Director. Term expires at the 1996 annual meeting of stockholders.
(4) Class B Director. Term expires at the 1997 annual meeting of stockholders.
(5) Class C Director. Term expires at the 1998 annual meeting of stockholders.

Bruce J. Feldman, the founder of the Company, has served as President, Chief
Executive Officer and Chairman of the Board of HHCA since it was founded in
December 1982. Prior to founding the Company, Mr. Feldman owned a Medicare-
certified home health agency, which became a subsidiary of the Company in
1982.

Bruce J. Colburn became the Chief Financial Officer in April 1996. From 1995
to 1996, Mr. Colburn was Senior Vice President, Chief Financial Officer and
Treasurer of NovaCare, Inc., a national provider of rehabilitation services.
From 1994 to 1995, Mr. Colburn was Senior Vice President, Chief Financial
Officer and Treasurer of Primary Health Systems, L.P., an acute care hospital
company. In 1994, Mr. Colburn was Senior Vice President, Finance, of OrNda
Healthcorp, an acute care hospital company, and since 1990 held various
financial officer positions with American Healthcare Management, Inc., a
hospital company acquired by OrNda Healthcorp in 1994.

Fred J. Nicholas became the Chief Operating Officer in January 1995. He
joined the Company in June 1992 as Chief Operating Officer of the Florida
division. From April 1990 to June 1992, Mr. Nicholas was President and Chief
Operating Officer of Unity Health Care, Inc., a home health care company.

James J. Swiniuch became the Vice President of Mergers, Acquisitions and
Business Development in April 1996. From 1994 to 1996, Mr. Swiniuch served as
the Chief Financial Officer. From 1991 to 1994, he served as Director of
Accounting. From 1990 to 1991, Mr. Swiniuch was President of Equitable
Beneficial Life Insurance Company, a life and health insurer located in
Broomall, Pennsylvania.

Colleen M. Lederer, a Registered Nurse, has been the Vice President of
Professional Services since July 1994. From 1987 to 1994, Ms. Lederer was
director of professional services. Prior to 1989, Ms. Lederer was an owner of
Nursing Unlimited, Inc., a home care and consulting company.

Joseph J. Grilli became the Vice President, Mid-Atlantic Region in July
1996. He has been employed by the Company since 1988 in various positions.
Prior to his association with the Company, Mr. Grilli was Vice President of
the Mercy Regional Health System, an acute care provider based in Cincinatti,
Ohio.

44
<PAGE>

operator of long-term care facilities and a home health care provider. From
1989 to 1992, Mr. Quinn was President and Chief Operating Officer of Infu
Tech, Inc., a home infusion therapy company.

G. Michael Bellenghi has been a director of the Company since October 1994.
Since 1990, he has been the Chief Executive Officer of Paragon Management
Group, Inc., a health care consulting company located in Malvern,
Pennsylvania. He is also the Chairman and Chief Executive Officer of Recordex
Services, Inc., a medical records retrieval company located in Malvern,
Pennsylvania. Mr. Bellenghi also serves as a director of F.Y.I. Incorporated,
the parent company of Recordex Services, Inc., a company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934.

Harvey Machaver has been a director of the Company since December 1985.
Since 1990, Mr. Machaver has been President of Scopus Evaluation Services, a
health care consulting firm located in New York, New York. Mr. Machaver is a
fellow of the American College of Health Care Executives and a fellow of the
New York Academy of Medicine.

Joseph F. Trustey has been a director of the Company since April 1995. From
1992 to the present, Mr. Trustey has been employed by Summit Partners, L.P., a
venture capital firm, and currently serves as a general partner of that firm.
From 1990 to 1992, Mr. Trustey was employed as a strategy consultant with the
consulting firm of Bain & Company, Inc. Mr. Trustey is a director of Suburban
Ostomy Supply Co., Inc., a company with a class of securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.

BOARD OF DIRECTORS

Classified Board. The Board of Directors is divided into a staggered board
of three classes. Currently, Class A and Class B consist of one director each
and Class C consists of two directors. At each annual meeting of the
stockholders the directors of the class whose terms are expiring are elected
for a term of three years.

Committees and Relationships. The Board of Directors has established an
Audit Committee and a Compensation Committee. The Audit Committee reviews the
Company's accounting practices, internal accounting controls and financial
results and oversees the engagement of the Company's independent auditors. The
members of the Company's Audit Committee are Messrs. Feldman, Machaver and
Bellenghi. The Compensation Committee reviews and recommends to the Board of
Directors the salaries, bonuses and other forms of compensation for executive
officers of the Company and administers various compensation and benefit
plans. The members of the Company's Compensation Committee are Messrs.
Bellenghi, Machaver and Trustey. The Board of Directors does not maintain a
nominating committee or a committee performing similar functions. Each officer
serves at the discretion of the Board of Directors. There are no family
relationships among any of the directors and executive officers of the
Company.

Directors' Fees. The Company pays its directors who are not officers or
employees of the Company a fee of $1,000 for each Board and Committee meeting
attended.

Consulting Arrangements. The Company has a consulting arrangement with
Scopus Evaluation Services, of which Mr. Machaver is the principal
stockholder. In fiscal 1996, 1995 and 1994, the Company paid consulting fees
of approximately $40,000, $40,000 and $37,000, respectively, to Scopus.

Stock Options. Under the Company's 1995 Employee and Consultant Equity Plan,
each non-employee director was granted on November 13, 1995 an option to
purchase 10,000 shares of Common Stock at an exercise price of $7.50 per share
(the "Directors' Options"). The Directors' Options are currently exercisable
with respect to 5,000 shares and will become exercisable with respect to an
additional 2,500 shares on each of November 13, 1996 and November 13, 1997.

45
<PAGE>

SUMMARY COMPENSATION TABLE

The following table sets forth certain information regarding the
compensation paid to the Chief Executive Officer and each of the four other
most highly compensated executive officers of the Company for services
rendered in all capacities to the Company for fiscal 1996 and fiscal 1995
(collectively the "named executive officers").

<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION(1) COMPENSATION
----------------------- ------------
SECURITIES
FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ------ -------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Bruce J. Feldman............ 1996 $254,000 $43,600 75,000 $33,792(2)
President and Chief
Executive Officer 1995 244,869 25,000 -- 58,573(3)
Fred J. Nicholas ........... 1996 155,000 15,500 50,000 --
Chief Operating Officer 1995 127,728 14,000 5,000 14,000(4)
Joseph J. Grilli ........... 1996 110,000 11,000 10,000 --
Vice President, Mid-
Atlantic Region 1995 108,769 10,500 5,000 10,500(4)
James J. Swiniuch .......... 1996 110,000 2,500 25,000 --
Vice President, Mergers, 1995 103,307 11,000 5,000 11,000(4)
Acquisitions and Business
Development
</TABLE>
- --------
(1) Does not include the value of perquisites provided to certain executive
officers which in the aggregate did not exceed the lesser of $50,000 or
10% of such officer's salary and bonus.
(2) Consists of $15,460 of premiums on a split-dollar life insurance policy
and $18,324 relating to indebtedness to the Company that was forgiven upon
the attainment of certain operating results. See "Certain Transactions."
(3) Consists of $25,000 contributed to the Company's pension and profit
sharing plan, $15,000 of premiums on a split-dollar life insurance policy
and $18,573 relating to indebtedness to the Company that was forgiven upon
the attainment of certain operating results. See "Certain Transactions."
(4) Represents contributions to the Company's pension and profit sharing plan.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth certain information concerning stock options
granted during fiscal 1996 to the named executive officers. The following
table also sets forth the potential realizable value over the term of the
options (the period from grant date to the expiration date), based on assumed
rates of stock appreciation of 5% and 10%, compounded annually. These amounts
do not represent the Company's estimate of future stock price. Actual
realizable values, if any, of stock options will depend on the future
performance of the Common Stock.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM(1)
----------------------------------------------- ---------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE 5% 10%
---- ---------- ---------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce J. Feldman........ 75,000 25.6% $7.50 11/13/05 $ 353,753 $ 896,480
Fred J. Nicholas........ 25,000 8.5% 7.50 11/13/05 117,918 298,827
25,000 8.5% 9.00 3/08/06 141,501 358,592
Joseph J. Grilli........ 10,000 3.4% 7.50 11/13/05 47,167 119,531
James J. Swiniuch....... 25,000 8.5% 7.50 11/13/05 117,918 298,827
</TABLE>
- --------
(1) Represents the difference between the market value of the Common Stock for
which the option may be exercised, assuming that the market value of the
Common Stock appreciates in value from the date of grant to the end of the
option term at annualized rates of 5% and 10%, respectively, and the
exercise price of the option. The rates of appreciation used in this table
are prescribed by regulations of the Commission and are not intended to
forecast future appreciation of the market value of the Common Stock.

46
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

The following table sets forth certain information concerning the exercise
of stock options during fiscal 1996 and the number and value of unexercised
options held at the end of fiscal 1996 by the named executive officers.

<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END FISCAL YEAR-END(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Bruce J. Feldman........ -- -- 56,250/18,750 $341,016/$113,672
Fred J. Nicholas........ -- -- 27,083/32,917 218,355/ 172,895
Joseph J. Grilli........ -- -- 11,667/ 8,333 124,885/ 61,365
James J. Swiniuch....... -- -- 25,416/ 9,584 197,414/ 79,774
</TABLE>
- --------
(1) Calculated by determining the difference between the fair value of the
securities underlying the options on June 30, 1996 and the exercise price.

EMPLOYMENT AGREEMENTS

Bruce J. Feldman. On September 1, 1995, the Company entered into an
employment agreement with Bruce J. Feldman, President and Chief Executive
Officer of the Company, for an initial term of three years, subject to
automatic annual extensions of one year on August 31, 1996 and each
anniversary thereafter. Pursuant to the terms of Mr. Feldman's employment
agreement, Mr. Feldman is entitled to receive (i) an annual base salary of
$284,000, or such higher amount as the Compensation Committee of the Board may
determine (the "Base Salary"); (ii) an annual cash bonus based on the
Company's achievement of specified levels of net income as determined by the
Compensation Committee; and (iii) a deferred annuity program of $15,000 per
year and other benefits at least equivalent to those provided to the Company's
other executive officers. The Base Salary will be reviewed by the Compensation
Committee on not less than an annual basis. Pursuant to the employment
agreement, Mr. Feldman is also entitled to receive a car allowance of $9,000
per year and received a non-qualified stock option grant to purchase 75,000
shares of Common Stock at a per share exercise price of $7.50. Of the shares
subject to this option 50% vested on November 13, 1995, 25% vested on August
31, 1996 and the remaining 25% will vest on August 31, 1997.

Mr. Feldman's employment agreement may be terminated by the Company with or
without cause, which is defined to include, among other things, the material
breach of the employment agreement by Mr. Feldman, gross negligence in the
performance of his duties, conviction of a felony or commission of a material
act of dishonesty or breach of trust with respect to the Company. The
employment agreement may also be terminated by Mr. Feldman for good reason,
which includes, among other things, the demotion or removal of Mr. Feldman, a
material diminishment of his responsibilities, a reduction in his Base Salary,
his failure to be re-elected to the Board or upon a change in control of the
Company. In the event of termination for good reason (including the Company's
failure to renew the term of the employment agreement) by Mr. Feldman, or
without cause by the Company, Mr. Feldman will be entitled to receive, among
other things, regular payments of his Base Salary for three years and have any
unvested stock options and awards accelerate and become fully exercisable. In
the event of termination by the Company for cause or for any other reason, Mr.
Feldman will be entitled to receive any unpaid salary and benefits through the
date of termination. Under the employment agreement, Mr. Feldman is prohibited
from disclosing confidential information during and after the term of the
agreement. In addition, Mr. Feldman is prohibited from soliciting employees or
customers of the Company or engaging or participating in any business which
competes with the Company within a 100-mile radius of any of the Company's
branch offices while he is employed by the Company and for one year thereafter
or, in the event of termination by Mr. Feldman for good reason (including the
Company's failure to renew the term of the employment agreement) or by the
Company without cause, for three years thereafter.

47
<PAGE>

Fred J. Nicholas. The Company entered into an employment agreement, dated as
of January 1, 1995, with Fred J. Nicholas, Chief Operating Officer of the
Company, for a term of three and one-half years. Pursuant to the terms of Mr.
Nicholas's employment agreement, Mr. Nicholas is entitled to receive (i) a
base salary of $140,000 per year; (ii) incentive compensation as determined by
the Board of Directors; and (iii) other benefits similar to those provided to
the Company's other officers. Mr. Nicholas's employment agreement may be
terminated with or without cause by either party. In the event of termination
by the Company without cause, Mr. Nicholas will be entitled, under certain
circumstances, to continue to receive regular payments of his base salary for
a period of six months after the date of his termination. In all other cases,
in the event that Mr. Nicholas's employment agreement is terminated, he is
entitled to receive unpaid salary and benefits earned up to the date of
termination. In the event that Mr. Nicholas's employment is terminated for any
reason other than without cause by the Company, he is prohibited from
competing with the Company for a period of two years after such termination.

James J. Swiniuch. The Company entered into an employment agreement, dated
as of March 1, 1994, with James J. Swiniuch, Vice President, Mergers,
Acquisitions and Business Development, for a term of two years. In August
1995, the Company extended the term of Mr. Swiniuch's employment agreement to
March 1, 1998. Pursuant to the terms of Mr. Swiniuch's employment agreement,
Mr. Swiniuch is entitled to receive (i) a base salary of $100,000 per year;
(ii) incentive compensation as determined by the Board of Directors; and (iii)
other benefits similar to those provided to the Company's other officers. Mr.
Swiniuch's employment agreement may be terminated with or without cause by
either party. In the event of termination by the Company without cause, Mr.
Swiniuch will be entitled, under certain circumstances, to continue to receive
regular payments of his base salary for a period of four months after the date
of this termination. In all other cases of termination, he is entitled to
receive unpaid salary and benefits earned up to the date of termination. In
the event that Mr. Swiniuch's employment is terminated for any reason other
than without cause by the Company, he is prohibited from competing with the
Company for a period of two years after such termination.

Joseph J. Grilli. The Company entered into an employment agreement, dated as
of July 1, 1996, with Joseph J. Grilli, Vice President, Mid-Atlantic Region,
for a term of three years. Pursuant to the terms of Mr. Grilli's employment
agreement, Mr. Grilli is entitled to receive (i) a base salary of $125,000 per
year; (ii) incentive compensation as determined by the Board of Directors; and
(iii) other benefits similar to those provided to the Company's other
officers. Mr. Grilli's employment agreement may be terminated with or without
cause by either party. In the event of termination by the Company without
cause, Mr. Grilli will be entitled, under certain circumstances, to continue
to receive regular payments of his base salary for a period of 12 months after
the date of his termination. In all other cases, in the event that Mr.
Grilli's employment agreement is terminated, he is entitled to receive unpaid
salary and benefits earned up to the date of termination. In the event Mr.
Grilli's employment is terminated for any reason other than without cause by
the Company, he is prohibited from competing with the Company for a period of
one year after such termination.

CERTAIN TRANSACTIONS

On June 30, 1992, the Company loaned the principal sum of approximately
$95,000 to Bruce J. Feldman, its President and Chief Executive Officer. The
loan matures on June 30, 1997 and is payable annually with interest at the
rate of 8% per annum until paid in full. This note may be forgiven contingent
upon the Company achieving certain annual profit performance criteria. The
profit performance criteria were met for fiscal 1993, 1994, 1995 and 1996,
resulting in a total forgiveness to date of approximately $77,000. As of
September 30, 1996, the principal balance due on the loan was approximately
$18,000. See "Management."

48
<PAGE>

PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Common Stock and as adjusted to
reflect the sale of the Shares offered hereby by (i) each person known by the
Company to be the beneficial owner of five percent or more of the Common
Stock, (ii) each Selling Stockholder; (iii) each of the Company's directors;
(iv) each of the named executive officers; and (v) all directors and executive
officers as a group. Except as otherwise indicated below, all information is
as of October 1, 1996 and the beneficial owners of the Common Stock listed
below have sole investment and voting power with respect to such shares.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR OWNED AFTER
TO THE OFFERING(2) THE OFFERING(2)
----------------------- NUMBER OF -----------------------
NAME AND ADDRESS OF SHARES
BENEFICIAL OWNER(1) NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------- ------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Bruce J. Feldman(3)..... 935,853 11.6% 50,000 885,853 8.0%
Fred J. Nicholas(4)..... 53,083 * -- 53,083 *
James J. Swiniuch(5).... 26,716 * -- 26,716 *
Joseph J. Grilli(6)..... 11,666 * -- 11,666 *
G. Michael
Bellenghi(6)........... 7,500 * -- 7,500 *
Harvey Machaver(7)...... 32,091 * -- 32,091 *
Joseph F. Trustey(8).... 7,500 * -- 7,500 *
Wasatch Advisors,
Inc.(9)................ 951,100 11.8% -- 951,100 8.6%
Wellington Company(10).. 443,700 5.5% -- 443,700 4.0%
Summit Ventures II,
L.P.(11)............... 152,175 1.9% 152,175 -- --
Summit Investors II,
L.P.(11)............... 14,587 * 14,587 -- --
CoreStates Holdings,
Inc.(12)............... 136,656 1.7% 136,656 -- --
Joel Grossman, Trustee,
Joel Grossman Family
Trust(13).............. 96,000 1.2% 36,000 60,000 *
Jeffrey H. Grossman,
Trustee, Jeffrey H.
Grossman Family
Trust(13).............. 100,000 1.2% 77,000 23,000 *
Barbara G. Sterensis,
Trustee, Barbara G.
Sterensis Family
Trust(13).............. 100,000 1.2% 57,500 42,500 *
Joseph B. Sterensis,
Trustee, Joseph B.
Sterensis Family
Trust(13).............. 100,000 1.2% 57,500 42,500 *
Progressive Home Health,
Ltd.(14)............... 15,646 * 14,024 1,622 *
Progressive Partners,
Ltd.(14)............... 31,293 * 28,058 3,235 *
All Directors and
Executive Officers as a
group
(10 persons)(15)....... 1,077,075 13.3% 50,000 1,027,075 9.3%
</TABLE>
- --------
* Denotes less than 1.0%
(1) Except as otherwise indicated, the address of each person listed above is
in care of the Company, 2200 Renaissance Boulevard, Suite 300, King of
Prussia, PA 19406.
(2) Beneficial ownership is determined in accordance with the rules of the
Commission and includes voting or investment power with respect to the
shares. Shares of Common Stock subject to securities currently
exercisable or exercisable within 60 days of the date hereof, are deemed
outstanding for computing the share ownership and percentage ownership of
the person holding such securities, but are not deemed outstanding for
computing the percentage of any other person.
(3) Includes 95,238 shares of Common Stock held by the Home Health
Corporation of America Profit Sharing Plan, of which Mr. Feldman is sole
voting trustee, an aggregate of 100,000 shares of Common Stock for which
Mr. Feldman is the sole voting trustee pursuant to voting trust
agreements that expire upon Mr. Feldman's death, 106,250 shares of Common
Stock which may be acquired upon the exercise of currently exercisable
stock options and 5,000 shares of Common Stock which may be acquired upon
the exercise of currently exercisable warrants.

49
<PAGE>

(4) Includes 52,083 shares of Common Stock which may be acquired upon the
exercise of currently exercisable options.
(5) Includes 25,416 shares of Common Stock which may be acquired upon the
exercise of currently exercisable options.
(6) Represents shares of Common Stock which may be acquired upon the exercise
of currently exercisable options.
(7) Consists of 20,000 shares of Common Stock which may be acquired upon the
exercise of currently exercisable warrants, 7,500 shares of Common Stock
which may be acquired upon the exercise of currently exercisable options
and 4,591 shares held jointly with Mr. Machaver's spouse.
(8) Represents 7,500 shares of Common Stock which may be acquired by Mr.
Trustey upon the exercise of currently exercisable options.
(9) The information set forth herein with respect to the beneficial ownership
of the Common Stock is as of September 30, 1996 and is derived from a
Schedule 13G dated October 9, 1996 filed by Wasatch Advisors, Inc. with
the Commission. The address of such beneficial owner is 68 South Main
Street, Suite 400, Salt Lake City, UT 84101.
(10) The shares of Common Stock are owned by a variety of investment advisory
clients of Wellington Company ("Wellington"). No such client is known to
beneficially own more than 5% of the Common Stock. Wellington has shared
dispositive power with respect to all 443,700 of the shares of Common
Stock and shared voting power with respect to 245,700 of the shares of
Common Stock. The information set forth herein with respect to the
beneficial ownership of the Common Stock is as of December 31, 1995, and
is derived from a Schedule 13G dated February 9, 1996, filed by
Wellington with the Commission. The address of such beneficial owner is
75 State Street, Boston, MA 02109.
(11) The address of such beneficial owner is 600 Atlantic Avenue, Suite 2800,
Boston, MA 02210.
(12) The address of such beneficial owner is P.O. Box 7618, Philadelphia, PA
19101-7618.
(13) The address of such beneficial owner is c/o David L. Robbins, Esq., Foley
and Lardner, 100 North Tampa, Suite 2700, Tampa, FL 33602-5804.
(14) The address of such beneficial owner is 141 N. Tessier Drive, St.
Petersburg, FL 33706.
(15) Includes an aggregate of 217,914 shares of Common Stock which may be
acquired upon the exercise of currently exercisable options and warrants.

DESCRIPTION OF CAPITAL STOCK

The statements made under this section include summaries of certain
provisions contained in the Company's Amended and Restated Articles of
Incorporation (the "Articles") and in its Amended and Restated Bylaws
("Bylaws"). The Articles and Bylaws have been filed as exhibits to the
Registration Statement of which this Prospectus is a part and are incorporated
herein by reference.

The Articles authorize the Company to issue 20,000,000 shares of Common
Stock, no par value, and 10,000,000 shares of preferred stock, no par value,
issuable in series, the relative rights limitations and preferences of which
may be designated by the Board of Directors. As of October 29, 1996, an
aggregate of 8,090,007 shares of Common Stock were issued and outstanding.

COMMON STOCK

The Articles provide that the holders of Common Stock are entitled to one
vote per share on all matters to be voted upon by stockholders. The holders of
Common Stock are entitled, among other things, (i) to share ratably in
dividends if, when and as declared by the Board of Directors out of funds
legally available for the payment of dividends and (ii) in the event of
liquidation, dissolution or winding-up of the Company, to share ratably in the
distribution of assets legally available therefor, after payment of debts and
expenses. The holders of Common Stock do not have cumulative voting rights in
the election of directors and have no preemptive rights to subscribe for
additional shares of Common Stock. All currently outstanding shares of the
Common Stock are, and the shares offered hereby, when sold in the manner
contemplated by this Prospectus, will be, fully paid and nonassessable.

50
<PAGE>

PREFERRED STOCK

Although the Company has no present plans to issue shares of Preferred
Stock, the Board of Directors is authorized under the Articles, without
further shareholder action, to provide for the issuance of preferred stock in
one or more classes or series in such numbers of shares, and with such voting
rights, designations, preferences, limitations, and special or relative rights
(if any), as determined by the Board of Directors.

It is not possible to state the actual effect of the authorization of the
Preferred Stock upon the rights of holders of the Common Stock until the Board
of Directors determines the specific rights of the holders of a series of
preferred stock. However, the issuance of shares of Preferred Stock could
adversely affect the rights of the holders of Common Stock. Such effects might
include (i) restrictions on dividends on the Common Stock if dividends on
Preferred Stock have not been paid; (ii) dilution of the voting power of the
Common Stock to the extent that the Preferred Stock has voting rights; (iii)
dilution of the equity interest of the Common Stock to the extent that the
Preferred Stock is converted into Common Stock; or (iv) the Common Stock not
being entitled to share in the Company's assets upon liquidation until
satisfaction of any liquidation preference granted the holders of the
Preferred Stock. Additionally, the issuance of Preferred Stock, while
providing desired flexibility in connection with possible acquisitions and
other corporate purposes, may be used to deter, discourage or make more
difficult the assumption of control of the Company by another corporation or
person through a tender offer, merger, proxy context or similar transaction or
series of transactions. See "Risk Factors--Potential Effects of Anti-Takeover
Provisions; Issuance of Preferred Stock."

ANTI-TAKEOVER PROVISIONS

Certain provisions of the Articles, Bylaws and state law may be deemed to
have anti-takeover effect and may delay, deter or prevent a merger, tender
offer, proxy context or other takeover attempt. In addition to providing for a
classified Board of Directors and the issuance of Preferred Stock having terms
established by the Board of Directors without stockholder approval, the
Articles provide that (i) at least 65% of the votes entitled to be cast by
stockholders is required to approve amendments to the Articles, unless at
least a majority of the incumbent directors on the Board of Directors has
voted in favor of the amendment, in which case only a majority of the votes
cast by stockholders is required to approve the amendment, (ii) directors can
be removed only for cause and only by a vote of at least 65% of the votes
entitled to be cast by stockholders and (iii) the stockholders of the Company
are not entitled to call special meetings of the stockholders. In addition,
the Articles provide that actions by stockholders without a meeting must
receive the unanimous written consent of all stockholders. The Bylaws
establish procedures for the nomination of directors by stockholders and the
proposal by stockholders of matters to be considered at meetings of the
stockholders, including the submission of certain information by the times
prescribed in the Bylaws.

The BCL also provides that the directors of a corporation, in making
decisions concerning takeovers or any other matters, may consider, to the
extent that they deem appropriate, among other things, (i) the effects of any
proposed transaction upon any or all groups affected by such action,
including, among others, stockholders, employees, suppliers, customers and
creditors, (ii) the short-term and long-term interests of the corporation and
(iii) the resources, intent and conduct of the person seeking control.

LIMITATION ON DIRECTORS' LIABILITIES AND INDEMNIFICATION

As permitted by the BCL, the Bylaws provide that a director shall not be
personally liable in such capacity for monetary damages for any action taken,
or any failure to take any action, unless the director breaches or fails to
perform the duties of his office under the BCL, and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. These
provisions of the Bylaws, however, do not apply to the responsibility or
liability of a director pursuant to any criminal statute, or to the liability
of a director for the payment of the Company's taxes pursuant to local,
Pennsylvania or federal law. These provisions offer persons who serve on the
Board of Directors protection against awards of monetary damages for
negligence in the performance of their duties.

51
<PAGE>

The Bylaws also provide that every person who is or was a director or
executive officer of the Company, or of any corporation which he served as
such at the request of the Company, shall be indemnified by the Company to the
fullest extent permitted by law against all expenses and liabilities
reasonably incurred by or imposed upon him, in connection with any proceeding
to which he may be made, or threatened to be made, a party, or in which he may
become involved by reason of his being or having been a director or executive
officer of the Company, or of such other corporation, whether or not he is a
director or executive officer of the Company or such other corporation at the
time the expenses or liabilities are incurred.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is StockTrans, Inc.,
Ardmore, Pennsylvania.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect market prices prevailing from time to time and the
ability of the Company to raise equity capital in the future. As described
below, certain shares currently outstanding will be available for sale after
this offering subject to certain legal restrictions on resale. Upon completion
of this offering, the Company will have a total of 11,090,007 shares of Common
Stock outstanding (assuming no exercise of the Underwriters' over-allotment
option and excluding an aggregate of 561,000 shares issuable upon the exercise
of outstanding options and warrants and approximately 751,917 shares issuable
as partial consideration for the Pending Acquisitions). Of these shares,
8,548,955 will be freely tradeable without restriction or registration under
the Securities Act by persons other than "affiliates" of the Company as
defined in Rule 144 under the Securities Act. The remaining 2,541,052 shares
are "restricted shares" as that term is defined in Rule 144 under the
Securities Act. See Unaudited Pro Forma Consolidated Financial Statements.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
for at least two years, including persons who may be deemed "affiliates" of
the Company, would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of 1% of the number of shares of
Common Stock then outstanding (approximately 110,900 shares upon completion of
the offering) or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to
such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements, and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at
least three years, will be entitled to sell such shares under Rule 144(k)
immediately after this offering without regard to the volume limitations,
manner of sale provisions, public information requirements or notice
requirements. The Commission has proposed to amend the holding periods under
Rule 144 by reducing the two-year period referred to above to one year and the
three-year period referred to above to two years. The proposed amendments have
not yet been adopted by the Commission.

Under Rule 144 (and subject to the conditions thereof), upon completion of
this offering, in addition to the Shares being offered hereby, there will be
approximately 2,074,222 shares immediately eligible for sale in the public
market without restriction.

A total of 600,000 shares of Common Stock are reserved for issuance upon the
exercise of options that may be granted under the 1995 Employee and Consultant
Equity Plan (the "1995 Plan"). The Company has filed a registration statement
on Form S-8 to register the Common Stock issued or reserved for issuance under
the 1995 Plan and the 35,000 shares of Common Stock issuable pursuant to
options granted under the Company's 1984 Stock Option Plan. Shares of Common
Stock issued under the 1995 Plan after the effective date of such registration
statement and the shares of Common Stock outstanding on the date of such
registration statement as a result of option exercises, other than shares held
by affiliates of the Company, will be eligible for resale in the public market
without restriction subject to the Lock-up Agreements.

52
<PAGE>

The Company, its officers and directors and the Selling Shareholders have
agreed (the "Lock-Up Agreements") that they will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale,
contract of sale, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock of the
Company or any securities convertible into, or exercisable or exchangeable
for, any shares of Common Stock or other capital stock of the Company without
the prior written consent of Dean Witter Reynolds Inc., for a period of 90
days from the date of this Prospectus. All of the shares subject to the Lock-
Up Agreements will become eligible for sale under Rule 144 beginning 90 days
from the date of this Prospectus. See "Underwriting."

REGISTRATION RIGHTS

In the event the Company proposes to register any of its securities under
the Securities Act, for its own account or otherwise at any time, certain
stockholders of the Company, including certain executive officers and
directors of the Company, collectively holding approximately 289,622 shares of
Common Stock or certain of their permitted transferees, are entitled to notice
of such registration and to include shares of such Common Stock therein,
subject to certain conditions and limitations. Of such stockholders, the
holders of 168,000 shares of the Common Stock may, at any time through
September 30, 1998, require the Company to register at least 75% of such
shares, subject to other conditions and limitations and regardless of whether
the Company proposes to register its Common Stock for sale. These holders must
bear all expenses for such registrations, other than those attributable
ratably to the Company and the holders, with respect to any of their shares
included in any such registration. In addition, the holders of an additional
16,000 shares of Common Stock may, at any time between April 29, 1997 and
April 29, 1998, require the Company to register at least 80% of such shares,
subject to other conditions and limitations and regardless of whether the
Company proposes to register its Common Stock.

53
<PAGE>

UNDERWRITING

The Underwriters named below, for whom Dean Witter Reynolds Inc., Volpe,
Welty & Company and Wheat, First Securities, Inc. are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement (a copy of which has been
filed as an exhibit to the Registration Statement), to purchase from the
Company and the Selling Stockholders the following respective number of shares
of Common Stock set forth opposite their respective names in the table below:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Dean Witter Reynolds Inc. ...................................
Volpe, Welty & Company ..........................................
Wheat, First Securities, Inc. ...................................
---------
Total.......................................................... 3,623,500
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they are committed to purchase all of the shares
(other than those subject to the over-allotment option) if any are purchased.

The Underwriters have advised the Company and the Selling Stockholders that
they propose to offer the shares of Common Stock to the public at the offering
price set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such public offering price less a
concession not to exceed $ per share. Such dealers may reallow a concession
not to exceed $ per share to other dealers. After the public offering, the
public offering price may be reduced and concessions and reallowances to
dealers may be changed by the Underwriters. The Representatives have informed
the Company that the Underwriters do not intend to confirm sales to any
accounts over which they exercise discretionary authority. The Representatives
intend to make a market in the Common Stock after consummation of this
offering.

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 543,525
shares of Common Stock at the public offering price, less underwriting
discounts and commissions, to cover over-allotments, if any. After
commencement of this offering, the Underwriters may confirm sales subject to
the over-allotment option.

The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments the Underwriters may be required
to make in respect thereof.

The Company, the officers and directors of the Company and the Selling
Stockholders have agreed that they will not, during the period commencing on
the date hereof and ending 90 days after the date of this Prospectus without
the prior written consent of Dean Witter Reynolds Inc. (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Common Stock (whether such shares or such securities are now owned
by such officers, directors or Selling Stockholders, or are hereafter
acquired); or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic

54
<PAGE>

consequences of ownership of the shares of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of shares of Common Stock or other securities, in cash or otherwise.

In connection with this offering, the Underwriters and other selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq National Market in accordance with Rule 10b-6A under the Exchange
Act. Passive market making consists of displaying bids on the Nasdaq National
Market limited by the prices of independent market makers and effecting
purchases limited by such prices and in response to order flow. Net purchases
by a passive market maker on each day are limited to a specified percentage of
the passive market maker's average daily trading volume in the Common Stock
during a specified prior period and must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced,
may be discontinued at any time.

LEGAL MATTERS

An opinion will be rendered by the law firm of Blank Rome Comisky & McCauley,
Philadelphia, Pennsylvania, to the effect that the shares of Common Stock
offered by the Company hereby, when issued and paid for as contemplated in this
Prospectus, will be, and the shares of Common Stock offered by the Selling
Stockholders are, legally issued, fully paid and non-assessable. Certain legal
matters will be passed upon for the Underwriters by Latham & Watkins,
Washington, D.C.

EXPERTS

The consolidated balance sheets of the Company as of June 30, 1995 and 1996
and the consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended June 30, 1996 included in this
Prospectus have been included herein in reliance on the report, which includes
an explanatory paragraph as discussed in Note 1 to the Consolidated Financial
Statements that the Company changed its method of accounting for income taxes
in 1994, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.

The consolidated balance sheet of LHS Holdings, Inc. and Subsidiaries as of
December 31, 1995 and the consolidated statements of operations and accumulated
deficit and cash flows for the year then ended included in this Prospectus have
been included herein in reliance on the report of Baird, Kurtz & Dobson,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.

The consolidated balance sheet of R.S.D. Management, Inc. and Subsidiaries as
of June 30, 1996 and the consolidated statements of loss and accumulated
deficit and cash flows for the year then ended included in this Prospectus have
been included herein in reliance on the report of Simione, Simione, Scillia &
Larrow LLC, independent accountants, given on the authority of that firm as
experts in accounting and auditing.

55
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES
Report of Coopers & Lybrand L.L.P. ....................................... F-2
Consolidated Balance Sheets as of June 30, 1995 and 1996................ F-3
Consolidated Statements of Income for the fiscal years ended June 30,
1994, 1995 and 1996.................................................... F-4
Consolidated Statements of Cash Flows for the fiscal years ended June
30, 1994, 1995 and 1996................................................ F-5
Consolidated Statements of Stockholders' Equity for the fiscal years
ended June 30, 1994, 1995
and 1996............................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
LHS HOLDINGS, INC. AND SUBSIDIARIES AND AFFILIATES
Report of Baird, Kurtz & Dobson........................................... F-21
Consolidated Balance Sheet as of December 31, 1995 and Combined Balance
Sheet as of
June 30, 1996.......................................................... F-22
Consolidated Statement of Operations and Accumulated Deficit for the
year ended December 31, 1995 and Combined Statement of Operations and
Accumulated Deficit for the six months ended June 30, 1996............. F-23
Consolidated Statement of Cash Flows for the year ended December 31,
1995 and Combined Statement of Cash Flows for the six months ended June
30, 1996............................................................... F-24
Notes to Consolidated and Combined Financial Statements................. F-25
R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES
Report of Simione, Simione, Scillia & Larrow LLC.......................... F-32
Consolidated Balance Sheet as of June 30, 1996.......................... F-33
Consolidated Statement of Loss and Accumulated Deficit for the year
ended June 30, 1996.................................................... F-34
Consolidated Statement of Cash Flows for the year ended June 30, 1996... F-35
Notes to Consolidated Financial Statements.............................. F-36
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
Home Health Corporation of America, Inc.
King of Prussia, Pennsylvania

We have audited the accompanying consolidated balance sheets of Home Health
Corporation of America, Inc. and subsidiaries as of June 30, 1995 and 1996,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended June 30, 1996.
These financial statements are the responsibility of the Company'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 consolidated financial position of Home Health
Corporation of America, Inc. and subsidiaries as of June 30, 1995 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended June 30, 1996 in conformity with
generally accepted accounting principles.

As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1994.

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 30, 1996, except for certain information in
Note 12, for which the date is September 17, 1996

F-2
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1995 1996
----------- -----------
<S> <C> <C>
A S S E T S
Current assets:
Cash and cash equivalents........................... $ 258,929 $ 1,330,824
Accounts receivable, net of allowance for doubtful
accounts of $1,548,908 and $2,152,496, respective-
ly................................................. 17,554,490 25,964,012
Inventories, net.................................... 946,602 1,358,915
Prepaid expenses and other current assets........... 342,652 657,658
Deferred income taxes............................... 772,462 861,746
----------- -----------
Total current assets................................ 19,875,135 30,173,155
Property and equipment, net.......................... 4,077,625 8,446,767
Goodwill, net of accumulated amortization of $266,852
and $1,123,255, respectively........................ 5,667,916 26,540,203
Other assets, net.................................... 984,592 1,010,330
----------- -----------
Total assets........................................ $30,605,268 $66,170,455
=========== ===========
L I A B I L I T I E S
Current liabilities:
Current maturities of long-term debt................ $ 1,921,347 $ 1,801,402
Accounts payable.................................... 2,639,794 2,668,116
Accrued salaries and related employee benefits...... 2,543,942 2,160,944
Other accrued expenses and current liabilities...... 1,570,810 3,006,872
Income taxes payable................................ 1,177,322 552,478
----------- -----------
Total current liabilities........................... 9,853,215 10,189,812
Long-term debt, net.................................. 12,587,550 16,137,065
Other non-current liabilities........................ 210,677 869,328
Deferred income taxes................................ 98,428 125,792
Series B redeemable preferred stock, cumulative 10%
dividend, $10 par value, 200,000 and no shares au-
thorized, respectively; 60,000 and no shares issued
and outstanding, respectively, plus accrued and un-
paid dividends of $60,000 and $0, respectively...... 660,000 --
Class B common stock, redeemable, 100,000 and no
shares issued and outstanding, respectively, stated
at $1.10 par value per share plus additional paid-in
capital............................................. 500,000 --
Class C common stock, redeemable, 5,000,000 and no
shares authorized, respectively; 1,181,259 and no
shares issued and outstanding, respectively, stated
at $.01 par value per share plus additional paid-in
capital............................................. 1,217,370 --
Common stock, redeemable, no par value, no shares and
100,000 shares issued and outstanding, respectively,
stated at redemption value of $5 per share.......... -- 500,000
S T O C K H O L D E R S' E Q U I T Y
Stockholders' equity:
Preferred stock (undesignated), no par value, no
shares and 10,000,000 authorized; shares autho-
rized; no shares issued and outstanding............ -- --
Common stock, Class A, $.10 par value, 5,000,000 and
no shares authorized, respectively; 1,098,238 and
no shares issued, respectively; 744,238 and no
shares outstanding respectively.................... 109,824 --
Common stock, Class B, $.10 par value, 5,000,000 and
no shares authorized, respectively, 1,536,097 and
no shares issued, respectively; 1,345,367 and no
shares outstanding, respectively................... 153,610 --
Common stock, no par value, no shares and 20,000,000
shares authorized, respectively; no shares and
7,890,205 shares issued and outstanding,
respectively....................................... -- 33,725,037
Additional paid-in capital........................... 2,289,881 --
Retained earnings.................................... 3,252,090 4,641,744
----------- -----------
5,805,405 38,366,781
Common stock, held in treasury, at cost.............. (290,730) --
Stock subscriptions receivable....................... (36,647) (18,323)
----------- -----------
Total stockholders' equity.......................... 5,478,028 38,348,458
----------- -----------
Total liabilities and stockholders' equity.......... $30,605,268 $66,170,455
=========== ===========
</TABLE>

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

F-3
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues............................... $36,103,829 $55,965,245 $87,694,484
Operating costs and expenses:
Patient care costs....................... 16,992,046 28,423,233 42,050,280
General and administrative............... 15,986,929 21,535,504 32,892,646
Provision for doubtful accounts.......... 697,572 1,528,034 2,848,490
Depreciation............................. 295,746 419,316 784,046
Amortization............................. 125,449 230,793 1,016,257
Interest, net............................ 671,747 1,373,283 1,453,975
Bridge financing......................... -- -- 913,121
----------- ----------- -----------
Total costs and expenses............... 34,769,489 53,510,163 81,958,815
----------- ----------- -----------
Income before income taxes, extraordinary
item and cumulative effect of change in
accounting principle...................... 1,334,340 2,455,082 5,735,669
Provision for income taxes................. 616,815 1,065,584 2,348,159
----------- ----------- -----------
Income before extraordinary item and
cumulative effect of change in
accounting principle.................. 717,525 1,389,498 3,387,510
Extraordinary item:
Loss on debt redemption, net............. -- -- 1,160,697
----------- ----------- -----------
Income before cumulative effect of
change in accounting principle........ 717,525 1,389,498 2,226,813
Cumulative effect of change in accounting
for income taxes.......................... 210,374 -- --
----------- ----------- -----------
Net income............................... $ 927,899 $ 1,389,498 $ 2,226,813
=========== =========== ===========
Per share data:
Net income available to common stockholders
before extraordinary item and cumulative
effect of change in accounting principle.. $ 661,125 $ 1,325,898 $ 2,550,351
=========== =========== ===========
Net income per common and common equivalent
share before extraordinary item and
cumulative effect of change in accounting
principle................................. $ .20 $ .38 $ .39
=========== =========== ===========
Net income available to common
stockholders.............................. $ 871,499 $ 1,325,898 $ 1,389,654
=========== =========== ===========
Net income per common and common equivalent
share..................................... $ .26 $ .38 $ .21
=========== =========== ===========
Weighted average shares used in computing
net income per common and common
equivalent share.......................... 3,377,232 3,490,748 6,468,009
=========== =========== ===========
</TABLE>

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

F-4
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows provided by (used in) op-
erating activities:
Net income......................... $ 927,899 $ 1,389,498 $ 2,226,813
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, amortization and
other............................ 811,176 1,267,640 2,985,086
Provision for doubtful accounts... 697,572 1,528,034 2,848,490
Write-off of bridge financing note
payable discount................. -- -- 405,290
Write-off of deferred financing
fees............................. -- -- 200,000
Loss on debt redemption, net...... -- -- 1,160,697
Cumulative effect of change in ac-
counting principle............... (210,374) -- --
Forgiveness of management loan.... 42,999 18,573 18,324
Inventory reserve................. 40,000 10,000 --
Deferred income taxes............. 77,064 (501,444) (61,922)
Distributed (undistributed) earn-
ings from joint ventures......... (109,970) 194,575 --
Other............................. 37,201 -- --
Net changes in certain assets and
liabilities, net of acquisitions:
Accounts receivable................ (4,327,364) (7,139,310) (10,480,368)
Inventories........................ (592,292) 287,627 (413,553)
Prepaid expenses and other current
assets............................ (134,520) (21,488) (290,816)
Accounts payable, accrued expenses
and other......................... 1,366,824 2,289,744 (664,698)
Income taxes....................... (296,346) 1,131,357 35,068
------------ ------------ ------------
Net cash flows (used in) provided
by operating activities.......... (1,670,131) 454,806 (2,031,589)
------------ ------------ ------------
Cash flows (used in) provided by in-
vesting activities:
Purchases of property and equip-
ment.............................. (735,145) (1,635,056) (3,232,668)
Cash paid for acquisitions, net of
cash acquired.................... -- (4,993,182) (15,692,996)
Increase in other assets.......... (50,035) 132,320 (385,855)
------------ ------------ ------------
Net cash flows used in investing
activities..................... (785,180) (6,495,918) (19,311,519)
------------ ------------ ------------
Cash flows provided by (used in) fi-
nancing activities:
Proceeds from long-term debt....... 15,510,000 22,803,778 23,730,000
Repayments of long-term debt....... (13,061,363) (16,291,449) (15,302,605)
Proceeds from bridge financing..... -- -- 13,000,000
Repayment of bridge financing...... -- -- (13,000,000)
Repayment of debt with offerings
net proceeds...................... -- -- (9,983,778)
Payment of deferred financing
costs............................. -- (195,698) (200,000)
Redemption of preferred stock and
preferred stock dividends......... (50,000) (60,000) (606,667)
Repurchase of common stock war-
rants............................. (5,000) (200,000) --
Proceeds from issuance of common
stock, net........................ -- 2,000 24,778,053
------------ ------------ ------------
Net cash flows provided by fi-
nancing activities.............. 2,393,637 6,058,631 22,415,003
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents................... (61,674) 17,519 1,071,895
Cash and cash equivalents, beginning
of year............................ 303,084 241,410 258,929
------------ ------------ ------------
Cash and cash equivalents, end of
year............................... $ 241,410 $ 258,929 $ 1,330,824
============ ============ ============
</TABLE>

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

F-5
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
CLASS A CLASS B COMMON STOCK,
COMMON STOCK COMMON STOCK NO PAR
-------------------- -------------------- ---------------------
ADDITIONAL RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT PAID IN CAPITAL EARNINGS STOCK
---------- -------- ---------- -------- --------- ----------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1,
1993........... 1,098,238 $109,824 1,453,957 $145,396 -- -- $ 1,283,154 $1,054,693 $(285,730)
Repurchase of
Class B common
stock.......... -- -- -- -- -- -- -- -- (5,000)
Issuance of
Class B common
stock.......... -- -- 5,000 500 -- -- 4,500 -- --
Series B pre-
ferred stock
dividends...... -- -- -- -- -- -- -- (56,400) --
Net income...... -- -- -- -- -- -- -- 927,899 --
---------- -------- ---------- -------- --------- ----------- ----------- ---------- ---------
Balance, June
30, 1994....... 1,098,238 109,824 1,458,957 145,896 -- -- 1,287,654 1,926,192 (290,730)
Series B pre-
ferred stock
dividends...... -- -- -- -- -- -- -- (63,600) --
Issuance of
Class B common
stock.......... -- -- 67,140 6,714 -- -- 266,786 -- --
Repurchase of
warrants....... -- -- -- -- -- -- (200,000) -- --
Exercise of
stock options.. -- -- 10,000 1,000 -- -- 1,000 -- --
Forgiveness of
shareholder
loan........... -- -- -- -- -- -- -- -- --
Issuance of
warrants in
connection with
subordinated
note payable... -- -- -- -- -- -- 934,441 -- --
Net income...... -- -- -- -- -- -- -- 1,389,498 --
---------- -------- ---------- -------- --------- ----------- ----------- ---------- ---------
Balance, June
30, 1995....... 1,098,238 109,824 1,536,097 153,610 -- -- 2,289,881 3,252,090 (290,730)
Exercise of war-
rants.......... -- -- 193,917 19,392 -- -- 21,721 -- --
Issuance of
warrants in
connection with
Bridge
financing...... -- -- -- -- -- -- 1,192,029 -- --
Recapitalization.. (1,098,238) (109,824) (1,730,014) (173,002) 3,464,781 4,713,097 (3,503,631) -- 290,730
Issuance of com-
mon stock in
Offering....... -- -- -- -- 3,693,192 24,547,299 -- -- --
Conversion of
subordinated
note to common
stock.......... -- -- -- -- 400,000 3,000,000 -- -- --
Write-off of
Series C
preferred stock
discount....... -- -- -- -- -- -- -- (786,739) --
Series B and C
preferred stock
dividends...... -- -- -- -- -- -- -- (50,420) --
Exercise of war-
rants.......... -- -- -- -- 204,331 124,641 -- -- --
Exercise of
stock options.. -- -- -- -- 26,500 65,000 -- -- --
Issuance of
common stock
for
acquisitions... -- -- -- -- 101,401 1,275,000 -- -- --
Forgiveness of
shareholder
loan........... -- -- -- -- -- -- -- -- --
Net income...... -- -- -- -- -- -- -- 2,226,813 --
---------- -------- ---------- -------- --------- ----------- ----------- ---------- ---------
Balance, June
30, 1996....... -- -- -- -- 7,890,205 $33,725,037 -- $4,641,744 --
========== ======== ========== ======== ========= =========== =========== ========== =========
<CAPTION>
STOCK
SUBSCRIPTIONS
RECEIVABLE TOTAL
------------- ------------
<S> <C> <C>
Balance, July 1,
1993........... $(143,584) $ 2,163,753
Repurchase of
Class B common
stock.......... -- (5,000)
Issuance of
Class B common
stock.......... 88,364 93,364
Series B pre-
ferred stock
dividends...... -- (56,400)
Net income...... -- 927,899
------------- ------------
Balance, June
30, 1994....... (55,220) 3,123,616
Series B pre-
ferred stock
dividends...... -- (63,600)
Issuance of
Class B common
stock.......... -- 273,500
Repurchase of
warrants....... -- (200,000)
Exercise of
stock options.. -- 2,000
Forgiveness of
shareholder
loan........... 18,573 18,573
Issuance of
warrants in
connection with
subordinated
note payable... -- 934,441
Net income...... -- 1,389,498
------------- ------------
Balance, June
30, 1995....... (36,647) 5,478,028
Exercise of war-
rants.......... -- 41,113
Issuance of
warrants in
connection with
Bridge
financing...... -- 1,192,029
Recapitalization.. -- 1,217,370
Issuance of com-
mon stock in
Offering....... -- 24,547,299
Conversion of
subordinated
note to common
stock.......... -- 3,000,000
Write-off of
Series C
preferred stock
discount....... -- (786,739)
Series B and C
preferred stock
dividends...... -- (50,420)
Exercise of war-
rants.......... -- 124,641
Exercise of
stock options.. -- 65,000
Issuance of
common stock
for
acquisitions... -- 1,275,000
Forgiveness of
shareholder
loan........... 18,324 18,324
Net income...... -- 2,226,813
------------- ------------
Balance, June
30, 1996....... $ (18,323) $38,348,458
============= ============
</TABLE>

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

F-6
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The consolidated financial statements include the accounts of Home Health
Corporation of America, Inc. and subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated. The Company's
financial reporting year represents a fiscal year of twelve calendar months
ending on June 30. Information included in these notes represents fiscal years
unless otherwise noted.

Initial Public Offering

On November 13, 1995, the Company completed the initial public offering of
its stock (the "Initial Public Offering"), pursuant to which the Company sold
3,500,000 shares of common stock, no par value. The Initial Public Offering
resulted in net proceeds of $24,412,500 to the Company before deduction of
certain expenses payable by the Company. The Company used the net proceeds to
repay the bridge financing incurred in connection with an acquisition in
Tampa, Florida (the "Tampa Acquisition"), senior subordinated indebtedness, a
portion of the Company's senior credit facilities and to redeem preferred
stock. The Company recorded an extraordinary loss in connection with this
early extinguishment of indebtedness (see Note 5, Senior Subordinated Debt).

On December 12, 1995, the underwriters in the Initial Public Offering
exercised their option to purchase additional shares of common stock, pursuant
to which the Company sold 193,192 shares of common stock, no par value,
resulting in net proceeds of approximately $1,347,000 to the Company. A
portion of these net proceeds were used for working capital with the remainder
currently invested in a short-term treasury fund.

Net Revenues

The Company is paid for its services primarily by Medicare, managed care
companies, commercial insurance companies, state Medicaid programs and
patients. Revenues are recorded at established rates in the period during
which the services are rendered. Appropriate allowances to give recognition to
third-party payment arrangements are recorded when the services are rendered.
Payments received by the Company under Medicare and Medicaid programs are
based upon reimbursement of reasonable cost or a predetermined specific fee
structure. Reimbursable costs differing from the Company's preliminary
authorized payment rates for nursing services under the Medicare and Medicaid
programs are recognized as receivables or payables in the period in which the
costs are incurred. Adjustments to reimbursable costs resulting from
settlements of third-party payor cost reports are recognized in the period of
settlement. Approximately 75%, 69% and 66% of the Company's net revenues in
fiscal 1994, 1995 and 1996, respectively, are from participation in Medicare
and state Medicaid programs.

At June 30, 1995 and 1996, respectively, 16% and 11% of net accounts
receivable was due from Medicare and Medicaid. The ability of payors to meet
their obligations depends upon their financial stability, future legislation
and regulatory actions. The Company does not believe there are any significant
credit risks associated with receivables from Medicare and Medicaid. The
allowance for doubtful accounts principally consists of management's estimate
of amounts that may prove uncollectible from non-governmental payors.

Cash and Cash Equivalents

All investments purchased with original maturities of three months or less
are considered cash equivalents.

F-7
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Inventories

Inventories are carried at the lower of cost or market, with cost determined
using the average cost method, and are principally comprised of medical
supplies.

Property and Equipment

Property and equipment, which includes equipment held for rental, are
recorded at cost or respective fair market value at the time of acquisition
and include expenditures for major renewals and betterments. Equipment under
capital leases is stated at net present value of the minimum lease payments at
the inception of the lease. Maintenance and repairs which do not improve or
extend the life of the respective assets are charged to expense as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets or lease terms for leasehold improvements
and equipment under capital leases. Upon retirement or other disposition, the
cost and the related accumulated depreciation are removed from the accounts
and any gain or loss is included in the results of operations.

Goodwill and Other Assets

Goodwill arises from acquisitions and represents the excess of purchase
price over net identifiable acquired assets, and is amortized on a straight-
line basis over 20 years.

Other assets principally consist of amounts relating to deferred financing
costs, the noncurrent portion of the workers compensation trust assets,
deposits, other intangibles arising from acquisitions and other investments.
Deferred financing costs are amortized on a straight-line basis over the life
of the financing agreement, generally three years. Other intangibles are
amortized on a straight-line basis over 20 years.

At each balance sheet date, management evaluates the recoverability of
intangible assets using certain financial indicators such as historical and
future ability to generate income from operations. The Company's policy is to
record an impairment loss against the net unamortized cost of the asset in the
period when it is determined that the carrying amount of the asset may not be
recoverable. This determination is based on an evaluation of such factors as
the occurrence of a significant event, a significant change in the environment
in which the business operates or if the expected future net cash flows would
become less than the carrying amount of the asset.

Patient Care Costs

Patient care costs are comprised of salaries and related benefits of patient
care personnel, cost of sales of durable medical equipment and supplies and
depreciation on equipment held for rental.

General and Administrative Expenses

General and administrative expenses are comprised of administrative and
support staff salaries and benefits, and occupancy and other operating costs.

Income Taxes

The Company files a consolidated tax return with its subsidiaries for
federal tax purposes and on a separate Company basis for state tax purposes.
Effective July 1, 1993, the Company adopted the asset and liability method of
accounting proscribed by Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes" (SFAS No. 109). Under this method, deferred
income taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the

F-8
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
year in which the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized. The cumulative effect of this change in accounting
principle increased net income by $210,374 for fiscal 1994. The effect on
fiscal 1994 of adopting SFAS No. 109 was not material to income before the
cumulative effect of the change in accounting principle.

Net Income Per Common and Common Equivalent Share

Net income available to common stockholders is computed by deducting
preferred dividends from net income to determine net income available to
common stockholders. Additionally, in fiscal 1996, net income available to
common stockholders reflects a reduction for the write-off of the discount on
redeemable preferred stock issued in connection with the Tampa Acquisition
(see Note 2). Net income available to common stockholders is then divided by
the weighted average number of common and common equivalent shares outstanding
or assumed outstanding for all classes of the Company's common stock. Common
stock and common stock equivalents issued by the Company during the 12 month
period immediately preceding the initial filing of the Initial Public Offering
registration statement at less than fair value at date of issuance, have been
included in the calculation of the weighted average number of common and
common equivalent shares outstanding for 1994 and 1995, using the treasury
stock method and the Initial Public Offering price of $7.50 per share.

Pro Forma Earnings Per Share

The following supplementary pro forma earnings per share information has
been included to indicate the dilution on primary earnings per share of the
Company resulting from the Initial Public Offering.

Pro forma net income used to calculate pro forma net income per common and
common equivalent share reflects adjustments to net income for fiscal 1996 to
give effect to the reduction of $1.3 million in interest and bridge financing
expenses resulting from the assumed redemption of certain outstanding
indebtedness with a portion of the net proceeds from the Initial Public
Offering, net of the corresponding increase in income tax expense of $536,000,
as if such transactions occurred as of July 1, 1995. Additionally, pro forma
net income does not reflect the extraordinary loss, an adjustment for
preferred stock dividends or the write-off of the discount on redeemable
preferred stock issued in connection with the Tampa Acquisition (see Note 2),
as the corresponding debt and preferred stock is assumed to be redeemed as of
July 1, 1995.

Pro forma weighted average common and common equivalent shares used in
computing pro forma net income per common and common equivalent share reflect
adjustments to the fiscal 1996 fully-diluted weighted averaged common and
common equivalent shares outstanding to give effect to the issuance of
3,037,000 shares of common stock, as of July 1, 1995, in connection with the
Initial Public Offering, to redeem debt assumed outstanding at July 1, 1995
and debt issued on September 29, 1995 in connection with the Tampa Acquisition
(see Note 2), respectively.

<TABLE>
<CAPTION>
FISCAL 1996
-----------
(UNAUDITED)
<S> <C>
Pro forma net income............................................ $4,161,761
==========
Pro forma weighted average shares used in computing pro forma
net income per common and common equivalent share.............. 7,582,799
==========
Pro forma net income per common and common equivalent share..... $ 0.55
==========
</TABLE>

F-9
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Workers Compensation

During fiscal 1995, the Company adopted a self-insurance trust for
Pennsylvania workers compensation claims. The Company establishes reserves for
claims incurred during the fiscal year but not reported until subsequent
fiscal periods.

Use of 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 expense during the
reporting period. Actual results could differ from these estimates.

Recent Accounting Pronouncements

The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-lived
Assets and for Long-lived Assets to Be Disposed of" ("SFAS 121"). SFAS 121
will be effective for the fiscal year ending June 30, 1997 and establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles and goodwill related to those assets to be held and
used and for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS 121 requires that such assets and intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Management does not expect
the adoption of SFAS 121 for long-lived and intangible assets to have a
significant impact on the Company's results of operations, financial condition
or liquidity.

The Company plans to adopt Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation," effective
July 1, 1997. SFAS No. 123 allows companies adopting the pronouncement to
either change the actual accounting methods for stock based compensation in
the financial statements or to disclose certain pro forma results of
operations as if the pronouncement had been adopted in the financial
statements. The Company plans to disclose pro forma information in the
footnotes to the financial statements. As a result, the adoption of SFAS 123
will have no effect on the consolidated financial statements.

2. ACQUISITIONS

The acquisitions described below have been accounted for under the purchase
method. The results of operations for these acquisitions have been included
from their respective acquisition dates. The acquisition purchase prices have
been allocated to identifiable assets, principally accounts receivable, fixed
assets and inventory. The excess of the purchase price over net assets
acquired from these acquisitions is recorded as goodwill. Goodwill is being
amortized on a straight-line basis over 20 years. There were no acquisitions
in fiscal 1994.

Fiscal 1996 Acquisitions:

Tampa Acquisition

On September 29, 1995, the Company acquired substantially all of the assets
and assumed certain liabilities of a company located in Tampa, Florida (the
"Tampa Acquisition") for an aggregate purchase price of $17.5 million. This
acquisition provided the Company with respiratory therapy, durable medical
equipment and mobile diagnostic services. The purchase price was comprised of
$13,000,000 in cash plus $3,000,000 in subordinated convertible notes and
$1,500,000 in seller notes payable. The subordinated convertible notes were
converted into 400,000 shares of common stock upon consummation of the Initial
Public Offering.

F-10
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The cash paid to effect the Tampa Acquisition was financed through bridge
financing which consisted of (i) a $10,000,000 term loan from the Company's
senior lending institution (the "bridge term loan"), (ii) the issuance of
$2,000,000 of 10% cumulative redeemable Series C preferred stock (the
"redeemable preferred stock"), (iii) a $1,000,000 subordinated note and (iv)
warrants to purchase 155,414 shares of common stock at $0.01 per share. The
redeemable preferred stock and subordinated note were recorded net of a
discount of approximately $1,192,000, representing proceeds ascribed to the
warrants. The bridge term loan, redeemable preferred stock and subordinated
note were redeemed in full on November 15, 1995, with a portion of the net
proceeds from the Initial Public Offering, and the remaining discount on the
redeemable preferred stock and subordinated note of approximately $787,000 and
$405,000, respectively, were charged to retained earnings and bridge financing
expenses, respectively, in the accompanying 1996 consolidated balance sheet
and income statement, respectively.

May 1996 Acquisitions

In May 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of three companies acquired in three separate
transactions for an aggregate purchase price of $5.2 million. Two of these
acquisitions provided the Company with nursing services in the Tampa/St.
Petersburg, Florida market and one provided mobile diagnostic services in the
Tampa and Palm Harbor, Florida markets. The purchase price was comprised of
cash, seller notes and 101,401 shares of the Company's common stock valued at
$1,275,000.

Fiscal 1995 Acquisitions

HPI Acquisition

In July 1994, the Company purchased substantially all of the assets and
assumed certain liabilities of a company, located in Colmar, Pennsylvania (the
"HPI Acquisition") for $1.1 million, comprised of cash and a seller note. This
company specialized in pediatric home care services in the Eastern
Pennsylvania and Southern New Jersey markets.

Delaware Acquisition

In March 1995, the Company acquired substantially all the assets and assumed
certain liabilities of a company in Newark, Delaware (the "Delaware
Acquisition"). This acquisition provided the Company with nursing, respiratory
therapy and durable medical equipment services in Delaware and Maryland. The
aggregate initial purchase price of $5.2 million for this acquisition was
comprised of cash, a seller note and 100,000 shares of the Company's Class B
common stock. Additionally, the Company is making certain earnout payments
aggregating $725,000 to the sellers through June, 1998.

At the option of the holder, the Company is required to repurchase the stock
issued in connection with this acquisition for $5 per share at the occurrence
of certain events. This stock is reflected as redeemable stock in the
accompanying consolidated balance sheet at its redemption value of $500,000.
The redemption provisions expire in April, 1997.

Alpha Acquisition

In May 1995, the Company acquired substantially all the assets and assumed
certain liabilities of a durable medical equipment company located in New
Jersey (the "Alpha Acquisition") for initial consideration of $1.45 million,
comprised of cash, seller notes and 40,000 shares of the Company's Class B
common stock valued at $273,500. Additionally, the Company is making certain
earnout payments aggregating $323,000 to the sellers through May, 1999.

F-11
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following unaudited pro forma summary information combines the
consolidated results of operations of the Company and the Fiscal 1996
Acquisitions and Fiscal 1995 Acquisitions, assuming the acquisitions had
occurred at the beginning of each of the following fiscal years:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
Net revenues....................................... $83,641,294 $97,962,461
Income before income taxes and extraordinary
items............................................. 2,821,541 6,113,432
Income per share before extraordinary item......... 0.22 0.43
Net income......................................... 1,609,583 2,449,825
Net income per share............................... $ 0.22 $ 0.25
</TABLE>

The pro forma results presented above do not necessarily represent results
which would have occurred if the respective acquisitions had taken place at
the beginning of each period, nor are they indicative of the results of future
combined operations.

3. PROPERTY AND EQUIPMENT

At June 30, 1995 and 1996, property and equipment consisted of:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Equipment held for rental............................. $3,411,395 $7,278,597
Capitalized leases.................................... 1,247,965 1,894,792
Furniture, fixtures and equipment..................... 1,629,766 2,808,000
Leasehold improvements................................ 244,201 268,440
---------- ----------
6,533,327 12,249,829
Less accumulated depreciation......................... 2,455,702 3,803,062
---------- ----------
$4,077,625 $8,446,767
========== ==========
</TABLE>
Depreciation on equipment held for rental, which was included in patient
care costs, was $224,667, $336,587, and $1,090,563 for fiscal 1994, 1995 and
1996, respectively.

4. OTHER ASSETS

At June 30, 1995 and 1996, other assets consisted of:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred financing costs.............................. $ 490,266 $ 455,680
Other intangibles..................................... 359,800 359,800
Workers compensation trust assets..................... 210,677 272,638
Deposits.............................................. 151,128 206,526
Other investments..................................... 1,289 1,289
---------- ----------
1,213,160 1,295,933
Less accumulated amortization......................... 228,568 285,603
---------- ----------
$ 984,592 $1,010,330
========== ==========
</TABLE>

F-12
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. LONG-TERM DEBT

At June 30, 1995 and 1996, long-term debt consisted of:

<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Senior Credit Facilities:
Revolving Facility................................ $ 4,965,000 $ 9,920,000
Acquisition Facility.............................. 3,713,778 2,975,000
13.0% Senior Subordinated Note..................... 1,807,444 --
11.5% Senior Subordinated Note..................... 1,108,034 --
Sellers notes with interest rates of approximately
8%, principal and interest due monthly through
fiscal year 2000.................................. 2,385,928 3,872,130
Other debt (including capitalized leases), rates
generally fixed from 7% to 18% through fiscal year
2001.............................................. 528,713 1,171,337
----------- -----------
14,508,897 17,938,467
Less current maturities............................ 1,921,347 1,801,402
----------- -----------
$12,587,550 $16,137,065
=========== ===========
</TABLE>

Senior Credit Facilities

The Company's Senior Credit Facilities consisted of a revolving facility and
an acquisition facility as amended from time to time under the Amended and
Restated Credit Agreement (the "Credit Agreement") with an institutional
lender. The amendments generally were made to accommodate the Company's growth
and reflect favorable changes in the Company's leverage resulting from the
Initial Public Offering. The amendments resulted in, among other provisions,
decreases in applicable interest rates, increases in total commitment
availability, and extensions of maturities. The weighted average interest rate
on borrowings outstanding at June 30, 1996 was approximately 7%. The amount
outstanding under the Acquisition Facility at June 30, 1995 was repaid in
November 1995 with a portion of the net proceeds from the Initial Public
Offering.

On August 22, 1996, the Company entered into a Second Amended and Restated
Credit Agreement (the "Second Credit Agreement"), maturing August 22, 1999,
with a syndicate of lenders to borrow up to $50 million. The Second Credit
Agreement was used to refinance $17.6 million of amounts outstanding under the
Credit Agreement, related accrued interest and transaction fees. See Note 12
for a discussion of acquisitions financed under the Credit Agreement
subsequent to June 30, 1996 but before August 22, 1996. The Second Credit
Agreement consists of (i) a Revolving facility with a commitment of up to $20
million for general corporate purposes, which includes a commitment to issue
up to $10 million of letters of credit and (ii) an Acquisition facility with a
commitment of up to $30 million for permitted acquisitions, as defined in the
agreement. The Company may exchange available commitments between the
facilities.

Funds advanced under the Second Credit Agreement bear interest on the
outstanding principal at a fluctuating rate based on either (i) the announced
prime rate of the agent bank (the "Prime Rate") or (ii) the London Interbank
Borrowing Rate ("LIBOR") as elected from time to time by the Company. Interest
is payable monthly if a rate based on the Prime Rate is elected or at the end
of the LIBOR period (but in any event not to exceed 90 days) if a rate based
on LIBOR is elected. The Company elected various rates on the initial
outstanding borrowing of the Second Credit Agreement representing a weighted
average interest rate of 6.7% per annum as of August 22, 1996. The Company
must pay an annual commitment fee equal to 0.375% of the unused portion of the
facilities.

The Company is required to make principal repayments on the facilities under
the Second Credit Agreement upon the permitted sale of certain assets. The
Second Credit Agreement limits, under certain circumstances, the

F-13
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company's ability to incur additional indebtedness, sell material assets or
acquire the capital stock or assets of another business, and prohibits payment
of dividends. The Second Credit Agreement also requires the Company to meet or
exceed certain coverage, leverage and indebtedness ratios. Indebtedness under
the Second Credit Agreement is collateralized by a pledge of 100% of the stock
of all existing and future subsidiaries of the Company.

Senior Subordinated Debt

In June 1992, the Company entered into an agreement with Summit Ventures II,
L.P. and Summit Investors II, L.P., ("Summit"), whereby the Company received
$2,511,813 in exchange for a $2,500,000 Senior Subordinated Note (the "Summit
Note") and 1,181,259 shares of Class C common stock. The Company recorded a
discount on the Summit Note of $1,205,557, representing proceeds ascribed to
the Class C common stock, which was being amortized using the interest method
over the life of the debt. The unamortized portion of the discount was
$692,556 at June 30, 1995.

In March 1995, the Company entered into an agreement with a financing
institution whereby the Company issued a $2,000,000 senior subordinated note
payable (the "Subordinated Note") and warrants to purchase 180,013 shares of
Class B common stock to finance a portion of the Delaware Acquisition. The
Company issued additional warrants to the financing institution to purchase
2,195 shares of Class B Common Stock, in connection with an unrelated
transaction. The Company recorded a discount on the Subordinated Note of
$934,441, representing value ascribed to the warrants, which was being
amortized using the interest method over the life of the debt. The unamortized
portion of the discount was $891,966 at June 30, 1995.

The Summit Note and the Subordinated Note were repaid in November 1995 with
a portion of the net proceeds from the Initial Public Offering. The Company
recorded an extraordinary loss of $1,160,697, net of estimated income taxes of
approximately $660,000, related to the write-off of deferred financing costs
and the remaining unamortized discounts on these notes.

Maturities of long-term debt, including capitalized lease obligations, for
the next five fiscal years are as follows:

6. CAPITAL STOCK

Recapitalization

Upon consummation of the Initial Public Offering in November 1995, the
Company implemented a plan of recapitalization (the "Recapitalization") and
amended its Articles of Incorporation to authorize the issuance of up to
20,000,000 shares of no par value common stock and up to 10,000,000 shares of
preferred stock of such classes and series and with such voting powers,
designations, preferences, rights and restrictions as may be established by
the Board of Directors.

Additionally, each share of the Company's Class A common stock (five votes
per share), Class B common stock (one vote per share) and Class C common stock
(2.36 votes per share) outstanding prior to the Initial Public

F-14
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Offering was canceled and exchanged for one share each of the Company's new no
par value common stock. Holders of the no par value common stock are entitled
to one vote per share. The Recapitalization also caused each share of the
Company's Series A Preferred Stock held in the treasury before the Initial
Public Offering to be canceled, and provided for the redemption and
cancellation of the Company's Series B and Series C Preferred Stock at their
par values of $10.00 per share plus accrued and unpaid dividends, aggregating
approximately $2.7 million. The Series C Preferred Stock was issued in
connection with the Tampa Acquisition (see Note 2).

Conversion and Redemption Rights

The Class A and C common shares were convertible, at the option of the
holder, on a share for share basis into Class B common stock. Additionally,
the Class C common shares could be redeemed by Summit in the event the Company
consummated a qualified public offering or at any time after June 30, 1999, at
the then current fair market value of the shares. As a result of these shares
being redeemable at the option of the holder, all issued and outstanding
shares and related additional paid-in capital pertaining to such shares were
classified outside of stockholders' equity in the 1995 consolidated balance
sheet. See "Recapitalization."

Stock Subscriptions Receivable

During fiscal 1993 and 1994, a total of 190,730 shares of Class B common
stock were issued to certain management shareholders for $1.00 a share and
were financed by the Company through notes bearing interest at 8% per annum.
These notes may be forgiven contingent upon a five-year, profit-performance
criteria. The profit-performance criteria were met for each subsequent fiscal
year, with the remaining balance of the notes classified as stock
subscriptions receivable in the accompanying consolidated statements of
stockholders' equity.

Preferred Stock Transactions

The following is a summary of the preferred stock transactions for fiscal
1994, 1995 and 1996:

<TABLE>
<CAPTION>
SERIES B SERIES C
----------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- -------- -------- ----------
<S> <C> <C> <C> <C>
Balance outstanding, July 1, 1993.... 60,000 $650,000 -- --
Payment of preferred dividends....... -- (50,000) -- --
Accrued and unpaid dividends......... -- 56,400 -- --
------- -------- -------- ----------
Balance outstanding, June 30, 1994... 60,000 656,400 -- --
Payment of preferred dividends....... -- (60,000) -- --
Accrued dividends.................... -- 63,600 -- --
------- -------- -------- ----------
Balance outstanding, June 30, 1995... 60,000 660,000 -- --
Issuance of Series C preferred
stock............................... -- -- 200,000 2,000,000
Accrued dividends.................... -- 24,864 -- 25,556
Redemption of preferred shares and
dividends........................... (60,000) (684,864) (200,000) (2,025,556)
------- -------- -------- ----------
Balance outstanding at June 30,
1996................................ -- -- -- --
======= ======== ======== ==========
</TABLE>

7. WARRANTS AND OPTIONS

Warrants

In June 1992, the Company issued 88,567 warrants to a financing institution
to purchase Class B common stock at an exercise price of $.20 per share. In
March 1995, the Company redeemed these warrants for $200,000, in connection
with the signing of the Subordinated Note, and issued warrants to purchase an
aggregate of 182,208

F-15
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
shares of Class B Common Stock at an exercise price of $.20 per share (see
Note 5, Senior Subordinated Debt). These warrants were exercised during fiscal
1996.

Warrants to purchase 155,414 shares of Class C Common Stock at an exercise
price of $.01 were issued in September 1995, in connection with the Tampa
Acquisition (see Note 2, Tampa Acquisition). These warrants were exercised
during fiscal 1996. Additionally, during fiscal 1996, warrants to purchase an
aggregate of 60,772 shares of Class B Common Stock were exercised. Warrants
remaining outstanding at June 30, 1996 permit the holders to purchase an
aggregate of 25,000 shares of common stock for an exercise price of $2.54 per
share. These warrants expire June 30, 1997.

Stock Option Plan

In September 1995, the Company's stockholders approved the 1995 Employee and
Consultant Equity Plan (the "Option Plan") and authorized the reservation of
up to 600,000 shares of the Company's common stock for issuance under this
plan. The Option Plan replaced the amended and restated 1985 Incentive
Compensation Plan (the "1985 Plan"). The Option Plan provides for the granting
of options to purchase shares of the Company's common stock to officers,
directors, employees and consultants of the Company. Options issued under the
Option Plan may be qualified or non-qualified grants. The exercise price of
qualified option grants cannot be less than 100% of the fair market value of
the shares on the date of grant. Options generally vest over a three-year
period and generally expire between five to ten years from the date of grant.

The following is a summary of option transactions and exercise prices for
fiscal 1994, 1995 and 1996:

<TABLE>
<CAPTION>
PRICE PER SHARE
------------------------
WEIGHTED
OPTIONS AVERAGE RANGE
------- -------- ---------------
<S> <C> <C> <C>
Outstanding at July 1, 1993................ 18,500 $2.51 $2.15 to $3.00
Granted.................................... 30,000 $1.03 $0.20 to $2.75
-------
Outstanding at June 30, 1994............... 48,500 $1.59 $0.20 to $3.00
Granted.................................... 23,000 $1.08 $1.00 to $2.75
Exercised.................................. (10,000) $0.20 $0.20
-------
Outstanding at July 1, 1995................ 61,500 $1.63 $1.00 to $3.00
Granted.................................... 293,500 $7.84 $7.50 to $10.00
Exercised.................................. (26,500) $2.45 $1.00 to $3.00
-------
Outstanding at June 30, 1996............... 328,500 $7.11 $1.00 to $10.00
=======
Exercisable at June 30, 1996............... 94,167 $6.35 $1.00 to $7.50
=======
</TABLE>

Options outstanding at June 30, 1996 include 35,000 options issued under the
1985 Plan exercisable at $1.00 per share and which expire from October 1996
through June 1998. The remaining options outstanding at June 30, 1996 are
exercisable at a weighted average price of $7.84 per share and expire from
November 2000 through April 2006.

F-16
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

8. COMMITMENTS AND CONTINGENCIES

The Company leases certain office facilities and other equipment under
noncancelable leases for terms ranging from one to six years with certain
renewal options. Future minimum lease payments under these leases for the next
five years are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- ----------
<S> <C> <C>
1997................................................. $ 446,411 $ 975,569
1998................................................. 303,534 750,599
1999................................................. 203,682 301,997
2000................................................. 189,089 187,385
2001................................................. 150,079 82,437
---------- ----------
Total minimum lease payments......................... 1,292,795 $2,297,987
==========
Less amount representing interest.................... 239,258
----------
Present value of net minimum future capital lease
payments............................................ $1,053,537
==========
</TABLE>

Total rent expense under operating leases amounted to $1,070,704, $1,605,639
and $2,902,660 for fiscal 1994, 1995 and 1996, respectively, including rent
expense on equipment which is subleased to patients and included in patient
care costs of $247,663, $563,499 and $1,463,035, respectively.

The Company maintains medical malpractice and general liability insurance
coverage through non-captive insurance companies.

The Company is a party to certain legal actions arising in the ordinary
course of business. The Company believes it has adequate legal defenses and
insurance coverage for these actions and that the ultimate outcome of these
actions will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.

9. EMPLOYEE BENEFIT PLANS

The Company has a profit-sharing plan that covers substantially all
employees who become eligible to participate, upon completion of six months of
continuous service. Vesting occurs over a three- to seven-year schedule.
Benefits become fully vested upon reaching normal retirement age, or the
participants' permanent disability or death. Contributions to the plan are
made at the Company's discretion, not to exceed the maximum amount deductible
under the Internal Revenue Code. Expense under the profit sharing plan
amounted to $450,000 for each of fiscal 1994 and 1995. The Company made no
contributions to this plan in fiscal 1996.

The Company also provides a defined contribution 401(k) plan available to
substantially all employees who become eligible to participate in the plan.
The Company does not make contributions under this plan.

F-17
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

10. INCOME TAXES

The provision (benefit) for income taxes for the following fiscal years
consisted of:

<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal................................... $355,677 $1,115,081 $2,077,371
State..................................... 184,074 451,947 332,710
-------- ---------- ----------
539,751 1,567,028 2,410,081
-------- ---------- ----------
Deferred:
Federal................................... 55,004 (402,010) (102,764)
State..................................... 22,060 (99,434) 40,842
-------- ---------- ----------
77,064 (501,444) (61,922)
-------- ---------- ----------
$616,815 $1,065,584 $2,348,159
======== ========== ==========
</TABLE>

A reconciliation of the U.S. Federal income tax rate to the effective tax
rate were as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. Federal income tax...................................... 34% 34% 34%
State income taxes, net of Federal income tax benefit........ 10 9 5
Other........................................................ 2 -- 2
--- --- ---
Effective income tax rate.................................... 46% 43% 41%
=== === ===
</TABLE>

Deferred tax assets (liabilities) were comprised of the following:

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Allowance for doubtful accounts.......................... $618,634 $699,354
Inventory................................................ 30,899 30,964
Vacation reserve......................................... 172,929 181,428
Other.................................................... -- 19,354
-------- --------
Gross deferred tax assets................................ 822,462 931,100
-------- --------
Depreciation and amortization............................ (98,428) (145,146)
-------- --------
Gross deferred tax liabilities........................... (98,428) (145,146)
-------- --------
Valuation allowance...................................... (50,000) (50,000)
-------- --------
Net deferred tax asset................................... $674,034 $735,954
======== ========
</TABLE>

The Company established a valuation allowance during the year ended June 30,
1994 of $50,000 against net deferred tax assets upon the adoption of SFAS No.
109, due primarily to the uncertainties as to the ultimate realizability of
certain deferred tax assets.

F-18
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

11. SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information:

<TABLE>
<CAPTION>
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest................................ $484,520 $1,043,487 $ 1,464,237
======== ========== ===========
Income taxes............................ $958,168 $ 409,431 $ 1,429,578
======== ========== ===========
Noncash investing and financing
activities:
Accrued and unpaid dividends on
preferred stock........................ $ 56,400 $ 60,000 --
======== ========== ===========
Capital lease obligations incurred...... $337,290 $ 303,192 $ 744,315
======== ========== ===========
Issuance of warrants in connection with
subordinated notes payable............. -- $ 934,441 --
======== ========== ===========
Issuance of warrants in connection with
Tampa Acquisition bridge financing..... -- -- $ 1,192,029
======== ========== ===========
Conversion of subordinated note to
400,000 shares of common stock, no par
value.................................. -- -- $ 3,000,000
======== ========== ===========
Write-off of Series C preferred stock
discount............................... -- -- $ 786,739
======== ========== ===========
Acquisitions:
Assets acquired......................... -- $8,775,599 $24,827,922
Less:
Liabilities assumed and acquisition
costs.................................. -- 378,296 2,390,532
Issuance of subordinated seller notes
and convertible note................... -- 2,550,000 5,400,000
Issuance of common stock................ -- 773,500 1,275,000
Capital lease obligations assumed....... -- 80,621 69,394
-------- ---------- -----------
Cash paid, net of cash acquired......... -- $4,993,182 $15,692,996
======== ========== ===========
Recapitalization:
Class A common stock.................... -- -- $ (109,824)
Class B common stock.................... -- -- (173,002)
Class C common stock.................... -- -- (1,217,370)
Redeemable Class B common stock......... -- -- (500,000)
Additional paid-in capital.............. -- -- (3,503,631)
Treasury stock.......................... -- -- 290,730
Redeemable common stock, no par value... -- -- 500,000
Common stock, no par value.............. -- -- 4,713,097
-------- ---------- -----------
-- -- --
======== ========== ===========
</TABLE>

12. SUBSEQUENT EVENTS

Acquisitions

In August 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of a durable medical equipment and respiratory
therapy company located in Scranton, Pennsylvania and a home infusion therapy
company located in Sarasota, Florida for an aggregate purchase price of $4.3
million. The durable medical equipment company provides services in the
Scranton/Wilkes Barre, Pennsylvania market and

F-19
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the infusion therapy company provides services encompassing the Ft. Myers,
Florida market and Tampa/St Petersburg, Florida market. The aggregate purchase
price for these acquisitions was comprised of cash, sellers notes payable, and
61,262 shares of the Company's common stock valued at $675,000.

On September 10, 1996, the Company signed a definitive agreement to merge
Home Health Systems, Inc. and its subsidiaries (collectively "HHSI") into the
Company. HHSI, headquartered in Phoenixville, Pennsylvania, provides durable
medical equipment and infusion and respiratory therapy services in Mount
Laurel, New Jersey, Columbia, Maryland and Chicago, Illinois. This
acquisition, which is to be accounted for as a pooling of interests, is
expected to close within 65 days of the signing of the definitive agreement.

On September 10 and 17, 1996, the Company signed definitive agreements to
acquire substantially all of the assets and assume certain liabilities of a
durable medical equipment and respiratory company located in Bristol,
Pennsylvania and a nursing services company located in Berlin and Salisbury,
Maryland. These acquisitions, which are to be recorded using the purchase
method of accounting, are expected to close by September 30, 1996.

F-20
<PAGE>

INDEPENDENT ACCOUNTANTS' REPORT

Stockholder and Board of Directors
LHS Holdings, Inc.
Louisville, Kentucky

We have audited the accompanying consolidated balance sheet of LHS HOLDINGS,
INC. AND ITS SUBSIDIARIES as of December 31, 1995, and the related
consolidated statement of operations and accumulated deficit, and statement of
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit 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 audit provides a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of LHS
HOLDINGS, INC. AND ITS SUBSIDIARIES as of December 31, 1995, and the results
of its operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.

Baird, Kurtz & Dobson

July 9, 1996
Tulsa, Oklahoma

F-21
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1995

AND

COMBINED BALANCE SHEET AS OF JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
A S S E T S
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash................................................. $ 143,123 $ 601,726
Accounts receivable, net............................. 1,241,784 1,245,546
Accounts receivable, other........................... 1,197,513 1,156,858
Accounts receivable, managed entity.................. -- 81,501
Inventory............................................ -- 135,870
Deferred income taxes................................ 280,588 298,829
Prepaid expenses and other current assets............ 250,712 241,993
---------- ----------
Total current assets............................... 3,113,720 3,762,323
---------- ----------
Fixed assets
Fixed assets......................................... 61,853 215,875
Less: Accumulated depreciation and amortization...... (19,278) (32,633)
---------- ----------
Total fixed assets................................. 42,575 183,242
---------- ----------
Cost in excess of net assets acquired, net............. 2,368,564 2,332,682
Loans and interest receivable, related party........... 497,884 1,569,004
---------- ----------
Total assets..................................... $6,022,743 $7,847,251
========== ==========
L I A B I L I T I E S A N D
S T O C K H O L D E R' S E Q U I T Y (D E F I C I T)
Current liabilities
Accounts payable..................................... $ 533,533 $1,107,281
Accrued compensation................................. 436,404 486,021
Accrued employee benefits............................ 1,825,470 1,702,224
Accrued taxes........................................ 229,952 234,362
Income taxes payable................................. 214,392 92,633
Accrued expenses..................................... 741,848 345,750
Accrued interest, related party...................... -- 15,195
Due to third party................................... 425,530 393,296
Notes payable, current............................... 1,613,847 2,184,617
---------- ----------
Total current liabilities.......................... 6,020,976 6,561,379
---------- ----------
Notes payable, third party............................. 475,000 449,123
Notes payable, related party........................... -- 937,500
Employee benefits, long term........................... -- 615,232
Stockholder's equity (deficit)
Common stock (See Note 11)........................... 20 40
Additional paid in capital........................... -- 1,980
Accumulated deficit.................................. (473,253) (718,003)
---------- ----------
Total stockholder's equity (deficit)............... (473,233) (715,983)
---------- ----------
Total liabilities and stockholder's equity (defi-
cit)............................................ $6,022,743 $7,847,251
========== ==========
</TABLE>

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

F-22
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE YEAR ENDED
DECEMBER 31, 1995

AND

COMBINED STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT FOR THE SIX MONTHS
ENDED JUNE 30, 1996 (UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
(UNAUDITED)
<S> <C> <C>
Net revenue........................................ $15,689,278 $11,183,319
Operating expenses
Employee compensation............................ 5,763,855 5,767,722
Employee benefits................................ 2,530,747 1,049,000
Contracted clinical services..................... 2,752,478 573,972
Transportation................................... 565,186 418,012
Rent............................................. 655,410 521,932
Cost of medical supplies sold.................... -- 253,704
Professional fees................................ 239,504 143,297
Depreciation and amortization.................... 97,090 102,791
Other............................................ 2,905,452 2,310,574
----------- -----------
Total operating expenses....................... 15,509,722 11,141,004
----------- -----------
Operating income................................... 179,556 42,315
Interest income.................................... 39,480 8,117
Interest income, related party..................... -- 52,445
Interest expense................................... (374,945) (332,432)
Interest expense, related party.................... -- (15,195)
----------- -----------
Net loss........................................... (155,909) (244,750)
Accumulated deficit at beginning of period......... (317,344) (473,253)
----------- -----------
Accumulated deficit at end of period............... $ (473,253) $ (718,003)
=========== ===========
</TABLE>

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

F-23
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 1995

AND

COMBINED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
(UAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $ (155,909) $ (244,750)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization.................... 97,090 102,791
Changes in operating assets and liabilities:
Increase in accounts receivable................. (1,431,869) (44,608)
Increase in inventory........................... -- (135,870)
Increase in deferred income taxes............... (214,392) (18,241)
(Increase)/decrease in prepaid expenses and
other current assets........................... (71,329) 8,719
Increase in accounts payable.................... 158,035 573,748
Increase in accrued compensation and benefits... 1,525,705 541,603
Increase in accrued taxes....................... 156,386 4,410
Increase/(decrease) in income taxes payable..... 148,196 (121,759)
Increase/(decrease) in accrued expenses......... 311,223 (396,098)
Increase in accrued interest, related party..... -- 15,195
Increase/(decrease) in due to third party....... 425,530 (32,234)
Decrease in unearned revenue.................... (125,000) --
----------- -----------
Net cash provided by operating activities...... 823,666 252,906
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of notes payable, related
party........................................... -- 937,500
Repayments of notes payable, third party......... (1,166,685) (2,285,359)
Proceeds from issuance of notes payable, third
party........................................... 1,150,498 2,830,253
----------- -----------
Net cash provided by/(used in) financing activ-
ities......................................... (16,187) 1,482,394
----------- -----------
Cash flows from investing activities:
Investment in fixed assets....................... -- (157,089)
Investment in affiliate.......................... (675,904) (188,670)
Cash for the transfer of HNT..................... -- 138,182
Proceeds from the issuance of common stock....... -- 2,000
Loans to related party........................... (393,354) (1,146,120)
Loans payments from related party................ 172,600 75,000
Repayments of loans receivable................... 134,555 --
----------- -----------
Net cash used in investing activities.......... (762,103) (1,276,697)
----------- -----------
Increase in cash................................... 45,376 458,603
Cash at beginning of period........................ 97,747 143,123
----------- -----------
Cash at end of period.............................. $ 143,123 $ 601,726
=========== ===========
</TABLE>

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

F-24
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 1995 AND JUNE 30, 1996

(AMOUNTS AND INFORMATION APPLICABLE TO THE SIX MONTHS ENDED JUNE 30, 1996 ARE
UNAUDITED)

1. THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

LHS Holdings, Inc. (LHS) was organized in the state of Kentucky in August
1993 for the purpose of acquiring, operating and developing home health
providers. The December 31, 1995 consolidated financial statements reflect
operations as of and for the twelve months ended December 31, 1995 and include
the accounts of LHS and its wholly-owned subsidiaries, Liberty Health
Services, Inc. (Liberty), Gateway Home Health Agency, Inc. (Gateway), PDN,
Inc. (PDN) and Hospice of North Texas, Inc. (HNT), herein referred to as the
Company for 1995 reporting. All significant intercompany transactions have
been eliminated.

In March 1996, LHS sold PDN and HNT to S-corporations owned by LHS's sole
stockholder, resulting in PDN-S and HNT-S. Additionally, in March 1996,
Medical Infusion Services, Inc. (Med IV) became an affiliate of the Company
when it was purchased by an S-corporation owned by LHS's sole stockholder.
Because these companies are not wholly-owned by LHS, the June 30, 1996
unaudited financial statements are presented on a combined basis rather than a
consolidated basis. The June 30, 1996 unaudited financial statements reflect
operations as of and for the six months ended June 30, 1996 and include the
accounts of LHS and its wholly-owned subsidiaries, and companies under common
control, PDN-S and Med IV, herein referred to as the Company for 1996
reporting. PDN-S's assets and liabilities reflect their carryover book values
since they were transferred between parties under common control. All
significant intercompany and affiliate transactions have been eliminated. The
June 30, 1996 financial statements exclude HNT-S as it is not included in the
proposed acquisition of certain subsidiaries and affiliates of the Company by
Home Health Corporation of America, Inc. (HHCA). See Note 14.

Revenue Recognition

Revenue is recognized when service is provided. The Company is paid for its
services primarily by Medicare, Medicaid, commercial insurance companies,
managed care companies and patients. Contractual allowances are recorded when
the services are rendered to give recognition to third-party payment
arrangements. Revenues generated from patients served under the Medicare and
Medicaid cost reimbursed programs are presented at an amount equivalent to
allowable cost as defined by the respective program rather than customary
charges. Medicare and Medicaid reimbursable costs are limited by aggregate
cost limits and by the disallowance of certain costs not directly resulting
from patient care services such as promotion and advertising. During 1996 and
1995, the Company had not exceeded the aggregated cost limits, and believes
adequate provisions have been made for any potential disallowances as a result
of audits by the respective program fiscal intermediary, which have not yet
been completed for either period. Approximately 95% and 78% of the Company's
net revenues in the periods ended December 31, 1995 and June 30, 1996,
respectively, were from participation in Medicare and Medicaid programs.

The Company generates a portion of its revenue by providing consulting
services to other health care providers. These services include acquisition
brokering, due diligence, financial planning and clinical consulting. Total
revenues related to consulting services for the twelve months ended December
31, 1995 and the six months ended June 30, 1996 were $383,000 and $17,000,
respectively.

F-25
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Accounts Receivable

At December 31, 1995 and June 30, 1996, approximately 86% and 73%,
respectively, of net accounts receivable were due from Medicare and Medicaid,
representing a concentrated group of credit for the Company; however,
management does not believe there is credit risk associated with these
governmental agencies. Furthermore, the Company monitors the expected
collectibility of accounts receivables and records allowances for doubtful
accounts as necessary. This allowance was $24,000 and $31,000 at December 31,
1995 and June 30, 1996, respectively.

During September 1993, the Company entered into a receivables financing
program which the Company accounts for in accordance with Statement of
Financial Accounting Standards, No. 77, (SFAS 77), "Reporting by Transferors
for Transfers of Receivables with Recourse." See Note 5.

Cost in Excess of Net Assets Acquired

Cost in excess of net assets acquired is being amortized over 15 years from
original acquisition, resulting in amortization of approximately $97,000 and
$86,000 for the periods ended December 31, 1995 and June 30, 1996,
respectively. Cumulative amortization of cost in excess of net assets acquired
as of December 31, 1995 and June 30, 1996 is $187,553 and $241,963,
respectively.

Use of 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.

Income Taxes

The Company recognizes income taxes in accordance with Statement of
Financial Accounting Standards, No. 109, "Accounting for Income Taxes." This
method requires recognition of deferred tax assets and liabilities arising
from differing financial reporting and tax basis of assets and liabilities.

2. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash, accounts receivable, accounts payable and
accrued expenses approximate fair value because of the short maturity of these
instruments. It was not practical to estimate the fair value of long term
receivables and payables with related parties or officers. The terms of the
amounts reflected in the balance sheet at December 31, 1995 and June 30, 1996
with related parties or officers are more fully discussed in Notes 4 and 12.
The fair value of other notes payable is estimated based on the borrowing
rates currently available to the Company for bank loans with similar terms and
maturities. At December 31, 1995 and June 30, 1996, the fair value is not
materially different from the carrying value.

3. ACQUISITIONS

The acquisitions described below have been accounted for under the purchase
method. The results of operations for these acquisitions have been included
from their respective acquisition dates. The acquisition purchase prices have
been allocated to identifiable assets, and the excess of the purchase price
over net assets acquired from these acquisitions is recorded as cost in excess
of net assets acquired, which is amortized over 15 years from the original
acquisition dates.

F-26
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Twelve months ended December 31, 1995 Acquisitions

During 1995, the Company acquired three home health companies. On January 1,
1995, the Company acquired Gateway, a Kentucky-based Medicare certified home
health agency. During November 1995, the Company acquired HNT, a home health
agency that specializes in the provision of hospice services in Texas, and
PDN, an agency that specializes in the provision of pediatric home health
services in Texas.

Six months ended June 30, 1996 Acquisitions

During March 1996, LHS sold PDN and HNT to S-corporations owned by LHS's
sole shareholder, resulting in PDN-S and HNT-S. This transaction represents a
transfer of interest under common control. During March 1996, Med IV, an
infusion therapy company based in Texas, was acquired from an independent
party by an S-corporation owned by LHS's sole stockholder.

The following unaudited pro forma summary information combines the results
of operations of the Company for the 1995 and 1996 acquisitions, assuming the
acquisitions had occurred at January 1 of each of the following years.

<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1995 1996
------------ --------------
(UNAUDITED)
<S> <C> <C>
Net revenues..................................... $18,899,103 $11,440,034
Net loss......................................... $ 261,388 $ 207,477
</TABLE>

4. NOTES PAYABLE

Notes payable as of December 31, 1995 and June 30, 1996 consist of:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
8% Note to former owner of subsidiary, payable in in-
stallments through 1997............................. $ -- $ 69,766
8.5% Notes to former owners of subsidiary, payable in
installments through 1998........................... 166,666 100,000
9.5% Revolving line of credit, due 1996.............. 343,310 500,000
10% Note to former owner of subsidiary, payable in
installments through 1998........................... 562,500 562,500
10% Notes to related party for purchase of subsidiar-
ies, due through 1999............................... -- 937,500
12% Note, payable to former owner of subsidiary, due
1996................................................ 100,000 --
12% Notes, due 1996.................................. 170,270 170,270
14.5% Note, due 1996................................. 99,221 50,000
17% Revolving line of credit, due 1997............... 415,628 742,495
18% Note, due 1997................................... -- 200,000
18% Note, payable to officer in installments through
1996................................................ 231,252 231,252
Other notes payable.................................. -- 7,457
---------- ----------
2,088,847 3,571,240
Less current notes and maturities.................... 1,613,847 2,184,617
---------- ----------
Long-term notes payable.............................. $ 475,000 $1,386,623
========== ==========
</TABLE>

F-27
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)

Notes payable to officer are secured by the stock of Liberty, the revolving
lines of credit are secured by accounts receivable, and all other notes
payable are secured by the personal guaranty of the Company's sole
shareholder. Accrued interest related to the notes payable to officer was
$6,957 as of June 30, 1996, and related interest expense was $23,482 and
$6,957, respectively, for the periods ended December 31, 1995 and June 30,
1996.

As of December 31, 1995, the maturities of long term debt are $1,613,847 in
fiscal 1996, $254,166 in fiscal 1997 and $220,834 in fiscal 1998.

5. ACCOUNTS RECEIVABLE

During September 1993, Liberty entered into a twenty-seven-month agreement
with an independent financing organization to advance collections of eligible
patient accounts receivable. Liberty is currently in the process of
renegotiating the terms of this arrangement. The financing organization has
agreed to continue the advances until specific contract terms can be met.
Eligible accounts generally include all accounts relating to the Medicare and
Medicaid programs. Total advances were approximately $12.4 million during the
twelve months ended December 31, 1995 and $8.4 million during the six months
ended June 30, 1996. The Company is contingently liable for the collection of
the receivables advanced which, as of December 31, 1995 and June 30, 1996 were
$1.2 million and $1.5 million, respectively. In the accompanying financial
statements, reserves withheld from the gross advances are reflected as
accounts receivable, other. Interest costs related to this agreement of
$274,160 and $178,297 are included in interest expense for the periods ended
December 31, 1995 and June 30, 1996, respectively.

Beginning in 1997, Statement of Financial Accounting Standards, No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities", will supersede SFAS 77 in determining
accounting for transfers and servicing of financial assets. The Company's
receivable financing program will need to be analyzed in comparison to this
new guidance to evaluate the impact of the new statement on accounting for
these transactions.

6. INCOME TAXES

The components of the provision for income taxes for the twelve months ended
December 31, 1995 and the six months ended June 30, 1996 are as follows:

<TABLE>
<CAPTION>
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
Current taxes payable................................ $ 214,392 $ 92,633
Deferred income taxes................................ (214,392) (92,633)
--------- --------
Net provision........................................ $ -- $ --
========= ========
</TABLE>

The provision for income taxes varies from the amount computed at the
federal statutory rate as follows:

<TABLE>
<CAPTION>
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
Tax based on the federal statutory rate (34%)........ $(53,009) $(83,216)
Change in the deferred tax asset valuation allowance. 3,142 48,416
Non-deductible amortization of goodwill.............. 29,256 14,628
Other................................................ 20,611 20,172
-------- --------
Provision............................................ $ -- $ --
======== ========
</TABLE>

F-28
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes are provided for those items reported in different
periods for income tax and financial reporting purposes. The components of the
net deferred tax asset as of December 31, 1995 and June 30, 1996 are as
follows:

<TABLE>
<CAPTION>
1995 1996
-------- -----------
(UNAUDITED)
<S> <C> <C>
Deferred tax assets:
Accrued bonuses..................................... $281,961 $ 372,060
Accrued compensated absences........................ 61,579 9,276
Other accrued expenses.............................. 26,287 51,821
-------- ---------
Gross deferred tax asset.............................. 369,827 433,157
-------- ---------
Deferred tax liabilities:
Accumulated depreciation............................ (4,750) (1,423)
-------- ---------
Net deferred tax assets before valuation allowance.... 365,077 431,734
Valuation allowance................................... (84,489) (132,905)
-------- ---------
Net deferred tax asset................................ $280,588 $ 298,829
======== =========
</TABLE>

The Company has limited recognition of net deferred tax assets to the amount
recoverable from previously paid income taxes.

7. EMPLOYEE BENEFITS

The Company has established a 401(k) defined contribution plan under which
employees who have completed six months and 1,000 hours of service and
attained the age of 21 are eligible to participate. For the eight months ended
August 31, 1995, the Company matched 100% of the employees contributions up to
3% of compensation. Effective September 1, 1995, the Company increased its
matching contribution to 100% of the employees contributions up to 6% of
compensation. Additionally, the Company contributed a discretionary amount to
the plan each year. Participants are fully vested in their voluntary
contribution and vest 30%, 60% and 100% in the Company's contributions upon
the completion of their first, second and third years of service,
respectively. The Company reflected $738,131 and $350,101 for the twelve
months ended December 31, 1995 and six months ended June 30, 1996,
respectively, as expense for 401(k) contributions in the financial statements.

In April 1995, the Company established a partially self-insured health care
plan for its employees. The Company is self-insured under the plan to the
extent of $10,000 per person, per plan year, not to exceed a maximum of
$400,000, with excess risk coverage obtained from an insurance company. The
Company accrues the expense of claim costs and plan administrative expenses
for actual claims and expenses incurred, and estimates of unfiled claims based
upon the Companys claims experience. Claims liabilities are reevaluated
periodically to consider recently settled claims, frequency of claims, and
other economic and social factors. The amount accrued for the estimate of
incurred but unpaid claims at December 31, 1995 and June 30, 1996 is $65,000
and $79,000, respectively. In April 1996, the Company returned to a fully-
insured health care plan for its employees.

The Company does not provide any post retirement health care and life
insurance benefits to retired employees.

8. PROFESSIONAL AND GENERAL LIABILITY INSURANCE

The Company is subject to claims and legal actions by patients in the
ordinary course of business. The Company maintains comprehensive general
liability insurance under an occurrence-based policy for losses related to

F-29
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
incidents which occur during the period of coverage. Coverage for professional
liability claims is maintained under both occurrence-based and claims-made
policies. The Company also maintains an umbrella policy to cover claims and
judgments in excess of the normal professional liability insurance coverage.
No claims have been filed since the inception of the Company.

9. COMMITMENTS AND CONTINGENTIES

Estimated Third-Party Settlements

Final determination of amounts earned under Medicare and Medicaid cost-
reimbursement programs are subject to review and audit by appropriate
governmental authorities or their agents. In the opinion of management,
adequate provision has been made in the financial statements for any
adjustments that could result from such reviews and audits.

Leases

Noncancelable operating leases for office space and equipment expire in
various years through 2001. Certain leases contain renewal options. Future
minimum lease payments as of December 31, 1995 are:

<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31,
------------
<S> <C>
1996........................................................ $ 894,014
1997........................................................ 848,751
1998........................................................ 709,864
1999........................................................ 603,132
2000........................................................ 470,791
Thereafter.................................................. 39,712
----------
Future minimum payments..................................... $3,566,264
==========
</TABLE>

10. SUPPLEMENTAL CASH FLOW INFORMATION

During the twelve months ended December 31, 1995 and the six months ended
June 30, 1996, the Company paid interest of $385,700 and $78,330,
respectively, and income taxes of $77,410 and $140,000, respectively.

During the twelve months ended December 31, 1995, the Company issued
promissory notes aggregating $862,500 related to the purchase of Gateway, HNT,
and PDN. During the six months ended June 30, 1996, the Company issued
promissory notes aggregating $69,768 related to the purchase of Med IV.

11. COMMON STOCK

The common stock as of December 31, 1995 and June 30, 1996 consisted of:

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
LHS Holdings, Inc., no par value, 10,000 shares
authorized, 100 shares issued and outstanding.... $20 $20
PDN, Inc., par value $0.01, 1,000 shares
authorized, 1,000 shares issued and outstanding.. -- $10
Medical Infusion Services, Inc., par value $0.01,
1,000 shares authorized, 1,000 shares issued and
outstanding...................................... -- $10
</TABLE>

F-30
<PAGE>

LHS HOLDINGS, INC. AND ITS SUBSIDIARIES AND AFFILIATES

NOTES TO THE FINANCIAL STATEMENTS--(CONTINUED)
12. RELATED PARTY TRANSACTIONS

As of December 31, 1995 and June 30, 1996, the Company had lent the sole
stockholder $497,884 and $1,569,004, respectively. This loan bears interest at
a rate of 10% per annum. This loan was unsecured at December 31, 1995 and June
30, 1996. Additionally, the sole stockholder had lent the Company $937,500 at
June 30, 1996, that bears interest at a rate of 10% per annum.

13. SUBSEQUENT EVENT

Effective July 1, 1996, LHS acquired Nurses Today, Inc., a Texas-based
Medicare certified home health agency from an independent party in exchange
for cash and debt.

14. PROPOSED SALE OF THE COMPANY (UNAUDITED)

On October 9, 1996, the Company's sole stockholder signed letters of intent
with HHCA, proposing the sale of selected assets and liabilities of LHS, PDN-S
and Med IV. These sales are subject to the completion and execution of
definitive purchase agreements currently in process.

F-31
<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
R.S.D. Management, Inc. and Subsidiaries
Salem, New Hampshire

We have audited the accompanying consolidated balance sheet of R.S.D.
Management, Inc. and Subsidiaries (the "Company") as of June 30, 1996 and the
related consolidated statements of loss and accumulated deficit and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of R.S.D.
Management, Inc. and Subsidiaries as of June 30, 1996 and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.

Simione, Simione, Scillia & Larrow
LLC

New Haven, Connecticut
October 18, 1996, except for Note 1 as
to which the date is October 31, 1996

F-32
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

JUNE 30, 1996

<TABLE>
<CAPTION>
A S S E T S
-----------
<S> <C>
Current assets
Cash............................................................ $ 12,430
Accounts receivable, less allowance for doubtful accounts of
$299,000....................................................... 916,214
Accounts receivable pledged as collateral under financing
arrangement.................................................... 5,144,933
Prepaid expenses and other current assets....................... 132,213
-----------
Total current assets.......................................... 6,205,790
-----------
Equipment and leasehold improvements, net......................... 224,634
-----------
$ 6,430,424
===========
L I A B I L I T I E S A N D D E F I C I E N C Y I N
A S S E T S
-------------------------------------------------------
Current liabilities
Line of credit.................................................. $ 1,000,000
Notes payable to stockholder and officers....................... 1,687,994
Advances under financing arrangement............................ 3,327,966
Accounts payable................................................ 551,145
Due to Medicare................................................. 304,180
Accrued payroll and related withholdings........................ 714,452
Accrued insurance and interest.................................. 534,449
-----------
Total current liabilities..................................... 8,120,186
-----------
Deficiency in assets
Common stock, Class A, no par value; 150 shares authorized, 10
shares issued and outstanding.................................. 100
Common stock, Class B, no par value; 150 shares authorized,
issued and outstanding......................................... 900
Accumulated deficit............................................. (1,690,762)
-----------
(1,689,762)
-----------
$ 6,430,424
===========
</TABLE>

See notes to consolidated financial statements.

F-33
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF LOSS AND ACCUMULATED DEFICIT

YEAR ENDED JUNE 30, 1996

<TABLE>
<S> <C>
Revenue
Net service income.............................................. $18,349,585
Interest income................................................. 1,923
-----------
Total revenue................................................. 18,351,508
-----------
Costs and expenses
Direct service costs............................................ 12,256,231
General and administrative expenses............................. 7,305,087
-----------
Total costs and expenses...................................... 19,561,318
-----------
Net loss.......................................................... (1,209,810)
Accumulated deficit, beginning of year............................ (480,952)
-----------
Accumulated deficit, end of year.................................. $(1,690,762)
===========
</TABLE>

See notes to consolidated financial statements.

F-34
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED JUNE 30, 1996

<TABLE>
<S> <C>
Cash flows from operating activities
Net loss......................................................... $(1,209,810)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation and amortization................................... 52,479
Provision for bad debts......................................... 295,395
Changes in assets and liabilities:
Accounts receivable............................................ (2,632,840)
Prepaid expenses and other current assets...................... 150,310
Accounts payable............................................... 339,753
Due to Medicare................................................ (64,738)
Accrued payroll and related withholdings....................... 297,866
Accrued insurance and interest................................. 382,486
-----------
Net cash used in operating activities......................... (2,389,099)
-----------
Cash flows from investing activities
Purchases of equipment and leasehold improvements............... (28,289)
-----------
Cash flows from financing activities
Decrease in cash overdraft...................................... (305,420)
Net advances under financing arrangement........................ 3,327,966
Net payments on lines of credit................................. (750,000)
Payments of notes payable....................................... (932,500)
Proceeds from the issuance of notes payable..................... 1,089,772
-----------
Net cash provided by financing activities..................... 2,429,818
-----------
Net increase in cash.............................................. 12,430
Cash, beginning of year........................................... --
-----------
Cash, ending of year.............................................. $ 12,430
===========
Supplemental disclosure of cash flow information
Cash paid for interest.......................................... $ 388,595
===========
</TABLE>

See notes to consolidated financial statements.

F-35
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1--BASIS OF PRESENTATION

The accompanying consolidated financial statements of R.S.D. Management,
Inc. and Subsidiaries have been prepared on a going concern basis, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. As shown in the accompanying consolidated financial
statements, the Company incurred a net loss of $1,209,810 during the year
ended June 30, 1996 and, as of that date, had a deficiency in assets of
$1,689,762. These factors, among others, raise substantial doubt about its
ability to continue as a going concern. The accompanying consolidated
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the Company be
unable to continue as a going concern.

On October 31, 1996, the Company entered into a stock purchase agreement to
sell the common stock of R.S.D. Management, Inc., including all of its wholly-
owned subsidiaries, (the "Seller") to Home Health Corporation of America, Inc.
(the "Buyer"). Management has indicated its operations have been profitable
during the period July 1, 1996 through August 31, 1996. In addition, on August
8, 1996, the Buyer loaned the Seller $350,000 to assist in financing its
operations.

The Company's continued existence will be dependent on its ability to
achieve profitable operations and to generate sufficient cash flow to meet its
obligations as they become due.

On October 31, 1996, the Company received notification from an officer of
his intended future participation and support in assuring that the Company
continues in operation until the earlier of the date of the closing referred
to above or July 1, 1997.

NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company provides various types of homecare services to private homes and
hospitals in Massachusetts and New Hampshire.

Summary of Significant Accounting Policies

Principles of Consolidation--The consolidated financial statements include
the accounts of R.S.D. Management, Inc. and its wholly-owned subsidiaries,
Nursing Services Homecare, Ltd., Nursing Services Homecare, Inc., Nursing
Services Staffing of New Hampshire, Inc., and Nursing Services, Inc. All
intercompany balances and transactions are eliminated.

Use of 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. Accordingly, actual results could differ from those
estimates.

Equipment and Leasehold Improvements--Equipment and leasehold improvements
are recorded at cost. Maintenance and repairs are charged to expense as
incurred. When assets are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the respective accounts and the
resulting gain or loss is reflected in operations. Depreciation of equipment
is computed using the straight-line method over the estimated useful lives of
the assets, ranging from 3 to 7 years. Leasehold improvements are amortized
over their estimated useful life, which is 39 years.

Net Service Income--Net service income is reported at the estimated net
realizable amounts from patients and third party payors.

F-36
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Income Taxes--The Company files consolidated federal income tax returns. For
state income tax purposes, the Company files a consolidated return for New
Hampshire, and it files separate returns for each entity in Massachusetts.
Although R.S.D. Management, Inc. is ultimately liable for corporate income
taxes resulting from consolidated tax returns, such taxes have been allocated
to each subsidiary as if each subsidiary filed its own corporate tax returns.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities and the amount used for
income tax purposes.

NOTE 3--THIRD-PARTY RATE ADJUSTMENTS, REVENUE AND RECEIVABLE

Approximately 62 percent of net service income for the year ended June 30,
1996, was derived under the federal government's Medicare program. These
revenues are based on cost reimbursement principles and are subject to audit
and retroactive adjustment by the respective third-party fiscal
intermediaries. The Company's Medicare cost reports have been audited through
June 30, 1994. In the opinion of management, retroactive adjustments, if any,
would not be material to the financial position or results of operations of
the Company.

Accounts receivable includes $4,263,215 due from Medicare. During the year
ended June 30, 1996, significant delays were encountered in collecting
Medicare accounts because of increased requests for documentation of charges.
Collection of the Medicare portion of accounts receivable, which includes
approximately $340,000 that is over 180 days old, is dependent upon Medicare's
review and approval. Because of the uncertainty associated with the Medicare
approval process, it is reasonably possible that management's estimate of the
amount of that receivable which is collectible may change in the near term.
However, the amount of that change that is reasonably possible cannot be
estimated.

NOTE 4--ACCOUNTS RECEIVABLE FINANCING ARRANGEMENT

In January 1996, Nursing Services Homecare, Inc., Nursing Services Homecare,
Ltd., and Nursing Services, Inc. entered into an agreement with a finance
company to factor accounts receivable. Under the agreement, the Companies are
advanced 80 percent of eligible receivables, which are submitted weekly in
batches. The fee charged by the financing company is based on a percentage of
the amount advanced, calculated based on the average days required for
collection. Any amount collected on the receivables in excess of the advanced
amount and corresponding fee is remitted to the Companies.

For the year ending June 30, 1996, total advances amounted to $7,371,391,
and the related fees amounted to $58,097. The net advances under the financing
arrangement, including unpaid purchase fees, amounted to $3,327,966 at June
30, 1996.

NOTE 5--EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements at June 30, 1996 consist of the
following:

<TABLE>
<S> <C>
Office and medical equipment........................................ $285,797
Leasehold improvements.............................................. 106,365
--------
392,162
Less accumulated depreciation and amortization...................... 167,528
--------
$224,634
========
</TABLE>

NOTE 6--LINE OF CREDIT

In April 1996, Nursing Services Homecare, Inc. obtained a $1,000,000 line of
credit. The line bears interest at the 30-day Commercial Paper Rate plus 2.95
percent (8.4 percent at June 30, 1996), and expires in April 1997. The line is
collateralized by securities owned by an officer of the Company and is
guaranteed by each of the companies in the consolidated group. The line was
fully utilized at June 30, 1996.

F-37
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 7--NOTES PAYABLE TO STOCKHOLDER AND OFFICERS

All notes payable are unsecured and consist of the following at June 30,
1996:

<TABLE>
<S> <C>
Notes payable to stockholder with interest at 10 percent per annum,
payable on demand.................................................. $ 652,994
Notes payable to officers with interest at 14 percent per annum,
payable on demand.................................................. 735,000
Note payable to stockholder with interest at 12 percent per annum.
Beginning January 1995, monthly payments of principal and interest
of $6,673 are required through January 2000. No principal
repayments have been made as of June 30, 1996. Accordingly, the
balance of the note is classified as a current liability........... 300,000
----------
$1,687,994
==========
</TABLE>

Interest expense for the year ended June 30, 1996 amounted to $460,948, of
which $190,269 was related to notes payable to the stockholder and officers.
At June 30, 1996, accrued interest amounted to $29,589, of which $11,460 is
payable to the stockholder and officers.

NOTE 8--OPERATING LEASES

The Company occupies office space in several locations under various
operating leases expiring between 1996 and 1999. In addition to minimum lease
payments, one lease provides that real estate taxes and operating expenses be
paid by the Company. Rental expense for the year ended June 30, 1996 amounted
to $229,266.

In addition, the Company leases certain vehicles under operating leases
which expire between June and July 1997. Total lease expense for the year
ended June 30, 1996 amounted to $24,648.

Future minimum lease payments under noncancellable leases for the years
ending June 30 are as follows:

<TABLE>
<S> <C>
1997................................................................ $212,164
1998................................................................ 137,068
1999................................................................ 3,479
--------
Total............................................................. $352,711
========
</TABLE>

NOTE 9--INCOME TAXES

Deferred tax assets at June 30, 1996 are as follows:

<TABLE>
<S> <C>
Total deferred tax assets......................................... $445,194
Valuation allowance............................................... (445,194)
---------
$ --
=========
</TABLE>

The deferred tax asset results from basis differences in certain trade
accounts receivable and the benefit of available federal and state net
operating loss carryforwards.

The Company's management has determined that a valuation allowance is
required due to the uncertainty that future operations will generate
sufficient taxable income to realize the deferred tax assets. The valuation
allowance has increased by $370,194 for the year ended June 30, 1996.

F-38
<PAGE>

R.S.D. MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At June 30, 1996, the Company had net operating loss carryforwards for
federal and state tax reporting purposes of approximately $1,385,000. If not
utilized to offset future taxable income, these carryforwards will begin to
expire in tax years 2007 and 1998 for federal and state purposes,
respectively.

F-39
<PAGE>

[LOGO OF HOME HEALTH CORPORATION OF AMERICA APPEARS HERE]

3,623,500 SHARES
COMMON STOCK

PROSPECTUS

DEAN WITTER REYNOLDS INC.

VOLPE, WELTY & COMPANY

WHEAT FIRST BUTCHER SINGER

, 1996

<PAGE>

PART II

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the expenses in connection with the issuance
and distribution of the securities being registered, all of which are being
borne by the Registrant.

<TABLE>
<CAPTION>
AMOUNT
--------
<S> <C>
Securities and Exchange Commission Registration Fee................ $ 15,784
National Association of Securities Dealers, Inc. Filing Fee........ 5,709
Nasdaq National Market Listing Fee................................. 17,500
Printing and Engraving Expenses.................................... 100,000
Accounting Fees and Expenses....................................... 125,000
Legal Fees and Expenses............................................ 150,000
Blue Sky Qualification Fees and Expenses........................... 5,000
Miscellaneous...................................................... 81,007
--------
Total............................................................ $500,000
========
</TABLE>

The foregoing, except for the Securities and Exchange Commission
registration fee, the National Association of Securities Dealers, Inc. filing
fee and the Nasdaq National Market listing fee, are estimates.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 1741 through 1750 of Subchapter D, Chapter 17, of the Pennsylvania
Business Corporation Law of 1988, as amended, (the "BCL"), contain provisions
for mandatory and discretionary indemnification of a corporation's directors,
officers and other personnel, and related matters.

Under Section 1741, subject to certain limitations, a corporation has the
power to indemnify directors and officers under certain prescribed
circumstances against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with an action or proceeding, whether civil, criminal, administrative or
investigative, to which any of them is a part by reason of his being a
representative, director or officer of the corporation or serving at the
request of the corporation as a representative of another corporation,
partnership, joint venture, trust or other enterprise, if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed to, the
best interests of the corporation and, with respect to any criminal
proceeding, had no reasonable cause to believe his conduct was unlawful. Under
Section 1743, indemnification is mandatory to the extent that the officer or
director has been successful on the merits or otherwise in defense of any
action or proceeding if the appropriate standards of conduct are met.

Section 1742 provides for indemnification in derivative actions except in
respect of any claim, issue or matter as to which the person has been adjudged
to be liable to the corporation unless and only to the extent that the proper
court determines upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, the person is fairly and
reasonably entitled to indemnity for the expenses that the court deems proper.

Section 1744 provides that, unless ordered by a court, any indemnification
under Section 1741 or 1742 shall be made by the corporation only as authorized
in the specific case upon a determination that the representative met the
applicable standard of conduct, and such determination will be made by the
board of directors (i) by a majority vote of a quorum of directors not parties
to the action or proceeding; (ii) if a quorum is not obtainable, or if
obtainable and a majority of disinterested directors so directs, by
independent legal counsel; or (iii) by the shareholders.

Section 1745 provides that expenses incurred by an officer, director,
employee or agent in defending a civil or criminal action or proceeding may be
paid by the corporation in advance of the final disposition of such action

II-1
<PAGE>

or proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the corporation.

Section 1746 provides generally that, except in any case where the act or
failure to act giving rise to the claim for indemnification is determined by a
court to have constituted willful misconduct or recklessness, the
indemnification and advancement of expenses provided by Subchapter 17D of the
BCL shall not be deemed exclusive of any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to action
in another capacity while holding that office.

Section 1747 grants to a corporation the power to purchase and maintain
insurance on behalf of any director or officer against any liability incurred
by him or her in his or her capacity as officer or director, whether or not
the corporation would have the power to indemnify him or her against the
liability under Subchapter 17D of the BCL.

Section 1748 and 1749 extend the indemnification and advancement of expenses
provisions contained in Subchapter 17D of the BCL to successor corporations in
fundamental changes and to representatives serving as fiduciaries of employee
benefit plans.

Section 1750 provides that the indemnification and advancement of expenses
provided by, or granted pursuant to, Subchapter 17D of the BCL, shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs and personal representative of such person.

For information regarding provisions under which a director or officer of
the Company may be indemnified in any manner against any liability which he or
she may incur in his or her capacity as such, reference is made to Article
VIII of the Company's Bylaws, a copy of which is filed as Exhibit 3.2, which
provide in general that the Company shall indemnify its officers and directors
to the fullest extent authorized by law.

Reference is also made to Section 7 of the Underwriting Agreement filed as
Exhibit 1.1 to this Registration Statement.

The Company currently has directors' and officers' liability insurance which
covers certain liabilities, including liabilities to the Company and its
shareholders, in the amount of $1.0 million.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

During the past three years, the Company has issued unregistered securities
to a limited number of persons, as described below. No underwriters or
underwriting discounts or commissions were involved. There was no public
offering in any such transaction, and the Company believes that each
transaction was exempt from registration requirements of the Securities Act of
1933, as amended (the "Securities Act"), by reason of Section 4(2) thereof.

1. On June 30, 1994, the Company issued a promissory note in the principal
amount of $550,000 to Healthcare Professionals, Inc., in consideration of the
Company's acquisition of substantially all of the assets of Healthcare
Professionals, Inc.

2. On March 3, 1995, the Company issued a subordinated promissory note in
the principal aggregate amount of $1,475,000 William W. Moses, Andra H. Moses,
Steven R. Altshuler, Jane E. Altshuler, Milton Altshuler and an aggregate of
100,000 shares of its Class B Common Stock to William W. Moses, and Andra H.
Moses, Steven R. Altshuler, and Jane E. Altshuler.

3. On March 3, 1995, the Company issued to CoreStates Fund a warrant to
purchase 182,208 shares of Class B Common Stock at an exercise price of $.20
per share. In September 1995, CoreStates Fund exercised its warrant and the
Company issued to it 182,208 shares of Class B Common Stock.

II-2
<PAGE>

4. On May 31, 1995, the Company issued to Alpha Home Care Services, Inc., a
subordinated promissory note in the principal amount of $525,000 and 40,000
shares of its Class B Common Stock in consideration of the Company's
acquisition of substantially all of the assets of Alpha.

5. In August 1995, the Company issued 6,709 shares of Class B Common Stock
to Caroline Miller for $38.30 pursuant to an exercise of warrants.

6. On September 29, 1995, the Company issued to Summit Investors II, L.P.
and Summit Ventures II, L.P. (a) a senior subordinated note in the principal
amount of $1.0 million bearing interest at 12% per annum, (b) 200,000 shares
of its Series C Preferred Stock and (c) a warrant to purchase an aggregate of
155,414 shares of Common Stock at an exercise price of $.01 per share, for an
aggregate consideration of $3.0 million. On March 18, 1996, the Company issued
3,093 shares of Common Stock to Summit Investors II, L.P. and 152,175 shares
of Common Stock to Summit Ventures II, L.P. pursuant to an exercise of the
warrant.

7. On September 29, 1995, the Company issued a subordinated note in the
principal amount of $1,500,000 and a convertible subordinated note in the
principal amount of $3,000,000 to Preferred Diagnostic and Medical Services,
Inc. and Preferred Diagnostic Services, Inc. in consideration of the Tampa
Acquisition.

8. On October 1, 1995, the Company issued a convertible promissory note in
the principal amount of $3,000,000 to Preferred Diagnostic & Medical Services,
Inc. and Preferred Diagnostic Services, Inc. (collectively, "Preferred") in
consideration of the Company's acquisition of substantially all of the assets
of Preferred and G&S Industries, Inc. On November 8, 1995, the promissory note
was converted into 400,000 shares of Common Stock, issued as follows: 100,000
shares to Jeffrey H. Grossman, Trustee, Jeffrey H. Grossman Family Trust;
96,000 shares to Joel Grossman, Trustee, Joel Grossman Family Trust; 4,000
shares to Richard M. Levitt and Sandra Levitt (as tenants by the entirety);
100,000 shares to Barbara G. Sterensis, Trustee, Barbara G. Sterensis Family
Trust; and 100,000 shares to Joseph B. Sterensis, Trustee, Joseph B. Sterensis
Family Trust.

9. On April 29, 1996, the Company issued 16,000 shares of Common Stock to
Mobilsonix, Inc., in consideration of the Company's acquisition of
substantially all of the assets of Mobilsonix, Inc.

10. On May 1, 1996, the Company issued 38,462 shares of Common Stock to Sona
Nemethy in consideration of the Company's acquisition of substantially all of
the assets of Dependable Nurses, Inc., Dependable Nurses--District 6, Inc.,
Dependable Home Care, Inc. and Dependable Home Care--District 6, Inc.

11. On May 1, 1996, the Company issued 15,646 shares of Common Stock to
Progressive Home Health, Ltd. and 31,293 shares of Common Stock to Progressive
Partners, Ltd. in consideration of the Company's acquisition of substantially
all of the assets of Progressive Development Services, Inc., Progressive Home
Health, Ltd. and Progressive Partners, Ltd.

12. On February 12, 1996, the Company issued an aggregate of 6,000 shares of
Common Stock to Joel Feiss pursuant to the exercise of three stock options
granted in February 1992, February 1994, and July 1994 for 2,500, 2,500 and
1,000 shares of Common Stock, respectively.

13. On February 12, 1996, the Company issued an aggregate of 7,500 shares of
Common Stock to Joseph and Susan Sachs pursuant to the exercise of three stock
options granted in December 1991, August 1992, and February 1994, each for
2,500 shares of Common Stock.

14. On February 12, 1996, the Company issued an aggregate of 5,000 shares of
Common Stock to Alan Sklaver pursuant to the exercise of two stock options,
granted in December 1991 and August 1992, each for 2,500 shares of Common
Stock.

15. On February 20, 1996, the Company issued an aggregate of 5,000 shares of
Common Stock to James Morris pursuant to the exercise of two stock options,
granted in December 1991 and August 1992, each for 2,500 shares of Common
Stock.

II-3
<PAGE>

16. On February 20, 1996, the Company issued 1,000 shares of Common Stock to
Richard Polokoff pursuant to the exercise of a stock option granted in June
1993.

17. On February 20, 1996, the Company issued 1,000 shares of Common Stock to
Stanley Richter pursuant to the exercise of a stock option granted in October
1994.

18. On March 14, 1996, the Company issued 1,000 shares of Common Stock to
Daniel Kezden pursuant to the exercise of a stock option granted in October
1994.

19. On August 5, 1996, the Company issued 22,779 shares of Common Stock to
Daily Resources, Inc., in consideration of the Company's acquisition of
substantially all of the assets of Daily Resources, Inc.

20. On August 14, 1996, the Company issued 38,483 shares of Common Stock to
National Home Infusion, Inc. in consideration of the Company's acquisition of
substantially all of the assets of National Home Infusion, Inc.

21. On October 1, 1996, the Company issued 19,270 shares of Common Stock to
Stephen Melsheimer and 19,270 shares to William Bayer in consideration of the
Company's acquisition of substantially all of the assets of Medical Express,
Inc.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
***1.1 Form of Underwriting Agreement.
***2.1 Stock Purchase Agreement among HHCA, Home Health Corporation of
New Hampshire, Randy DiSalvo, R.S.D. Management Services, Inc.,
Nursing Services Home Care, Inc., and Nursing Services Home Care,
Ltd.
*3.1 Amended and Restated Articles of Incorporation of the Company.
*3.2 Amended and Restated Bylaws of the Company.
***5.1 Opinion of Blank Rome Comisky & McCauley.
*9.1 Voting Trust Agreement between William Moses and Andra H. Moses
and Bruce J. Feldman.
*9.2 Voting Trust Agreement between Steven R. Altshuler and June
Altshuler and Bruce J. Feldman.
*10.1 Registration Rights Agreement among the Company, Summit Ventures
II, L.P., and Summit Investors II, L.P.
*10.2 Additional Investment Agreement among the Company, Summit Ventures
II, L.P., Summit Investors II, L.P., Bruce J. Feldman, and Andrew
J. Bednarski.
*10.3 Asset Acquisition Agreement among Home Care Medical Supply and
Equipment, Inc., Alpha Home Care Services, Inc., Joel Schreiber,
and Joseph J. D'Alessandro, including schedules and exhibits
thereto.
*10.4 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and Alpha Home Care Services, Inc.
*10.5 Stock Purchase Agreement among Home Health Care Corporation of
Delaware, Inc., William Moses, Milton Altshuler, Steven R.
Altshuler, and Jane Altshuler, relating to the Delaware
Acquisition.
*10.6 Asset Acquisition Agreement between HHCDME, Inc., and Master
Medical Supply Co., Inc., relating to the Delaware Acquisition.
*10.8 Indemnification Agreement relating to the Delaware Acquisition.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------
<C> <S>
*10.9 Agreement among Home Health Care Corporation of Delaware, Inc.,
HHCD, Inc., HHCDME, Inc., Master Medical Supply Co., Inc.,
Professional Home Health Services, Inc., Professional Home Health
Care Agency, Inc., William Moses, Andra H. Moses, Steven R.
Altshuler, and Jane Altshuler, relating to the Delaware
Acquisition.

*10.10 Full Payment Guaranty of the Company relating to the Delaware
Acquisition.

*10.11 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and parties to Delaware Acquisition transaction
documents.

**10.12 Separation Agreement among Home Health Corporation of America,
Inc., Home Health Corporation of Delaware, Inc., HHCD, Inc.,
HHCDME, Inc., Steven R. Altshuler, Jane E. Altshuler, William W.
Moses and Andra H. Moses.

*10.13 Asset Purchase Agreement between Pennsylvania Home Care, Inc. and
Healthcare Professionals, Inc.

*10.14 Lease between the Company and Swedeland Road Corporation, relating
to the Company's principal executive offices.

*10.15 Employment Agreement between the Company and Bruce J. Feldman.

*10.16 Employment Agreement between the Company and Fred J. Nicholas.

*10.17 Employment Agreement between the Company and James J. Swiniuch.

10.18 Employment Agreement between the Company and Joseph J. Grilli.

*10.19 1995 Employee and Consultant Equity Plan.

*10.20 1984 Employee Stock Option Plan (Qualified and Non-Qualified), as
amended and restated.

*10.21 Consent and Amendment to Note and Stock Purchase Agreement, dated
September 29, 1995, among the Company, certain subsidiaries of
the Company, Summit Ventures II, L.P. and Summit Investors II,
L.P.

*10.22 Subordination Agreement, dated September 29, 1995, among
CoreStates Bank, N.A., Summit Ventures II, L.P., Summit Investors
II, L.P., Summit Subordinated Debt Fund, L.P., CoreStates
Enterprise Fund and Preferred Diagnostic Services, Inc.

*10.23 Asset Acquisition Agreement among the Company, Home Health
Corporation of America, Inc.--Tampa, Preferred Diagnostic &
Medical Services, Inc., Preferred Diagnostic Services, Inc., G&S
Industries, Inc., and Joel M. Grossman, Jeffrey Grossman, Joseph
Sterensis, Barbara Sterensis and Richard Levitt.

*10.24 Registration Rights Agreement, dated September 28, 1995, among the
Company, a subsidiary of the Company, Preferred Diagnostic &
Medical Services, Inc. and Preferred Diagnostic Services, Inc.

**10.25 Second Amended and Restated Credit Agreement dated August 22, 1996
among Home Health Corporation of Delaware, Inc. and CoreStates
Bank, N.A. (as Agent).

11.1 Computation of Earnings Per Share.

11.2 Computation of Fully-Diluted Earnings Per Share.

21.1 Subsidiaries of the Company.

23.1 Consent of Coopers & Lybrand L.L.P.

23.2 Consent of Baird, Kurtz and Dobson.

23.3 Consent of Simione, Simione, Scillia & Larrow LLC.

***23.4 Consent of Blank Rome Comisky & McCauley (included in the opinion
filed as Exhibit 5.1 hereto).

24.1 Power of Attorney (included on signature page).
</TABLE>
- --------
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-96888) dated November 8, 1996, as amended.
** Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended June 30, 1996.
*** To be filed by amendment.

II-5
<PAGE>

(B)FINANCIAL STATEMENT SCHEDULE

Report of Independent Accountants on the Financial Statement Schedule

Schedule II: Valuation and Qualifying Accounts for each of the three fiscal
years ended June 30, 1996

ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer of controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.

(b) The undersigned hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed the initial bona fide offering thereof.

II-6
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN KING OF PRUSSIA,
PENNSYLVANIA, ON OCTOBER 31, 1996.

Home Health Corporation of America,
Inc.

By: /s/ Bruce J. Feldman
---------------------------------
Bruce J. Feldman, President and
Chief Executive Officer

POWER OF ATTORNEY

Each person whose signature appears below hereby authorizes Bruce J.
Feldman, as Attorney-in-Fact, to sign on his behalf individually and in each
capacity stated below, and to file with the Securities and Exchange Commission
any amendments, including post-effective amendments, to this Registration
Statement.

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATE INDICATED.

SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Bruce J. Feldman Chairman of the October 31,
- ------------------------------------- Board, President 1996
BRUCE J. FELDMAN and Chief Executive
Officer

/s/ Fred J. Nicholas Chief Operating October 31,
- ------------------------------------- Officer 1996
FRED J. NICHOLAS

/s/ Bruce J. Colburn Chief Financial October 31,
- ------------------------------------- Officer (Principal 1996
BRUCE J. COLBURN Financial and
Accounting Officer)

/s/ G. Michael Bellenghi Director October 31,
- ------------------------------------- 1996
G. MICHAEL BELLENGHI

/s/ Harvey Machaver Director October 31,
- ------------------------------------- 1996
HARVEY MACHAVER

/s/ Joseph F. Trustey Director October 31,
- ------------------------------------- 1996
JOSEPH F. TRUSTEY

II-7
<PAGE>

EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------
<C> <S>
***1.1 Form of Underwriting Agreement.

***2.1 Stock Purchase Agreement among HHCA, Home Health Corporation of
New Hampshire, Randy DiSalvo, R.S.D. Management Services, Inc.,
Nursing Services Home Care, Inc., and Nursing Services Home Care,
Ltd.

*3.1 Amended and Restated Articles of Incorporation of the Company.

*3.2 Amended and Restated Bylaws of the Company.

***5.1 Opinion of Blank Rome Comisky & McCauley.

*9.1 Voting Trust Agreement between William Moses and Andra H. Moses
and Bruce J. Feldman.

*9.2 Voting Trust Agreement between Steven R. Altshuler and June
Altshuler and Bruce J. Feldman.

*10.1 Registration Rights Agreement among the Company, Summit Ventures
II, L.P., and Summit Investors II, L.P.

*10.2 Additional Investment Agreement among the Company, Summit Ventures
II, L.P., Summit Investors II, L.P., Bruce J. Feldman, and Andrew
J. Bednarski.

*10.3 Asset Acquisition Agreement among Home Care Medical Supply and
Equipment, Inc., Alpha Home Care Services, Inc., Joel Schreiber,
and Joseph J. D'Alessandro, including schedules and exhibits
thereto.

*10.4 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and Alpha Home Care Services, Inc.

*10.5 Stock Purchase Agreement among Home Health Care Corporation of
Delaware, Inc., William Moses, Milton Altshuler, Steven R.
Altshuler, and Jane Altshuler, relating to the Delaware
Acquisition.

*10.6 Asset Acquisition Agreement between HHCDME, Inc., and Master
Medical Supply Co., Inc., relating to the Delaware Acquisition.

*10.8 Indemnification Agreement relating to the Delaware Acquisition.

*10.9 Agreement among Home Health Care Corporation of Delaware, Inc.,
HHCD, Inc., HHCDME, Inc., Master Medical Supply Co., Inc.,
Professional Home Health Services, Inc., Professional Home Health
Care Agency, Inc., William Moses, Andra H. Moses, Steven R.
Altshuler, and Jane Altshuler, relating to the Delaware
Acquisition.

*10.10 Full Payment Guaranty of the Company relating to the Delaware
Acquisition.

*10.11 Subordination Agreement among CoreStates Bank, N.A., Summit
Ventures II, L.P., Summit Investors II, L.P., CoreStates
Enterprise Fund, and parties to Delaware Acquisition transaction
documents.

*10.13 Asset Purchase Agreement between Pennsylvania Home Care, Inc. and
Healthcare Professionals, Inc.

*10.14 Lease between the Company and Swedeland Road Corporation, relating
to the Company's principal executive offices.

*10.15 Employment Agreement between the Company and Bruce J. Feldman.

*10.16 Employment Agreement between the Company and Fred J. Nicholas.
</TABLE>

<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON THE FINANCIAL STATEMENT SCHEDULE

In connection with our audits of the consolidated financial statements of
Home Health Corporation of America, Inc. and subsidiaries as of June 30, 1995
and 1996 and for each of the three years in the period ended June 30, 1996,
which financial statements are included in the Prospectus, we have also
audited the financial statement schedule listed in Item 16 herein.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 30, 1996

S-1
<PAGE>

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
FOR EACH OF THE THREE FISCAL YEARS ENDED JUNE 30, 1996

<TABLE>
<CAPTION>
DESCRIPTION
--------------------------------------------
CHARGED
BALANCE AT TO COSTS
BEGINNING AND BALANCE AT
OF YEAR EXPENSES DEDUCTIONS END OF YEAR
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1996
Allowance for doubtful
accounts....................... $1,548,908 $2,848,490 $2,244,902 $2,152,496
Inventory valuation allowance... 40,000 -- 40,000 --
Deferred income tax valuation
allowance...................... 50,000 -- -- 50,000
1995
Allowance for doubtful
accounts....................... 623,119 1,528,034 602,245 1,548,908
Inventory valuation allowance... 40,000 50,000 50,000 40,000
Deferred income tax valuation
allowance...................... 50,000 -- -- 50,000
1994
Allowance for doubtful
accounts....................... 683,406 697,572 757,859 623,119
Inventory valuation allowance... 40,000 -- -- 40,000
Deferred income tax valuation
allowance...................... -- 50,000 -- 50,000
</TABLE>

S-2

<PAGE>

JOSEPH J. GRILLI

EMPLOYMENT AGREEMENT

THIS AGREEMENT, made as of July 1, 1996, by and between Home Health
Corporation of America, Inc. (the "Company"), a Pennsylvania corporation with
its principal office at 2200 Renaissance Boulevard, King of Prussia,
Pennsylvania 19406, and Joseph J. Grilli ("Grilli"), an individual residing at
273 Hemlock Terrace, Mountaintop, Pennsylvania, 18707. All other agreements
existing prior to July 1, 1996, are null and void.

WITNESSETH:

WHEREAS, the Company is in the business of providing professional care and
equipment to home-bound patients, including, but not limited to, bedside care
and treatment, infusion therapy, and rehabilitative services; and

WHEREAS, Grilli has been employed as a key, at-will executive employee of
the Company;

WHEREAS, Grilli has skillfully and faithfully served as the Company's Chief
Operations Officer of Pennsylvania; and

WHEREAS, the Company desires to secure and retain the experience, ability
and services of Grilli and to increase the responsibilities; and
<PAGE>

WHEREAS, in order to retain Grilli's valued services, the parties now wish
to record and to memorialize their agreement with respect to the terms and
conditions of their employer-employee relationship.

NOW THEREFORE, in consideration of the mutual promises contained herein and
intending to be legally bound, it is hereby agreed:

1. Employment. The Company offers and Grilli accepts employment with the
----------
Company upon the terms and conditions stated in this Agreement.

2. Duties.
------

2.1 Grilli shall serve as the Company's Area Vice President Mid-
Atlantic Area. He shall devote his best efforts and full-time attention to the
performance of his duties on behalf of the Company.

2.2 Grilli shall report directly to the Company's Chief Operations
Officer. He shall be responsible for the Company's operations in the Mid-
Atlantic Area of the United States, and shall undertake such responsibilities
and duties that may be assigned to him from time to time by the Company's Chief
Operations Officer.

2.3 Because Grilli's full-time services to the Company are deemed
essential, during the term of this Agreement Grilli shall not undertake, outside
the Company, any professional, commercial, business or public activities without
first giving 60 days advance written notice to the Company's President, and not
until he has received authorization and approval from the Company's President to
engage in such outside activities. If the Company disapproves of Grilli
engaging in any additional business, commercial, professional or other outside
responsibilities, then Grilli shall not undertake such activities.
<PAGE>

3. Term.
----

3.1 Term. The employment of Grilli pursuant to the terms hereof shall
----
commence on the date hereof and shall continue until June 30, 1999 and, subject
to paragraph 4.2 below, shall terminate thereafter. The term of Grilli's
employment hereunder, subject to termination as herein provided, is referred to
herein as the "Initial Term".

4. Termination of Employment. Grilli's employment hereunder, unless
-------------------------
renewed by the Company, shall terminate on June 30, 1999, or sooner upon the
occurrence of any of the following events:

4.1 Termination for Death. Grilli's employment hereunder shall
---------------------
automatically terminate upon his death. In the event of termination due to
Grilli's death pursuant to this paragraph 4.1, Grilli's right to receive the
compensation and other benefits hereunder, except for payments for services
rendered prior to the date of termination, shall cease.

4.2 Voluntary Termination. Grilli, with ninety (90) days advance
---------------------
written notice to the Company, may terminate his employment with the Company for
any or no reason, provided however, Grilli's obligations under the
Noncompetition, Nondisclosure and Inventions section, contained herein as
Section 7, shall remain in full force and effect in accordance with the terms
thereof. If Grilli shall elect to voluntarily terminate his employment pursuant
to this paragraph 4.2, Grilli's right to receive the compensation and other
benefits hereunder, except for payments for services rendered prior to the date
of termination, shall cease immediately upon such termination and the Company
shall not be obligated to make any further payments or provide any further
benefits hereunder.

4.3 Termination for Cause. The Company may terminate Grilli's
---------------------
employment for

3
<PAGE>

Cause (as hereinafter defined), upon written notice to him. For purposes of
this Agreement, "Cause" shall include but not be limited to (i) fraud, personal
dishonesty, willful misconduct, breach of fiduciary duty, willful breach or
willful neglect of the duties or obligations required under this Agreement which
adversely affects the company, (ii) acts or omissions which are intended to and
do have a direct adverse affect upon the Company's reputation or the conduct of
its business or (iii) violation of any law, government rule or regulation by
Grilli which adversely affect the Company. Prior to any termination of this
Agreement by the Company for Cause due to Grilli's willful misconduct or willful
neglect of duties, the Company shall first advise Grilli in writing of his acts
or omissions which it believes constitutes Cause for termination and to provide
Grilli with a 30 day period to cure such misconduct or neglect, provided this
provision shall only be applicable to the first of any related, series or
similar acts or omissions by him. In the event of termination for cause
pursuant to this paragraph 4.3, Grilli's right to receive the compensation and
other benefits hereunder, except for payments for services rendered prior to the
date of termination, shall cease immediately upon such termination and the
Company shall not be obligated to make any further payments or provide any
further benefits hereunder; provided, however, Grilli's obligations under the
Noncompetition Agreement shall remain in full force and effect in accordance
with the terms thereof.

4.4 Termination Without Cause. The Company shall have the right to
-------------------------
terminate the employment of Grilli at any time without Cause (as defined in
paragraph 4.3 hereof). In the event of termination without Cause pursuant to
this paragraph 4.4, Grilli's right to receive the compensation and other
benefits hereunder, except for payments for services rendered prior to the date
of termination, shall cease immediately upon such termination but the Company
shall have

4
<PAGE>

the obligations provided in paragraph 8.

5. Compensation.
------------

5.1 Base Salary. Effective on July 1, 1996, the company shall pay
-----------
Grilli an annual base salary of $125,000 per annum, payable in semi-monthly
installments or in such other regular installments as the parties agree.
Thereafter, an annual performance/salary review will occur on July 1 of each
year.

5.2 Supplemental Employment Benefits. In addition to the annual base
--------------------------------
salary provided in paragraph 5.1, above, the Company shall also provide to
Grilli the following supplemental employee benefits:

a. Dental Insurance. Grilli shall be eligible to participate in the
----------------
Company's group dental insurance plan.

b. Life Insurance. So long as the Company can purchase life insurance
--------------
at standard rates, the Company shall purchase for Grilli's benefit an insurance
policy contract on his life in an amount equal to his base salary. Grilli shall
have the right to name, and from time to time, change the beneficiary under said
policy.

c. Automobile Allowance. The Company shall provide to Grilli an
--------------------
automobile allowance of $450 a month.

d. Vacation. Grilli shall be entitled an annual vacation accrual
--------
benefit up to 20 work days a calendar year to be accrued and taken in accordance
with the Company's Employee Manual.

e. Retirement Program. Grilli shall be eligible to participate in the
------------------
Company's Employee Stock Ownership Plan Retirement Program.

5
<PAGE>

f. 401K Plan. Grilli shall be eligible to participate in the
---------
Company's Employee Contributory 401K Program.

g. Bonus Program. Grilli shall be eligible to participate in the
-------------
Company's Executive Management Bonus Program during the term of his employment
as Area Vice President-Mid-Atlantic Area or while he is still a member of the
Company's Executive Management Team.

h. Stock Options. Grilli shall be entitled to purchase shares of the
-------------
Company's Stock pursuant to the terms of the stock option program applicable to
senior management.

i. Additional Benefits. The company shall further extend to Grilli
-------------------
such additional benefits as may be voluntarily extended to its other employees
on the same terms and conditions as extended to such other employees generally.

6. Confidential Information. Grilli agrees during the term of this
------------------------
Agreement not to disclose to any third party any information relating to the
affairs of the Company, or any of its subsidiaries or affiliates, which
information is expressly confidential or which Grilli knows to be secret and not
generally known to others.

7. Noncompetition, Nondisclosure and Inventions.
--------------------------------------------

7.1 During the period of employment by the Company, Grilli will devote
his full working time and best efforts to the business of the company and agrees
that he will not, directly or indirectly, alone or as a partner, officer,
director, employee or stockholder of any company of business organization,
engage in any business activity which is directly being developed, manufactured
or sold by the Company or which is directly or indirectly detrimental to the
business of the Company provided, however, that the record or beneficial
-------- -------
ownership by Grilli of 1% or less of the outstanding publicly traded capital
stock of any such company shall not be deemed to be in

6
<PAGE>

violation of this Section 1, provided that Grilli is not an officer, director,
or employee of such company.

7.2 For a period of one (1) year after the termination of Grilli's
employment, he agrees that he will not, directly or indirectly, alone or as a
partner, officer, director, employee or stockholder of any company or business
organization, engage in any business activity which is directly or indirectly in
competition with the products or services being developed, manufactured,
marketed, provided or sold by the Company or which is directly or indirectly
detrimental to the business of the Company. Grilli's obligations under this
Section 7.2 shall survive heirs, executors and administrators if he is
discharged at any time, with cause, or if he resigns at any time. However, if,
at any time, Grilli is discharged without cause, this Section 7.2 shall not
survive the termination of his employment.

7.3 For the purposes of Sections 7.1 and 7.2 of this Agreement, a
business shall be deemed to be in competition with the Company only if the
products or services of such business are substantially similar in function or
capability to the products or services then being developed, manufactured,
marketed, provided or sold by the company, and are marketed to substantially the
same type of user as that to which the products and services of the Company are
marketed or proposed to be marketed.

7.4 Grilli will not at any time, whether during or after the termination
of his employment, reveal to any person, association or company any of the trade
secrets or confidential information concerning the organization, business or
finances of the Company so far as they have come or may come to his knowledge,
except as my be required in the ordinary course of performing duties as an
employee of the Company or except as may be in the public domain

7
<PAGE>

through no fault of Grilli, and he shall keep secret all matters entrusted to
him and shall not use or attempt to use any such information in any manner which
may injure or cause loss or may be calculated to injure or cause loss whether
directly or indirectly to the Company.

Further, Grilli agrees that during his employment he shall not make, use or
permit to be used any notes, memoranda, drawings, specifications, programs, data
or other materials of any nature relating to any matter within the scope of the
business of the Company or concerning any of its dealings or affairs otherwise
than for the benefit of the Company. Grilli further agrees that he shall not,
after the termination of his employment, use or permit to be used any such
notes, memoranda, drawings, specifications, programs, data or other materials,
it being agreed that any of the foregoing shall be and remain the sole and
exclusive property of the Company and that immediately upon the termination of
his employment Grilli shall deliver all of the foregoing, and all copies
thereof, to the Company, at its main office.

7.5 If at any time or times during Grilli's employment, he shall (either
alone or with others) make, conceive, discover, reduce to practice or become
possessed of any invention, modification, discovery, design, development,
improvement, process, formula, data, technique, know-how, secret or intellectual
property right whatsoever or any interest therein (whether or not patentable or
registrable under copyright or similar statutes or subject to analogous
protection) (herein called "Inventions") that relates to the business of the
Company or any of the products or services being developed, manufactured or sold
by the Company or which may conveniently be used in relation therewith, or
results from tasks assigned me by the Company or results from the use of
premises owned, leased or contracted for by the Company, such Inventions and the
benefits thereof shall immediately become the sole and absolute property of the
Company, and Grilli shall

8
<PAGE>

promptly disclose to the Company (or any persons designated by it) each such
Invention and hereby assign any rights he may have or acquire in the inventions
and benefits and/or rights resulting therefrom to the Company without
compensation and shall communicate, without cost or delay, and without
publishing the same all available information relating thereto (with all
necessary plans and models) to the Company.

Grilli will also promptly disclose to the Company, and the Company hereby
agrees to receive all such disclosures in confidence, any other invention,
modification, discovery, design, development, improvement, process, formula,
data, technique, know-how, secret or intellectual property right whatsoever or
any interest therein (whether or not patentable or registrable under copyright
or similar statutes or subject to analogous protection) made, conceived,
discovered, reduced to practice or possessed by Grilli (either alone or with
others) at any time or times during his employment for the purpose of
determining whether they constitute "Inventions", as defined herein.

Upon disclosure of each Invention to the Company, during Grilli's
employment and at any time thereafter, he will, at the request and cost of the
Company, sign, execute, make and do all such deeds, documents, acts and things
as the Company and its duly authorized agents may reasonably require

(a) to apply for, obtain and vest in the name or the Company alone
(unless the Company otherwise directs) letters patent, copyrights or other
analogous protection in any country throughout the world and when so obtained or
vested to renew and restore the same; and

(b) to defend any opposition proceedings in respect of such
applications and any opposition proceedings or petitions or applications for
revocation of such letters patent, copyright

9
<PAGE>

or other analogous protection.

In the event the Company is unable, after reasonable effort, to secure
Grilli's signature on any letters patent, copyright or other analogous
protection relating to an Invention, whether because of his physical or mental
incapacity or for any other reason whatsoever, I hereby irrevocably designate
and appoint the Company and its duly authorized officers and agents as Grilli's
agent and attorney-in-fact, to act for and in his behalf and stead to execute
and file any such application or applications and to do all other lawfully
permitted acts to further the prosecution and issuance of letters patent,
copyright or other analogous protection thereon with the same legal force and
effect as if executed by Grilli.

7.6 Grilli agrees that any breach of the Agreement by him could cause
irreparable damage and that in the event of such breach the Company shall have,
in addition to any and all remedies of law, the right to an injunction, specific
performance or other equitable relief to prevent the violation of my obligations
hereunder.

7.7 Grilli understands that this Agreement does not create an obligation
on the Company or any other person to continue his employment.

Grilli further represents that his performance of all the terms of this
Agreement, and his performance as an employee of the Company, does not and will
not breach any agreement to keep in confidence proprietary information acquired
by him in confidence or in trust prior to his employment by the Company. Grilli
has not entered into, and he agrees he will not enter into, any agreement either
written or oral in conflict herewith.

Grilli further represents that if the representations set forth in the
preceding paragraph are inapplicable, he has attached hereto a copy of each
agreement, if any, which presently affects his

10
<PAGE>

compliance with the terms of this Agreement. (Such copy specifies the other
contracting party or employer, the date of such agreement, the date of
termination of any employment.) IF THERE ARE ANY SUCH AGREEMENTS, THE
UNDERSIGNED SHOULD INITIAL HERE. OTHERWISE IT WILL BE DEEMED THAT THERE ARE NO
SUCH AGREEMENTS. ___________.

7.8 Any waiver by the Company of a breach of any provisions of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
hereof.

7.9 Grilli hereby agrees that each provision herein shall be treated as
a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
Moreover, if one or more of the provisions contained in this Agreement shall for
any reason be held to be excessively broad as to scope, activity or subject so
as to be unenforceable at law, such provision or provisions shall be construed
by the appropriate judicial body by limiting and reducing it or them, so as to
be enforceable to the extent compatible with the applicable law as it shall then
appear.

7.10 Subject to the provisions of paragraph 2 of this section, Grilli's
obligations under this Agreement shall survive the termination of his employment
regardless of the manner of such termination and shall be binding upon his
heirs, executors and administrators.

7.11 The term "Company" shall include Home Health Corporation of
America, Inc., a Pennsylvania corporation, and any of its subsidiaries,
subdivisions or affiliates. The Company may not assign this Agreement to any
successor or assign without my written consent.

7.12 For purposes of this Agreement (other than Section 1), the term
"employment" shall also mean any period of consultancy with the Company.

11
<PAGE>

8. Severance Payments.
------------------

8.1 If Grilli's employment hereunder is terminated by the Company
without Cause pursuant to paragraph 4.5, then the Company shall continue to pay
Grilli his regular base salary payable under paragraph 5.1 for a period of
twelve (12) months following the effective date of the termination of his
employment. Grilli shall not be required to mitigate the amount of any payment
required to be made under this paragraph 8.1 by seeking other employment or
otherwise, but if Grilli does obtain other employment, the amount of
compensation received from such other employment source during the period that
the Company is required to continue paying Grilli his base salary shall reduce
on a dollar-for-dollar basis the amount otherwise required to be paid by the
Company hereunder.

Any compensation payable under this paragraph 8.1 shall be payable when
such compensation would otherwise have been paid had this Agreement not been
terminated. Any sums payable under this paragraph 8.1 shall be paid only so
long as Grilli is not in breach of any of the covenants contained in the
Noncompetition Agreement.

9. Consolidation of Merger. In the event of any consolidation or merger
-----------------------
of the Company with another corporation or other business entity or the sale of
all or substantially all of the Company's assets to another entity, as a result
of which the Company is not the surviving entity, the surviving entity shall
assume this Agreement and shall become obligated to perform all the terms and
conditions contained herein.

10. Notices. Any notice required or desired to be given under this
-------
agreement shall be deemed given if given in writing and sent by certified and
registered mail, return receipt requested to:

12
<PAGE>

To Home Health Corporation of America, Inc.
-------------------------------------------

2200 Renaissance Boulevard, Suite 300
King of Prussia, PA 19406

11. Benefit of Agreement; Assignment.
--------------------------------

11.1 This Agreement and all rights hereunder shall be binding upon and
shall inure to the benefit of the parties hereto and to their personal
representatives, successors and permitted assigns.

11.2 Neither party hereto may assign this Agreement or any rights
hereunder, except that the Company, in its discretion may assign this Agreement
or any of its rights hereunder to any successor in interest to all or
substantially all of the business or assets of the Company or to any subsidiary
or affiliate, but that no such assignment shall relieve the Company of its
obligations hereunder; and further provided that no such assignment shall be
valid unless the assignee expressly assumes in writing all of the obligations to
be performed by the Company hereunder.

12. Governing Law. This Agreement shall be governed by, construed and
-------------
enforced in accordance with the laws of the Commonwealth of Pennsylvania.

13. No Waiver. Either party's failure to strictly enforce any provision
---------
of this Agreement shall not be construed as a waiver thereof or excusing either
party from future performance.

14. Severability and Enforceability. The invalidity of any provision of
-------------------------------
this Agreement shall not invalidate any other part. If any provision of this
Agreement is not enforced or is found invalid because it is too vague or broad
in any respect, then to the extent that a court of competent jurisdiction deems
such provision to be valid and enforceable, the Agreement shall be valid and
enforced as though the vague or overly broad portion had been modified by
agreement of the parties in accordance with any interpretation given by the
court.

13
<PAGE>

15. Headings. The paragraph headings set forth in this Agreement are for
--------
reference purposes only and shall not be considered as part of this Agreement in
any respect or shall in any way effect the substance of any provision contained
in this Agreement.

16. Mediation Prior to Litigation. Neither party hereto shall initiate
-----------------------------
litigation with respect to any claim, demand, dispute, controversy, difference
or misunderstanding whatsoever between or among them relating to this Agreement
without first engaging in at least twelve hours of good faith mediation before
an impartial mediator to be selected by the parties. The cost of mediation
shall be equally shared by both parties. In the event the parties are unable to
select a mediator within thirty days of their dispute, then the parties shall
select a mutually acceptable Alternative Dispute Resolution Service, and failing
agreement upon such a service, then the American Arbitration Association in
Philadelphia, Pennsylvania, to appoint a trained and experienced mediator.
During mediation, the parties will make a good faith attempt to resolve their
dispute.

17. Entire Agreement. This Agreement contains the entire understanding
----------------
between the parties with regard to the employment and compensation matters
described herein and may not be altered, amended, or modified except by a
writing signed by both parties hereto.

IN WITNESS WHEREOF, the parties hereto set their hands and seals.

HOME HEALTH CORPORATION OF
AMERICA, INC.

By:
------------------------------- -------------------------------
Joseph J. Grilli

<PAGE>

EXHIBIT 11.1

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

COMPUTATION OF PRIMARY EARNINGS PER SHARE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996

The following calculation is submitted in accordance with the Securities Act
of 1934:

<TABLE>
<CAPTION>
1994(1) 1994 1995 1996(2) 1996
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income.............. $ 717,525 $ 927,899 $1,389,498 $3,387,510 $2,226,813
Write-off of discount on
preferred stock........ -- -- -- 786,739 786,739
Dividends on preferred
stock.................. 56,400 56,400 63,600 50,420 50,420
--------- --------- ---------- ---------- ----------
Net income available to
common stockholders.... $ 661,125 $ 871,499 $1,325,898 $2,550,351 $1,389,654
========= ========= ========== ========== ==========
Weighted average number
of maximum shares
outstanding during
year................... 3,193,724 3,193,724 3,266,727 6,349,644 6,349,644
Weighted average number
of maximum shares
subject to exercise
under outstanding stock
options and warrants... 222,702 222,702 266,130 225,230 225,230
Less treasury shares
assumed repurchased
from assumed exercise
of outstanding options
and warrants........... (39,194) (39,194) (42,109) (106,865) (106,865)
--------- --------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares
outstanding after
assumed exercise of
stock options and
warrants............... 3,377,232 3,377,232 3,490,748 6,468,009 6,468,009
========= ========= ========== ========== ==========
Net income per share.... $ 0.20 $ 0.26 $ 0.38 $ 0.39 $ 0.21
========= ========= ========== ========== ==========
</TABLE>
- --------
(1) Reflects net income and net income per share before cumulative effect of
change in accounting principle.
(2) Reflects net income and net income per share before extraordinary loss on
early extinguishment of indebtedness.

<PAGE>

EXHIBIT 11.2

HOME HEALTH CORPORATION OF AMERICA, INC. AND SUBSIDIARIES

COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE
FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED JUNE 30, 1996

The following calculation is submitted in accordance with the Securities Act
of 1934 although not required by Opinion No. 15 of the Accounting Principles
Board as it results in dilution of less than 3%, or is anti-dilutive:

<TABLE>
<CAPTION>
1994(1) 1994 1995 1996(2) 1996
--------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income.............. $ 717,525 $ 927,899 $1,389,498 $3,387,510 $2,226,813
Write-off of discount on
preferred stock........ -- -- -- 786,739 786,739
Dividends on preferred
stock.................. 56,400 56,400 63,600 50,420 50,420
--------- --------- ---------- ---------- ----------
Net income available to
common stockholders.... $ 661,125 $ 871,499 $1,325,898 $2,550,351 $1,389,654
========= ========= ========== ========== ==========
Weighted average number
of maximum shares
outstanding during
year................... 3,193,724 3,193,724 3,266,727 6,349,644 6,349,644
Weighted average number
of maximum shares
subject to exercise
under outstanding stock
options and warrants... 222,702 222,702 266,130 225,230 225,230
Less treasury shares
assumed repurchased
from assumed exercise
of outstanding options
and warrants........... (39,194) (39,194) (42,109) (101,330) (101,330)
--------- --------- ---------- ---------- ----------
Weighted average number
of common and common
equivalent shares
outstanding after
assumed exercise of
stock options and
warrants............... 3,377,232 3,377,232 3,490,748 6,473,544 6,473,544
========= ========= ========== ========== ==========
Net income per share.... $ 0.20 $ 0.26 $ 0.38 $ 0.39 $ 0.21
========= ========= ========== ========== ==========
</TABLE>
- --------
(1) Reflects net income and net income per share before cumulative effect of
change in accounting principle.
(2) Reflects net income and net income per share before extraordinary loss on
early extinguishment of indebtedness.

<PAGE>

EXHIBIT 21.1

HOME HEALTH CORPORATION OF AMERICA, INC.

SUBSIDIARIES OF THE REGISTRANT

<TABLE>
<CAPTION>
STATE OR JURISDICTION
NAME IN WHICH INCORPORATED
---- ---------------------
<S> <C>
Home Care Medical Supply & Equipment, Inc. Pennsylvania
Nutritional Home Health Services, Inc. Pennsylvania
Pennsylvania Home Care, Inc. Pennsylvania
All Care Health Services, Inc. Florida
Pennsylvania Home Health Services/Philadelphia, Inc. Pennsylvania
Pennsylvania Home Health Services/Northeast, Inc. Pennsylvania
All Care Home Health Services, Inc. Florida
Home Health Corporation of America, Inc./Ft. Pierce Home
Health Services, Inc. Florida
Home Health Corporation of Delaware, Inc. Delaware
HHCD, Inc. Delaware
HHCDME, Inc. Delaware
HHCA, Inc.--Delaware Delaware
Professional Home Health Services, Inc. Delaware
Home Health Corporation of America, Inc.--Tampa Florida
Home Health Corporation of America, Inc.--Tampa
Diagnostic Services Florida
Pennsylvania Home Health Services/Suburban, Inc. Pennsylvania
Home Health Corporation of America, Inc.--Pinellas Florida
Home Health Corporation of America, Inc.--St. Petersburg Florida
Home Health Corporation of America, Inc.--Tampa Nursing Florida
HHCA--Service Co. Pennsylvania
HHSI Acquisition, Inc. Delaware
Home Health Corporation of America, Inc./Eastern Shore Maryland
</TABLE>

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement of Home Health
Corporation of America, Inc. (the "Company") on Form S-1 of our report dated
August 30, 1996, except for certain information in Note 12, for which the date
is September 17, 1996, on our audits of the consolidated financial statements
and financial statement schedule of the Company as of June 30, 1995 and 1996
and for each of the three years in the period ended June 30, 1996. We also
consent to the reference to our firm under the caption "Experts."

Coopers & Lybrand L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
October 30, 1996

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANT

We consent to the inclusion in this registration statement on Form S-1 of
our report dated July 9, 1996, on our audit of the consolidated financial
statements of LHS HOLDINGS, INC. AND ITS SUBSIDIARIES as of and for the year
ended December 31, 1995. We also consent to the reference to our firm under
the caption "Experts" in such registration statement.

Baird, Kurtz & Dobson

Tulsa, Oklahoma
October 30, 1996

<PAGE>

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement of Home Health
Corporation of America, Inc. on Form S-1 of our report dated October 18, 1996,
except for Note 1 as to which the date is October 31, 1996, on our audit of the
consolidated balance sheet of R.S.D. Management, Inc. and Subsidiaries as of
June 30, 1996, and the related consolidated statements of loss and accumulated
deficit and cash flows for the year then ended. We also consent to the
reference to our firm under the caption "Experts."

Simione, Simione, Scillia & Larrow
LLC

New Haven, Connecticut
October 31, 1996