NATIONAL HOME HEALTH CARE CORP, 10-K, 1999-10-28

NATIONAL HOME HEALTH CARE CORP
10-K, 1999-10-28
HOME HEALTH CARE SERVICES

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
- --------------------------------------------------------------------------------

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended July 31, 1999 Commission File Number 0-12927

NATIONAL HOME HEALTH CARE CORP.
-------------------------------------
(Exact name of Registrant as specified in its charter)

Delaware 22-2981141
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

700 WHITE PLAINS ROAD, SCARSDALE, NEW YORK 10583
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: 914-722-9000

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

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share.

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes X No

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

As of October 25, 1999, the aggregate market value of the Common Stock of the
Registrant, its only class of voting securities, held by non-affiliates of the
Registrant was approximately $10,822,972, calculated on the basis of the average
closing bid and asked prices of such stock on the National Association of
Securities Dealers Automated Quotation System on that date, as reported by the
National Association of Securities Dealers, Inc.

The number of shares outstanding of the Registrant's Common Stock on October 25,
1999 was 5,065,250.

Portions of the Registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders are incorporated by reference in Part III hereof.

<PAGE>

PART I

ITEM 1. BUSINESS.

GENERAL

National Home Health Care Corp. (the "Company") is a Delaware
corporation which was incorporated on July 27, 1983 under the name of Family
Treatment Centers of America, Inc. Effective December 14, 1984, the Company
changed its name to National HMO Corp. and effective December 20, 1991, the
Company changed its name to National Home Health Care Corp. The Company
completed its initial public offering in December 1983. The Company is a
provider of home health care services in New York, New Jersey and Connecticut.

The Company has three operating subsidiaries:

* Health Acquisition Corp., formerly Allen Health Care Services, Inc.,
a New York corporation, of which Allen Health Care Services ("Allen Health
Care") is the sole operating division.

* New England Home Care, Inc. ( "New England"), a Connecticut
corporation which conducts business in Connecticut.

In May 1998, the operations of Nurse Care, Inc. ("Nurse Care"),
previously a wholly owned subsidiary of the Company which provided home health
aide services in Connecticut, were combined with the operations of New England.

* Accredited Health Services, Inc. ("Accredited"), a New Jersey
corporation which conducts business in New Jersey.

In January 1996, the outpatient medical service business of the
Company, formerly known as Brevard Medical Center, Inc. and First Health, Inc.,
was reorganized as SunStar Healthcare, Inc. ("SunStar"), a newly formed, wholly
owned subsidiary of the Company. On May 21, 1996, the initial public offering of
common stock by SunStar was consummated, thus reducing the Company's ownership
percentage of SunStar to approximately 37.6%. As a result, SunStar is no longer
consolidated with the Company for accounting purposes and the Company accounts
for its investment in SunStar using the equity method of accounting. During the
fiscal year ended July 31, 1998, the Company's ownership percentage of SunStar
was reduced to 30.5% as a result of SunStar issuing additional shares of its
common stock pursuant to a private placement. Subsequent to the fiscal year
ended July 31, 1999, the Company sold 127,114 shares of SunStar common stock,
reducing its ownership percentage to 26%.

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<PAGE>

Health Acquisition Corp.
d/b/a Allen Health Care Services

Allen Health Care is a provider of personal home health care services.
Services are provided by registered nurses, personal care aides, home health
aides and homemakers. The Company is licensed by the Public Health Council of
the State of New York Department of Health. Allen Health Care maintains its
principal administrative office in Jamaica, New York and has branch offices in
Lindenhurst and Mount Vernon, New York. Case coordinating of patients is
performed at these three offices. In addition, the Company has satellite offices
in Brooklyn, Islandia and Hempstead, New York. The satellite offices are
primarily used for the recruitment and training of home health aides. Services
are provided in the following counties in the State of New York: Nassau,
Suffolk, Westchester, Queens, Kings, New York and the Bronx.

All home health care personnel are licensed or agency certified under a
New York State approved program and can be engaged on a full-time, part-time or
live-in basis. Effective July 1, 1996, Allen Health Care instituted residential
criminal background investigations for all new personnel. In addition, urine
drug testing is part of the pre-employment screening process and is performed
annually and randomly thereafter. In February 1999, Allen Health Care was
resurveyed by the Joint Commission of Accreditation of Health Care Organizations
("JCAHO"), an accrediting body for health care providers. JCAHO accreditation is
associated with providing quality services. This status is required by many of
the certified home health care agencies that Allen Health Care currently
services. The resurvey resulted in Allen Health Care extending its accredited
status through the year 2002.

Reimbursement for Allen Health Care's services is primarily by
certified home health care agencies ("CHHAs") and long-term health care provider
programs that subcontract their patients to Allen Health Care, as well as from
private payors and the Nassau, Suffolk and Westchester Counties Department of
Social Services Medicaid Programs, for which Allen Health Care is a
participating provider.

Allen Health Care provides home health care services to its clients
twenty-four hours per day, seven days per week. Although Allen Health Care's
offices are open during normal business hours, personnel are available
twenty-four hours per day to respond to emergencies and to provide other service
requests. The registered nurses of Allen Health Care, in accordance with New
York State Department of Health regulations and contract requirements, visit
patients regularly and review the records of service which are completed by the
home health aide and personnel care aides daily. These records are maintained by
Allen Health Care. In addition, the home care coordinator ensures that
appropriate coverage is maintained for all patients and acts as the liaison
among family members, aides and professional staff.

The stock of Allen Health Care was acquired by the Company in October
1986. Subsequent to the acquisition, the agency has broadened its home care
business by securing additional contracts with CHHAs and expanding its services
and geographical presence through acquisitions.

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<PAGE>

In March 1997, Allen Health Care completed the acquisition of certain
assets of C.J. Home Care, Inc., d/b/a Garden City Home Care, a New York licensed
home health care agency that provides home health aide services in Nassau
County, New York. Annual revenues for Garden City Home Care approximated
$2,000,000 in 1996. In May 1997, Allen Health Care completed the acquisition of
certain assets of Home Health Aides, Inc. and H.H.A. Aides, Inc., two New York
licensed home health care agencies that provide home health aide services in
both Nassau and Suffolk Counties, New York. The two companies collectively had
revenues of approximately $3,400,000 in 1996. The latter acquisition gave the
Company an entree into the Shared Aide Program in Nassau County. The Shared Aide
Program is a relatively new program for Medicaid patients that brings together a
group of home health aides to care for patients in one geographic area, thus
increasing operating efficiencies and reducing costs.

In August 1998, Allen Health Care completed the acquisition of certain
assets of Bryan Employment Agency, Inc., d/b/a Bryan Home Care Services, a New
York licensed home health care agency that provides home health aide services in
Westchester County, New York. The acquisition expanded the geographic presence
of the Company and enabled Allen Health Care to become a participating provider
in the Westchester County Department of Social Services Medicaid Program. Annual
revenues for Bryan Home Care approximated $5,700,000 in 1997.

To a larger extent, Allen Health Care's continued growth depends on its
ability to recruit and maintain qualified personnel. Allen Health Care's
training programs for home health aides and personal care aides have been
approved by the New York State Department of Health. Allen Health Care believes
that it offers competitive salaries and fringe benefits and has been able to
keep its home health aides working on a steady basis.

New England Home Care, Inc.

On August 4, 1995, the Company consummated the acquisition of 100% of
the capital stock of Nurse Care, the parent company of New England, for
$3,150,000 in cash. In addition, one of the two former shareholders of Nurse
Care entered into a one-year employment contract as the administrator of New
England with a base salary of $125,000. The other former shareholder entered
into a one-year consulting agreement to provide certain consulting services with
respect to the operations of New England in consideration of $20,000 in
consulting fees. Currently, no former shareholder is affiliated with the
operations of New England. During the fiscal year ended July 31, 1996, Nurse
Care transferred all of the outstanding shares of New England to National Home
Health Care Corp., whereby New England as well as Nurse Care became a direct,
wholly owned subsidiary of the Company.

New England is a Medicare certified and licensed home health care
company in Connecticut. In October 1998, New England was resurveyed by JCAHO,
resulting in New England extending its accredited status through October 2001.
New England provides services throughout Fairfield and New Haven Counties,
Connecticut. Services include skilled nursing, physical therapy, occupational
therapy, speech therapy, medical social services and home health aide services.
In addition, New

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<PAGE>

England offers specialty services consisting of mental health and wellness,
perinatal/high risk pregnancy and disease management. New England provides
full-service home health care twenty-four hours per day, seven days per week.
Weekends, holidays and after-hours are supported by an on-call system for each
office location with medical supervision by a registered nurse at all times. All
home health care personnel are licensed or agency certified under a Connecticut
state-approved program and can be engaged on a full-time, part-time or live-in
basis. Since 1995, New England has performed criminal background investigations
on all new personnel.

New England maintains its principal administrative office in Milford,
Connecticut and has branch offices in Norwalk, Hamden and Waterbury,
Connecticut. All case coordinating of patients is performed in the Milford
office. In addition, New England has satellite offices in Danbury, Seymour,
Meriden and Branford, Connecticut. Reimbursement for New England's services is
primarily provided by the Federal Medicare Program, the Connecticut Medicaid
Program, private payors, hospices, other certified home health agencies and
long-term health care providers that subcontract their patients to New England.

Accredited Health Services, Inc.

On October 30, 1998, the Company completed the acquisition of the
outstanding common shares of Accredited for $1,949,000 in cash, whereby
Accredited became a wholly owned subsidiary of the Company.

Accredited is a licensed home health care company that provides home
health aide services in Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset
and Middlesex Counties, New Jersey. Accredited maintains its principal
administrative office in Hackensack, New Jersey and has a branch office in
Union, New Jersey. Case coordinating of patients is performed at these two
offices.

Accredited provides home health aide services to its clients
twenty-four hours per day, seven days per week. Weekends, holidays and
after-hours are supported by an on-call system for each office. All home health
aides are licensed under a New Jersey state-approved program and can be engaged
on a full-time, part-time or live-in basis. In May 1999, Accredited was
resurveyed by the Commission on Accreditation for Home Care (CAHC), one of the
accrediting bodies required for participation as a Medicaid provider in New
Jersey. This accreditation was extended for an additional year. Reimbursement
for Accredited's services is primarily by certified home health care agencies
that subcontract their patients to Accredited as well as private payors and the
State of New Jersey Medicaid Program, for which Accredited is a participating
provider.

Accredited's growth depends on its ability to recruit and maintain
qualified home health aides. The Company believes that it offers competitive
salaries and fringe benefits and has been able to keep its home health aides
working on a steady basis.

-5-

<PAGE>

Insurance

The Company and its subsidiaries maintain professional malpractice
liability coverage on professionals employed in the rendering of health care
services providing coverage in an amount of up to $1,000,000 per occurrence and
up to $6,000,000 in the aggregate and coverage for the customary risks inherent
in the operation of business in general. Recent market conditions with respect
to liability insurances have caused wide fluctuations in the cost and
availability of coverage. The Company carries directors and officers liability
with a limit of $5,000,000. While the Company believes its insurance policies
are adequate in the amount and coverage for its current operations, there can be
no assurance that coverage will continue to be available in adequate amounts or
at a reasonable cost.

Employees and Labor Relations

As of October 15, 1999, the Company had approximately 1,900 full and
part-time employees of whom 17 were employed in various management capacities
and four were employed in marketing capacities. None of the Company's employees
is represented by a labor organization. The Company believes its relationship
with its employees is satisfactory. The Company has standardized procedures for
recruiting, interviewing and reference checking prospective health care
personnel. All nurses and home health aides must be licensed or certified by the
appropriate authorities.

Competition

The home health care field is highly competitive. The Company is
competing with numerous other licensed as well as certified home health care
agencies in each of the markets it serves. In addition, the Company competes
with companies that, in addition to providing home health aide and skilled
nursing services, also, unlike the Company, provide pharmaceutical products and
other home health care services that generate additional referrals. Competition
also involves the quality of services provided and the pricing for its services.
As a result of changes in Medicare reimbursement and the competitive pressures
of managed care, the home health care industry is expected to experience
consolidation over the next few years. The Company believes that smaller, less
financially secure home health agencies will find it ever more difficult to
compete for market share and comply with regulatory compliance standards.

The Company's ability to attract a staff of highly trained personnel is
a material element of its business. There currently is intense competition for
qualified personnel and there can be no assurance that the Company will be
successful in maintaining or in securing additional qualified personnel. The
Company recruits personnel principally through referral from existing personnel
and through newspaper advertisements.

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<PAGE>

Customers

The Company provides its services to four types of payor sources. These
sources include federal and state funded public assistance programs (Medicare
and Medicaid), other third party payors (subcontracts), insurance companies and
private payors.

A substantial portion of the Company's revenues are derived from
subcontracts that the Company has with CHHAs and long-term health care provider
programs that subcontract their patients to the Company. Recently, many of these
CHHAs have requested bids from the home care agencies with which they
subcontract. If the Company is not successful in maintaining these contracts, it
could have a materially adverse effect on the Company's results of operations.

One or more customers have each accounted for more than 10% of the
Company's revenues. For the fiscal years ended July 31, 1999, 1998 and 1997,
Visting Nurse Service of New York, a non-profit Medicare home health care
agency, accounted for 16%, 22% and 22%, respectively, of the Company's net
patient revenues; the State of New York Department of Social Services personal
care aide program for the counties of Nassau, Suffolk and Westchester accounted
for 16%, 18% and 10%, respectively, of the Company's net patient revenues; and
the federal Medicare program accounted for approximately 8%, 13% and 22%,
respectively, of the Company's net patient revenues. The loss of any of the
foregoing customers would have a material adverse effect on the Company.

On October 26, 1999, the Company was notified by Visiting Nurse Service
of New York that, after an extensive selection process, it would not continue to
subcontract home health aides from Allen Health Care. Existing cases will
continue to be serviced until an implementation plan between Visiting Nurse
Service of New York and Allen Health Care is completed. The Company expects the
transition to occur in early 2000. The Company is continuing discussions with
Visiting Nurse Service of New York and is assessing the impact of the loss of
this contract on its operations.

Government Regulations and Licensing

The health care industry is highly regulated. The Company's business is
subject to substantial and frequently changing regulations by federal, state and
local authorities. The Company must comply with state licensing along with
federal and state eligibility standards for certification as a Medicare and
Medicaid provider.

The ability of the Company to operate profitably will depend in part
upon the Company obtaining and maintaining all necessary licenses and other
approvals in compliance with applicable health care regulations.

Medicare

Title XVIII of the Social Security Act authorizes Part A of the
Medicare program, the health insurance program that pays for home health care
services for covered persons (typically, those aged 65 and older and long-term
disabled). Home health care providers may participate in the Medicare program
subject to certain conditions of participation and upon acceptance of a provider
agreement by the Secretary of the Department of Health and Human Services. Only
enumerated services, upon satisfaction of certain coverage criteria, are
eligible for reimbursement as a Medicare provider. The Company is currently
Medicare certified in Connecticut. Approximately 8%, 13% and 22% of net patient
revenue for the fiscal years ended July 31, 1999, 1998 and 1997 were derived
under the Medicare program.

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<PAGE>

The Balanced Budget Act of 1997, as amended (the "Act"), was signed
into law in August 1997. The Act made significant changes in the reimbursement
system for Medicare home health services. The primary change that affects the
Company is a restructuring of the reimbursement system related to Medicare
certified home care agencies.

Under the Act, Medicare home care payment changes are scheduled in two
phases. A temporary or interim payment system ("IPS") took effect for cost
reports beginning on or after October 1, 1997. Under IPS, home health care
providers will be reimbursed the lower of (i) their actual costs, (ii) cost
limits based on 105% of median costs of freestanding home health agencies or
(iii) an agency-specific per patient cost limit based on 98% of 1994 costs
adjusted for inflation. Under this new system, most Medicare providers now will
be reimbursed under an agency-specific per patient cost limit. Prior to the
implementation of IPS, Medicare reimbursed providers on reasonable cost basis
subject to program-imposed cost per visit limitations. Under the second phase of
the Act, IPS is to be replaced in October 2000 with a prospective payment system
in which Medicare will pay a fixed fee per diagnosis to be established by the
Secretary of the Department of Health and Human Services.

In passing these new rules, Congress expressed the intent of reducing
Medicare home care expenditures by approximately $16.2 billion over five years.
These changes were enacted to slow the explosive growth of Medicare home health
care costs and curb fraud and abuse in the industry. As a result of these
changes, home health care providers will be forced to reduce their costs of
providing services and the utilization of home care services per beneficiary has
declined. Under certain conditions, Medicare beneficiaries who previously had
been entitled to services no longer qualify under Medicare reimbursement
guidelines.

As a result of the changes to Medicare reimbursement imposed by the
Act, the Company experienced a decline in revenues from its Medicare certified
nursing agency. In addition, the Company's operations in New York and New Jersey
are dependent upon referrals, primarily from Medicare certified agencies, whose
future reimbursement may be adversely affected. Accordingly, there can be no
assurance that the Company's future referrals will not result in reduced
reimbursement rates or reduced volume in business.

Under the second phase of the Act, IPS is to be replaced with a
prospective payment system for home health care providers by October 1, 2000.
However, rules and regulations have not yet been developed by the Health Care
Financing Administration and there can be no assurance that such deadline will
be met. As the Company is unable to predict how the prospective payment system
will be ultimately designed and implemented, it is unable to predict its impact
on the Company.

The Act also initially required that Medicare providers purchase surety
bonds in an amount equal to 15% of annual Medicare reimbursement. The Company
was required to have a surety bond in place no later than February 7, 1998. The
Company successfully complied with this requirement, at an immaterial cost.

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<PAGE>

Medicare Fraud and Abuse

Provisions of the Social Security Act under Medicare and Medicaid
generally prohibit soliciting, receiving, offering or paying, directly or
indirectly, any form of remuneration in return for the referral of Medicare or
state health care program patients or patient care opportunities, or in return
for the purchase, lease or order of any facility item or service that is covered
by Medicare or state health care program. In July 1991, the federal government
published regulations that provide exceptions, or "safe harbors", for business
transactions that will be deemed not to violate the anti-kickback statute.
Violations of the statute may result in civil and criminal penalties and
exclusion from participation in the Medicare and Medicaid programs. The Company
believes that its current operations are not in violation of the anti-kickback
statute.

Medicaid

Approximately 27%, 27% and 17% of net patient revenue for the fiscal
years ended July 31, 1999, 1998 and 1997, respectively, were derived under state
sponsored Medicaid programs. Reimbursement for home health care services
rendered to eligible Medicaid recipients is made in an amount determined in
accordance with procedures and standards established by state law under federal
guidelines. States differ as to reimbursement policies and rates. The Company is
a licensed Medicaid provider in Connecticut, New Jersey and in Nassau, Suffolk
and Westchester Counties, New York. Medicaid reimbursement rates may be reduced
in response to state economic and budgetary constraints, as well as in response
to changes in the Medicare program.

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<PAGE>

ITEM 2. PROPERTIES.

The Company, directly or through certain subsidiaries, leases various
office facilities under lease agreements with various expiration dates through
the year 2004. The following sets forth the location, approximate square
footage, use of each office and expiration date of each lease:

Approximate Expiration Date
Location Square Feet Use of Lease
- ------------- ------------ --- ---------------

Scarsdale, NY 2,679 Corporate headquarters October 31, 2003
Queens, NY 7,500 Administrative office January 31, 2000
Lindenhurst, NY 1,250 Branch office July 31, 2000
Hempstead, NY 3,800 Satellite office September 30, 2004
Islandia, NY 2,100 Satellite office June 30, 2001
Mount Vernon, NY 1,900 Branch office December 31, 2000
Brooklyn, NY 800 Satellite office October 31, 1999
Milford, CT 8,858 Administrative office July 31, 2002
Norwalk, CT 1,386 Branch office Month to Month
Hamden, CT 750 Branch office July 31, 2000
Waterbury, CT 2,000 Branch office July 31, 2000
Seymour, CT 575 Satellite office Month to Month
Danbury, CT 780 Satellite office June 30, 2000
Meriden, CT 450 Satellite office July 31, 2000
Branford, CT 200 Satellite office August 31, 2000
Hackensack, NJ 3,340 Administrative office October 31, 1999
Union, NJ 2,300 Branch office December 31, 1999

The Company believes that its office facilities are adequate for the
conduct of its existing operations. The Company regularly evaluates the
suitability and the overall adequacy of its various offices. The Company
believes that it will be able to renew or find adequate offices for all leases
which will expire in the current fiscal year.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of business, the Company is subject, from time
to time, to claims and legal actions. No material actions are currently pending
against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.

No matters were submitted to a vote of stockholders of the Company
during the fourth quarter of the fiscal year ended July 31, 1999.

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<PAGE>

PART II

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

(A) Market Information

The Company's Common Stock is quoted on the NASDAQ National Market
under the symbol NHHC. The following table presents the quarterly high and low
bid quotations in the over-the-counter market, as reported by the National
Association of Securities Dealers for the two fiscal years ended July 31, 1998
and July 31, 1999. These quotations reflect the inter-dealer prices, without
retail mark-up, mark-down or commission and may not necessarily represent actual
transactions.

Market Prices
----------------------
High Low
---- ---

Year ended July 31, 1998

1st Quarter........................................... $5.75 $4.50
2nd Quarter........................................... 5.50 4.63
3rd Quarter........................................... 4.88 3.88
4th Quarter........................................... 5.00 4.03

Year ended July 31, 1999

1st Quarter........................................... $4.75 $4.00
2nd Quarter........................................... 5.00 4.38
3rd Quarter........................................... 5.00 2.25
4th Quarter........................................... 4.75 3.13

(B) Holders

There were approximately 142 holders of record of Common Stock as of
October 25, 1999, excluding shares held by depository companies for certain
beneficial owners.

The Company has not declared or paid any cash dividends on its shares
of Common Stock during the last three fiscal years. It anticipates that for the
foreseeable future all earnings will be retained for use in its business and,
accordingly, it does not intend to pay cash dividends. On October 10, 1997, the
Board of Directors of the Company declared a 3% stock dividend payable December
8, 1997 to stockholders of record on November 6, 1997. The Company did not
declare any cash or stock dividends during the fiscal years ended July 31, 1998
and 1999.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The following table, which presents selected financial data for the
Company for each of the last five fiscal years, has been derived from the
Company's audited Consolidated Financial Statements. The data set forth below
should be read in conjunction with the Consolidated Financial Statements in Item
8 of this Report.

<TABLE>
<CAPTION>
Fiscal Years Ended July 31,

------------- ------------- ----------- ----------- ------------
1999 1998 1997 1996 1995
------------- ------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues............................. $38,518,000 $34,313,000 $35,070,000 $38,830,000 $24,556,000
Operating expenses................... 36,090,000 31,394,000 31,770,000 35,564,000 22,414,000
Income from operations............... 2,428,000 2,919,000 3,300,000 3,266,000 2,142,000
Other income (loss):
Gain resulting from
subsidiary's stock offering --- 331,000 --- 1,548,000 ---
Interest income............. 385,000 547,000 446,000 412,000 410,000
(Loss) from equity investee. (674,000) (1,630,000) (612,000) (10,000) ---
Income before income taxes........... 2,139,000 2,167,000 3,134,000 5,216,000 2,552,000
Provision for income taxes........... 1,001,000 964,000 1,278,000 1,859,000 1,126,000
Net income........................... 1,138,000 1,203,000 1,856,000 3,357,000 1,426,000
Diluted net income per share of $0.22 $0.23 $0.35 $0.64 $0.27
common stock.........................
</TABLE>

The above results include the operations of SunStar through April 30,
1996. Subsequent thereto, the operations of SunStar are recorded on the equity
method and are reflected above as loss from equity investee.

<TABLE>
<CAPTION>
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Total assets......................... 26,092,000 25,503,000 25,224,000 24,421,000 18,865,000
Working capital...................... 17,708,000 19,134,000 16,853,000 16,288,000 15,292,000
Retained earnings.................... 8,183,000 7,045,000 5,842,000 4,789,000 3,307,000
Stockholders' equity................. 25,013,000 24,281,000 23,360,000 21,504,000 17,914,000
</TABLE>

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<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the consolidated financial statements and
notes appearing elsewhere herein.

This discussion contains forward-looking statements that are subject to
a number of known and unknown risks that, in addition to general economic,
competitive and other business conditions, could cause actual results,
performance and achievements to differ materially from those described or
implied in the forward-looking statements.

The Company is subject to significant external factors that could
significantly impact its business, including changes in Medicare and Medicaid
reimbursement, government fraud and abuse initiatives and other such factors
that are beyond the control of the Company. These factors, as well as future
changes in reimbursement, could cause future results to differ materially from
historical results.

The Balanced Budget Act of 1997, as amended (the "Act"), was signed
into law on August 5, 1997. Under the Act, for cost reports beginning on or
after October 1, 1997, Medicare certified home health agencies will be
reimbursed under an interim payment system ("IPS") for a two-year period prior
to the implementation of a prospective system. Under IPS, home health care
providers will be reimbursed the lower of (i) their actual costs, (ii) cost
limits based on 105% of median costs of freestanding home health agencies, or
(iii) an agency-specific per-patient cost limit, based on 98% of 1994 costs
adjusted for inflation. Prior to the implementation of IPS, Medicare reimbursed
providers on a reasonable cost basis subject to program-imposed cost per visit
limitations. The Act calls for payments to Medicare providers for cost reporting
periods beginning on or after October 1, 2000 to be made in accordance with a
prospective payment system to be established by the Secretary of the Department
of Health and Human Services.

The new IPS cost limits were applied to the Company's Connecticut-based
Medicare certified nursing agency for the cost reporting period beginning July
1, 1998. The Company determined that these new limits would reduce reimbursement
for the Medicare services it provides. Accordingly, in May 1998, the Company
combined its operations in Connecticut by merging its Medicare certified
subsidiary with its licensed agency subsidiary to increase operational
efficiencies.

The implementation of IPS resulted in a decrease in revenues from the
Company's Medicare certified agency. In addition, the Company's operations in
New York and New Jersey are dependent upon referrals, primarily from Medicare
certified agencies, whose future reimbursement may be adversely affected.
Accordingly, there can be no assurance that the Company's future referrals will
not result in reduced reimbursement rates or reduced volume of business.

-13-

<PAGE>

On October 30, 1998, the Company acquired all of the outstanding common
shares of Accredited Health Services, Inc. ("Accredited"). Accredited is a
licensed home health care company that provides home health aide services in
Bergen, Hudson, Passaic, Essex, Morris, Union, Somerset and Middlesex Counties,
New Jersey. The acquisition was accounted for utilizing purchase accounting
principles.

On August 10, 1998, the Company, through its wholly owned subsidiary
Health Acquisition Corp. ("Health Acquisition"), acquired certain assets of
Bryan Employment Agency, Inc., d/b/a Bryan Home Care Services ("Bryan Home
Care"), a New York licensed home health care company which provides home care
services in Westchester County, New York. The acquisition was accounted for
utilizing purchase accounting principles.

On March 25, 1997, Health Acquisition acquired certain assets of C.J.
Home Care, Inc. and on May 29, 1997, Health Acquisition acquired certain assets
of Home Health Aides, Inc. and H.H.A. Aides, Inc. These acquisitions were from
New York State licensed home health care companies that provided home health
care services in both Nassau and Suffolk Counties, New York. The acquisitions
have been accounted for utilizing purchase accounting principles.

On May 21, 1996, the initial public offering of common stock by SunStar
Healthcare, Inc. ("SunStar") was consummated. SunStar, formerly a wholly owned
subsidiary of the Company, had comprised the Company's Florida outpatient
medical center operations. The Company currently owns approximately 26% of
SunStar and utilizes the equity method of accounting for its investment in
SunStar. As of July 31, 1999, the Company's carrying value of its investment in
SunStar is $0.

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Fiscal Year Ended July 31,
--------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net patient revenue 100.0% 100.0%% 100.0%
Cost of revenue 65.8 64.5 65.3
General and administrative 26.4 25.9 24.6
Amortization of intangibles 1.4 1.1 0.7
------ ------ -----
Total operating expenses 93.6 91.5 90.6
Income from operations 6.4 8.5 9.4
Gain resulting from subsidiary's stock offering --- 1.0 ---
Interest income 1.0 1.6 1.2
(Loss) from equity investee (1.8) (4.8) (1.7)
------ ------ -----
Income before income taxes 5.6 6.3 8.9
</TABLE>

-14-

<PAGE>

Fiscal year ended July 31,
-------------------------------------
1999 1998 1997
---- ---- ----

Provision for income taxes 2.6 2.8 3.6
---- ----- ----
Net income 3.0% 3.5% 5.3%
---- ----- ----

YEAR ENDED JULY 31, 1999 COMPARED TO YEAR ENDED JULY 31, 1998

For the fiscal year ended July 31, 1999 ("fiscal 1999"), net patient
revenues increased $4,205,000, or 12%, to $38,518,000 from $34,313,000 for the
fiscal year ended July 31, 1998 ("fiscal 1998"). During fiscal 1999, net patient
revenue from Health Acquisition increased $2,310,000, or 10%, to $24,909,000
from $22,599,000 for fiscal 1998. This increase is attributable to the revenues
generated from the purchase in August 1998 of certain assets of Bryan Home Care
of $5,737,000, offset by the decline in same source revenues of ($3,427,000).
The decline in same source revenues is attributable to the continued decline in
hours and, in some cases, a decrease in reimbursement rates from the Medicare
certified home health care agencies that Health Acquisition contracts with, as a
result of the implementation of IPS. Net patient revenue from New England Home
Care, Inc. ("New England") decreased over the periods ($2,029,000), or (17%), to
$9,685,000 from $11,714,000. This decrease is attributable to the decline in
Medicare revenue of ($1,605,000) and a decline in non-Medicare revenue of
($424,000). The decrease in both Medicare and non-Medicare revenue is the result
of the change in Medicare reimbursement from cost reimbursement to IPS. Net
patient revenue from Accredited for fiscal 1999 was $3,924,000.

Gross profit margin decreased to 34% for fiscal 1999 from 35% for
fiscal 1998. This decrease is attributable to the decreases in certain
reimbursement rates from other existing Medicare certified home health care
agencies that the Company contracts with, as a result of the change in the
Medicare reimbursement system.

General and administrative expenses increased $1,297,000, or 15%, to
$10,183,000 in fiscal 1999 from $8,886,000 in fiscal 1998. This increase is
attributable to the additional general and administrative expenses of three
branch offices which the Company acquired in the acquisitions of both Bryan Home
Care and Accredited, offset by the decline in general and administrative
expenses of New England as a result of the combining of the operations in
Connecticut to offset the implementation of IPS. As a percentage of net patient
revenue, general and administrative expenses remained at 26% in both fiscal 1999
and 1998.

Amortization of intangibles increased $177,000, or 47%, to $550,000 in
fiscal 1999 from $373,000 in fiscal 1998. This increase is attributable to the
amortization of goodwill and intangibles associated with the acquisitions of
Bryan Home Care and Accredited in fiscal 1999.

As a result of the foregoing, income from operations decreased
($491,000), or (17%), to $2,428,000 in fiscal 1999 from $2,919,000 in fiscal
1998.

-15-

<PAGE>

Interest income decreased ($162,000), or (30%), to $385,000 in fiscal
1999 from $547,000 in fiscal 1998. This decrease is attributable to lower
average outstanding cash balances resulting from cash used to acquire certain
assets of Bryan Home Care and the stock of Accredited.

The Company recorded a loss from equity investee of ($674,000) in
fiscal 1999 as compared to a loss of ($1,630,000) in fiscal 1998. In addition,
in fiscal 1998, as a result of a private placement of common stock by SunStar,
the Company adjusted the carrying value of its investment in SunStar, which
resulted in a gain of $331,000. As of July 31, 1999, the Company's carrying
value of its investment in SunStar is $0.

The Company's effective tax rate increased to 47% in fiscal 1999 as
compared to 44% in fiscal 1998. This increase is attributable to no income tax
benefit recorded in fiscal 1999, as compared to ($306,000) recorded in fiscal
1998 related to the Company's share of SunStar's net loss. Excluding the tax
effect of loss from equity investee and gain resulting from subsidiary's stock
offering, the effective tax rate decreased slightly to 36% in fiscal 1999 as
compared to 37% in fiscal 1998.

Net income decreased ($65,000) to $1,138,000, or $.22 per diluted
share, in fiscal 1999 from $1,203,000, or $.23 per diluted share, in fiscal
1998.

YEAR ENDED JULY 31, 1998 COMPARED TO YEAR ENDED JULY 31, 1997

For the fiscal year ended July 31, 1998, net patient revenues decreased
($757,000), or (2%), to $34,313,000 from $35,070,000 for the fiscal year ended
July 31, 1997 ("fiscal 1997"). Over the period, net patient revenue from Health
Acquisition increased $2,037,000, or 10%, to $22,599,000 from $20,562,000. This
increase is attributable to the acquisitions made by Health Acquisition that
were completed in March and May 1997. Over the period, net patient revenue from
New England and Nurse Care, Inc., respectively, the Medicare certified and
licensed home health care subsidiaries in Connecticut, decreased ($2,794,000),
or (19%), to $11,714,000 from $14,508,000. This decrease is attributable to a
decline of ($3,256,000) in Medicare revenue, offset by an increase in
non-Medicare revenue of $462,000. The decline in Medicare revenue is the result
of a decline of (45%) in Medicare visits from the corresponding period of 1997.
Medicare visits decreased as the Company began early preparation for the change
in Medicare reimbursement to IPS costs limits.

Gross profit margin remained at 35% in both fiscal 1998 and 1997.

General and administrative expenses increased $266,000, or 3%, to
$8,886,000 in fiscal 1998 from $8,620,000 in fiscal 1997. As a percentage of
revenue, general and administrative expenses increased to 26% in fiscal 1998
from 25% in fiscal 1997. This increase is attributable to the decline in net
patient revenues that was not offset by a corresponding decline in general and
administrative expenses.

-16-

<PAGE>

Amortization of intangibles increased $128,000, or 52%, to $373,000 in
fiscal 1998 from $245,000 in fiscal 1997. This increase is attributable to the
acquisitions made by Health Acquisition in fiscal 1997.

As a result of the foregoing, income from operations decreased
($381,000), or (12%), to $2,919,000 in fiscal 1998 from $3,300,000 in fiscal
1997.

Interest income increased $101,000, or 23%, to $547,000 in fiscal 1998
from $446,000 in fiscal 1997. This increase is attributable to the increase in
cash and cash equivalents over the fiscal year.

As a result of a private placement of common stock by SunStar, the
Company adjusted the carrying value of its investment in SunStar to reflect the
Company's percentage ownership share (30.5%) in the increase in SunStar's
equity, which resulted in a gain of $331,000. In addition, the Company recorded
a loss from equity investee of ($1,630,000) in fiscal 1998 as compared to a loss
of ($612,000) in fiscal 1997, representing the Company's share of the net loss
recorded by SunStar for the same periods.

The Company's effective tax rate increased to 44% in fiscal 1998 as
compared to 41% in fiscal 1997. This increase is attributable to a lesser income
tax benefit on the net loss recorded by SunStar. Excluding the loss from equity
investee and gain resulting from subsidiary's stock offering, the effective tax
rate decreased to 37% in fiscal 1998 from 38% in fiscal 1997.

Net income decreased ($653,000) to $1,203,000, or $.23 per diluted
share, in fiscal 1998 from $1,856,000, or $.35 per diluted share, in fiscal
1997. The decrease is primarily attributable to the increased loss from the
equity investment in SunStar.

RECENT DEVELOPMENTS

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Current assets decreased to $18,787,000 and current liabilities
decreased to $1,079,000, respectively, at July 31, 1999. This resulted in a
decrease in working capital of ($1,426,000) from $19,134,000 to $17,708,000 at
July 31, 1999. Cash and cash equivalents decreased ($3,550,000) to $7,442,000 at
July 31, 1999 from $10,992,000 at July 31, 1998 and accounts receivable
increased $2,190,000 to $10,459,000 at July 31, 1999 from $8,269,000 at July 31,
1998. The decrease in both working capital and the increase in accounts
receivable reflect the acquisitions of Bryan Home Care and Accredited during
fiscal 1999. The combined acquisition costs were $3,892,000.

Net cash provided by operating activities was $835,000 in fiscal 1999
as compared with $2,016,000 in fiscal 1998. This decrease of ($1,181,000), or
(59%), is primarily attributable to an increase in accounts receivable of
$1,307,000, a decrease in estimated third-party payors settlements of ($223,000)
as compared to fiscal 1998, offset by a decrease in income taxes receivable of
$153,000, a decrease in prepaid expenses and other assets of $55,000 and an
increase in accounts payable and accrued expenses of $256,000.

-17-

<PAGE>

Investing activities in fiscal 1999 used cash of ($3,558,000) as
compared to cash used of ($66,000) in fiscal 1998. The cash used in investing
activities consisted of the acquisitions made by the Company in fiscal 1999 and
the purchase of furniture and equipment in both periods, offset by the proceeds
of investments.

Financing activities in fiscal 1999 used cash of ($827,000) as compared
to cash used of ($282,000) in fiscal 1998. The cash used in investing activities
in fiscal 1999 consisted of the purchase of treasury shares of ($406,000)
pursuant to the Company's stock repurchase plan and the repayment of notes
payable ($421,000) to the former officers of Accredited. The purchase of
treasury shares of ($331,000) offset by the proceeds from the exercise of stock
options of $49,000, resulted in the cash used in financing activities in fiscal
1998.

The nature of the Company's business requires weekly payments to health
care personnel at the time services are rendered. The Company typically receives
payment for these services on a basis of 90 to 120 days with respect to
contracted business and 30 to 45 days with respect to certain governmental
payors, such as Medicare and Medicaid programs. Accounts receivable turnover was
92 days in fiscal 1999 and 91 days in fiscal 1998.

The Company has available a $2,000,000 secured line of credit with its
bank. In addition, a subsidiary of the Company has a secured advised line of
credit. The maximum amount that can be borrowed under the secured advised line
of credit may not exceed the lesser of eligible accounts receivable or
$2,000,000. Both credit facilities bear interest at the alternate base
commercial lending rate of the bank and expire January 31, 2000. At July 31,
1999, there was no outstanding balance under either line of credit.

The Company intends to meet both its short and long term liquidity
needs with its current cash balances, cash flow and available lines of credit.
The Company believes that its current cash balances and available credit also
will allow it to continue to make acquisitions in the home health care industry
without affecting its liquidity needs.

In August 1998, the Board of Directors extended for one year its
program to repurchase its Common Stock. Purchases in the aggregate amount of up
to $1,000,000 in purchase price during the one-year extension would be made from
time to time in the open market and through privately negotiated transactions,
subject to general market and other conditions. The buyback program will be
financed out of existing cash or cash equivalents.

Other than as set forth herein, the Company has no material commitments
for capital expenditures as of July 31, 1999.

In the opinion of management, there will be no material impact on the
financial statements of the Company from any recently issued accounting
standards.

-18-

<PAGE>

INFLATION AND SEASONALITY

The rate of inflation had no material effect on operations for the
fiscal year ended July 31, 1999. The effects of inflation on personnel costs in
the future could have an adverse effect on operations, as the Company may not be
able to increase its charges for services rendered. The Company's business is
not seasonal.

YEAR 2000 COMPLIANCE

The Year 2000 issue is the result of computer programs which were
written using two digits rather than four to define the applicable year. Certain
purchased systems used by the Company, and for which the Company does not
control the programming code, use two digits for the year. The current system
used by Health Acquisition is relatively old and has been slated for replacement
with a new system that better meets the information needs as it expands and
deals with the current operating environment. Health Acquisition's new computer
system is expected to be operational by November 1999, with an expected cost of
approximately $100,000. The Company anticipates that this conversion will be
completed to provide compliance with the requirements to handle the year 2000
issue with no significant operational concerns. The current system utilized by
New England is a relatively new operating system. The Company has been advised
by the system vendor that all required changes necessary to be compliant with
the year 2000 issue have been substantially completed and will be implemented
prior to the year 2000. In August 1999, Accredited replaced its old computer
system with a new system that better fits the needs of its operations.
Accredited's new computer system is year 2000 compliant. Management currently
believes that the financial resources necessary to accomplish year 2000
compliance will not be material to the Company's financial condition, liquidity
or results of operations. However, there is no guarantee that the Company's
expected results will be achieved. In addition, actual results could differ
materially from those expected results.

The Company depends on receipt of payment for services from its payor
sources, most of which utilize computer software to process those payments. The
Company's primary payors include Medicare and Medicaid programs, insurance
companies, other certified home health agencies and long-term health care
provider programs. The Company has begun formal communications with its
significant payors to determine the extent to which the Company may be
vulnerable to those payors' failures to remediate their own year 2000 issues.
The Company is currently unable to predict what

-19-

<PAGE>

effect, if any, the year 2000 issue may have on the computer systems of those
payors or, in turn, on the Company.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

None.

-20-
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial information required by this item is set forth in the
Consolidated Financial Statements on pages F-1 through F-21.

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

On July 7, 1999, the Company dismissed Richard A. Eisner & Company, LLP
("Eisner") as the Company's independent public accountants.

On July 7, 1999, the Company selected Holtz Rubenstein & Co., LLP
("Holtz Rubenstein") to replace Eisner as the Company's independent public
accountants. The decision to change auditors was approved by the Audit Committee
of the Board of Directors.

Eisner's report on the financial statements of the Company for the two
fiscal years ended July 31, 1998 and 1997 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles.

During the Company's two fiscal years ended July 31, 1998 and 1997, and
the subsequent interim period through July 7, 1999, there were no disagreements
with Eisner on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Eisner, would have caused Eisner to make
reference to the subject matter of the disagreements in connection with its
audit report with respect to financial statements of the Company.

During the Company's two fiscal years ended July 31, 1998 and 1997, and
the subsequent interim period through July 7, 1999, there was no disagreement or
difference of opinion with Eisner regarding any "reportable event," as that term
is defined in Item 304(a)(1)(v) of Regulation S-K.

On July 7, 1999, the Company filed a Current Report on Form 8-K, as
amended (the "Report"), and provided Eisner with a copy of the Report,
requesting that Eisner furnish the Company with a letter addressed to the
Securities and Exchange Commission stating whether it agreed with the statements
made by the Company. Such letter is attached to the Report as Exhibit 16 and is
hereby incorporated by reference.

During the Company's two fiscal years ended July 31, 1998 and 1997 and
the subsequent interim period through July 7, 1999, neither the Company nor
anyone on behalf of the Company consulted Holtz Rubenstein regarding either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the financial statements of the Company or any matter that was either the
subject of a disagreement, within the meaning of Item 304(a)(1)(iv) of
Regulation S-K, or any reportable event, as that term is defined in Item
304(a)(1)(v) of Regulation S-K.

-21-

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by each of the items of Part III is omitted
from this Report. Pursuant to the General Instruction G(3) to Form 10-K, the
information is included in the Company's Proxy Statement for its 1999 Annual
Meeting of Stockholders to be held on December 7, 1999, and is incorporated
herein by reference. The Company intends to file such Proxy Statement with the
Securities and Exchange Commission not later than 120 days subsequent to July
31, 1999.

-22-

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) The following represents a listing of all financial statements,
financial statement schedules and exhibits filed as part of this Report.

(1) Financial Statements (see index to the consolidated financial
statements).

(2) Financial Statement Schedules (see index to the consolidated
financial statements).

-23-

<PAGE>

NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS

THREE YEARS ENDED JULY 31, 1999

CONTENTS

Page

CONSOLIDATED FINANCIAL STATEMENTS:
Report of Holtz Rubenstein & Co., LLP, Independent
Certified Public Accountants F-2
Report of Richard A. Eisner & Company, LLP, Independent
Certified Public Accountants F-3
Balance sheets F-4
Statements of earnings F-5
Statements of changes in stockholders' equity F-6
Statements of cash flows F-7
Notes to financial statements F-8-F-18
FINANCIAL STATEMENT SCHEDULE:
Independent Auditors' Report on Schedule,
Holtz Rubenstein & Co., LLP F-19
Independent Auditors' Report on Schedule,
Richard A. Eisner & Company, LLP F-20
Schedule II - Valuation and qualifying accounts F-21

F-1

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York

We have audited the accompanying consolidated balance sheet of National Home
Health Care Corp. and Subsidiaries as of July 31, 1999 and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. We did
not audit the financial statements of SunStar Healthcare, Inc., a corporation in
which the Company had a 30.5% equity interest, which statements reflect a net
loss of ($1,631,000) for the period ended December 31, 1998. Those statements
were audited by other auditors whose report has been furnished to us; insofar as
our opinion on the 1999 consolidated financial statements relates to data
included for SunStar Healthcare, Inc. it is based solely on their report.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based upon our audit and the report of other auditors, with
respect to SunStar Healthcare as described above, the consolidated financial
statements referred to above present fairly, in all material respects, the
consolidated financial position of National Home Health Care Corp. and
Subsidiaries as of July 31, 1999, and the consolidated results of their
operations and their consolidated cash flows for the year ended July 31, 1999,
in conformity with generally accepted accounting principles.

/s/ Holtz Rubenstein & Co., LLP

Melville, New York
October 1, 1999

F-2

<PAGE>

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York

We have audited the accompanying consolidated balance sheet of National Home
Health Care Corp. and subsidiaries as of July 31, 1998, and the related
consolidated statements of earnings, changes in stockholders' equity and cash
flows for each of the two years in the period ended July 31, 1998. 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 did not audit the financial statements of SunStar Healthcare,
Inc. for the year ended July 31, 1997, a corporation in which the Company had a
37.6% interest at July 31, 1997. Those statements were audited by other auditors
whose report has been furnished to us; insofar as our opinion on the 1997
consolidated financial statements relates to data included for SunStar
Healthcare, Inc., it is based solely on their report.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based upon audits and, for 1997, the report of the other
auditors, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of National Home Health
Care Corp. and subsidiaries as of July 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the two years in
the period ended July 31, 1998, in conformity with generally accepted accounting
principles.

/s/ Richard A. Eisner & Company, LLP

New York, New York
October 7, 1998

F-3

<PAGE>

NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
July 31,
-------------------------------------
ASSETS 1999 1998
------ ----------------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash (including cash equivalents of $6,664,000 $ 7,442,000 $10,992,000
and $7,576,000)
Investments - available for sale 178,000 488,000
Accounts receivable, less allowance for doubtful 10,459,000 8,269,000
accounts of $392,000 and $295,000
Income taxes receivable 110,000 123,000
Prepaid expenses and other assets 181,000 195,000
Deferred taxes 417,000 289,000
---------- -----------
Total current assets 18,787,000 20,356,000

Furniture, equipment and leasehold improvements, net 543,000 395,000
Excess of cost over fair value of net 5,334,000 3,179,000
assets of businesses acquired, net
Other intangible assets 1,239,000 745,000
Deposits and other assets 189,000 154,000
Investment in unconsolidated investee - 674,000
----------- -----------
$26,092,000 $25,503,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,079,000 $1,013,000
Estimated third-party payor settlements - 209,000
----------- -----------
Total current liabilities 1,079,000 1,222,000
----------- -----------
COMMITMENTS, CONTINGENCIES
AND OTHER MATTERS
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, authorized 6,000 6,000
20,000,000 shares, issued 6,228,746 shares
Additional paid-in capital 18,525,000 18,525,000
Retained earnings 8,183,000 7,045,000
----------- -----------
26,714,000 25,576,000
Less treasury stock (1,124,936 and 1,701,000 1,295,000
----------- -----------
1,028,879 shares) - at cost
Total stockholders' equity 25,013,000 24,281,000
----------- -----------
$26,092,000 $25,503,000
=========== ===========
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>

NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
Years Ended
July 31,
----------------------------------------------
1999 1998 1997
---------- ----------- -------------
<S> <C> <C> <C>
NET PATIENT REVENUE $38,518,000 $34,313,000 $35,070,000
---------- ----------- -----------
OPERATING EXPENSES:
Cost of revenue 25,357,000 22,135,000 22,905,000
General and administrative 10,183,000 8,886,000 8,620,000
Amortization of intangibles 550,000 373,000 245,000
---------- ---------- ----------
36,090,000 31,394,000 31,770,000
---------- ---------- ----------
INCOME FROM OPERATIONS 2,428,000 2,919,000 3,300,000
OTHER INCOME (LOSS):
Gain resulting from subsidiary's
stock offering - 331,000 -
Interest income 385,000 547,000 446,000
Loss from equity investee (674,000) (1,630,000) (612,000)
---------- ---------- ----------
(289,000) (752,000) (166,000)
---------- ---------- ----------
INCOME BEFORE INCOME TAXES 2,139,000 2,167,000 3,134,000
PROVISION FOR INCOME TAXES 1,001,000 964,000 1,278,000
---------- ----------- ----------
NET INCOME $ 1,138,000 $ 1,203,000 $ 1,856,000
========== ============ ==========
NET INCOME PER COMMON SHARE:
Basic $.22 $.23 $.35
==== ==== ====
Diluted $.22 $.23 $.35
==== ==== ====
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
Basic 5,160,470 5,231,248 5,250,242
========= ========= =========
Diluted 5,215,487 5,307,158 5,358,722
========= ========= =========
</TABLE>

See notes to consolidated financial statements

F-5

<PAGE>

NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Common Stock Treasury Stock
----------------------- Additional ---------------------
Number of Paid-in Retained Number of
Shares Amount Capital Earnings Shares Cost
------------- ------ ----------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1996 6,050,321 $ 6,000 $17,660,000 $4,789,000 955,000 $ (951,000)
Net income - - - 1,856,000 - -
Acquisition of treasury shares,
$5.32 per share - - - - 2,500 (13,000)
3% stock dividend 153,025 - 803,000 (803,000) - -
Exercise of common stock options 5,300 - 13,000 - - -
---------- ------- ---------- --------- ---------- ---------
Balance, July 31, 1997 6,208,646 6,000 18,476,000 5,842,000 957,500 (964,000)
Net income - - - 1,203,000 - -
Acquisition of treasury shares,
$4.65 per share - - - - 71,379 (331,000)
Exercise of common stock options 20,100 - 49,000 - - -
---------- ------- ----------- --------- ---------- ---------
Balance, July 31, 1998 6,228,746 6,000 18,525,000 7,045,000 1,028,879 (1,295,000)
Net income - - - 1,138,000 - -
Acquisition of treasury shares,
$4.23 per share - - - - 96,057 (406,000)
--------- ------- ---------- --------- ---------- ----------
Balance, July 31, 1999 6,228,746 $ 6,000 $18,525,000 $8,183,000 $1,124,936 $(1,701,000)
========= ======= ========== ========= ========== ==========
</TABLE>

See notes to consolidated financial statements

F-6

<PAGE>

<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended
July 31,
----------------------------------------------
1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,138,000 $ 1,203,000 $ 1,856,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 682,000 479,000 355,000
Provision for doubtful accounts - 32,000 -
Deferred tax - (375,000) (133,000)
Gain on subsidiary's stock offering - (331,000) -
Loss from equity investee 674,000 1,630,000 612,000
Gain on sale of assets (3,000) - -
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (1,400,000) (125,000) 323,000
Prepaid expenses and other current assets 7,000 (48,000) 27,000
Increase (decrease) in liabilities:
Accounts payable, accrued expenses
and other liabilities (62,000) (318,000) 16,000
Income taxes receivable (payable) 8,000 (145,000) 225,000
Estimated third-party payor settlements (209,000) 14,000 (883,000)
---------- ----------- ---------
Net cash provided by operating activities 835,000 2,016,000 2,398,000
---------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture, equipment
and leasehold improvements (195,000) (123,000) (134,000)
Proceeds from sale of assets 6,000 - -
Proceeds of investments 310,000 20,000 20,000
Purchase of assets of businesses (1,943,000) - (1,889,000)
Purchase of Accredited Health Services, Inc.,
net of cash acquired (1,736,000) - -
Proceeds from sale of subsidiary stock - 37,000 -
----------- ----------- ----------
Net cash used in investing activities (3,558,000) (66,000) (2,003,000)
---------- ----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury shares (406,000) (331,000) (13,000)
Proceeds from exercise of stock options - 49,000 13,000
Repayment of notes payable (421,000) - -
------------ ----------- ----------
Net cash used in financing activities (827,000) (282,000) -
----------- ----------- ----------
Net (decrease) increase in cash and cash equivalents (3,550,000) 1,668,000 395,000
Cash and cash equivalents, beginning of year 10,992,000 9,324,000 8,929,000
---------- ----------- ----------
Cash and cash equivalents, end of year $ 7,442,000 $10,992,000 $ 9,324,000
========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 4,000 $ 2,000 $ 11,000
========== =========== ==========
Income taxes $ 1,100,000 $ 1,512,000 $ 1,584,000
========== ============ ==========
</TABLE>

Supplemental disclosure of noncash investing and financing activities (see Notes
6 and 7).

See notes to consolidated financial statements

F-7
<PAGE>

NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

THREE YEARS ENDED JULY 31, 1999

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

a. Nature of business

National Home Health Care Corp. and Subsidiaries (the "Company") is a
provider of home health care services, including nursing care, personal care and
other specialized therapies. Due to the similarities in services, management
considers their operations to be one reportable segment.

b. Principles of consolidation

The consolidated financial statements include the accounts of
National Home Health Care Corp. and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.

c. Revenue recognition

Net patient revenue is recorded at the estimated net realizable
amount from third-party payors and patients.

Under Medicare and Medicaid cost reimbursement programs, the Company
is reimbursed for services rendered to covered patients. Revenues derived from
these programs are based in part on cost reimbursement principles and are
subject to examination and retroactive adjustment. Management continuously
evaluates the outcome of these reimbursement examinations and provides
allowances for any potential adjustments. In the opinion of management,
retroactive adjustments, if any, would not be material to the financial position
or results of operations of the Company.

Approximately 34%, 40% and 39% of net patient revenue for the fiscal
years ended July 31, 1999, 1998 and 1997, respectively, were derived under
federal and state third-party reimbursement programs.

d. Cash equivalents

For the purposes of the statements of cash flows, the Company
considers all highly liquid investment instruments purchased with a maturity of
three months or less to be cash equivalents.

e. Furniture, equipment and leasehold improvements

Furniture, equipment and leasehold improvements are stated at cost.
Depreciation is being provided on the straight-line method over the estimated
useful lives of the assets (generally five to ten years). Amortization of
leasehold improvements is being provided on the straight-line method over the
various lease terms or estimated useful lives, if shorter.

F-8

<PAGE>

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Cont'd)

f. Excess of cost over fair value of net assets of businesses acquired

The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized principally over a period of 20 years on a
straight-line basis. Goodwill is evaluated periodically and adjusted if
necessary, if events and circumstances indicate that a permanent decline in
value below the current unamortized historical cost has occurred.

g. Net income per share

The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). It requires
dual presentation of basic and diluted earnings per share on the face of the
consolidated statements of earnings for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic earnings per share computation to the numerator and denominator of the
diluted EPS computation.

The basic calculation is determined by dividing net income
attributable to common shares outstanding (the basic numerator) by the weighted
average number of common shares outstanding (the basic denominator) during the
period.

The diluted calculation is determined by adjusting the basic
numerator for any changes in income or loss that would result from the assumed
exercise of potentially issued common shares. Additionally, the basic
denominator is increased to include the additional number of common shares that
would be outstanding if the potentially issued common shares had been issued, if
dilutive. Potentially issued common shares, consisting of options, are not
included in this calculation where the effect of the inclusion would be
antidilutive. The treasury stock method is used to reflect the dilutive effect
of outstanding options and warrants.

The reconciliation for the years ended July 31, 1999, 1998 and 1997
are as follows:

<TABLE>
<CAPTION>
Years Ended July 31,
-----------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- -----------------------
Income Shares Income Shares Income Shares
---------- --------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $1,138,000 5,160,470 $1,203,000 5,231,248 $1,856,000 5,250,242
Effect of dilutive
securities -
common
stock options - 55,017 - 75,910 - 108,480
---------- ---------- ---------- --------- ---------- ---------
Diluted EPS $1,138,000 5,215,487 $1,203,000 5,307,158 $1,856,000 5,358,722
========== ========== ========== ========= ========== =========
</TABLE>

h. Investments

The Company's investments are accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" which requires that, except for debt
securities classified as "held-to-maturity securities", investments in debt and
equity securities be reported at fair value.

F-9

<PAGE>

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Cont'd)

h. Investments (Cont'd)

Investment securities available for sale at July 31, 1999 and 1998
are summarized as follows:

Amortized Cost (1)
--------------------
1999 1998
------- --------

Floating rate debentures issued by New York State,
maturing in one to five years $145,000 $160,000
Floating rate debentures issued by New York State,
maturing in five to ten years 15,000 150,000
Floating rate debentures issued by New York State,
maturing after ten years - 160,000
Other 18,000 18,000
-------- -------
$178,000 $488,000
======= =======

(1) Amortized cost approximates market value. Accordingly, there is
no unrealized holding gain or loss.

i. Fair value of financial instruments

The carrying amount reported in the consolidated balance sheets for
cash, accounts receivable, accounts payable and accrued liabilities approximates
fair value because of the immediate or short-term maturity of the financial
instruments.

j. Accounting for stock options

The Company accounts for employee stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 ("APB Opinion 25"),
"Accounting for Stock Issued to Employees" using intrinsic values with
appropriate disclosure in conformity with the fair values based method of SFAS
123.

k. Recently issued accounting pronouncements

During fiscal year 1999, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"), Statement of Financial Accounting Standard No. 131,
"Disclosure About Segments of an Enterprise" ("SFAS 131") and Statement of
Financial Accounting Standard No. 132, "Disclosure About Pensions and Other
Postretirement Benefits" ("SFAS 132"). The provisions of SFAS 130, SFAS 131 and
SFAS 132 did not have a material impact on the consolidated financial
statements.

In April 1998, the FASB adopted Statement of Position No. 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP" No. 98-5) which requires
that costs previously capitalized as start-up costs will be expensed as
incurred. SOP No. 98-5 becomes effective for fiscal years beginning after
December 15, 1998, with earlier application encouraged. The adoption of SOP No.
98-5 will not have a material effect, if any, on the Company's consolidated
financial statements.

During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." The Company does not expect the
adoption of this new accounting pronouncement to have a material effect, if any,
on its financial condition or results of operations.

F-10

<PAGE>

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(Cont'd)

l. 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 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. Such estimates relate primarily to goodwill, depreciable assets,
third-party payor settlements and valuation reserves for accounts receivable and
deferred tax assets.

m. Workers' compensation

The Company self-insures up to specified limits certain risks related
to workers' compensation liability. The estimated costs of existing and expected
future claims under the insurance program are accrued based upon historical loss
development trends and may be subsequently revised based on developments
relating to such claims.

n. Stock dividend

On October 10, 1997, the Company's Board of Directors declared a 3%
stock dividend payable on December 8, 1997 for shareholders of record as of
November 6, 1997. A total of 153,025 shares of common stock were issued in
connection with the dividend.

o. Reclassifications

Certain reclassifications have been made to the financial statements
for the year ended July 31, 1998 to conform with the classifications used in
1999.

2. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:

Furniture, equipment and leasehold improvements are stated at cost and
are summarized as follows:

July 31,
------------------------
1999 1998
---------- ----------

Furniture and equipment $1,104,000 $ 849,000
Leasehold improvements 212,000 186,000
--------- ---------
1,316,000 1,035,000
Less accumulated depreciation and amortization 773,000 640,000
--------- ---------
$ 543,000 $ 395,000
========= =========

3. EXCESS OF COST OVER FAIR VALUE:

Changes in the excess of cost over fair value of net assets of businesses
acquired during the two years ended July 31, 1999 are as follows:

Years Ended
July 31,
------------------------------
1999 1998
----------- ----------

Balance, beginning of year $3,179,000 $3,350,000
Consideration for acquisition 2,429,000 -
Amortization (274,000) (171,000)
---------- ----------

Balance, end of year $5,334,000 $3,179,000
========== ==========

F-11

<PAGE>

4. OTHER INTANGIBLE ASSETS:

Other intangible assets are as follows:

July 31,
--------------------------

1999 1998
----------- ----------
Covenants not to compete $ 975,000 $ 775,000
Personnel files 963,000 678,000
Patient files 637,000 352,000
---------- ----------
2,575,000 1,805,000
Less accumulated amortization 1,336,000 1,060,000
---------- ----------

Balance, end of year $ 1,239,000 $ 745,000
========= ==========

Other intangible assets are being amortized using the straight-line
method over a period of three to ten years.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses are as follows:

July 31,
---------------------------
1999 1998
---------- -----------

Trade accounts payable $ 213,000 $ 274,000
Accrued employee compensation and benefits 826,000 677,000
Other 40,000 62,000
--------- ---------

$1,079,000 $1,013,000
========= =========

6. SUBSIDIARY STOCK OFFERING:

In January 1996, the outpatient medical service business of the Company
was reorganized as SunStar Healthcare, Inc. ("SunStar"), a newly-formed,
wholly-owned subsidiary of the Company. The Company reduced its ownership
percentage of SunStar to 37.6% through a public offering of 1,495,000 shares at
a price of $5.00 per share, aggregating approximately $6,083,000, net of
expenses. Subsequent to the offering, the Company is accounting for its
investment in SunStar using the equity method of accounting.

In fiscal 1998, the Company's ownership percentage of SunStar was reduced
to 30.5% as a result of SunStar issuing additional shares of its common stock
pursuant to a private placement in which it received $1,318,000, net of
expenses. In connection therewith, the Company recorded a gain before tax of
$302,000 representing the net increase in book value of the Company's
investment. Also in fiscal 1998, the Company sold 10,000 shares of SunStar for
$37,000 and recorded a gain of $29,000. At July 31, 1999, the Company's carrying
value of its investment in SunStar is $0.

F-12

<PAGE>

6. SUBSIDIARY STOCK OFFERING: (Cont'd)

Summarized financial data of SunStar is as follow:

Years Ended
Eleven July 31,
Months Ended ---------------------------
June 30, 1999 1998 1997
------------- ----------- ----------
<S> <C> <C> <C>
Total current assets $ 20,107,000 $ 8,150,000 $ 5,105,000
Total assets 21,044,000 8,650,000 6,371,000
Total current liabilities 17,353,000 6,319,000 881,000
Total liabilities 17,480,000 6,402,000 989,000
Total shareholders' equity 3,564,000 2,248,000 5,382,000
Total revenues 71,071,000 9,079,000 4,729,000
Net loss (2,902,000) (4,567,000) (1,631,000)
Market value of the Company's
investment 4,450,000* 4,228,000* 4,500,000*
</TABLE>

*The market value of the Company's investment is based on quoted market
prices and does not necessarily represent the amount that may be
realized upon disposition of the investment.

7. ACQUISITIONS:

(a) On October 30, 1998, the Company acquired all of the outstanding
common shares of Accredited Health Services, Inc. ("Accredited"). Accredited is
a licensed home health care company that provides home health aide services in
various counties in New Jersey. The purchase of $1,946,000 was generated from
internal funds. The acquisition was accounted for as a purchase. The purchase
price was allocated as follows: $1,117,000 to total current assets, $58,000 to
furniture and equipment, $40,000 to other assets, $550,000 to total current
liabilities, $4,000 to other liabilities and $1,285,000 to goodwill.

(b) August 10, 1998, the Company acquired certain assets of Bryan
Employment Agency, Inc., d/b/a Bryan Home Care, for approximately $1,943,000,
including acquisition costs of $8,000. The assets purchased consisted of
personnel files of $285,000, patient files of $285,000, furniture and equipment
of $30,000, a covenant not to compete of $200,000 and goodwill of $1,143,000.

(c) On March 25, 1997, the Company acquired certain assets of C.J. Home
Care, Inc., d/b/a Garden City Home Care, for approximately $677,000, including
acquisition costs of $27,000. The assets purchased consisted of personnel files
of $100,000, patient files of $50,000, furniture and equipment of $10,000,
covenants not to compete of $200,000 and goodwill of $317,000.

(d) On May 29, 1997, the Company acquired certain assets of Home Health
Aides, Inc. and H.H.A. Aides, Inc., for approximately $1,212,000, including
acquisition costs of $77,000. The assets purchased consisted of personnel files
of $100,000, patient files of $300,000, furniture and equipment of $25,000, a
covenant not to compete of $175,000 and goodwill of $612,000.

The above acquisitions have been accounted for utilizing purchase
accounting principles. Accordingly, the results of these operations have been
included in the accompanying consolidated financial statements since the dates
of acquisition.

F-13

<PAGE>

7. ACQUISITIONS: (Cont'd)

The following unaudited pro forma consolidated results of operations for
the years ended July 31, 1999 and 1998 assume the acquisitions occurred as of
August 1, 1997:

July 31,
---------------------------
1999 1998
-------- ---------
(in thousands, except
per share amounts)

Revenues, net $39,849 $45,295
Net income 1,181 1,438
Net income per share:
Basic $.23 $.27
==== ====
Diluted $.23 $.27
==== ====

Had the Companies referred to in Notes 7(c) and 7(d) been acquired on
August 1, 1996, their would have been no material effect on the consolidated
operations of the Company for the year ended July 31, 1997.

8. INCOME TAXES:

The Company files a consolidated U.S. federal income tax return that
includes all 100% owned subsidiaries. State tax returns are filed on a combined
or separate basis depending on the applicable laws.

The provision for income taxes is summarized as follows:

Years Ended
July 31,
--------------------------------------------
1999 1998 1997
---------- ------------ ---------
Current:
Federal $ 718,000 $ 920,000 $1,156,000
State and local 283,000 419,000 255,000
---------- ---------- ----------
1,001,000 1,339,000 1,411,000
Deferred - (375,000) (133,000)
---------- ----------- ---------
$ 1,001,000 $ 964,000 $1,278,000
========== =========== =========

Deferred income taxes reflect the tax impact of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and such amounts as measured by tax laws and regulations. The principal items
making up the deferred income tax expense (benefit) are as follows:

Years Ended
July 31,
---------------------------------------
1999 1998 1997
----------- --------- ---------

Loss from equity investee $ - $(316,000) $(208,000)
State tax net operating
loss carryforwards - (59,000) 75,000
----------- --------- --------

$ - $(375,000) $(133,000)
============ ========= ========

F-14

<PAGE>

8. INCOME TAXES: (Cont'd)

The deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>

July 31,
---------------------------------------------------
1999 1998
--------- ----------- ------------------------
Assets Liabilities Assets Liabilities
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Accrued liability and reserves $ 353,000 $ - $ 248,000 $ -
Equity investment in subsidiary 365,000 - 136,000 -
State net operating loss carryforwards 64,000 - 41,000 -
-------- ------- ---------- ------
782,000 - 425,000 -
Valuation allowance (365,000) - (136,000) -
-------- ------- -------- ------

$417,000 $ - $289,000 $ -
======== ======= ======== =====
</TABLE>

Two subsidiaries of the Company have incurred losses which can be used to
offset state taxable income through 2018. At July 31, 1999, the total net
operating loss carryforward as applicable to Connecticut is approximately
$540,000 and applicable to New Jersey is approximately $379,000.

The reconciliation of the statutory tax rate to the effective tax rate
for the three years ended July 31, 1999 is as follows:

1999 1998 1997
-------- -------- --------

Statutory rate 34% 34% 34%
State and local taxes
(net of federal tax effect) 11 12 5
Federal tax credit (4) (6) (2)
Permanent differences 8 8 4
Other (2) (4) -
-- --- ---
Effective rate 47% 44% 41%
== == ==

9. CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS:

Most of the Company's business is with customers who are in the health
care industry and with governmental agencies.

The Company provides temporary health care personnel to in-home patients
in the New York City metropolitan area, the State of Connecticut and the State
of New Jersey. Credit losses relating to customers historically have been
minimal and within management's expectations.

At July 31, 1999, the Company maintains approximately 40% of its cash and
cash equivalents with one financial institution.

Under certain federal and state third-party reimbursement programs, the
Company received net patient revenues approximating $13,281,000, $13,666,000 and
$13,610,000 for the years ended July 31, 1999, 1998 and 1997, respectively. The
Company also received net patient revenues of approximately $6,095,000,
$7,488,000 and $7,624,000 for the years ended July 31, 1999, 1998 and 1997,
respectively, from a private company. At July 31, 1999, the Company had an
aggregate outstanding receivable from the federal and state reimbursement
programs of $2,073,000 and an outstanding receivable of $1,653,000 from the
private company.

F-15

<PAGE>

10. STOCK OPTION PLAN:

In 1992, the stockholders approved the 1992 Stock Option Plan (the "1992
Plan") designed to provide an incentive to key employees (including directors
and officers who are key employees) and to Directors who are not employees of
the Company. The 1992 Plan authorizes the granting of both incentive and
nonqualified stock options to purchase up to 500,000 shares of the Company's
common stock.

The 1992 Plan is administered by the Compensation Committee which has the
authority to determine when options are granted, the term during which an option
may be exercised (provided no option has a term exceeding ten years), the
exercise price and the exercise period. The exercise price shall generally not
be less than the fair market value on the date of grant. No options may be
granted under the 1992 Plan after August 16, 2002.

At July 31, 1999, 419,476 shares of the Company's common stock have been
reserved for future issuance pursuant to the 1992 Plan.

A summary of the status of the Company's stock options as of July 31,
1999, 1998 and 1997 and changes during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ------------------------- ------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year 241,758 $ 3.29 204,042(2) $2.77(2) 203,982(1) $2.85(1)
Granted 180,902 3.93 60,000 4.81 - -
Exercised - - (20,100) 2.47 (5,300) 2.47
Forfeited (163,104) 2.57 (2,184) 5.70 - -
---------- ------------ -----------
Outstanding, end of year 259,556 4.19 241,758 3.29 198,682 2.86
========== ============ ===========
Options exercisable
at year-end 259,556 $ 4.19 241,758 $ 3.29 198,682 $ 2.86
========== ============ ===========
Weighted average fair
value of options granted
during the year $ 1.97 $ 1.97 $ -
====== ====== ======
</TABLE>

(1) Adjusted for 6% stock dividend declared in October 1996.

(2) Adjusted for 3% Stock dividend declared in October 1997.

The fair value of options at date of grant was estimated using the
Black-Scholes option pricing model utilizing the following assumptions as of
July 31, 1999 and 1998: risk-free interest rate of 5.50% and 5.75%,
respectively, expected option life of 10 years, expected stock price volatility
of 33% and 42%, respectively, and expected dividend yield of 0% and 3%,
respectively.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options.

F-16

<PAGE>

10. STOCK OPTION PLAN: (Cont'd)

Since, the Company applies APB Opinion 25 and related interpretations in
accounting for its options, no compensation cost has been recognized for its
stock option grants. The effect of applying SFAS No. 123 on pro forma net income
is not necessarily representative of the effects on reported net income for
future years due to, among other things, (1) the vesting period of stock options
and (2) the fair value of additional stock options in future years. Had the
Company elected to recognize compensation cost based on the fair value of the
options at the date of grant as prescribed by SFAS 123, net income for the years
ended July 31, 1999 and 1998 would have been as follows:

Years Ended
July 31,
-------------------------------
1999 1998
------------ ------------

Proforma net income $ 924,000 $1,085,000
Pro forma income per share:
Basic $.18 $.21
==== ====
Diluted $.17 $.20
==== ====

The following table summarizes information about stock options
outstanding at July 31, 1999:

Options Outstanding and Exercisable
----------------------------------------------
Weighted-
Shares Average Weighted-
Outstanding Remaining Average
at July 31, Contractual Exercise
1999 Life Price
----------- ----------- ---------

$3.76 10,918 3 years $ 3.76
$5.70 8,736 7 years 5.70
$4.81 60,000 8 years 4.81
$3.63 - $4.56 179,902 9 year 3.93
-------
259,556
=======

11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS:

(a) Effective January 1, 1999, the Company amended and restated its
Employee Savings and Stock Investment Plan organized under Section 401(k) of the
Internal Revenue Code. Under the amended plan, employees may contribute up to
15% of their salary, limited to the maximum amount allowable under federal tax
regulations. The Company will match an amount equal to 100% of the first 3% of
employees' contributions and 50% of the next 2% of employees' contributions,
provided that in no event shall the matching contributions on behalf of any
employee exceed 4% of employees' compensation. The Company may also make
additional contributions at its discretion. An employee may invest in Company
stock and several mutual funds. The Company's matching contributions for each of
the years ended July 31, 1999, 1998 and 1997 were $143,000, $105,000 and
$135,000, respectively.

(b) The Company has employment agreements with four officers which expire
through November 30, 2003. The aggregate commitment for future salary, excluding
bonuses, under the agreements is $2,873,000. One agreement also provides for
increases based on increases in the consumer price index and additional annual
compensation of up to $150,000 based on 5% of pre-tax income, as defined, in
excess of $3,000,000. Another agreement provides for additional compensation
based on 3% of income from operations, as defined, in excess of $3,000,000.

F-17

<PAGE>

11. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS: (Cont'd)

(c) The Company rents various office facilities through 2004 under the
terms of several lease agreements which include escalation clauses.

At July 31, 1999, minimum annual rental commitments under
noncancellable operating leases are as follows:

Year Ending
June 31,
-----------

2000 $ 392,000
2001 217,000
2002 190,000
2003 92,000
2004 47,000
Thereafter 5,000
----------
$ 943,000
==========

Rent expense for the years ended July 31, 1999, 1998 and 1997 was
approximately $594,000, $527,000 and $435,000, respectively.

One lease is with a company controlled by the Company's Chief
Executive Officer. Rent expense under such lease approximates $129,000 per year.

(d) The Company has a line of credit with its bank totalling $2,000,000.
Advances against the line are to be collateralized by the assets of the Company.
In addition, a subsidiary of the Company has a secured line of credit. The
maximum amount that can be borrowed under the secured line of credit shall not
exceed the lesser of eligible accounts receivable or $2,000,000. Both credit
facilities bear interest at the alternate base commercial lending rate of the
bank and expire January 30, 2000. At July 31, 1999, there were no outstanding
balances under either line of credit.

12. SUBSEQUENT EVENT:

Subsequent to July 31, 1999, the Company sold 127,114 shares of common
stock of SunStar reducing the Company's ownership to 26%. Proceeds from the sale
of stock approximated $784,000.

F-18

<PAGE>

INDEPENDENT AUDITORS' REPORT ON SCHEDULE

The audit referred to in our report dated October 1, 1999 on the consolidated
financial statements of National Home Health Care Corp. and Subsidiaries, which
appears in Part II, also included Schedule II for the year ended July 31, 1999.
This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audit. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein, in compliance with the applicable
accounting regulations of the Securities and Exchange Commission.

/s/ Holtz Rubenstein & Co., LLP

Holtz Rubenstein & Co., LLP
Melville, New York
October 1, 1998

F-19

<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE

Board of Directors and Stockholders
National Home Health Care Corp.
Scarsdale, New York

The audits referred to in our report dated October 7, 1998 on the consolidated
financial statements of National Home Health Care Corp. and subsidiaries, which
appears in Part II, also include Schedule II for the years ended July 31, 1998
and 1997. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein, in compliance with the applicable
accounting regulations of the Securities and Exchange Commission.

/s/ Richard A. Eisner & Company, LLP

New York, New York
October 7, 1998

F-20

<PAGE>

<TABLE>
<CAPTION>
NATIONAL HOME HEALTH CARE CORP. AND SUBSIDIARIES

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

Column A Column B Column C Column D Column E
-------- -------- ------------------------- --------- --------
Additions
------------------------
(1) (2)
--------- ---------
Charged
Balance, Charged to to Other Balance,
Beginning Costs and Accounts - Deductions End
Description of Period Expenses Describe Describe of Period
----------- --------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended July 31, 1999:
Allowance deducted from asset account
Allowance for uncollectible accounts $295,000 $196,500(b) $ 99,500 (a) $392,000
======== ======= ========= ========
Year ended July 31, 1998:
Allowance deducted from asset account
Allowance for uncollectible accounts $327,000 $32,000 $ (64,000)(a) $295,000
======== ======= ======= ========
Year ended July 31, 1997:
Allowance deducted from asset account
Allowance for uncollectible accounts $414,000 $ (87,000)(a) $327,000
======== ======= =======
</TABLE>

(a) Represents actual write-offs.

(b) Represents allowance acquired in acquisition of Accredited Health Services,
Inc.

F-21

<PAGE>

(3) Exhibits

EXHIBIT
NUMBER DOCUMENT
- ------- --------

3.1 Certificate of Incorporation. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (No. 2-86643) filed
September 20, 1983 (the "1983 Form S-1").

3.2 Certificate of Amendment to Certificate of Incorporation. Incorporated
by reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1992 (the "1992 Form 10-K").

3.3 By-laws. Incorporated by reference to the 1983 Form S-1.

10.1 1992 Stock Option Plan. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1993 (the
"1993 Form 10-K").

10.2 Incentive Stock Option Plan. Incorporated by reference to the 1993 Form
10-K.

10.3 Agreement dated January 1, 1994 between Allen Health Care Services and
Visiting Nurse Service of New York. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July
31, 1994 (the "1994 Form 10-K").

10.4 Form of First Amendment to Employment Agreement dated as of December 1,
1998 between the Registrant and Steven Fialkow. Incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the
fiscal quarter ended January 31, 1999 (the "January 31, 1999 Form
10-Q").

10.5 Employment Agreement dated as of November 1, 1997 between the
Registrant and Steven Fialkow. Incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the fiscal quarter ended
January 31, 1998 (the "January 31, 1998 Form 10-Q").

10.6* First Amendment to Amended and Restated Employment Agreement dated as
of December 1, 1998 between the Registrant and Frederick H. Fialkow.

-24-

<PAGE>

EXHIBIT
NUMBER DOCUMENT
- ------- --------

10.7 Form of Amended and Restated Employment Agreement dated as of December
1, 1998 between the Registrant and Frederick H. Fialkow. Incorporated
by reference to the January 31, 1999 Form-Q.

10.8 Employment Agreement dated as of November 1, 1997 between the
Registrant and Frederick H. Fialkow. Incorporated by reference to the
January 31, 1998 Form 10-Q.

10.9 Form of First Amendment to Employment Agreement dated as of December 1,
1998 between the Registrant and Robert P. Heller. Incorporated by
reference to the January 31, 1999 Form 10-Q.

10.10 Employment Agreement dated as of November 1, 1997 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 1998 Form 10-Q.

10.11 Form of First Amendment to Employment Agreement dated as of December 1,
1998 between the Registrant and Richard Garofalo. Incorporated by
reference to the January 31, 1999 Form 10-Q.

10.12 Employment Agreement dated as of November 1, 1997 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 1998 Form 10-Q.

10.13 Agreement between Division of Social Services of Suffolk County and
Health Acquisition Corp. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1991.

10.14 Agreement between Nassau County Department of Social Services and Allen
Health Care Services. Incorporated by reference to the 1992 Form 10-K.

10.15 Agreement dated January 1, 1994 between Catholic Medical Center of
Brooklyn and Queens, Inc. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1994.

10.16 Letter dated June 1, 1992 from Public Health Council of the State of
New York Department of Health to Health Acquisition Corp. d/b/a Allen
Health Care Services. Incorporated by reference to the 1992 Form 10-K.

-25-

<PAGE>
EXHIBIT
NUMBER DOCUMENT
- ------- --------

10.17 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care, dated
September 20, 1993. Incorporated by reference to the 1993 Form 10-K.

10.18 The Registrant's Employee Savings and Stock Investment Plan under
Section 401(k) of the Internal Revenue Code. Incorporated by reference
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended July 31, 1997 (the "1997 Form 10-K").

10.19 Letter Agreement dated February 20, 1999 providing a Secured Advised
Line of Credit from the Bank of New York to National Home Health Care
Corp. Incorporated by reference to the January 31, 1999 Form 10-Q.

10.20 Letter Agreement dated February 20, 1999 providing a Secured Advised
Line of Credit from the Bank of New York to New England Home Care, Inc.
Incorporated by reference to the January 31, 1999 Form 10-Q.

21.1* List of Subsidiaries.

23.1* Consent of Richard A. Eisner & Company, LLP

23.2* Consent of Holtz Rubenstein & Co., LLP

27.1* Financial Data Schedule

- ----------
* Filed herewith

(b) Reports on Form 8-K.

1. Form 8-K, Item 4. Changes in Registrant's Certifying Accountant,
dated July 7, 1999.

2. Form 8-K/A, Item 4. Changes in Registrant's Certifying Accountant,
filed July 28, 1999.

-26-

<PAGE>

SIGNATURES

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

NATIONAL HOME HEALTH CARE CORP.

/s/ Robert P. Heller
----------------------------------------
By: Robert P. Heller
Vice President of Finance
and Chief Financial Officer

Dated: October 28, 1999

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

/s/ Frederick H. Fialkow Chairman of the Board of Directors and
- ----------------------------- Chief Executive Officer
Frederick H. Fialkow

/s/ Steven Fialkow President, Chief Operating Officer,
- ----------------------------- Secretary and Director
Steven Fialkow

/s/ Robert P. Heller Vice President of Finance and Chief
- ----------------------------- Financial Officer (Principal Financial
Robert P. Heller and Accounting Officer)

/s/ Ira Greifer Director
- -----------------------------
Ira Greifer, M.D.

/S/ Bernard Levine
- ----------------------------- Director
Bernard Levine, M.D.

/s/ Robert Pordy
- ----------------------------- Director
Robert Pordy, M.D.

<PAGE>

Commission File No. 0-12927

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

EXHIBITS

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED JULY 31, 1999

NATIONAL HOME HEALTH CARE CORP.

<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
- ------- -------- ------
<S> <C> <C>
3.1 Certificate of Incorporation. Incorporated by reference to the
Registrant's Registration Statement on Form S-1 (No. 2-86643) filed
September 20, 1983 (the "1983 Form S-1").

3.2 Certificate of Amendment to Certificate of Incorporation. Incorporated
by reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended July 31, 1992 (the "1992 Form 10-K").

3.3 By-laws. Incorporated by reference to the 1983 Form S-1.

10.1 1992 Stock Option Plan. Incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended July 31, 1993
(the "1993 Form 10-K").

10.2 Incentive Stock Option Plan. Incorporated by reference to the 1993 Form
10-K.

10.3 Agreement dated January 1, 1994 between Allen Health Care Services and
Visiting Nurse Service of New york. Incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year ended July
31, 1994 (the "1994 Form 10-K").

10.6* First Amendment to Amended and Restated Employment Agreement dated as
of December 1, 1998 between the Registrant and Frederick H. Fialkow.

10.7 Form of Amended and Restated Employment Agreement dated as of December
1, 1998 between the Registrant and Frederick H. Fialkow. Incorporated
by reference to the January 31, 1999 Form 10-Q.

10.8 Employment Agreement dated as of November 1, 1997 between the
Registrant and Frederick H. Fialkow. Incorporated by reference to the
January 31, 1998 Form 10-Q.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
- ------- -------- ------
<S> <C> <C>
10.9 Form of First Amendment to Employment Agreement dated as of December 1,
1998 between the Registrant and Robert P. Heller. Incorporated by
reference to the January 31, 1999 Form 10-Q.

10.10 Employment Agreement dated as of November 1, 1997 between the
Registrant and Robert P. Heller. Incorporated by reference to the
January 31, 1998 Form 10-Q.

10.11 Form of First Amendment to Employment Agreement dated as of December 1,
1998 between the Registrant and Richard Garofalo. Incorporated by
reference to the January 31, 1999 Form 10-Q.

10.12 Employment Agreement dated as of November 1, 1997 between the
Registrant and Richard Garofalo. Incorporated by reference to the
January 31, 1998 Form 10-Q.

10.14 Agreement between Nassau County Department of Social Services and Allen
Health Care Services. Incorporated by reference to the 1992 Form 10-K.

10.17 Letter from Joint Commission on Accreditation of Healthcare
Organizations awarding accreditation to Allen Health Care, dated
September 20, 1993. Incorporated by reference to the 1993 Form 10-K.

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DOCUMENT NUMBER
- ------- -------- ------
<S> <C> <C>
10.20 Letter Agreement dated February 20, 1999 providing a Secured Advised
Line of Credit from the Bank of New York to New England Home Care, Inc.
Incorporated by reference to the January 31, 1999 Form 10-Q.

21.1* List of Subsidiaries.

23.1* Consent of Richard A. Eisner & Company, LLP

23.2* Consent of Holtz Rubenstein & Co., LLP

27.1* Financial Data Schedule

- ----------
</TABLE>

* Filed herewith

EXHIBIT 10.6

FIRST AMENDMENT

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

This First Amendment to Amended and Restated Employment Agreement,
dated as of December 1, 1998 (the "Amendment"), is by and between NATIONAL HOME
HEALTH CARE CORP., a Delaware corporation having an address at 700 White Plains
Road, Scarsdale, New York 10583 (the "Company") and FREDERICK H. FIALKOW, an
individual having an address at 700 White Plains Road, Scarsdale, New York 10583
(the "Employee").

WHEREAS, the Company and the Employee are parties to an Amended and
Restated Employment Agreement dated as of December 1, 1998 (the "Agreement");
and

WHEREAS, the Company and the Employee desire to amend the Agreement to
give effect AB INITIO to a change in the term of the Agreement as originally
agreed among the parties.

NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and conditions hereinafter set forth, the parties hereby agree as
follows:

1. Amendment to the Agreement. The Agreement hereby is amended
effective as of the date hereof such that "four" contained in Section 1 is
changed to "five."

2. Agreement to Continue as Amended. Except as modified and amended by
this Amendment, the Agreement shall remain and continue in full force and effect
after the date hereof.

3. Applicable Law. This Amendment shall be negotiated and the
transactions contemplated hereby consummated and fully performed in the State of
New York and shall be governed by and construed in accordance with the laws of
the State of New York, without regard to the conflicts of law rules thereof.
Nothing contained in this Amendment shall be construed so as to require the
commission of any act contrary to law, and whenever there is any conflict
between any provision of this Amendment and any statute, law, ordinance, order
or regulation, contrary to which the parties hereto have no legal right to
contract, the latter shall prevail, but in such event any provision of this
Amendment so affected shall be curtailed and limited only to the extent
necessary to bring it within the legal requirements.

<PAGE>

4. Jurisdiction and Venue. It is hereby irrevocably agreed that all
disputes or controversies between the Company and Employee arising out of, in
connection with or relating to this Amendment shall be exclusively heard,
settled and determined by arbitration to be held in the City of New York, County
of New York, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association to be conducted before a single arbitrator, who shall be
either an attorney or retired judge licensed to practice law in the State of New
York. The parties also agree that judgment may be entered on the arbitrator's
award by any court having jurisdiction thereof and the parties consent to the
jurisdiction of any court located in the City of New York, County of New York
for this purpose.

5. Full Understanding. Employee represents and agrees that he fully
understands his right to discuss all aspects of this Amendment with his private
attorney, that to the extent, if any, that he desired, he availed himself of
this right, that he has carefully read and fully understands all of the
provisions of this Amendment, that he is competent to execute this Amendment,
that his agreement to execute this Amendment has not been obtained by any duress
and that he freely and voluntarily enters into it, and that he has read this
document in its entirety and fully understands the meaning, intent and
consequences of this document which is that it constitutes an agreement of
employment.

6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute one and the same Amendment.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.

NATIONAL HOME HEALTH CARE CORP.

By: /s/ Robert P. Heller
-----------------------------------
Name: Robert P. Heller
Title: Vice President of Finance
and Chief Financial Officer

/s/ Frederick H. Fialkow
----------------------------------
FREDERICK H. FIALKOW

-2-

Exhibit 21.1

LIST OF SUBSIDIARIES

Name Jurisdiction of Organization
- ------------------------ ----------------------------

Health Acquisition Corp. New York

New England Home Care, Inc. Connecticut

Accredited Health Services, Inc. New Jersey

National HMO (New York), Inc. Delaware

Connecticut Staffing Works Corp. Connecticut

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in the Registration Statement of
National Home Health Care Corp. on Form S-8, Registration No. 33-61315
pertaining to the 1992 Stock Option Plan and the 1993 401(k) Plan, as filed with
the Securities and Exchange Commission on July 26, 1995 of our report dated
October 7, 1998, with respect to the consolidated financial statements and
schedule of National Home Health Care Corp. and subsidiaries as of July 31, 1998
and for each of the years in the two-year period ended July 31, 1998 included in
its Annual Report on Form 10-K for the year ended July 31, 1999.

/s/ Richard A. Eisner & Company, LLP

Richard A. Eisner & Company, LLP

New York, New York
October 27, 1999

`b EXHIBIT 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the Registration
Statement of National Home Health Care Corp. on Form S-8, Registration No.
33-61315 pertaining to the 1992 Stock Option Plan and the 1993 401(K) Plan, as
filed with the Securities and Exchange Commission on July 26, 1995 of our report
dated October 1, 1999, with respect to the consolidated financial statements of
National Home Health Care Corp. and subsidiaries as of July 31, 1999 and for the
year then ended included in its Annual Report on Form 10-K for the year ended
July 31, 1999.

/s/ Holtz Rubenstein & Co., LLP

HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
October 25, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

EXHIBIT 27

FINANCIAL DATA SCHEDULE ARTICLE 5

<ARTICLE> 5
+<CIK> 0000728389
+<NAME> NATIONAL HOME HEALTH CARE CORP.
+<MULTIPLIER> 1
+<CURRENCY> 0

<S> <C> <C>
<FISCAL-YEAR-END> 7/31/99
+<PERIOD-START> 8/1/98
<PERIOD-END> 7/31/99
<PERIOD-TYPE> 12 Months +
<CASH> 7,442,000
<SECURITIES> 178,000
<RECEIVABLES> 10,851,000
<ALLOWANCES> 392,000
<INVENTORY> 0
<CURRENT-ASSETS> 18,787,000
<PP&E> 1,316,000
<DEPRECIATION> 773,000
<TOTAL-ASSETS> 26,092,000
<CURRENT-LIABILITIES> 1,079,000
<BONDS> 0
<COMMON> 6,000
0
0
<OTHER-SE> 25,007,000
<TOTAL-LIABILITY-AND-EQUITY> 26,092,000
<SALES> 38,518,000
<TOTAL-REVENUES> 38,518,000
<CGS> 0
<TOTAL-COSTS> 36,090,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 674,000
<INTEREST-EXPENSE> (385,000)
<INCOME-PRETAX> 2,139,000
<INCOME-TAX> 1,001,000
<INCOME-CONTINUING> 1,138,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,138,000
<EPS-BASIC> .22
<EPS-DILUTED> .22

* Optional.

+ Required when applicable.

</TABLE>