10-K

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-K


 (Mark One)

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

                  For the fiscal year ended: December 31, 2005

                                       OR

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

              For the transition period from: _______ to ________.

                           Commission File No. 1-12451

                           NEW YORK HEALTH CARE, INC.
             (Exact name of registrant as specified in its charter)

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

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

Registrant's telephone number, including area code: 212-679-7778

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

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

  Securities registered pursuant               Common Stock $.01 par value to
   Section 12(g) of the Act:

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

Indicate by check mark whether the registrant is a accelerated filer.
Large accelerated filer [_]     Accelerated filer  [_]       Non-accelerated
filer [X]

The aggregate market value of the registrant's common stock held by
non-affiliates computed by reference to the price at which the common stock was
last sold, or the average bid and asked price of such common stock, as of June
30, 2005, the last business day of the registrant's most recently completed
second fiscal quarter was approximately $ 25,922,000.

      The number of shares outstanding of the registrant's common stock, as of
April 4, 2006: 33,232,722.

                    DOCUMENTS INCORPORATED BY REFERENCE: NONE



                           FORWARD-LOOKING STATEMENTS

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

      The  following   information  should  be  read  in  conjunction  with  the
Consolidated  Financial  Statements  and notes  thereto  included in this Annual
Report.  All references to fiscal year apply to the Company's  fiscal year which
ends on December 31, 2005.

Recent Developments:

      Effective  August 4, 2005,  the Company and Messrs.  Braun and  Rosenberg,
former officers of the Company,  signed a termination  agreement (the "Braun and
Rosenberg Termination  Agreement").  Pursuant to the Braun Rosenberg Termination
Agreement,  Messrs.  Braun and Rosenberg resigned from their employment with the
Company and any of its subsidiaries,  and their respective employment agreements
(except for  sections  regarding  certain  non-disclosure  provisions  and their
agreements not to compete with the Company) were  terminated.  In addition,  the
Braun  Rosenberg  Termination  Agreement  terminated  the July 15, 2004 purchase
agreement  providing for the sale of the assets of the Company's home healthcare
business to a company  controlled by Messrs.  Braun and Rosenberg and a February
24, 2005 agreement, in which the Company had granted Messrs. Braun and Rosenberg
a security  interest in the assets of the  Company's  home  healthcare  business
being  conducted  in the states of New York and New Jersey and  provided for the
deposit of up to $3.55  million in cash  collateral.  Under the Braun  Rosenberg
Termination Agreement, (i) Mr. Braun received a cash payment of $1,200,000, (ii)
Mr. Rosenberg received a cash payment of $1,050,000,  (iii) the Company paid for
COBRA benefits for Messrs.  Braun and Rosenberg  through  December 31, 2005, and
(iv)  each of Mr.  Braun  and Mr.  Rosenberg  received  $5,000  to pay for their
accrued but unpaid compensation, accrued vacation and accrued business expenses.
Pursuant  to the Braun  Rosenberg  Termination  Agreement  the  500,000  options
granted to each of Messrs. Braun and Rosenberg (a total of 1,000,000 options) on
February 24, 2005 were  forfeited  and  surrendered  to the  Company,  as were a
combined  aggregate  of 110,000  additional  options to purchase  the  Company's
common  stock  previously  granted  to them.  The  Braun  Rosenberg  Termination
Agreement also contains mutual releases and indemnification provisions


                                       1


      Consistent with its previously  announced  intention to sell the remaining
home healthcare  business,  the Company  solicited bids from selected  potential
bidders. On October 26, 2005 the Company entered into a letter of intent to sell
the  home  healthcare  business  to  Accent  Care,  Inc.  which  provided  for a
exclusivity  period of 30 days  during  which the  Company  could not solicit or
accept  competing  offers.  Upon the  expiration  of the  exclusivity  period on
November 25, 2005,  the Company  again  solicited  bids for the home  healthcare
business and received bids from Accent Care and Revival Inc., a previous bidder.
On January 6, 2006,  the Company  decided to accept the revised  Revival bid and
entered into a letter of intent.  The Company is  continuing  to negotiate  with
Revival for the sale of the home healthcare business.

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

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

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

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

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

      In November 2003 the Company terminated the Emerald  Consulting  Agreement
in response to the indictment of one of its directors and officer of BioBalance,
and Grossman as reported in the Company's  Form 10-K for the year ended December
31, 2003.

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


                                       2


      Pursuant to the Emerald  Settlement  Agreement and in order avoid the cost
and uncertainty of litigation,  the Company agreed to (i) the immediate  payment
of $700,000 to Emerald,  (ii) payment of $22,000 per month for  eighteen  months
beginning January 1, 2006, (iii) the issuance of 400,000 shares of Common Stock,
(iv)  options to purchase  1,100,000  shares of Common  Stock at $0.78 per share
until March 1, 2010 and (v) health insurance for Grossman and his family for the
eighteen month period ending June 30, 2008 amounting to  approximately  $35,100.
In return,  Emerald and Grossman have  executed a general  release of all claims
they may have against the Company.  The Common Stock to be issued and the Common
Stock issuable  pursuant to the options are "restricted  shares" and may only be
resold after  registration  of such shares or the  availability  of an exemption
from  registration,  including under Rule 144 of the Securities Act. The Company
has granted  Emerald a one-time  demand  registration  right and unlimited piggy
back registrant rights. As of April 14, 2006, no part of the settlement has been
paid.  At  December  31,  2005,  the  Company has accrued the full amount of the
settlement.On  April 17, 2006,  Emerald  Asset and  Grossman  have agreed not to
demand the cash portion of the settlement  agreement until such time as New York
Health Care receives any additional monies from any source.

      On March 24, 2006,  BioBalance  received  approval  from the U.S. Food and
Drug  Administration  (FDA) to begin  U.S.  clinical  trials of its  proprietary
biotherapeutic  agent,  Probactrix,   as  a  prescription  drug  for  pouchitis.
Pouchitis is a debilitating  complication that can develop following  corrective
surgical treatment of ulcerative colitis, in which an ileal reservoir, or pouch,
is  constructed to enable normal bowel  movements  after removal of the diseased
colon.  This ileal  reservoir  can  become  inflamed,  leading  to  debilitating
gastrointestinal symptoms including diarrhea, incontinence,  bleeding, fever and
urgency.  The cause of pouchitis  is not known,  though it is believed to result
from an immune response to pathogenic  bacteria in the pouch flora. There are no
currently  approved  treatments  for  pouchitis.   Current  management  involves
short-term and occasionally chronic treatment with antibiotics.

      The phase I/II, randomized, placebo-controlled, multi-center study will be
conducted  in  approximately  63  antibiotic-dependent   pouchitis  patients  to
demonstrate the ability of a prescription  formulation of Probactrix to maintain
symptomatic  response of pouchitis  symptoms after  antibiotic  withdrawal.  The
principal  investigators  of the trial are Darrell S. Pardi,  MD, and William J.
Sandborn,  MD,  of the  Division  of  Gastroenterology  at the  Mayo  Clinic  in
Rochester, Minnesota.


                                       3


                                     PART I

Item 1.  BUSINESS

OVERVIEW

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

      The Company is a New York corporation  incorporated in 1983. The Company's
principal  executive office is 1850 McDonald Avenue,  Brooklyn,  New York 11223,
telephone  718-375-6700.  The Company intends to change its principal  executive
offices to the offices of BioBalance when and if the home healthcare business is
sold.

      For  more  information  as  to  the  financial  performance  of  our  home
healthcare  and  BioBalance  business  segments and the  divestiture of the home
healthcare business, see Part II, Item 7, "Management's  Discussion and Analysis
of  Financial  Condition  and  Results  of  Operations"  and Note 15 of Notes to
Consolidated Financial Statements included elsewhere in this report.

HISTORY, DEVELOPMENT AND OVERVIEW

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

      The legacy home healthcare  business  operates in all five boroughs of New
York City and the counties of Nassau,  Westchester,  Rockland, Orange, Dutchess,
Ulster,  Putnam and  Sullivan,  in the State of New York.  Services are supplied
principally pursuant to contracts with healthcare  institutions and governmental
agencies,  such as various county  departments of social services,  the New York
City Human Resources Administration, Beth Abraham Long-Term Home Health Services
and  Kingsbridge  Medical  Center.  We  sold  our  New  Jersey  home  healthcare
operations to Accredited Health on May 22, 2005.

      BioBalance is a development stage  biopharmaceutical  company incorporated
in Delaware in May 2001.  BioBalance is focused on the development of innovative
treatments for various  gastrointestinal  (GI) disorders with significant  unmet
needs.  BioBalance  has pioneered the  development of these agents based on what
BioBalance   believes  to  be   leading-edge   science  as  it   proceeds   with
pharmaceutical drug development for its lead product, PROBACTRIX(R).  BioBalance
has not  generated  any  revenues  to date other  than  income  from  short-term
investment of proceeds from stock offerings.


                                       4


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

CORPORATE STRATEGY

      We intend to actively  pursue  BioBalance's  business  plan of  developing
PROBACTRIX(R)  as a  prescription  drug for  treating  various  gastrointestinal
disorders.  As previously  discussed in this report,  we also plan to divest our
home  healthcare  business and focus our efforts  exclusively  on the BioBalance
business opportunities.

      The  Company  intends  to  finance  the  continuing   development  of  the
BioBalance business,  including its prescription drug development efforts,  from
cash flow from the home  healthcare  business  until its sale,  the net proceeds
from the sale of the home  healthcare  business and the sale of equity,  debt or
convertible securities.

BIOBALANCE  BUSINESS

Overview

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

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

      Our lead  development  product,  PROBACTRIX,  is a  proprietary  strain of
E.coli M-17 bacteria,  which we plan to develop as a prescription drug treatment
for pouchitis,  IBS and a variety of other GI disorders.  Prior clinical studies
have  confirmed  that this  product can reduce the  symptoms of IBS and other GI
disorders  and,  therefore,  is able to improve  the quality of life of patients
using the product to treat these disorders.

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


                                       5


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

      BioBalance  originally  submitted  the IND  application  for the pouchitis
indication  which was  received  by the FDA on January 2, 2005.  On  February 2,
2005,  we were  notified by the FDA that the IND was on  clinical  hold and that
comments would be sent to us within  approximately  30 days.  Detailed  comments
were received on March 4, 2005.  BioBalance's  regulatory and clinical  advisors
responded  to these  comments by  submitting  an IND  Amendment  with the FDA on
December  15,  2005.  The FDA  responded  on January  13,  2006 with  additional
comments which BioBalance addressed on February 22, 2006. On March 24, 2006, the
FDA gave us clearance to proceed with the phase I/II  clinical  trial,  which we
anticipate will begin by June 30, 2006.

      The patented  formulation  used for  PROBACTRIX  consists of a proprietary
strain of  non-pathogenic  E.coli,  derived from an organism that was originally
isolated  from the  intestinal  mircoflora  of a healthy  volunteer  in a liquid
formulation.  The technology and the processes comprise conditions that preserve
M-17  E.coli  in the  biologically  active  form.  Patents  have  been  filed by
BioBalance  for  technology  that could extend the product's  shelf life for two
years or longer at room  temperature.  In addition,  we received approval of the
registration  of  PROBACTRIX  as a registered  trademark in the U.S. on March 1,
2005. Our intellectual  property portfolio also includes rights to a combination
of two patented Bacillus strains, B. subtilis and B. licheniformis.

      We have  contracted  for the  manufacture  of  PROBACTRIX  with  Benchmark
Biolabs Inc. to satisfy our clinical trial needs in a state-of-the-art  facility
located in Lincoln, Nebraska.

Regulatory Strategy

      Our  regulatory  strategy  involves  pursuing   accelerated  approval  for
PROBACTRIX in the U.S. by filing an IND  application  for the prevention  and/or
treatment  of  pouchitis.   There  are  currently  no  approved  treatments  for
pouchitis.   Additional  clinical  studies  can  subsequently  be  conducted  to
determine whether there is support for broader usage.

      BioBalance  originally  planned to pursue  marketing  of  PROBACTRIX  as a
medical food for IBS, given limited  resources and the significant time required
for  prescription  drug  development.  Industry  studies  indicate that it takes
approximately  eight to 10 years for the average  prescription  drug to progress
from the IND filing to market introduction.  However, following discussions with
regulatory consultants and potential pharmaceutical licensees, it was determined
that a shorter pathway to drug  development  through filing an IND for an orphan
drug indication would be the most economically  attractive course. This involved
addressing  pouchitis,  a narrowly  focused  indication  with unmet  therapeutic
needs,  rather than IBS.  Pouchitis  also offered the  potential for orphan drug
designation  and  expedited  FDA  approval.  We  believe,  although  there is no
assurance,  that we can achieve FDA approval for  PROBACTRIX  as a  prescription
drug to treat pouchitis in approximately  four to five years, less than half the
time for a typical prescription drug.


                                       6


      We plan to conduct double blind,  placebo  controlled  studies now that we
have  obtained FDA approval of our IND for the pouchitis  indication.  The first
step would  involve a phase I/II study in pouchitis  patients.  This study would
likely be  followed  with a  pivotal  Phase  III  trial in  approximately  50-75
pouchitis  patients.  It is anticipated that PROBACTRIX could be approved in the
U.S. by 2010 or earlier  although no  assurance  can be given  approval  will be
obtained or if obtained the date of such approval.

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

      Longer term, we are currently  considering  expanding the label indication
of PROBACTRIX to include a number of  additional GI  indications,  including the
treatment of C. difficile  infections.  It is well  established that antibiotics
significantly alter intestinal microflora,  a key factor in causing C. difficile
infections.

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

PRODUCTS

      Probactrix

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


                                       7


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

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

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

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

      o     Rapid suppression of pathogenic microorganisms and their repulsion.

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

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

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

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

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

      Bacillus Product

      We have acquired the rights to a combination of two Bacillus  strains that
has exhibited anti-inflammatory, anti-bacterial and anti-viral properties, which
may be effective  in treating a variety of GI diseases.  We believe our Bacillus
strains  are  therapeutically  effective  against  rotavirus  and  campylobacter
pathogens,  which are the leading causes of infectious diarrhea. We believe this
technology could also be effective in treating ulcerative  colitis.  There was a
predecessor product (called Biosporin),  based on the Bacillus strains acquired,
which was approved in Russia.  Currently we have not yet formalized any specific
plan with respect to the  development  of our Bacillus  product and no assurance
can be given that we will ever  commercially  market any product related to this
product.


                                       8


Prior Clinical Studies

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

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

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

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

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

Current Studies

      We  conducted  a  high-dose  safety  trial on  PROBACTRIX  to  verify  the
excellent  safety  results  found  in  prior  studies  and to  support  the  IND
application  for  prescription  drug  development.  Phase I studies focus on the
safety of a drug or biological  agent,  and are  typically  conducted in healthy
adult volunteers at relatively high doses. This study was completed in the third
quarter of 2004. In addition, we have fielded a randomized,  multi-center double
blind,  placebo-controlled,   clinical  trial  in  IBS  patients  to  study  the
effectiveness  of  PROBACTRIX  as a medical  food.  Sites for this study include
Cornell  Medical  Center in New York City,  St.  Michael's  Hospital in Toronto,
Canada, Bikur Cholim Hospital in Jerusalem,  Israel, and Sourasky Medical Center
in Tel Aviv, Israel.


                                       9


Veterinary Application

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

MANUFACTURING

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


INTELLECTUAL PROPERTY

      BioBalance uses a combination of patents,  trademarks and trade secrets to
protect its core  technology,  which is  proprietary  and  protected by 16 filed
patents in the U.S., of which 14 have been issued.  The patent  expiration dates
range  from  2020 to  2023.  It has  also  filed  patent  applications  covering
application of its core technology in Japan, European, Korea, Canada, Australia,
Mexico, Brazil, Poland, Russia and New Zealand.  BioBalance is also aggressively
pursuing  additional  patent  applications  relating to its core technology.  On
March 1, 2005,  it  received  notification  that  PROBACTRIX  was  approved as a
registered U.S. trademark.

      BioBalance  has also acquired the global patent rights to a combination of
two patented Bacillus strains (B. subtilis and B. licheniformis) (NexGen product
platform) for $3,850,000  which included a one-time cash payment of $250,000 and
one million  shares of Common  Stock of the Company  valued at  $3,600,000.  See
"Bacillus Product" above.  BioBalance is also working to obtain rights for other
agents showing promise in treating various GI diseases.  At December 31, 2004 it
was determined  that the investment in the NexGen Product  Platform was impaired
and as a result of the impairment  analysis,  a total of $1,740,326 was expensed
during the fourth  quarter.  The  impairment  was  determined by an  independent
valuation firm using a discounted  cash flow model.  At the time, the impairment
was felt necessary due to a number of factors  including the acceleration of the
Company's efforts to obtain regulatory  approval and take other action necessary
to  market  PROBACTRIX  as  a  prescription  product,  overall  limited  funding
available  to  the  Company  to  develop  the  Bacillus  product  and  available
management time. At December 31, 2005, the independent valuation firm determined
that no additional impairment was warranted.  While BioBalance believes that the
Bacillus  product can  ultimately be  commercialized,  any steps the Company may
take in the future in furthermore of such  commercialization will continue to be
delayed until the above mentioned factors are resolved.


                                       10


BIOBALANCE EMPLOYEES

      At March 31, 2006,  BioBalance had seven  employees and outsourced most of
its  clinical  and  regulatory  needs  through the use of part-time or full-time
consultants.  While  BioBalance  has no  definitive  plans  with  respect to the
ultimate  size of its  workforce  or persons who will fill  specific  positions,
BioBalance  plans to evaluate  its  staffing  needs  relative  to  research  and
development,  product manufacturing and marketing and finance and administration
in light of then  current  alliances  and  partnerships  and will seek to retain
personnel as employees or consultants based on that evaluation.

HOME HEALTH CARE BUSINESS

Overview

      The Company has  decided to sell the home  healthcare  business to a third
party.   The  Company  is  currently   negotiating   with  Revival  Health  Care
("Revival").

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

      Our services are provided  principally by our staff of  professionals  and
paraprofessionals  (some are bilingual),  who provide personal care to patients,
and, to a lesser extent,  by our staff of skilled nurses.  Approximately  99% of
our  home  health  revenues  in  2005  were  attributable  to  services  by  our
paraprofessional staff.

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

Organization and Operations

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


                                       11


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

Referral Sources

      We obtain patients primarily through contracts,  referrals from hospitals,
community-based  healthcare  institutions  and  social  service  agencies,  case
management and insurance  companies.  Referrals from these sources accounted for
substantially  all of our net revenues in 2005.  We generally  conduct  business
with most of our  institutional  referral sources under one-year  contracts that
fix the rates and terms of all  referrals  but do not require that any referrals
be made. Under these contracts, the referral sources refer patients to us and we
bill the referral  sources for services  provided to patients.  Approximately 68
such contracts were in effect and active as of December 31, 2005.

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

     Referring Institution                     Percentage of Net Revenues 2005
     ---------------------                     -------------------------------

New York City Medicaid (HRA)                               52.0%
Guildnet Inc.                                               5.8%
Beth Abraham Long Term Home Health Program                  5.6%
Kingsbridge Heights Rehabilitation Center                   5.0%

      Overall, our 10 largest referring institutions accounted for approximately
88.9% of net revenues for 2005.

      "Days Sales  Outstanding"  ("DSO") is a measure of the  average  number of
days required for the Company to collect  accounts  receivable,  calculated from
the date services are billed. For the year ended December 31, 2005 the Company's
DSO were 71.

Reimbursement

      We are reimbursed for services, primarily by referring institutions,  such
as healthcare  institutions and social service  agencies,  which in turn receive
their  reimbursement  from  Medicaid,  Medicare  and, to a much  lesser  extent,
through  direct  payments by insurance  companies and private  payers.  New York
State Medicaid  programs  constitute  our largest  reimbursement  sources,  when
including both direct  Medicaid  reimbursement  and indirect  Medicaid  payments
through many of our referring  institutions.  For 2005,  payments from referring
institutions  that receive direct payments from Medicare and Medicaid,  together
with direct  reimbursement to us from Medicaid,  accounted for approximately 99%
of net revenues.  Direct  reimbursements  from private insurers,  prepaid health
plans,  patients and other private sources accounted for approximately 1% of net
revenue for 2005.

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


                                       12


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

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

Performance Improvement

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

      We believe that we have developed and implemented  service  standards that
comply with or exceed the service standards  required by the Joint Commission on
Accreditation of Healthcare  Organizations  ("JCAHO"). In November 2003, the New
York  offices  of  the  Company  received  full  accreditation  from  the  Joint
Commission for the next three years (expiring in November 2006).

Sales and Marketing

      The  Company's  decision  to sell the  home  healthcare  business  has not
altered our sales and marketing efforts.  Each  administrator/branch  manager is
responsible  for sales  activities in the branch  office's local market area. We
attempt to cultivate  strong,  long-term  relationships  with  referral  sources
through high quality service and education of local  healthcare  personnel about
the appropriate role of home healthcare in the clinical management of patients.

Government Regulation

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


                                       13


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

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

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

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

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


                                       14


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

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

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

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

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

Competition

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

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


                                       15


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

HOME HEALTH CARE EMPLOYEES

      At March 31, 2006, our home  healthcare  business had 1672  employees,  of
whom sixty four are  salaried,  including  one division  officer,  a controller,
seven  administrators/branch  managers,  ten  nurses,  three  accounting  staff,
sixteen  clerical  staff and twenty one field staff  supervisors.  The remaining
1,608  employees  are paid on an hourly  basis and consist of  professional  and
paraprofessional staff.

None of our home healthcare or BioBalance employees are compensated on an
independent contractor basis or represented by a labor union. We believe that
our employee relations are good.

Item 1A.  RISK FACTORS

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

Risks Relating to the BioBalance Business

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

      BioBalance  was  incorporated  in May 2001, has generated no revenues from
operations,  and has no meaningful  assets other than its intellectual  property
rights and $5,522,088 in available cash at December 31, 2005.  BioBalance  faces
all of the  risks  inherent  in a new  business  and  those  risks  specifically
inherent in the business of developing,  testing, obtaining regulatory approvals
for, manufacturing, commercializing and selling a new prescription drug product,
with all of the unforeseen costs, expenses,  problems, and difficulties to which
such ventures are subject.  We cannot assure you that BioBalance will be able to
generate  revenues or profits from operation of its business or that  BioBalance
will be able to generate or sustain profitability in the future.


                                       16


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

      BioBalance  will be  required  to expend  substantial  amounts  of working
capital in order to develop,  test, obtain the requisite  regulatory  approvals,
manufacture  and  market  its  proposed  product  and  establish  the  necessary
relationships  to implement its business plan. At December 31, 2005, the Company
had available cash in the amount of $5,522,088.  For the year ended December 31,
2005,  BioBalance's  operations where funded entirely from the net proceeds from
the sale of equity  securities  and the proceeds from the sale of the New Jersey
home  healthcare  business in May 2005.  For the year ending  December  31, 2006
BioBalance  anticipates  that its  business  will be entirely  dependent  on the
existing cash, income from the healthcare  operations and either on the proceeds
from the sale of the  remaining  home  healthcare  business  and/or  the sale of
additional  securities.  We  expect  existing  cash  and  the  income  from  the
healthcare  operations will be sufficient to sustain our operations for the next
twelve months. If BioBalance fails to obtain additional financing,  BioBalance's
clinical  and  regulatory  programs  would need to be scaled back or  cancelled.
BioBalance  has no firm  agreements  or  arrangements  with  respect to any such
financing  and we cannot  assure you that any needed  funds will be available to
BioBalance  on acceptable  terms or at all. The  inability to obtain  sufficient
funding  of  BioBalance's   operations  in  the  immediate  future  could  cause
BioBalance to curtail or cease its operations.

      THE SALE OF OUR NEW YORK HOME HEALTHCARE BUSINESS IS NOT ASSURED.

      We are  currently  negotiating  to  sell  our  remaining  home  healthcare
operations which are located in New York in whole or in part. The agreement will
be subject to a number of conditions, including, but not limited to, shareholder
and regulatory approval. Even if shareholder approval and regulatory approval of
the proposed sale are obtained,  there can be no assurance that  litigation will
not be commenced by a  shareholder  or other third party  seeking to prevent the
sale of the remaining home  healthcare  business.  Until the time, if ever, that
our New York home healthcare  business is sold, we expect to continue to operate
the remaining home healthcare business in a normal fashion.

      IF WE DIVEST OUR HOME HEALTHCARE BUSINESS, WE WILL BE A PURELY DEVELOPMENT
STAGE COMPANY, HAVING GENERATED NO REVENUES TO DATE AND HAVING MINIMAL OPERATING
HISTORY UPON WHICH WE MAY BE EVALUATED.

      To date,  the only revenues  that have been  generated by the Company have
been  produced by the home  healthcare  business.  BioBalance  has  generated no
revenues  from  operations  or meaningful  assets,  other than its  intellectual
property rights and its existing cash. In March 2005 we sold the New Jersey home
healthcare  business and if we sell our remaining home healthcare business which
is  located  in  New  York,  our  only  remaining  operating  business  will  be
BioBalance,  which faces all of the risks  inherent in a new  business and those
risks  specifically  inherent  in the  business  of  developing,  manufacturing,
introducing  and selling a new drug or new product to the market with all of the
unforeseen costs,  expenses,  problems,  and difficulties to which such ventures
are  subject.  We cannot  assure you that  BioBalance  will be able to  generate
revenues or profits from operation of its business.


                                       17


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

      Because of the highly  technical  nature of our  BioBalance  business,  we
depend  greatly on attracting  and retaining  experienced  management and highly
qualified and trained  scientific  personnel.  Our future success will depend on
the continued services of our key scientific and management  personnel with whom
we have entered into various agreements. The management team of Dennis O'Donnell
as the Company's and  BioBalance's  President and Chief Executive  Officer,  Dr.
Robert Hoerr as VP of Medical and Regulatory  Affairs and Dr. Eileen Bostwick as
VP of Research and Development. We are also utilizing the services of Dr. Harold
Jacob,  who  serves  on our  Medical  Advisory  Board but have not  finalized  a
contract  with him.  We compete  intensely  for these  professionals  with other
companies in our industry. If we cannot retain or hire and effectively integrate
a sufficient number of qualified scientists and experienced professionals,  such
inability  would  have a material  adverse  effect on our  capacity  to grow our
business and develop our products through the clinical trial process.  We do not
presently maintain key person insurance for any of BioBalance's key personnel.

      WE COULD BE REQUIRED TO PAY FUNDS TO SATISFY  INDEMNITY AND OTHER POSSIBLE
CLAIMS BY FORMER EMPLOYEES AND CONSULTANTS.

      In November  2003, a former  director of the Company who was an officer of
BioBalance  resigned and a consulting  agreement with a consultant to BioBalance
was suspended,  and subsequently  terminated,  as a result of matters related to
certain  claims made against the former  director and the consultant by the U.S.
Attorney's  office  relating to an alleged  attempt by these two  individuals to
manipulate the Company's Common Stock.  The Company is obligated,  under certain
circumstances, to indemnify the former director against liability and to pay for
his costs of defending  himself from certain  legal  actions that arose from his
activities  as a director  or officer of the  Company.  To date,  the  Company's
insurance  carrier  has  advanced  funds on behalf of the  Company to the former
director to cover the expenses of his defense to the government  action.  Unless
it  is  legally   determined  that  the  former  director  is  not  entitled  to
indemnification, the Company will be required to reimburse the insurance carrier
for  $250,000 of the amount it advanced  on behalf of the former  director.  The
Company has accrued the $250,000 on its financial  statements as of December 31,
2005.

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

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


                                       18


      POTENTIAL  FAILURE OF  PLANNED  CLINICAL  TRIALS TO PRODUCE  STATISTICALLY
SIGNIFICANT DATA COULD IMPAIR OUR ABILITY TO SUCCESSFULLY MARKET OUR PRODUCTS.

      There still is substantial risk that the studies that we are planning will
not yield  sufficient  statistically  significant  data to make strong marketing
claims.  This could adversely affect marketing efforts to the medical community,
which  is  traditionally   resistant  to  new  treatments  unless  supported  by
statistically  significant data before  recommending it to patients.  This could
severely limit our ability to successfully market our product.

      WE ARE DEPENDENT ON NEW PRODUCTS AND CONTINUED INNOVATION.

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

      INTELLECTUAL PROPERTY RIGHTS MAY NOT PROTECT OUR BUSINESS.

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


                                       19


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

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

      FAILURE  TO  DEVELOP  OR  CONTRACT  FOR AN  ADEQUATE  SALES AND  MARKETING
ORGANIZATION OR PARTNER WITH A LARGER  PHARMACEUTICAL  COMPANY COULD RESULT IN A
LACK OF FUTURE REVENUES.

      To  market  any of our  products  directly,  we would  have to  develop  a
substantial  marketing  and sales  force.  Alternatively,  we may,  for  certain
products,  attempt to obtain the assistance of larger  pharmaceutical  companies
with established  distributions  systems and direct sales forces. We do not know
if we will be able to enter into  agreements  with other  companies to assist in
the marketing and sales of our products.

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

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

      WE WILL BE REQUIRED TO COMPLY WITH GOOD MANUFACTURING PRACTICES.

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


                                       20


      POTENTIAL  SIDE  EFFECTS  OF OUR  PRODUCT  COULD  IMPAIR  OUR  ABILITY  TO
SUCCESSFULLY MARKET OUR PRODUCTS.

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

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

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

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

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

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

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


                                       21


      WE COULD BE FACED WITH  POSSIBLE  PRODUCT  LIABILITY  LOSSES  AND  ADVERSE
PRODUCT PUBLICITY.

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

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

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

RISKS RELATING TO THE HOME HEALTHCARE BUSINESS

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

On July 22, 2004,  the federal  Second  Circuit Court of Appeals issued a ruling
concerning  the Fair Labor  Standards Act on the validity of the  "companionship
services"  exemption  from  minimum wage and overtime  payment  requirements  to
paraprofessional  field  staff in New York State Home care  providers  have long
relied on this exemption to provide compensation to home care aides and personal
care workers with the expectation  that there is no obligation for overtime pay.
In September  2004, a request for a rehearing was submitted en banc for the full
court.  On January 13, 2005,  the Court  rejected the request for a rehearing on
the issue.  The implication of these changes for paying the overtime expense for
the home care  industry  and the State will be  challenges  to ensuring  patient
continuity  of care,  if agencies  can no longer  afford to  authorize  overtime
during an outgoing  workforce  shortage,  and the inability of workers to secure
the number of hours of work they desire, all of these factors may cause a higher
cost per hour serviced thereby less adversely affecting profitability.


                                       22


The issue was  resubmitted and on March 16, 2006, the industry was notified that
the  Supreme  Court  granted a writ of  certiorari,  vacated  the  judgment  and
remanded  the case to the Second  Circuit  Court of Appeals  to  reconsider  its
decision in light of the  memorandum  issued by the U.S.  Department of Labor on
December 1, 2005. In that memo, the DOL states that it considers its regulations
allowing the  companionship  exemption to be used by third party employers to be
"authoritative and legally binding".

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

      More than 40% of our revenues are paid by Certified  Home Health  Agencies
and Long-Term  Home Health Care  Programs,  as well as other clients who receive
their payments from "third- party payers," such as private insurance  companies,
self-insured  employers and HMOs. Our revenues and profitability,  like those of
other home  healthcare  companies,  are  affected by the  continuing  efforts of
third-party  payers to  contain or reduce the costs of  healthcare  by  lowering
reimbursement  or payment rates,  increasing case management  review of services
and negotiating  reduced contract  pricing.  Because home care is generally less
costly than  hospital-based  care,  home  nursing and home care  providers  have
benefited  from cost  containment  initiatives  aimed at  reducing  the costs of
medical care. However, as expenditures in the home healthcare market continue to
grow,  cost  containment  initiatives  aimed at reducing the costs of delivering
services at non-hospital sites are likely to increase.  A significant  reduction
in  coverage  or payment  rates of public or private  third-party  payers  would
reduce New York Health  Care's  revenues  and profit  margins.  While we are not
aware of any  substantive  changes in the  Medicare  or  Medicaid  reimbursement
systems for home healthcare  which are about to be  implemented,  revised budget
plans of New York State or the federal  government could result in limitation or
reduction  in the  reimbursement  of home care  costs and in the  imposition  of
limitations  on the provision of services  which will be  reimbursed.  Moreover,
third party payers,  particularly private insurance companies, may negotiate fee
discounts and reimbursement caps for services we provide.

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

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

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

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


                                       23


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

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

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

      The home  healthcare  industry  is marked by low entry costs and is highly
fragmented and competitive.  We compete for personnel with hospitals and nursing
homes,  and we also compete for both personnel and business with other companies
that  provide  home  healthcare  services,  most of which are large  established
companies with significantly  greater  resources,  access to capital and greater
name  recognition  than we have.  Our  principal  business  competitors  include
Premiere Health Services,  National Home Health Care Corp.,  Patient Care, Inc.,
and  Personal  Touch Home Care  Services,  Inc. We also  compete with many other
small   temporary   medical   staffing   agencies.   Competition  for  qualified
paraprofessional  personnel  in the New York  Metropolitan  area is intense.  We
believe  that,  given the  increasing  level of  demand  for  nursing  services,
significant additional competition can be expected to develop in the future.

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

      The development and growth of our home care and nursing businesses depends
to a significant extent on our ability to establish close working  relationships
with hospitals,  clinics,  nursing homes, physician groups, HMO's,  governmental
healthcare  agencies and other  healthcare  providers.  Many of our  contractual
arrangements with customers are renewable annually.  Existing  relationships may
not  be  successfully  maintained  and  additional   relationships  may  not  be
successfully  developed and  maintained in existing and future  markets.  Our 10
largest customers accounted for approximately 88.9% of gross revenues during the
year ended December 31, 2005. One referral source,  New York City Medicaid,  was
responsible  for  approximately  52.0% of our gross  revenues for the year ended
December 31, 2005.  The loss of, or a  significant  reduction  in,  referrals by
these  sources,  as well as  certain  other key  sources,  would have a material
adverse effect on results of operations of our home healthcare business.


                                       24


RISKS RELATING TO OUR COMMON STOCK

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

      The  trading  price of our Common  Stock has been  subject to  significant
fluctuations  and there is a limited market for our Common Stock.  Over the last
12 months,  the price of our Common  Stock has ranged  from a high of $1.25 to a
low of $0.51. The price of our Common Stock is likely to continue to be affected
by various factors,  including but not limited to the results of our development
efforts of PROBACTRIX  and other  products,  variations in quarterly  results of
operations,  announcements of new contracts or services or acquisitions by us or
our competitors,  governmental regulatory action, general trends in the industry
and other factors, such as extreme price and volume fluctuations which have been
experienced by the securities markets from time to time in recent years.

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

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

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


                                       25


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

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

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

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

      WE HAVE NEVER PAID ANY DIVIDENDS ON OUR COMMON STOCK.

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

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

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


                                       26


Item 1B.  UNRESOLVED STAFF COMMENTS

None

Item 2.   DESCRIPTION OF PROPERTIES

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

      Our   corporate   headquarters   is  located  in  a  building   containing
approximately  6,000  square feet  located in  Brooklyn,  New York under a lease
expiring in 2010, at a monthly rental of approximately  $7,000 subject to annual
increases and rent escalations based on increases in real estate taxes. Our home
healthcare business is administered from our corporate headquarters and 6 branch
and  recruitment  offices located in New York (six offices) under month to month
tenancies  and term leases  expiring from June 2005 through April 2010 at annual
rentals ranging from approximately  $14,000 to $55,000 and additional rent based
upon increases in real estate taxes and other cost  escalations.  The six leases
with  respect to our New Jersey  offices were  assumed by  Accredited  Health in
connection with the closing of the sale of the NJ Business to Accredited.

      BioBalance's  executive  office is located  at 363  Seventh  Avenue,  13th
Floor,  New York,  New York 1001 under a lease expiring in May 2006 at a monthly
rental of approximately $6,600. BioBalance intends to relocate to similar office
space in New York at the expiration of this lease at market terms.

Item 3.   LEGAL PROCEEDINGS

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

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


                                       27


      The lawsuit seeks,  among other things,  (i) injunction  relief preventing
consummation of the Emerald Settlement  Agreement and/or rescission rights, (ii)
removal of the Directors, (iii) compensatory damages and (iv) attorneys fees.

      At this time, the Company cannot give an opinion as to the outcome of this
lawsuit,  however,  the  Commpany  denies  any  wrongdoing  on its  part  or its
Directors and intends to vigorously defend the suit.

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

      Not applicable.


                                     PART II

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

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


Fiscal 2005                High             Low
- -----------                ----             ---

First Quarter               1.12            0.51
Second Quarter              1.07            0.75
Third Quarter               1.25            0.70
Fourth Quarter              1.00            0.67

Fiscal 2004                High             Low
- -----------                ----             ---

First Quarter               3.95            2.99
Second Quarter              1.22            0.60
Third Quarter               0.82            0.50
Fourth Quarter              0.67            0.46


                                       28


Holders

      At April 4, 2006,  we had  approximately  238  holders of record and 1,433
beneficial holders of our Common Stock.

Dividends

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

Securities Authorized for Issuance under Equity Compensation Plans

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

Item 6:   SELECTED FINANCIAL DATA

              NEW YORK HEALTH CARE HISTORICAL FINANCIAL INFORMATION

                   AS OF AND FOR THE YEARS ENDED DECEMBER 31,



                                                                                                                Period May 21, 2001
                                                                                                                (Inception) Through
                                             2005               2004              2003             2002            December 2001
                                         -----------        -----------       -----------      -----------      -------------------
                                                                                                 
Total Revenues                           $44,722,823        $42,286,444       $38,569,627               --                       --
Net Loss                                  (6,321,662)        (6,071,685)      (22,052,170)      (1,399,057)                 452,169
Basic and diluted loss per share
   Basic loss per share                        (0.20)             (0.24)            (0.91)           (0.07)                   (0.03)
   Diluted loss per share                      (0.20)             (0.24)            (0.91)           (0.07)                   (0.03)
Current assets                            13,468,664         12,168,812        14,543,209        3,051,720                  906,926
Total assets                              17,289,077         16,503,195        21,628,968        5,259,449                2,918,836
Current liabilities                       15,605,424         13,918,937        12,607,203          349,182                  117,070
Long-term liabilities, net of
current portion                                   --                 --                --               --                       --
Shareholders Equity                        1,683,653          2,584,258         9,021,765        4,910,267                2,801,766
Book value per share                            0.05               0.10              0.36             0.23                     0.16

Dividends per share                               --                 --                --               --                       --

Shares used in computing loss
per common share:
              Basic                       31,895,833         24,939,776        24,283,907     20,562,131                 17,574,891
              Diluted                     31,895,833         24,939,776        24,283,907     20,562,131                 17,574,891



                                       29


Results of Operations - Year Ended December 31, 2005 Compared with Years Ended
December 31, 2004 and 2003

Overview

      The  Company  operates  in two  industry  segments;  the home  health care
business,  which  business has a 20-year  operating  history,  and the specialty
pharmaceutical  business of BioBalance,  which commenced in 2001 and is still in
its development  stage.  All numerical  amounts and percentages in the following
discussion are approximate.

      See  Company  Developments  in  Note  1  to  the  consolidated   financial
statements for a description of the Company's  agreement to sell the NJ Business
to Accredited.

      Prior  reports of the Company  filed with the SEC remain  available on the
SEC website at http://www.sec.gov.

Results of Operations

      During  the  years  2005,  2004  and 2003 the  BioBalance  segment  had no
revenues as it is a developmental stage company with no sales.

      Revenues in 2005 increased to $44,723,000  from $42,286,000 in 2004. There
was an increase in the sales volume of the New York operations  during 2005. The
revenue in 2004 showed an increase from $38,570,000 in 2003 again because of the
higher sales volume in the New York operations.

      Cost of  professional  care of patients  increased in 2005 to  $37,080,000
from  $34,781,000  in 2004 as a  result  of the  combined  increase  in New York
operations and the decrease in New Jersey operations.

      The cost of professional care of patients increased in 2004 to $34,781,000
from  $31,864,000  in 2003  because  of the  increase  in  sales of the New York
operations.

      Selling,   general  and   administrative   expenses  (SG&A)  increased  to
$13,012,000  in 2005 as compared to $10,027,000 in 2004. The increase in cost is
due to termination agreements with two former officers and settlement agreements
with two former consultants.

      Selling,   general  and   administrative   expenses  (SG&A)  increased  to
$10,027,000  in 2004 as compared to $9,142,000 in 2003. The increase in cost was
due the company Incurring significant legal and accounting costs associated with
the indictment of one of its former directors.

      This cost for product development increased from approximately  $1,241,000
in 2004 to $2,802,000 in 2005.  This was due to increased work on the IND filing
for Probactrix.  The cost for product  development of  approximately  $1,426,000
increased from $1,241,000 in 2003 due to the work required to file the Company's
initial IND for Probactrix.

      The  net  loss  for  2005  increased  to  $6,322,000  from a net  loss  of
$6,072,000 in 2004. The year 2005 included a higher non-cash  compensation  cost
offset by the impairment of intangible assets cost reported in 2004.


                                       30


      The net  loss  of  $6,072,000  in  2004  decreased  from  the net  loss of
$22,052,000  for the year 2003.  The year 2003 included the non-cash  impairment
charge for Goodwill of $17,869,000  resulting from the merger of New York Health
Care, Inc. and BioBalance in 2003.

Recently Issued Accounting Pronouncements

      On June 7, 2005, the FASB issued  Statement No. 154,  "Accounting  Changes
and Error Corrections,  a replacement of APB Opinion No. 20, Accounting Changes,
and  Statement  No.  3,  Reporting   Accounting  Changes  in  Interim  Financial
Statements"  (FAS 154). FAS 154 changes the requirements for the accounting for,
and reporting of, a change in accounting principle.  Previously,  most voluntary
changes in  accounting  principles  were  required to be  recognized by way of a
cumulative  effect adjustment within net income during the period of the change.
FAS  154  requires   retrospective   application  to  prior  periods'  financial
statements,  unless it is impracticable to determine either the  period-specific
effects  or the  cumulative  effect  of the  change.  FAS 154 is  effective  for
accounting  changes  made in fiscal  years  beginning  after  December 15, 2005;
however, the Statement does not change the transition provisions of any existing
accounting pronouncements. The Company does not believe adoption of FAS 154 will
have a  material  effect on its  consolidated  financial  position,  results  of
operations or cash flows.

      In  December  2004,   the  FASB  issued  SFAS  No.  123  (revised   2004),
"Share-Based  Payment," or SFAS No. 123R. SFAS No. 123R, which replaces SFAS No.
123 and supersedes APB Opinion No. 25, requires that  compensation cost relating
to share-based payment  transactions be recognized in the financial  statements,
based on the fair value of the equity or liability  instruments issued. SFAS No.
123R is effective as of the beginning of the first  interim or annual  reporting
period that begins after  December  31, 2005 and applies to all awards  granted,
modified,  repurchased or cancelled  after the effective  date. We do not expect
the adoption of this standard to have a significant  impact on our  consolidated
results of operations or financial position.

      In December 2004, the FASB issued SFAS No. 153, "Exchanges of Non-monetary
Assets-an  amendment  of APB  Opinion  No.  29," or SFAS No.  153.  SFAS No. 153
eliminates the exception for non-monetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general  exception for exchanges of
non-monetary  assets  that do not  have  commercial  substance.  A  non-monetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the exchange.  SFAS No. 153 is
effective  for  non-monetary  asset  exchanges  occurring in the fiscal  periods
beginning after June 15, 2005. We do not expect the adoption of this standard to
have a significant impact on our consolidated results of operations or financial
position.

Liquidity and Capital Resources

      The sources of liquidity  and capital  resources  for the home  healthcare
segment are internally generated funds, cash on hand and amounts available under
a $4,000,000  revolving  credit facility with G.E.  Capital Health Care Services
relating  exclusively  to the home  healthcare  segment.  Currently  there is no
outstanding indebtedness under this facility.


                                       31


      Loans under this revolving credit loan facility, which expires in November
2006,  may be used only for working  capital of the  Company's  home  healthcare
business and other costs arising in the ordinary  course of that  business.  The
Company's  obligations  to pay the principal of, and interest on, loans advanced
under this facility are secured by substantially all the assets of the Company's
home healthcare business, and not by any assets of BioBalance.  Borrowings under
the  facility are  permitted  to the extent of a borrowing  base of up to 85% of
"qualified  accounts  receivable" of the Company's home healthcare  business and
there are no events of default under the relevant loan documents  subject to the
lender's  right to reduce the  borrowing  base by  applying a  liquidity  factor
percentages  formula  based upon a  calculation  relating  to recent  collection
histories  of  certain  classes of  qualified  accounts  receivable.  Currently,
application  of the  liquidity  factors  percentage  formula  results  in 97% of
qualified accounts receivable being part of the borrowing base. Accordingly,  at
December 31, 2005 the amount  available  for  borrowing  under this facility was
$4,000,000.  The agreement contains various restrictive covenants, which amongst
other  things,  require that the Company  maintain a minimum  tangible net worth
greater  than  $500,000.  The Company  utilizes  the line of credit from time to
time, and at the present time there is no balance outstanding.

      The  Company  has amended  its loan  agreement  relating to the  revolving
credit facility to allow it to lend money to its BioBalance  subsidiary if there
is no loan  outstanding  under the revolving  credit  facility.  At December 31,
2004, New York Health Care had loaned BioBalance  $1,500,000 and at February 25,
2005 the loan amount was approximately $1,700,000, which was repaid in full with
a portion of the  proceeds of the  Offering.  The loan  agreement  has also been
amended to allow the Company to invest money in BioBalance.

      In addition,  on April 11, 2005, the Company's loan agreement was modified
to permit the sale of the NJ  Business  to  Accredited  Health and to remove the
lender's lien with respect to the assets of the NJ Business. As a result of this
requirement  modification,  no loans under the agreement  will be made until the
minimum tangible net worth has been amended to the lender's satisfaction.

      The principal  amount of loans  borrowed under this facility bear interest
at a variable  annual rate equal to the prime rate  charged from time to time by
CitiBank,  N.A.  plus 1.5%  (currently,  8.5% per annum) and the loan  agreement
creating  this  facility  provides  for  monthly  payments  of  interest  on the
outstanding  loan balance on the basis of the actual number of days elapsed over
a year of 360 days. . The line of credit will  continue to be capped at $0 until
the collateral group from the lender conducts an updated collateral audit.

Contractual Obligations and Commitments

      Information in the following  table provides a summary of our  contractual
obligations and commercial commitments as of December 31, 2005.




                                                   Payments due by period
                                  --------------------------------------------------------
                                       Less than                            More than
Contractual Obligations            Total        1 year    1-3 years    3-5 years   5 years
- ------------------------          --------     --------   ---------    ---------   -------
                                                                    
Long-term debt obligations        $     --     $     --   $      --    $      --   $    --
Capital lease obligations               --           --          --           --        --
Operating lease
 obligations*                      677,000      252,000     266,000      159,000        --
Purchase obligations                    --           --          --           --        --
                                  --------     --------   ---------    ---------   -------
      Total                       $677,000     $252,000   $ 266,000    $ 159,000   $    --
                                  ========     ========   =========    =========   =======



                                       32


* These leases generally contain  provisions  allowing rental  obligations to be
accelerated  upon  default in the  payment of rent or the  performance  of other
lease obligations. These leases generally contain provisions for additional rent
based upon increases in real estate taxes and other cost escalations. The leases
associated with the NJ Business were assumed by Accredited  Health in connection
with the closing of the sale of the NJ Business to Accredited Health.

**BioBalance  will be moving to a new office space when its lease expires at the
end of May 2006. BioBalance is currently looking for new office space.

      Net cash used in operating  activities  of continuing  operations  for the
year 2005 was  $3,713,831,  as compared to net cash used of  $5,174,126 in 2004.
The change in net cash used in  operating  activities  from 2005 to 2004,  after
taking into effect the discontinued operations,  is due mainly to 2004 including
an impairment  of  intangible  assets of  $1,740,326.  The  relocation is due to
related parties and decrease in accounts  receivable.  These items are offset by
an increase in noncash compensation.

      The net cash used by operating  activities  of continuing  operations  for
2004 of $5,174,126  as compared to net cash provided by operating  activities of
continuing  operations of $105,888 in 2003 is mainly the result of the merger in
2003.

      Net cash  provided  by  investing  activities  for the year  2005  totaled
$2,758,132 as compared to net cash used in 2004 of $77,805. The increase in 2005
is  due  to  cash  acquired  from  the  sale  of the  certain  assets  of the NJ
operations.

      Net cash used in investing activities for the year 2004 totaled $77,805 as
compared to net cash provided from  investing  activities in 2003 of $3,175,321.
2003 was higher  due mainly to the cash  acquired  from the  acquisition  of the
BioBalance subsidiary.

      Net cash provided by financing  activities for the year ended December 31,
2005 was $4,197,396.  There was no net cash provided by financing activities for
the year ended  December 31, 2004.  The net cash  provided in 2005 came from the
private placement in February 2005.

      Net cash provided by financing  activities for the year ended December 31,
2003  totaled  approximately  $1,303,928.  The net cash  provided  by  financing
activities came from the merger with BioBalance in January 2003.

      As of December 31, 2005, approximately $7,237,000 (approximately 41.8%) of
the company's  total assets  consisted of accounts  receivable from customers as
compared to approximately $8,656,000 (approximately 52.4%) in 2004.

      Days Sales Outstanding  ("DSO") is a measure of the average number of days
to collect  its  account  receivables,  calculated  from the date  services  are
billed.  For the years ended December 31, 2005,  December 31, 2004 and 2003, the
DSO's were 71, 74 and 62, respectively.

      See Note 3 in the financial statements for information on the discontinued
operations.


                                       33


BioBalance Segment

      As of December 31, 2005,  BioBalance  has generated no revenues and has no
accounts  receivable.  The assets of BioBalance  consist  mainly of  intangibles
related to the patents it holds on its lead product PROBACTRIX.

      As of December 31, 2005,  BioBalance  had cash  available in the amount of
$799,000.  On February 24, 2005 the Company  consummated a private  placement of
equity securities generating gross proceeds of approximately $4,900,000. The net
funds for the offering were used  exclusively  by  BioBalance  primarily for the
development  of its  proposed  products,  to repay to the  Company a loan in the
amount of $1,717,969 and pay accrued expenses and accounts payable in the amount
of $782,995 BioBalance  estimates that its capital requirements for 2006 will be
approximately  $6,000,000,  which it plans to fund with  existing  cash from the
Company,  income from the healthcare  operations,  the proceeds from sale of the
healthcare  business  and/or  via  the  sale  of  equity,  debt  or  convertible
securities  of the  Company.  We believe  that our current  capital will sustain
BioBalance's operations for twelve months.

      BioBalance  has incurred  product  development  costs  excluding  non-cash
compensation  of $2,802,091  for the twelve months ended  December 31, 2005. The
majority of these costs were for  manufacturing  clinical  supplies,  conducting
clinical  studies to assess the safety and efficacy of PROBACTRIX  and the costs
for developing  information  to respond to the FDA's  questions in regard to the
Company's IND filing for PROBACTRIX.

      BioBalance is pursuing accelerated  regulatory approval of PROBACTRIX as a
prescription drug for and has received approval of its  Investigational New Drug
("IND")  application  with  the  U.S.  Food  and  Drug  Administration  ("FDA").
Pouchitis  is a  non-specific  inflammation  of the "pouch" or ileal  reservoir,
which usually occurs during the first two years after bowel  reconstruction  due
to ulcerative  colitis.  Symptoms of pouchitis include steadily increasing stool
frequency  that may be  accompanied by  incontinence,  bleeding,  fever and/or a
feeling of urgency.  There are currently no approved  treatments  for pouchitis.
BioBalance also will seek orphan drug designation for this  indication.  "Orphan
drug"  refers to a product  that  treats a rare  disease  affecting  less than a
specified  number of persons  (200,000 in the U.S.).  The orphan drug regulatory
strategy  provides a  significantly  shorter  approval  process  and less costly
clinical studies.  Additional  clinical studies can subsequently be conducted to
determine whether there is support for broader usage.  BioBalance  submitted the
IND to the FDA at year-end  2004.  On February 2, 2005,  we were notified by the
FDA that the IND was on  clinical  hold  and that  comments  would be sent to us
within 30 days.  Comments on the IND were received on March 4, 2005.  BioBalance
after  additional  work provided a response to the FDA on December 15, 2005. The
FDA responded to our submission on January13, 2006, and the Company has provided
its response to the FDA's  response on February 22, 2006.  The FDA then took the
IND off clinical hold on March 24, 2006, which will allow the Company to proceed
with its Phase II clinical trials.

Off-Balance Sheet Arrangements

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


                                       34


Lease Commitments

      As of December 31, 2005, the Company had total outstanding  commitments on
non-cancelable  operating  leases for office  space of  approximately  $677,000.
Remaining terms on the Company's  existing operating leases range from June 2005
through March 2010. All of the leases  relating to offices located in New Jersey
were assumed by the buyer Accredited Health Care.

Accounts Receivable

      Accounts  receivable  of our home  healthcare  business  consist  of trade
receivables  recorded at original invoice amounts,  less an estimated  allowance
for  uncollectible  accounts.  We generally  extend trade credit on a short-term
basis. Accordingly,  our trade receivables do not bear interest, although we may
apply a  finance  charge  to  receivables  that are past  due.  We  periodically
evaluate accounts  receivables for collectibility,  based on past credit history
of customers and the current financial condition of those customers.  Changes in
the estimated collectibility of accounts receivables are recorded in the results
of operations  for the fiscal period in which the estimate is revised.  Accounts
receivables  we judge to be  uncollectible  are offset against the allowance for
uncollectible  accounts.  Generally, we do not require account debtors to secure
the payment of accounts payable.

Goodwill and Other Intangible Assets

      Statement of Financial Accounting Standards No.142 requires that good will
and intangible assets having  indefinite lives not be amortized,  but instead be
tested for impairment at least annually.  Intangible  assets  determined to have
definite lives are amortized over their remaining useful lives.

Long-Lived Assets

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

Item 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The consolidated  financial  statements of the Company,  together with the
independent  Registered  Public  Accounting Firms' report thereon of Weiser LLP,
for the year ended  December  31,  2005,  2004 and 2003.  See Index to Financial
Statements.

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

      None.


                                       35


Item 9A.  CONTROLS AND PROCEDURES

      As required by Rule 13a-15(b)  under the  Securities  Exchange Act of 1934
(the "Exchange Act"), the Company's  management,  with the  participation of the
Company's Chief Executive  Officer ("CEO") and Chief Financial  Officer ("CFO"),
evaluated the effectiveness of the Company's  disclosure controls and procedures
as of the end of the period  covered  by this  report in  reaching a  reasonable
level of assurance that the information  required to be disclosed by the Company
in the reports  that it files with the  Securities  and Exchange  Commission  is
recorded, processed, summarized and reported within the time period specified in
the  Securities  and  Exchange  Commission's  rules and  forms.  Based upon that
evaluation, the CEO and CFO concluded that the Company's disclosure controls and
procedures were effective as of the end of the period covered by this report. As
required by Exchange Act Rule 13a-15(d), the Company's management, including the
Chief  Executive  Officer  and  Chief  Financial  Officer,   also  conducted  an
evaluation  of the  Company's  internal  control  over  financial  reporting  to
determine  whether any changes  occurred  during the fourth fiscal  quarter that
have materially  affected,  or are reasonably likely to materially  affect,  the
Company's internal control over financial reporting.

      Please  note that any  system  of  controls,  however  well  designed  and
operated,  can provide only  reasonable,  and not absolute,  assurance  that the
objectives  of the system  will be met. In  addition,  the design of any control
system is based in part upon certain  assumptions about the likelihood of future
events.

Item 9B.  OTHER INFORMATION:

Not applicable.

                                    PART III

Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

Dennis M. O'Donnell           50         Director, Chief Executive Officer,
                                         and President & CEO of BioBalance

James Forbes                  59         Chief Financial Officer

Murry Englard                 58         Director

Michael Nafash                45         Director

Stuart Ehrlich                47         Director


                                       36


      Dennis  O'Donnell  has been a director of the Company  since January 2004,
Chief Operating  Officer of the Company's  BioBalance  subsidiary since May 2003
and  President of  BioBalance  since  November 2003 and on February 24, 2005, he
became the Company's Chief  Executive  Officer.  Mr.  O'Donnell has more than 25
years of general management,  marketing and business  development  experience in
the pharmaceutical,  consumer healthcare and nutritional industries, principally
with Wyeth  (formerly  American Home Products)  from 1983 to 2002,  including as
manager of the Wyeth's Respiratory and GI/Topicals  Divisions from 1994 to 1996;
Senior Vice President of Global  Business  Development & Strategic  Planning for
Wyeth's OTC Drug Division from 1996 to 1998 (where he identified drugs,  devices
and medical foods for potential  acquisition);  and Executive Vice President and
General  Manager of Wyeth's Solgar  division,  a manufacturer of premium dietary
supplements,  probiotics and specialty nutritional products.  From February 2002
to April 2003, he was a consultant to the pharmaceutical and consumer healthcare
industries.  Mr. O'Donnell is a registered  pharmacist,  with a B.S. in Pharmacy
from St.  John's  University  and an MBA in  Marketing  & Finance  from New York
University's Stern School of Business.

Stuart  Ehrlich has been a director of the Company  since August 31,  2005.  Mr.
Ehrlich has been a consultant to various companies since November 2004 including
working  with AEG  (Anschultz  Entertainment  Group),  in helping them craft and
build a wireless  phone-based SMS messaging  platform and marketing strategy for
sports,  entertainment and Real Estate Properties. From May 2001 to October 2004
he was employed as the  Executive  Vice  President of Datawind  Technologies,  a
wireless Internet company based in Canada.  From May 1997 to October 2001 he was
a founding member of w-Technologies Inc., a software  application company.  From
February  1991  to May  1997 he  served  as  corporate  counsel  for The  Conway
Organization.   Mr.  Ehrlich  received  his  Juris  Doctor  degree  from  Boston
University Law School.

Murry  Englard has been a director of the Company  since  August 31,  2005.  Mr.
Englard has been a partner of the  accounting  firm Harlib,  Grossman & Englard,
CPA since January 1996. He was managing partner of Englard & Company,  CPA, P.C.
from  January  1992 until  December  1995 and a partner at Englard & Company CPA
from January 1985 until  December  1991. He was a Senior  Accountant at Lawrence
Heimowitz  &  Company,  CPA,  P.C.  from 1980  through  1984.  Mr.  Englard is a
certified public accountant.

Michael  Nafash has been a director of the Company  since August 31,  2005.  Mr.
Nafash has been the Chief  Financial  Officer of  Interactive  Marketing  Group,
Inc., a full service marketing company,  since February 2001. Since July 2003 he
has been a member of Antioch Equities,  LLC, a management  company that owns and
operates 10 Dunkin Donuts  locations in New York and New Jersey.  From September
1996 to May 2000 he was  Chief  Financial  Officer  at Mark  Solution,  Inc.,  a
company  specializing  in the  manufacture of modular steel prison cells and the
development and deployment of Picture Archiving and Communications systems. From
June  1991  to  April  1996  he  was  Chief   Financial   Officer  for  Puretech
International,  Inc.,  a  specialty  plastics  manufacturer.  Mr.  Nafash  is  a
Certified Public Accountant.

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


                                       37


Audit Committee

      The Board of Directors has a standing Audit Committee.  The members of the
Audit  Committee are Murry Englard and Michael  Nafash.  Murry Englard serves as
Chairman of the Audit Committee and as the Audit Committee financial expert. The
Board has  determined  that each member of the Audit  Committee,  including  the
Company's audit committee  expert,  is "independent," as that term is defined in
the applicable SEC rules and would also be  independent  under NASD  Marketplace
rules.

Section 16(a) Compliance Reporting

      Section  16(a) of the Exchange Act requires the  Company's  directors  and
executive officers and holders of more than 10% of the Company's common stock to
file  reports  with the SEC about  their  ownership  of  common  stock and other
securities  of the Company.  These  persons are required by SEC rules to furnish
the Company  with copies of all  Section  16(a) forms they file.  The Company is
required to identify anyone who filed a required report late during 2005.

      Based   solely  on  our   review  of  forms  we   received   and   written
representations  from reporting  persons  stating that they were not required to
file these forms,  the Company  believes,  that during 2005,  all Section  16(a)
filing requirements were satisfied on a timely basis.

Code of Ethics

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

Item 11.  EXECUTIVE COMPENSATION

      The following  table sets forth,  for the fiscal years ended  December 31,
2003,  2004 and 2005,  the cash  compensation  paid by the  Company,  as well as
certain  other  compensation  paid with  respect to those fiscal  years,  to the
Company's  Chief  Executive  Officer  and to each of the three other most highly
compensated  executive  officers of the Company and its  BioBalance  subsidiary,
whose total salary and bonuses for the fiscal year 2005,  in all  capacities  in
which  served,  was  $100,000  or  more  (collectively,   the  "Named  Executive
Officers"):




                                      ANNUAL
                                   COMPENSATION
                                ------------------
     NAME AND          YEAR     SALARY    BONUS      OTHER ANNUAL         SECURITIES
    PRINCIPAL                     ($)       ($)      COMPENSATION         UNDERLYING
     POSITION                                            ($)             OPTIONS/SARS      ALL OTHER COMPENSATION ($)
                    ------------------------------------------------------------------------------------------------

                                                                                     
 Dennis O'Donnell      2005     $225,000  $90,000     $22,270(1)        100,000 Shares                 $0
(5) President and      2004     $200,000  $66,667     $20,321(1)        150,000 Shares                 $0
 Chief Executive       2003     $126,923     $0       $12,198(1)        200,000 Shares                 $0
     Officer
- -------------------

James Forbes(2)        2005     $53,800      $0           $0                25,000                     $0
Chief Financial        2004        $0        $0           $0                  $0                       $0
Officer                2003        $0        $0           $0                  $0                       $0
- -------------------

Jerry Braun (3)        2005     $276,231  $250,000    $33,623(3)             -0-                  $1,318,000
President and          2004     $341,026  $276,325    $49,823(3)        200,000 Shares            $  634,789(5)
Chief Executive        2003     $333,872   $35,000    $44,085(3)        240,000 Shares            $  412,500(5)
Officer
- -------------------

 Jacob Rosenberg       2005     $211,751  $250,000    $33,623(4)             -0-                  $1,178,579
    (4) Chief          2004     $288,560  $271,340    $47,862(4)        200,000 Shares            $  535,737(5)
    Operating          2003     $257,557  $ 30,000    $46,447(4)        240,000 Shares            $  337,500(5)
   Officer and
 Chief Financial
- -------------------



                                       38


(1)      Dennis O'Donnell became President of BioBalance on November 26, 2003.
         On February 24, 2005, he became the Company's Chief Executive Officer.
         Includes $ 22,270, $20,321 and $12,198 of medical insurance premiums
         paid on behalf of such individual for the fiscal years 2005, 2004 and
         2003, respectively.

(2)      Mr. Forbes became Chief Financial Officer on June 6, 2005. Mr. Forbes
         has been on an unpaid leave of absence from the Company due to an
         illness since November 1, 2005.

(3)      Mr. Braun resigned his position as Chief Executive Officer on February
         24, 2005 and remained an officer of the healthcare division until his
         resignation from the Company on August 4, 2005. Includes $ 28,727,
         $35,518 and $31,081 of medical insurance premiums paid on behalf of
         such individual for the fiscal years 2005, 2004 and 2003, respectively,
         $4,896, $4,305 and $3,004 for automobile and automobile-related costs,
         including insurance, incurred on behalf of such individual,
         respectively, for the fiscal years 2005, 2004 and 2003 and $10,000 in
         expense allowance for the fiscal years ended 2005, 2004 and 2003.
         Includes a severance payment in 2005 in the amount of $ 1,200,000 and
         $118,000 in legal fees related to indemnification granted by the board
         in 2005.

(4)      Mr. Rosenberg resigned his position as Chief Executive Officer on
         February 24, 2005 and remained an officer of the healthcare division
         until his resignation from the Company on August 4, 2005. Includes
         $28,727, $35,518 and $31,081 of medical insurance premiums paid on
         behalf of such individual for the fiscal years 2005, 2004 and 2003,
         respectively, $4,896, $2,344 and $5,366 for automobile and
         automobile-related costs, including insurance, incurred on behalf of
         such individual, respectively, for each of the fiscal years 2005, 2004
         and 2003 and $10,000 in expense allowance for the fiscal years ended
         2004 and 2003. Includes a severance payment in 2005 in the amount of $
         1,050,000 and a payment. (5) Change in control payment. This change in
         control took place with the merging of the Company and BioBalance on
         January 2, 2003.and $121,529 in legal fees related to indemnification
         granted by the board in 2005.

Option/SAR Grants in 2005

The following table provides certain information with respect to stock options
granted to the Named Executive Officers in 2005.




                                      Individual Grants
- ------------------------------------------------------------------------------------------------------
                                Number of          % of Total
                                Securities        Options/SARs
                                Underlying         Granted to
                               Options/SARs       Employees in     Exercise Price                          Grant Date Present
         Name                    Granted         Fiscal Year (1)   Per Share ($/sh)    Expiration Date          Value (2)
- -----------------------------------------------------------------------------------------------------------------------------
                                                                                                 
Dennis O'Donnell                 100,000              8.2%                0.50             5/5/2015              $54,300
James Forbes                      25,000              2.0%                0.84             6/5/2015              $14,138
Jerry Braun (3)                  500,000             40.8%                2.13            2/23/2015             $248,940
Jacob Rosenberg (3)              500,000             40.8%                2.13            2/23/2015             $248,940


(1)   Based on the total  number of options  granted to employees of the Company
      in 2005, including the Named Officers.

(2)   Estimated  fair  value of each  option  grant  on the  date of  grant  was
      determined by use of the Black-Scholes option pricing model.

(3)   In accordance  with the Termination  Agreement  Messrs Braun and Rosenberg
      were  terminated on August 4, 2005, and these options were returned to the
      Company on that date.

Stock Option Exercises and Year End Values

The following table sets forth, for the Named Executive Officers,  the number of
shares  covered  by stock  options as of  December  31,  2005,  and the value of
"in-the-money"  stock options,  which represents the positive spread between the
exercise  price of a stock option and the market price of the shares  subject to
such  option on  December  31,  2005.  No options  were  exercised  by the Named
Officers in 2005.




                                            Number of Securities
                                            Underlying Unexercised           Value of Unexercised In-
                    Shares                  Options/SARs at                  the-Money Options/SARs at
                   Acquired       Value     Fiscal Year-End                      Fiscal Year-End
      Name        on Exercise   Realized    Exercisable/Unexercisable        Exercisable/Unexercisable
- -------------------------------------------------------------------------------------------------------
                                                                          
Dennis O'Donnell   458,064                            458,064                      $     63,750

James Forbes        25,000                             25,000                      $         --



                                       40


      Compensation of Directors

      Directors who are employees of the Company or its BioBalance subsidiary do
not receive any additional  compensation  for their services as directors.  Each
non-employee  director  of the  Company is paid a fee of $1,000  per month.  The
Company also  reimburses  each  director  $700 for  attendance  at all committee
meetings and for all expenses of attending board and committee meetings.

      No additional compensation of any nature is paid to employee directors.

      The Company also issues  common stock  purchase  warrants to  non-employee
directors from time to time in recognition of their services.

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

      The Company entered into amended employment agreements with Messrs. Dennis
O'Donnell and James Forbes for  employment  terms that expire on May 5, 2006 and
December 31, 2006 respectively.

      Mr.  O'Donnell has a three-year  employment  agreement  expiring on May 5,
2006. Mr. O'Donnell received a ten-year option to purchase 200,000 shares of the
Company's  common  stock under the  Company's  existing  stock option plan at an
exercise  price of $2.48.  Mr.  O'Donnell is entitled to bonus payments upon the
satisfaction  of specified  financial  performance  criteria,  certain  lump-sum
payments upon the occurrence of certain change of control events,  and insurance
and other benefits.  In September 2004, Mr.  O'Donnell  received 50,000 ten-year
options under his employment agreement and an additional 50,000 ten-year options
as a bonus,  with an exercise price of $0.50. In 2004, Mr. O'Donnell was awarded
a bonus of $66,667 in accordance with the term in his contract.  This amount was
accrued on the books at December 31, 2004.  On May 5, 2005,  Mr.  O'Donnell  was
awarded  100,000  options at an exercise price of $0.80 and paid a cash bonus in
the amount of $90,000 in accordance with the terms of his employment contract.

      Mr. Forbes is party to a one year employment  agreement for the year 2006.
Under the agreement Mr. Forbes is to be the Company's  Chief  Financial  officer
and is paid on an hourly basis for the hours worked. The hourly rate for 2006 is
set at $1500  per day of at the rate of $200 per hour for any time  less  than a
full day. Mr.  Forbes is currently on a leave of absence from the Company due to
an illness.

Savings and Equity Compensation Plans

401(k) Plan

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


                                       41


Equity Compensation Plans

      The following table  summarizes with respect to options and warrants under
the Company's equity compensation plans at December 31, 2005:




                            Number of
                        securities to be                            Number of securities
                           issued upon       Weighted-average     remaining available for
                           exercise of       exercise price of     future issuance under
                           outstanding          outstanding      equity compensation plans
                       options, warrants     options, warrants     (excluding securities
    Plan category          and rights           and rights        reflected in column (a))
    -------------          ----------           ----------        -----------------------
                                                                
Equity compensation
plans approved by
security holders(1)         2,179,795              $0.98                 6,931,167

Equity compensation
plans not approved
by security
holders(2)                  5,726,993              $0.78                     --
        Total               7,906,778


(1)   Represents  shares of the Company's common stock issuable  pursuant to the
      Company's  Performance  Incentive Plan, as amended (the "Option Plan") and
      the Company's 2004 Incentive Plan (the "2004 Plan").  The Company's  board
      of  directors  and  stockholders  approved  and adopted the Option Plan in
      March 1996 and approved the Company's  2004  Incentive  Plan on August 31,
      2005. The Company's  stockholders  approved  amendments to the Option Plan
      (previously  adopted by the board of  directors) in 1998,  1999,  2000 and
      2002.  Under the terms of the  amended  Option  Plan,  as  amended,  up to
      4,712,500  shares of common stock may be granted at December 31, 2005. The
      Company's  board of directors  and  stockholders  approved and adopted the
      2004  Incentive  Option  Plan.  The  Option  Plan is  administered  by the
      standing  compensation   committee  (the  "Committee")  of  the  board  of
      directors (the "Committee"),  which is authorized to grant incentive stock
      options  and  non-qualified  stock  options to selected  employees  of the
      Company and to  determine  the  participants,  the number of options to be
      granted and other terms and  provisions  of each  option.  Options  become
      exercisable  in whole or in part  from time to time as  determined  by the
      Committee,  but in no event may a stock option be exercisable prior to the
      expiration  of six months from the date of grant,  unless the grantee dies
      or becomes  disabled prior to the end of the period.  Stock options have a
      maximum  term of 10 years from the date of grant,  except that the maximum
      term of an incentive stock options granted to an employee who, at the date
      of grant, is a holder of more than 10% of the outstanding  common stock (a
      "10%  holder")  may not exceed five years from the date of the grant.  The
      exercise price of an incentive stock option or nonqualified option granted
      under the Option Plan may not be less than 100% of the fair  market  value
      per  share  of the  common  stock at the date of  grant,  except  that the
      exercise price of an incentive  stock options  granted to a 10% holder may
      not be less than 110% of the fair  market  value.  The  exercise  price of
      options  must be paid in full on the date of  exercise  and is  payable in
      cash or in  shares  of  Common  Stock  having a fair  market  value on the
      exercise date.


                                       42


(2)   Includes  80,834 shares of common stock issuable upon exercise of warrants
      granted to non-employee directors at exercise prices not less than 100% of
      the fair  market  value per share of the  common  stock at the  respective
      dates of grant and generally  expiring  three to 10 years from the date of
      grant and  321,452  shares of  common  stock  issuable  upon  exercise  of
      non-plan  options  and  warrants  issued by the  Company in  exchange  for
      non-plan  options and warrants issued by BioBalance in connection with the
      Company's acquisition of BioBalance.

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

      The following table sets forth certain information regarding shares of the
Common Stock  beneficially  owned as of February  28, 2006,  by (i) each person,
known  to the  Company,  who  beneficially  owns  more  than  5% of  the  Common
Stock,(ii) each Named Executive Officer,  (iii) each of the Company's  directors
and (iv) all officers and directors as a group:

                                                Shares           Percentage
      Name and Address of                       Beneficially     of Stock
      Beneficial Owner (1)                      Owned(l)         Outstanding(l)
      ----------------                          --------         --------------

      Dennis O'Donnell (2)                        527,368              1.56%

      James Forbes (3)                             25,000                 *

      Murry Englard (4)                           578,725              1.76%

      Michael Nafash  (5)                         157,750                 *

      Stuart Erhlich  (6)                                                 *

      Pinchas Stefansky (7)                     2,024,000              6.09%
      Hershey Holdings
      Leon House
      Secretary's Lane
      P.O. Box 450, Gibraltar

      Douglas Andrew Ryan (8)                   1,800,000              5.42%
      Birizma Associates
      c/o Tallhurst Ltd.
      P.O. Box 795, Gibraltar

      Bernard Korolnick (9)                     1,729,208              5.20%
      KPT Partners
      c/o Alton Management
      Splelhof 14A, Postach 536
      8750 Glarus, Switzerland

      Rivvi Rose (10)                           1,950,000              5.87%
      Nekavim Investors
      1/1 Library Run
      P.O. Box 317, Gibraltar

      All executive officers and directors      1,511,423              4.35%
      as a group
      -----------------------
      * Less than one percent (1%).


                                       43


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

(2)   Includes a total of 450,000  shares  issuable  upon the  exercise of stock
      options  granted to Mr.  O'Donnell and also 8,064 shares issuable upon the
      exercise of warrants.

(3)   Includes a total of 25,000  shares  issuable  upon the  exercise  of stock
      options granted to Mr. Forbes.

(4)   Includes a total of 50,000  shares  issuable  upon the  exercise  of stock
      options  granted to Mr. Englard and also shares issuable upon the exercise
      of warrants.

(5)   Includes a total of 40,000  shares  issuable  upon the  exercise  of stock
      options granted to Mr. Nafash.

(6)   Includes a total of 40,000  shares  issuable  upon the  exercise  of stock
      options granted to Mr. Ehrlich.

(7)   All shares are owned of record by Hershey Holdings, of which Mr. Stefansky
      holds sole voting and investment power.

(8)   All shares are owned of record by Birizma  Associates,  of which Mr.  Ryan
      holds sole voting and investment power.

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

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


                                       44


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

      The following table presents fees for professional audit services rendered
by Weiser LLP for the audit of the Company's annual financial statements for the
years ended December 31, 2005, 2004 and 2003:

                                    Fiscal 2005    Fiscal 2004     Fiscal 2003
                                    -----------    -----------     -----------

                Audit Fees(1)         451,485        442,757        $ 165,000
        Audit-Related Fees(2)          91,967        105,139           95,000
         Tax  Service Fees(3)          49,579         58,377           35,000
            All Other Fees(4)              --             --               --

(1)  Audit Fees consist of fees billed for professional services rendered for
     the audit of the Company's consolidated annual financial statements and
     review of the interim consolidated financial statements included in
     quarterly reports and services that are normally provided by Weiser LLP in
     connection with statutory and regulatory filings or engagements.

(2)  Audit-Related Fees consist of fees billed for assurance and related
     services that are reasonably related to the performance of the audit or
     review of the Company's consolidated financial statements and are not
     reported under "Audit Fees."

(3)  Tax Fees consist of fees billed for professional services rendered for tax
     compliance, tax advisory and tax planning. These services include
     assistance regarding federal, state and local tax compliance and tax
     planning.

(4)  No other fees for professional services rendered to the Company during the
     fiscal 2005, 2004 and 2003 were billed by Weiser LLP, other than the
     services reported above.

      Policy on Audit Committee  Pre-Approval of Audit and Permissible Non-Audit
Services  of  Independent  Auditor.  The Audit  Committee  has not yet adopted a
formal pre-approval policy for audit and non-audit services. The Audit Committee
pre-approves all audit, audit-related, tax and other services provided by Weiser
LLP prior to the  engagement  of Weiser LLP to provide  to these  services.  The
Chairman  of the  Audit  Committee  has been  delegated  authority  by the Audit
Committee  to  pre-approve  the  engagement  of Weiser LLP when the entire Audit
Committee is unable to do so. The Chairman must report all such pre-approvals to
the entire Audit Committee at the next committee meeting.


                                       45


                                     PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   The following documents are filed as a part of this report:

(1)   Consolidated  Financial  Statements:  See Index to Financial Statements on
      page F-1 of this report for financial  statements and  supplementary  data
      filed as part of this report.

(2)   Financial  Statement  Schedules
           Schedule  II - Valuation  and  Qualifying Accounts for each of the
           years ended December 31, 2005, 2004 and 2003.

(3)   Exhibits:
           The exhibits listed in the  accompanying  Index to Exhibits are
           filed or incorporated by reference as part of this report.


                                       46


                           NEW YORK HEALTH CARE, INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                               FOR THE YEARS ENDED
                        DECEMBER 31, 2005, 2004 AND 2003

NEW YORK HEALTH CARE, INC.:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                         F-2

CONSOLIDATED FINANCIAL STATEMENTS:

CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2005 AND 2004                    F-3

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003                                             F-4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR
THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003                             F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2005, 2004 AND 2003                                             F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            F-7 - F-34

FINANCIAL STATEMENT SCHEDULE:

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS                             F-35


                                      F-1


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
New York Health Care, Inc.

We have audited the accompanying  consolidated balance sheets of New York Health
Care, Inc. And Subsidiaries (the "Company") as of December 31, 2005 and 2004,and
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended  December 31,  2005,  2004 and 2003.  These  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 audits.

We conducted our audits in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  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
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.


In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the consolidated  financial  position of New
York Health Care, Inc. and Subsidiaries as of December 31, 2005 and 2004 and the
consolidated results of their operations and their cash flows for the years then
ended  December 31,  2005,  2004 and 2003,  in  conformity  with U.S.  generally
accepted accounting principles.

We have also audited the consolidated  financial  statement  Schedule II for the
years ended December 31, 2005 and 2004. In our opinion,  this schedule  presents
fairly,  in all  material  respects,  the  information  required to be set forth
therein.

As more fully  discussed in Note 1, on March 6, 2006, the Company entered into a
settlement  agreement  with a former  consultant to the Company and on March 24,
2006, a derivative  complaint was filed that alleges that the directors breached
their  fiduciary  duty by  approving  the  settlement  agreement  to the  former
consultant.

As more fully  discussed in Note 1, the Company is in the process of negotiating
the sale of a  significant  segment.  If the  contract for this  transaction  is
signed, it must be approved by the shareholders' prior to consummation.



/s/ Weiser LLP
Weiser LLP

April 17, 2006
New York, NY



                   NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



                                                                                            December 31,        December 31,
                                                                                                2005                2004
                                                                                            ------------        ------------
                                         ASSETS

                                                                                                          
Current assets:
  Cash and cash equivalents                                                                 $  5,522,088        $  2,186,756
  Due from lending institution                                                                   198,941             566,523
  Accounts receivable, net of allowance for uncollectible amounts of
   $465,000 and $460,000, respectively                                                         7,237,062           8,656,311
  Unbilled services                                                                              122,110              65,627
  Prepaid expenses and other current assets                                                      388,463             466,625
  Current assets of discontinued operations held for sale                                             --             226,970
                                                                                            ------------        ------------
           Total current assets                                                               13,468,664          12,168,812
Property and equipment, net                                                                      150,052              82,083
Goodwill, net                                                                                    783,000             783,000
Other intangible assets, net                                                                   2,830,149           3,391,835
Other assets                                                                                      57,212              77,465
                                                                                            ------------        ------------
           Total assets                                                                     $ 17,289,077        $ 16,503,195
                                                                                            ============        ============

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
   Accrued payroll                                                                          $    713,194        $  1,328,127
   Accounts payable and accrued expenses                                                       8,732,318           7,326,115
   Due to HRA                                                                                  6,159,912           5,264,695
                                                                                            ------------        ------------
             Total current liabilities                                                        15,605,424          13,918,937
                                                                                            ------------        ------------
Commitment and contingencies

Shareholders' equity:
   Preferred stock, $.01 par value, 5,000,000 shares authorized;
     Class A Preferred, 590,375 shares authorized, issued and
     outstanding at December 31, 2004; -0- issued and outstanding
     at December 31, 2005                                                                             --               5,904
   Common stock, $.01 par value, 100,000,000 shares authorized;
     33,236,767 shares issued and 33,232,722 outstanding as of December 31, 2005;                332,368             249,438
     24,943,821 shares issued and 24,939,776 outstanding as of December 31, 2004
   Additional paid-in capital                                                                 36,667,281          32,313,470
   Common stock and options to be issued                                                         990,220                  --
   Accumulated deficit                                                                       (36,296,743)        (29,975,081)
   Less: Treasury stock (4,045 common shares at cost)                                             (9,473)             (9,473)
                                                                                            ------------        ------------
             Total shareholders' equity                                                        1,683,653           2,584,258
                                                                                            ------------        ------------
             Total liabilities and shareholders' equity                                     $ 17,289,077        $ 16,503,195
                                                                                            ============        ============



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


                                      F-3


                   NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS




                                                              Year Ended            Year Ended             Year Ended
                                                             December 31,          December 31,          December 31,
                                                                 2005                  2004                  2003
                                                             ------------          ------------          ------------
                                                                                                
Net patient service revenue                                  $ 44,722,823          $ 42,286,444          $ 38,569,627
                                                             ------------          ------------          ------------
Expenses:
    Professional care of patients                              37,080,286            34,780,969            31,863,544
                                                             ------------          ------------          ------------
    General and administrative
     (excluding noncash compensation)                          11,932,254            10,022,429             7,834,514
    Noncash compensation                                        1,080,220                 4,127             1,307,119
                                                             ------------          ------------          ------------
          Total general and
          administrative expenses                              13,012,474            10,026,556             9,141,633
                                                             ------------          ------------          ------------
    Product development
     (excluding noncash compensation)                           2,658,650             1,426,423               956,262
    Noncash compensation                                          143,441              (369,949)              284,340
                                                             ------------          ------------          ------------
         Total product development                              2,802,091             1,056,474             1,240,602
                                                             ------------          ------------          ------------
    Goodwill impairment                                                --                    --            17,869,339
    Impairment of intangible assets                                    --             1,740,326                    --
    Bad debts expense                                             267,059                90,400                50,250
    Depreciation and amortization                                 652,152               819,887               547,671
                                                             ------------          ------------          ------------
       Total operating expenses                                53,814,062            48,514,612            60,713,039
                                                             ------------          ------------          ------------
Operating loss from continuing operations                      (9,091,239)           (6,228,168)          (22,143,412)
                                                             ------------          ------------          ------------
Non-operating income:
   Interest income                                                 89,108                69,877                51,255
   Interest expense                                               (24,135)              (29,538)               (2,173)
                                                             ------------          ------------          ------------
Non-operating income, net                                          64,973                40,339                49,082
                                                             ------------          ------------          ------------
Loss from continuing operations before
 provision for income taxes                                    (9,026,266)           (6,187,829)          (22,094,330)
 Provision for income taxes:
   Current                                                         78,628               (67,176)               26,145
                                                             ------------          ------------          ------------
Loss from continuing operations                                (9,104,894)           (6,120,653)          (22,120,475)
                                                             ------------          ------------          ------------
Discontinued operations:
   Income from operations of discontinued
   component (including gain on sale of assets
   of $2,703,718 in 2005)                                       2,785,885                53,018                81,160
Income tax expense (benefit)                                        2,653                 4,050                12,855
                                                             ------------          ------------          ------------
   Income from discontinued operations                          2,783,232                48,968                68,305
                                                             ------------          ------------          ------------
Net loss                                                     $ (6,321,662)         $ (6,071,685)         $(22,052,170)
                                                             ============          ============          ============
Basic and diluted loss per share:
   Loss from continuing operations                           $      (0.29)         $      (0.24)         $      (0.91)
   Income from discontinued operations                       $       0.09          $       0.00          $       0.00
                                                             ------------          ------------          ------------
   Net loss                                                  $      (0.20)         $      (0.24)         $      (0.91)
                                                             ============          ============          ============
Weighted and diluted average shares outstanding                31,895,833            24,939,776            24,283,907
                                                             ============          ============          ============



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


                                      F-4




                   NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003





                                                                Common
                                                                stock
                                                                and
                                                                options
                                        Common Stock            to be              Preferred Stock
                                   Shares         Amount        issued          Shares         Amount
                                 ----------   ------------   ------------      ---------    ------------
                                                                             
Balance at January 1, 2003       21,116,494   $    211,165   $         --             --    $         --

Common Stock issued for
cash, net                           327,327          3,273             --             --              --

Reverse acquisition on
January 2, 2003                   2,500,000         25,000             --        590,375           5,904

Revaluation of
options/warrants as part of
reverse acquisition                      --             --             --             --              --

Common stock issued for
purchase of intangible
assets on August 20, 2003         1,000,000         10,000             --             --              --

Issuance of treasury stock
(during September 2003)
pursuant to the exercise of
options at an average
exercise price of $0.86                  --             --             --             --              --

Issuance of treasury stock
(during October 2003)
pursuant to the exercise of
options at an average
exercise price of $1.50                  --             --             --             --              --

Warrants earned for service              --             --             --             --              --

Net loss                                 --             --             --             --              --
                               ------------   ------------   ------------   ------------    ------------
Balance at December 31, 2003     24,943,821        249,438                       590,375           5,904

Warrants earned for service              --             --             --             --              --

Reduction of compensation
expense due to
revaluation of
options/warrants                         --             --             --             --              --

Net loss                                 --             --             --             --              --
                               ------------   ------------   ------------   ------------    ------------
Balance at December 31, 2004     24,943,821        249,438             --        590,375           5,904

Proceeds from issuance of
common stock and warrants
on  February 24, 2005             7,899,362         78,994             --             --              --

Increase in compensation
expense due
to a revaluation of
options/warrants                         --             --             --             --              --

Options earned for service               --             --             --             --              --

Compensation expense in
connection with the
issuance of "in the money"
options                                  --             --             --             --              --

Common stock and options to
be issued in accordance
with settlement agreements               --             --        990,220             --              --

Conversion of Preferred
stock to 2/3 share of
Common Stock for each
share of Preferred Stock            393,584          3,936             --       (590,375)         (5,904)

Net loss                                 --             --             --             --              --
                               ------------   ------------   ------------   ------------    ------------
Balance at December 31, 2005     33,236,767   $    332,368   $    990,220             --    $         --
                               ============   ============   ============   ============    ============


                                 Additional                                                       Total
                                  Paid-In             Treasury Stock            Accumulated    Shareholders'
                                  Capital         Shares          Amount          Deficit         Equity
                               ------------    ------------    ------------    ------------    ------------
                                                                                
Balance at January 1, 2003     $  6,550,328              --    $         --    $ (1,851,226)   $  4,910,267

Common Stock issued for
cash, net                         1,010,535              --                                       1,013,808

Reverse acquisition on
January 2, 2003                  19,940,579          24,846         (31,483)             --      19,940,000

Revaluation of
options/warrants as part of
reverse acquisition                 721,100              --              --              --         721,100

Common stock issued for
purchase of intangible
assets on August 20, 2003         3,590,000              --              --              --       3,600,000

Issuance of treasury stock
(during September 2003)
pursuant to the exercise of
options at an average
exercise price of $0.86              (3,969)        (20,001)         21,170              --          17,201

Issuance of treasury stock
(during October 2003)
pursuant to the exercise of
options at an average
exercise price of $1.50                 360            (800)            840              --           1,200

Warrants earned for service         870,359              --              --              --         870,359

Net loss                                 --              --                     (22,052,170)    (22,052,170)
                               ------------    ------------    ------------    ------------    ------------
Balance at December 31, 2003     32,679,292           4,045          (9,473)    (23,903,396)      9,021,765

Warrants earned for service          15,743              --              --              --          15,743

Reduction of compensation
expense due to
revaluation of
options/warrants                   (381,565)             --              --              --        (381,565)

Net loss                                 --              --                      (6,071,685)     (6,071,685)
                               ------------    ------------    ------------    ------------    ------------
Balance at December 31, 2004     32,313,470           4,045          (9,473)    (29,975,081)      2,584,258

Proceeds from issuance of
common stock and warrants
on  February 24, 2005             4,118,402              --              --              --       4,197,396

Increase in compensation
expense due
to a revaluation of
options/warrants                      8,710              --              --              --           8,710

Options earned for service          134,731              --              --              --         134,731

Compensation expense in
connection with the
issuance of "in the money"
options                              90,000              --              --              --          90,000

Common stock and options to
be issued in accordance
with settlement agreements               --              --              --              --         990,220

Conversion of Preferred
stock to 2/3 share of
Common Stock for each
share of Preferred Stock              1,968              --              --              --              --

Net loss                                 --              --              --      (6,321,662)     (6,321,662)
                               ------------    ------------    ------------    ------------    ------------
Balance at December 31, 2005   $ 36,667,281           4,045    $     (9,473)   $(36,296,743)   $  1,683,653
                               ============    ============    ============    ============    ============




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


                                      F-5


                   NEW YORK HEALTH CARE, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS




                                                                            Year Ended      Year Ended     Year Ended
                                                                           December 31,    December 31,    December 31,
                                                                               2005            2004            2003
                                                                           ------------    ------------    ------------
                                                                                                  
Cash flows from operating activities:
   Net loss                                                                $ (6,321,662)   $ (6,071,685)   $(22,052,170)
   Adjustments to reconcile net loss to net cash
      (used in) provided by operations (excluding the effect of disposition):
       Impairment of intangible assets                                               --       1,740,326              --
      Goodwill impairment                                                            --              --      17,869,339
      Net gain from discontinued operations, net of taxes                    (2,783,232)        (48,968)        (68,305)
      Noncash compensation                                                    1,223,661        (365,822)      1,591,459
      Depreciation and amortization                                             652,152         819,887         547,671
      Bad debts expense                                                         267,059          90,400          50,250
      Changes in operating assets and liabilities, net of effects of
        disposition:
      (Increase) decrease in accounts receivable and unbilled services        1,095,707      (2,134,953)     (1,352,003)
      Decrease (increase) in due from lending institution                       367,582        (357,802)        (55,896)
      Decrease (increase) in prepaid expenses and other current assets           78,162        (147,430)        (98,231)
      Decrease (increase) in other assets                                        20,253          (9,813)          8,927
      Decrease in accrued payroll                                              (614,933)       (457,917)        588,269
      Increase in accounts payable and accrued expenses                       1,406,203       1,476,383       1,977,474
      Decrease in due to HRA                                                    895,217       1,508,188       1,824,710
      Decrease in due to related parties                                                     (1,190,526)       (750,000)
      (Decrease) increase  in taxes payable                                          --         (24,394)         24,394
                                                                           ------------    ------------    ------------
          Net cash (used in) provided by  operating activities of
           continuing operations                                             (3,713,831)     (5,174,126)        105,888
          Net cash provided by operating activities of
           discontinued operations                                               93,635         100,791         127,381
                                                                           ------------    ------------    ------------
    Total cash (used in) provided by operating activities                    (3,620,196)     (5,073,335)        233,269
                                                                           ------------    ------------    ------------
Cash flows from investing activities:
   Net cash acquired from purchase of subsidiary                                     --              --       3,548,658
   Acquisition of property and equipment                                       (117,971)         (8,495)        (50,724)
   Acquisition of intangible assets                                             (40,464)        (69,310)       (422,613)
   Net proceeds from the sale of discontinued operations                      2,916,567              --              --
   Decrease in restricted cash                                                       --              --         100,000
                                                                           ------------    ------------    ------------
         Net cash provided by  (used in)  investing activities                2,758,132         (77,805)      3,175,321
                                                                           ------------    ------------    ------------
Cash flows from financing activities:
   Exercise of options                                                               --              --          18,401
   Net proceeds from issuance of common stock and warrants                    4,197,396              --       1,013,808
   Decrease in subscription receivable                                               --              --         290,000
   Net cash used in financing activities of discontinued operations                  --              --         (18,281)
                                                                           ------------    ------------    ------------
Net cash provided  by financing activities                                    4,197,396              --       1,303,928
                                                                           ------------    ------------    ------------
Net increase (decrease) in cash and cash equivalents                          3,335,332      (5,151,140)      4,712,518
Cash and cash equivalents at beginning of year                                2,186,756       7,337,896       2,625,378
                                                                           ------------    ------------    ------------
Cash and cash equivalents at end of year                                   $  5,522,088    $  2,186,756    $  7,337,896
                                                                           ============    ============    ============




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


                                      F-6


NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Organization and Basis of Consolidation:

New York Health Care, Inc. ("New York Health Care") was organized under the laws
of the State of New York in 1983.  New York  Health  Care  provides  services of
registered nurses and  paraprofessionals to patients throughout New York and New
Jersey. The BioBalance Corp ("BioBalance") a Delaware Corporation, was formed in
May 2001.  BioBalance  is a  specialty  pharmaceutical  company  focused  on the
development of proprietary  biotherapeutic  agents for various  gastrointestinal
diseases that are poorly addressed by current therapies.  BioBalance is pursuing
accelerated prescription drug development of its lead product, PROBACTRIX(TM) by
filing an investigational new drug ("IND") application for the prevention and/or
treatment of pouchitis.  On March 24, 2006, the Company  received  approval from
the FDA to start Phase II/I  clinical  trials.  There can be no  assurance  that
BioBalance will be successful in marketing any such products.  The  consolidated
entity,  collectively referred to, unless the context otherwise requires, as the
"Company",  "we", "our" or similar  pronouns,  includes New York Health Care and
its  wholly-owned  subsidiaries,  BioBalance  and NYHC Newco Paxxon,  Inc. D/B/A
Helping Hands Healthcare ("Helping Hands").  All financial  information prior to
the sale of the Company's home healthcare  operations in the State of New Jersey
("NJ  Business")  has  been  restated  in order  to  present  the sale of the NJ
Business as a discontinued operation. All significant inter-company balances and
transactions have been eliminated.

Company Developments:

On February 24, 2005, the Company  consummated a private  offering of its equity
securities (the "Offering"). In connection with the consummation of the Offering
(see Note 2), at the close of business on February 24,  2005,  at the request of
the placement  agent for the Offering  (the  "Placement  Agent"),  (i) Mr. Jerry
Braun resigned as a director and as the Company's  Chief  Executive  Officer and
President  and  (ii) Mr.  Jacob  Rosenberg  resigned  as a  director  and as the
Company's Vice President,  Chief  Operating  Officer,  Chief Financial  Officer,
Chief Accounting Officer and Secretary. In connection with Braun and Rosenberg's
agreement  with the  Placement  Agent to resign as officers and directors of the
Company, in order to secure the obligations of the Company to (i) consummate the
sale of all the assets relating to the Company's home  healthcare  business (the
"Asset  Sale") to New York Health  Care,  LLC, a company  controlled  by Messrs.
Braun and Rosenberg (the "LLC"), pursuant to the terms of the Purchase Agreement
signed July 15, 2004 among the  Company,  Helping  Hands and the LLC  ("Purchase
Agreement") or (ii) to comply with any future payment obligations of the Company
to Braun and Rosenberg  under their  respective  employment  agreements with the
Company (the  "Employment  Agreements"),  the Company  entered into an agreement
(the "Security  Agreement"),  on February 24, 2005, which granted Messrs.  Braun
and Rosenberg a security interest in the assets of the Company's home healthcare
business  being  conducted in the states of New York and New Jersey and provided
for  the  deposit  of  up  to  $3.55  million  in  a  cash  collateral   account
(collectively, the "Collateral").  Under terms of the Security Agreement none of
BioBalance's funds would be used as Collateral.


                                      F-7


Pursuant to the terms of their respective  Employment Agreements and as a result
of their  resignations  from the Company's  Board of Directors,  on February 24,
2005, each of Braun and Rosenberg received ten year stock options ("Options") to
purchase  500,000 shares of the Company's common stock $0.01 par value per share
("Common  Stock")  at an  exercise  price of $0.85 per  share,  pursuant  to the
Company's Performance Incentive Plan.

On March 23,  2005,  the  security  interest  that was  granted  pursuant to the
Security  Agreement was terminated and Messrs.  Braun and Rosenberg  agreed that
the Company could enter into an agreement with a third party for the sale of the
NJ Business under specified  conditions  without being in breach of the Purchase
Agreement.


On April 11, 2005,  the Company  entered into an agreement to sell the assets of
the NJ Business to Accredited Health Services,  Inc.  ("Accredited  Health"),  a
subsidiary of National Home Health Care Corp.,  for  $3,000,000.  In addition to
Messrs. Braun and Rosenberg, the LLC also consented to the sale of the assets of
the NJ Business to Accredited  Health and agreed that such sale would not result
in a breach of the  Purchase  Agreement.  Funding of the  purchase  price in the
amount of  $3,000,000  was made on April 11,  2005 and a formal  closing for the
sale,  which was subject only to an orderly  transition  of the assets of the NJ
Business  to  Accredited  Health,  occurred on May 22,  2005.  An  aggregate  of
$150,000 of the purchase price was placed in escrow to cover actual  losses,  if
any,  incurred  by  Accredited  Health  for which the  Company  is  required  to
indemnify  Accredited  Health  pursuant  to  the  agreement.  If  no  claims  by
Accredited  Health for  indemnification  by the Company were made,  the escrowed
funds would be  released to the Company 90 days after the formal  closing of the
transaction  which was on or about August 21, 2005.  The funds were  released to
New York Health Care on August 22, 2005 in accordance with the  agreements.  See
note 3 for information on the discontinued operations.


In June 2005,  the  holders of all of the  outstanding  shares of the  Company's
preferred  stock  elected to convert their  preferred  stock to shares of common
stock in accordance with the provisions of the preferred  stock.  The holders of
the  preferred  stock  received a total of 393,584  shares of common  stock upon
conversion.

Messrs.  Braun and  Rosenberg  have  executed  an  agreement  (the  "Termination
Agreement") with the Company, which became effective on August 4, 2005, pursuant
to which,  among other things,  Messrs.  Rosenberg and Braun resigned from their
employment  with  the  Company  and any of its  subsidiaries,  and the  Purchase
Agreement,  their Employment  Agreements  (except for sections of the Employment
Agreements regarding certain non-disclosure  provisions and their agreements not
to compete  with the  Company,  which  survive as  modified  by the  Termination
Agreement)  and  the  Security   Agreement  have  been  terminated.   Under  the
Termination Agreement, (i) Mr. Braun received a cash payment of $1,200,000, (ii)
Mr. Rosenberg received a cash payment of $1,050,000,  (iii) the Company will pay
for health benefits for Messrs.  Braun and Rosenberg  through December 31, 2005,
and (iv) each of Mr.  Braun and Mr.  Rosenberg  will  receive up to a maximum of
$5,000 to pay for his  accrued but unpaid  compensation,  accrued  vacation  and
accrued business expenses. Pursuant to the Termination Agreement,  Messrs. Braun
and Rosenberg each returned to the Company the 500,000  options  granted to each
of them (a total of  1,000,000  options) on February  24,  2005,  and returned a
combined  aggregate  of 110,000  additional  options to purchase  the  Company's
common stock previously granted to them. The Termination Agreement also contains
mutual releases and indemnification provisions.


                                      F-8


In  September  of 2005 the Company  made a decision to solicit bids for its home
healthcare  division.  In order to sell the home healthcare  division it will be
necessary for the Company to restructure itself so that the Company can sell the
home healthcare  division as a separate entity.  This will require a vote of the
shareholders  to invert the Company to make  BioBalance  Corporation  the parent
company  and to make the old New York  Health  Care,  Inc. a  subsidiary  of The
BioBalance Corporation. The Company then plans, subject to shareholder approval,
to sell the New York Health  Care  subsidiary.  The Company  intends to obtain a
letter ruling from the IRS  regarding the tax free nature of the  restructuring.
See Note 15, Segment Reporting.

Bids from a number of companies were received and evaluated by the Board.  Based
on the  evaluation,  it was determined  that Accent Care had made the best offer
and the Company signed a letter of intent with Accent Care October 26, 2005. The
letter  outlined a potential  deal and gave  Accent Care a thirty day  exclusive
period to do their due diligence. This period was extended for an additional two
weeks to allow them to complete  their work.  Accent Care submitted an offer for
the  business  in the form of a  contract  for the  healthcare  division.  After
reviewing the contract the board began  negotiations  with Accent Care as to the
final terms of the deal.  On December  12,  2005,  during the  discussions  with
Accent Care, the Company received an unsolicited revised bid from Revival Health
Care ("Revival") who was one of the original bidders.  Revival had revised their
offer and it was determined that the offer was competitive  with the offer being
considered  from Accent Care.  Upon further  review,  the Board  determined that
overall the offer from Revival was a better offer for the Company than the offer
from Accent Care. The Company made the decision to accept the offer from Revival
and signed a letter of intent with Revival on January 16, 2006,  which  outlined
the deal and called for a four week due diligence period.  The due diligence was
completed on February 28, 2006.  An offer was received  from Revival on March 3,
2006,  after  completion  of the due  diligence  period.  The Board is currently
negotiating  the terms of the deal with  Revival.  After an  agreement is signed
with  Revival  to buy  the  home  healthcare  division  from  the  Company,  the
shareholders will be asked to vote to approve the sale.

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

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

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


                                      F-9



Pursuant  to the Corval  Settlement  Agreements  and in order avoid the cost and
uncertainty  of  litigation,  the  Company  agreed to issue  300,000  (valued at
$216,000)  shares of common stock to Olshenitsky in return for a general release
of all claims Corval and  Olshenitsky  may have against the Company.  The common
stock are "restricted  shares" and may only be resold after registration of such
shares or the  availability of an exemption from  registration,  including under
Rule 144 of the Securities  Act of 1933 as amended (the  "Securities  Act").  At
December 31, 2005, the Company has recorded  $216,000 for the Corval  settlement
under common stock and options to be issued.


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

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

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


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



                                      F-10


On March 24, 2006,  BioBalance  received  approval  from the U.S.  Food and Drug
Administration   (FDA)  to  begin  U.S.   clinical  trials  of  its  proprietary
biotherapeutic  agent,  Probactrix,   as  a  prescription  drug  for  pouchitis.
Pouchitis is a debilitating  complication that can develop following  corrective
surgical treatment of ulcerative colitis, in which an ileal reservoir, or pouch,
is  constructed to enable normal bowel  movements  after removal of the diseased
colon.  This ileal  reservoir  can  become  inflamed,  leading  to  debilitating
gastrointestinal symptoms including diarrhea, incontinence,  bleeding, fever and
urgency.  The cause of pouchitis  is not known,  though it is believed to result
from an immune response to pathogenic  bacteria in the pouch flora. There are no
currently  approved  treatments  for  pouchitis.   Current  management  involves
short-term and occasionally chronic treatment with antibiotics.

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

The  lawsuit  seeks,  among  other  things,  (i)  injunction  relief  preventing
consummation of the Emerald Settlement  Agreement and/or rescission rights, (ii)
removal of the Directors, (iii) compensatory damages and (iv) attorneys' fees.

Risk Factors Associated with Fair Labor Standards Act:

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

The issue was  resubmitted and on March 16, 2006, the industry was notified that
the  Supreme  Court  granted a writ of  certiorari,  vacated  the  judgment  and
remanded  the case to the Second  Circuit  Court of Appeals  to  reconsider  its
decision  in light of the  memorandum  issued  by the U.S.  Department  of Labor
("DOL") on December 1, 2005. In that memo,  the DOL states that it considers its
regulations  allowing  the  companionship  exemption  to be used by third  party
employers to be "authoritative and legally binding".

The  implications of these changes for paying the overtime  expense for the home
care industry and the State will be challenges to ensuring patient continuity of
care, if agencies can no longer afford to authorize  overtime  during  workforce
shortage,  and the  inability  of  workers to secure the number of hours of work
they desire.


                                      F-11


Estimates:

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

Accounts Receivable:

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

Revenue Recognition:

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

Property and Equipment:

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

              Machinery and equipment                        3-5 years
              Furniture and fixtures                         5-7 years
              Leasehold improvements                         Life of lease

Goodwill and Other Intangible Assets:

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


                                      F-12


Income Taxes:

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

Long-Lived Assets:

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

Cash Equivalents:


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

Stock Based Compensation:


The Company uses the intrinsic-value method of accounting for stock based-awards
granted to employees.  No stock-based  compensation  cost is included in the net
loss for the years ended  December 31, 2004 and 2003, as all options  granted to
employees during those periods  presented had a strike price equal to the market
value of the stock on the date of grant. During the year ended December 31, 2005
the Company issued  200,000  options on August 1, 2005 with a strike price below
market value of the stock on the date of grant.


In accordance  with SFAS No. 148,  "Accounting  for Stock Based  Compensation  -
Transition and  Disclosure," the following table presents the effect on net loss
and net loss per share had  compensation  cost for the Company's stock plans had
been  determined  consistent  with SFAS No.  123,  "Accounting  for  Stock-Based
Compensation".


                                      F-13


The fair value of each option  grant is estimated on the date of grant by use of
the Black-Scholes option pricing model:




                                                 Year Ended             Year Ended          Year Ended
                                                 December 31,           December 31,        December 31,
                                                     2005                   2004                2003
                                                ------------            ------------        ------------
                                                                                   
Net loss, as reported                           $ (6,321,662)           $ (6,071,685)       $(22,052,170)

Less stock-based compensation expense
   determined under fair value method
   for all employee stock options,
   net of tax effect                                (422,381)               (711,723)         (1,620,705)

Add back stock-based compensation
expense recorded (intrinsic value)                    90,000                      --                  --
                                                ------------            ------------        ------------
  Pro forma net loss                            $ (6,654,043)           $ (6,783,408)       $(23,672,875)
                                                ============            ============        ============
Basic and diluted loss per share, as
 reported                                       $      (0.20)           $      (0.24)       $      (0.91)
Basic and diluted loss per share,
pro forma                                       $      (0.21)           $      (0.27)       $      (0.97)



The options' assumptions used to estimate these values are as follows:




                                       2005                  2004                    2003
                                 -----------------     ------------------     -------------------
                                                                             
Risk free interest rate                 1.6%-4.2%              1.6%-2.8%               1.1%-3.2%
Expected  volatility  of
common stock                             88%-104%               88%-103%                67%-102%
Dividend yield                                 0%                     0%                      0%
Expected option term                      3-5 yrs                 3 yrs.                  1-5yrs


The weighted average fair value of options was $0.81, $1.12 and $2.29 for
options granted during the years ended December 31, 2005, 2004 and 2003,
respectively.

Income (Loss) Per Share:

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


Diluted  income  (loss) per share from  continuing  operations  is  computed  by
dividing income (loss) available to common  shareholders by the weighted average
number of shares of common stock outstanding for the period, adjusted to reflect
potentially  dilutive  securities  including  the  presumed  conversion  of  the
preferred  stock from the date of its  issuance.  Due to losses from  continuing
operations  during the years ended  December 31, 2005,  2004 and 2003  potential
common stock  attributable to options,  warrants and preferred stock outstanding
of 7,906,778  for 2005,  3,246,701 for 2004,  and  3,649,234 for 2003,  were not
included in the  computation  of diluted  earnings  per share,  because to do so
would be  antidilutive.  During  the year  ended  December  31,  2005  potential
dilutive  securities  also  include  common  stock and  options  to be issued of
1,800,000.



                                      F-14


Recent Issued Accounting Pronouncements:

On June 7, 2005,  the FASB issued  Statement  No. 154,  "Accounting  Changes and
Error Corrections,  a replacement of APB Opinion No. 20, Accounting Changes, and
Statement No. 3, Reporting  Accounting Changes in Interim Financial  Statements"
(FAS  154).  FAS 154  changes  the  requirements  for the  accounting  for,  and
reporting  of, a change in  accounting  principle.  Previously,  most  voluntary
changes in  accounting  principles  were  required to be  recognized by way of a
cumulative  effect adjustment within net income during the period of the change.
FAS  154  requires   retrospective   application  to  prior  periods'  financial
statements,  unless it is impracticable to determine either the  period-specific
effects  or the  cumulative  effect  of the  change.  FAS 154 is  effective  for
accounting  changes  made in fiscal  years  beginning  after  December 15, 2005;
however, the Statement does not change the transition provisions of any existing
accounting pronouncements. The Company does not believe adoption of FAS 154 will
have a  material  effect on its  consolidated  financial  position,  results  of
operations or cash flows.

In December  2004,  the FASB issued SFAS No. 123  (revised  2004),  "Share-Based
Payment,"  or SFAS No.  123R.  SFAS No. 123R,  which  replaces  SFAS No. 123 and
supersedes  APB Opinion No. 25,  requires  that  compensation  cost  relating to
share-based  payment  transactions  be recognized  in the financial  statements,
based on the fair value of the equity or liability  instruments issued. On April
14, 2005, the SEC staff postponed  implementation  of SFAS No. 123 (R) and it is
effective  for the Company as of the  beginning  of the first  interim or annual
reporting  period that begins after  December 15, 2005 and applies to all awards
granted,  modified,  repurchased  or cancelled  after the  effective  date.  The
adoption of this statement will increase  reported expenses and the magnitude of
the impact is still being determined.

In December  2004,  the FASB issued SFAS No.  153,  "Exchanges  of  Non-monetary
Assets,  an  amendment  of APB Opinion  No.  29," or SFAS No. 153.  SFAS No. 153
eliminates the exception for non-monetary exchanges of similar productive assets
of APB Opinion No. 29 and replaces it with a general  exception for exchanges of
non-monetary  assets  that do not  have  commercial  substance.  A  non-monetary
exchange  has  commercial  substance  if the future cash flows of the entity are
expected to change  significantly  as a result of the exchange.  SFAS No. 153 is
effective  for  non-monetary  asset  exchanges  occurring in the fiscal  periods
beginning after June 15, 2005. We do not expect the adoption of this standard to
have a significant impact on our consolidated results of operations or financial
position.

NOTE 2 -PRIVATE PLACEMENT:

On February 24, 2005, the Company consummated the Offering which resulted in its
issuing an  aggregate  of  7,899,362  shares (the  "Shares") of common stock and
warrants  to  purchase  3,949,681  shares of Common  Stock (the  "Warrants")  to
persons who qualify as "accredited  investors" within the meaning of rule 501 of
Regulation D  promulgated  under the  Securities  Act of 1933 (the  "Act").  The
aggregate  purchase  price for the Shares and  Warrants was  $4,897,600  and net
proceeds received by the Company were approximately $4,200,000.  Each Warrant is
exercisable  to purchase one share of the Company's  Common Stock at an exercise
price of $0.78 per share during the five-year period  commencing on February 24,
2005. In connection  with the Offering,  the Company paid to the Placement Agent
commissions of $470,260 and an additional $146,616 to cover  non-accountable and
certain other  expenses of the Placement  Agent,  other costs of $83,328 and the
value of the Placement Agent Warrants, described below. In addition, the Company
issued  to the  Placement  Agent  and  its  designees  five-year  warrants  (the
"Placement  Agent  Warrants")  to purchase an aggregate  of 1,777,356  shares of
Common  Stock at $0.62  per  share.  The  Company,  based on the  Black  Scholes
calculation,  has  assigned  a fair value to the  Placement  Agent  Warrants  of
$624,705.  The Company  allocated  $2,679,518 and $893,173 of net proceeds using
the relative  fair value method of  allocation to the Common Stock and Warrants,
respectively. Under the terms of the Offering, the Company has the right to call
the  Warrants  that were issued in the Offering  upon thirty days  notice,  at a
price of $0.01 per Warrant,  provided  the closing  price of the Common Stock on
its principal  trading market exceeds $2.00 per share,  subject to anti-dilution
adjustments,  for a period of 10 consecutive trading days, ending within 30 days
prior to the date on which the notice of redemption is given and a  registration
statement  covering the shares  underlying  the  Warrants has been  declared and
remains  effective or the shares  issuable upon exercise of the Warrants are not
otherwise subject to any restrictions for their public sale.


                                      F-15


The Company agreed to file a  registration  statement with respect to the common
stock and Warrants  issued in the  Offering  within 45 days after the closing of
the Offering  unless the failure to file resulted from the financial  statements
of the Company for the year 2004 not being  available (the "Required Due Date").
If the  registration  statement was not filed by the Required Due Date or if the
registration  statement  was not  declared  effective  within 180 days after the
closing of the Offering,  then monthly cash delay  payments equal to 1.5% of the
aggregate  gross proceeds from the Offering are due to the holders of the Common
Stock and Warrants.  The Company filed a  registration  statement on Form S-1 on
May 31, 2005, which was declared effective on August 12, 2005.

The net  proceeds  from the  Offering  are being  used to  support  BioBalance's
operations  including  research  and  development,  clinical  trials and working
capital.  In addition,  a $1.7 million loan from the Company to  BioBalance  was
repaid from the proceeds of the Offering.

NOTE 3 - DISCONTINUED OPERATIONS

On April 11, 2005, the Company  entered into an agreement to sell certain assets
of Helping Hands for  $3,000,000 to Accredited  Health and a formal  closing for
the  sale,  which was  subject  to only an  orderly  transition  of the  assets,
occurred  on May 22,  2005.  Helping  Hands was part of the New York Health Care
segment.


In  connection  with the  sale,  the  Company  recognized  an after  tax gain of
approximately  $2.7 million on the  transaction,  net of taxes of  approximately
$3,000,  which is included in net income from  discontinued  operations  for the
year ending  December 31, 2005.  The Company  reported the  operations of its NJ
Business as discontinued operations and related assets were reclassified as held
for sale as of December 31, 2004.


The  following  are major  classes  of assets  for the  discontinued  operations
described above that were held for sale as of December 31, 2005 and December 31,
2004. The sale of the NJ Business did not include liabilities.



                                      F-16


DISCONTINUED OPERATIONS
CONSOLIDATED BALANCE SHEETS

                                     December 31, 2005    December 31, 2004
                                     -----------------    -----------------
ASSETS:

Property and equipment, net           $           --       $         4,923
Goodwill, net                         $           --       $       117,587
Intangibles, net                      $           --       $       104,460
                                      --------------       ---------------

Net assets held for sale              $           --       $       226,970
                                      ==============       ===============

Operating results of our discontinued operations are shown below:

DISCONTINUED OPERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS



                                     Year Ended         Year Ended        Year Ended
                                    December 31,       December 31,      December 31,
                                        2005               2004              2003
                                     -----------        -----------       -----------
                                                                 
Net patient service revenue          $ 2,688,082        $ 6,567,914       $ 6,490,822
                                     -----------        -----------       -----------
Expenses:
Professional care of patients          1,862,788          4,433,247         4,243,177
General and administrative               731,410          2,029,826         2,107,409
Depreciation and amortization             11,717             51,823            59,076
Gain on sale of assets                (2,703,718)                --                --
                                     -----------        -----------       -----------
Total operating (income)
expenses                                 (97,803)         6,514,896         6,409,662
                                     -----------        -----------       -----------
Income before taxes                    2,785,885             53,018            81,160

Provision for income taxes                 2,653              4,050            12,855
                                     -----------        -----------       -----------
Income from discontinued operations  $ 2,783,232        $    48,968       $    68,305
                                     ===========        ===========       ===========



                                      F-17


NOTE 4 - PROPERTY AND EQUIPMENT

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

                                            2005           2004
                                          --------       --------

Machinery and equipment                   $257,326       $138,880
Furniture and fixtures                      46,033         46,033
Leasehold improvements                      52,136         52,136
                                          --------       --------
                                           355,495        237,049

Less accumulated depreciation              205,443        154,966
                                          --------       --------
                                          $150,052       $ 82,083
                                          ========       ========

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS:

As a result of the  reverse  acquisition  on January 2, 2003,  the  Company  had
recognized  goodwill on the  transaction  (Note 10). The goodwill is  associated
with  the  home  care  business  and on the  date  of the  merger,  the  Company
determined  that  the  goodwill  was  impaired.  The  indicator  leading  to  an
impairment was the fact that, based on the then current home healthcare  market,
the  home  healthcare  business  could  not be sold in the open  market  for its
recorded  purchase  price.  The Company hired a valuation  expert who valued the
Company using the  capitalized  earnings/cash  flow  methodology  and the market
multiple  approach.  Based on these  methodologies,  it was  determined  that an
impairment had been incurred.  The goodwill  impairment  amounted to $17,869,339
for the year ended December 31, 2003.

As a result of the sale of certain assets of the NJ Business,  the Company wrote
off $117,587 of goodwill which is attributable  to the NJ Business.  Goodwill at
December  31,  2004  reflects  the  reclassification  of $117,587 of goodwill to
assets held for sale as part of the discontinued  operations  summarized in note
3.

The  changes in the  carrying  amount of  goodwill  relate  entirely to the home
healthcare business for the years ended December 31, 2005, 2004 and 2003 were as
follows:


                                                  New York
                                                  Health Care        BioBalance
                                                 ------------       ------------
Balance as of
      January 1, 2003                            $         --       $         --

Acquisition
     January 2, 2003                               18,769,926                 --

Impairment
     January 2, 2003                              (17,869,339)                --

Reclassed as current
     assets of discontinued
     operations  held
     for sale for the year ended
     December 31, 2004                               (117,587)                --
                                                 ------------       ------------
Balance as of
     December 31, 2004                                783,000                 --

Impairment for year
     ending December 31, 2005                              --                 --
                                                 ------------       ------------
Balance as of
     December 31, 2005                           $    783,000       $         --
                                                 ============       ============


                                      F-18


The  impairment  charges are  noncash in nature and do not affect the  Company's
liquidity.

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




                                                 December 31, 2005
                         ------------------------------------------------------------------
                                                                                 Estimated
                         Gross Carrying       Accumulated      Net Carrying     Useful Life
                             Amount           Amortization        Amount           Years
                         ---------------      ------------    --------------    -----------

                                                                          
Intellectual property         $2,706,337        $1,167,474       $1,538,863           10
Patents/trademarks             1,153,369           392,501          760,868           10
Non-compete agreement            770,000           365,750          404,250            5
Customer base                    316,000           189,832          126,168            5
                           -------------     -------------      ------------
                              $4,945,706        $2,115,557       $2,830,149
                           =============     =============      ============


                                                 December 31, 2004
                         ------------------------------------------------------------------
                                                                                Estimated
                          Gross Carrying       Accumulated     Net Carrying     Useful Life
                              Amount          Amortization        Amount           Years
                         ---------------      ------------    --------------    -----------

                                                                          
Intellectual property         $2,706,337        $  896,840       $1,809,497         10
Patents/trademarks             1,112,905           278,357          834,548         10
Non-compete agreement            770,000           211,750          558,250          5
Customer base                    316,000           126,460          189,540          5
                           -------------     -------------    -------------
                              $4,905,242        $1,513,407       $3,391,835
                           =============     =============    =============


The net  carrying  value of the other  intangible   assets at December 31, 2004,
reflect  the  reclassification  of $104,460  to current  assets of  discontinued
operations held for sale as part of the  discontinued  operations  summarized in
Note 3.

On August 20, 2003, the Company purchased from NexGen Bacterium Inc.  ("NexGen")
certain  proprietary  technology and  intellectual  property assets that did not
constitute  a business.  The  purchase  price for the assets is  comprised  of a
$250,000  payment and the issuance of 1,000,000  shares of the  Company's  $0.01
par-value  common stock.  The stock was valued at $3,600,000  based on a closing
price of $3.60 per share on August 20,  2003.  The asset  acquisition  agreement
includes  noncompete  provisions  restricting  NexGen  from  competing  with the
Company for a period of five years.


                                      F-19


At December  31,  2004,  it was  determined  that the  investment  in the NexGen
Platform  was  impaired  and as a result of the  impairment  analysis a total of
$1,740,326  was  expensed  at year end.  The  impairment  was  determined  by an
independent valuation firm using a discounted cash flow model. The impairment is
due to a number  of  factors  including  the  acceleration  of  PROBACTRIX  as a
prescription product, overall limited funding available and available management
time. While BioBalance  believes that the NexGen Platform is a viable technology
that can be  commercialized,  it will  continue  to be  delayed  until the above
mentioned  factors are resolved.  At December 31, 2005,  an impairment  test was
performed by an independent valuation firm and there was no impairment.

As of December 31, 2005,  approximately  $2,700,000 of intangible  assets net of
accumulated  amortization  relate to  BioBalance.  BioBalance  is a research and
development company and has had significant losses since inception.  The Company
cannot assure that BioBalance will be able to generate  revenues or profits from
operations  of its  business  or that  BioBalance  will be able to  generate  or
sustain profitability in the future.

Amortization  expense amounted to $602,150,  $769,498 and $442,208 for the years
ended December 31, 2005, 2004 and 2003, respectively.

Amortization Expense:

                   For The Years
                      Ended
                   December 31,
                   ------------
                        2006                  $  603,055
                        2007                     603,055
                        2008                     539,971
                        2009                     385,971
                        2010                     385,971
                        Thereafter               312,126
                                              ----------
                                              $2,830,149
                                              ==========

NOTE 6 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

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

                                               2005                 2004
                                               ----                 ----

Accounts payable                            $   867,436          $   622,730
Accrued expenses                              1,804,910            1,791,896
Accrued settlement per consulting
agreement                                     1,131,100              359,000
Accrued employee benefits                     4,892,872            4,552,489
                                            -----------          -----------
                                            $ 8,732,218          $ 7,326,115
                                            ===========          ===========

                                      F-20


NOTE 7 - LINE OF CREDIT:

New York Health Care has a $4,000,000  line of credit with G.E.  Capital  Health
Care Financial  Services  ("G.E.  Capital") that expires  November 29, 2006. The
availability  of the line of credit is based on a formula of  eligible  accounts
receivable.  The loan  agreement  relating  to the  line of  credit  (the  "Loan
Agreement")  was  amended in 2004 to allow New York Health Care to lend money to
BioBalance if there is no outstanding  loan under this Loan Agreement.  The Loan
Agreement has also been amended to allow New York Health Care to invest money in
BioBalance.  As of December 31, 2005,  approximately $4,000,000 was available to
the Company. Certain assets of the Company collateralize the line of credit. The
Loan Agreement contains various restrictive covenants which, among other things,
require  that the Company  maintain a minimum  tangible  net worth of  $500,000.
Borrowings  under  the Loan  Agreement  bear  interest  at prime  plus 1 1/2% at
December 31, 2005 (8.5%).

At December  31,  2005,  there was an amount due from G.E.  Capital of $198,941.
This  is due to a  lockbox  being  used  by the  Company;  all  collections  are
deposited with G.E. Capital and then transferred to the Company's bank account.


On April 11, 2005, the Company's  Loan Agreement with G.E.  Capital was modified
to permit the sale of the assets of the NJ Business to Accredited  Health and to
lift the  lender's  lien with  respect  to the assets of the NJ  Business.  As a
result of this modification,  no loans under the Loan Agreement may be requested
or occur  until such time as the  parties  agree on the  adjusted  amount of the
borrowing  base.  Such an  amendment  will  result in a  decrease  in the amount
available for borrowing under the facility.

As a result of the  Termination  Agreement  pursuant to which Messrs.  Braun and
Rosenberg have resigned their  employment with us including their positions with
our home  healthcare  division,  there  was a change in  control  under the Loan
Agreement which constitutes an event of default.  On August 11, 2005, the lender
waived the default  under the Loan  Agreement  arising  from the  departures  of
Messrs.  Braun and  Rosenberg.  Pursuant to  Amendment # 5,  section  titled "3.
Waiver",  New York Health Care's current  management is acceptable to Lender. No
borrowings can be made until the lender conducts an updated collateral audit.

NOTE 8 - INCOME TAXES:

Deferred tax attributes  resulting from differences between financial accounting
amounts and tax bases of assets and  liabilities  at December  31, 2005 and 2004
follows (rounded to the nearest thousand)

                                                     2005               2004
                                                  -----------       -----------
Current assets:
Allowance for  doubtful accounts                  $   195,000       $   194,000
Prepaid expenses                                      (57,000)         (154,000)
                                                  -----------       -----------
                                                      138,000            40,000
Valuation allowance                                  (138,000)          (40,000)
                                                  -----------       -----------
Net current deferred tax asset                    $        --       $        --
                                                  ===========       ===========
Noncurrent assets:
Net operating loss carryforwards                  $ 4,847,000       $ 3,588,000
Depreciation                                           (1,000)           44,000
Amortization of goodwill                                   --           765,000
Amortization of intangibles                           292,000           255,000
                                                  -----------       -----------
                                                    5,138,000         4,652,000
Valuation allowance                                (5,138,000)       (4,652,000)
                                                  -----------       -----------
Net noncurrent deferred tax asset                 $        --       $        --
                                                  ===========       ===========

As of December 31, 2005, the Company had net operating loss carry forwards of
approximately $11,300,000, which expire between 2021 through 2025.


                                      F-21


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



                                          2005           2004           2003
                                      -----------    -----------    -----------
Current tax expense (benefit) from
continuing operations                 $    78,628    $   (67,176)   $    26,145

Deferred tax expense
(not including amount listed below)       584,000      2,800,000      1,007,000

Net change in valuation allowance        (584,000)    (2,800,000)    (1,007,000)
                                      -----------    -----------    -----------
                                      $    78,628    $   (67,176)   $    26,145
                                      ===========    ===========    ===========


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


                                            2005           2004           2003
                                          --------       --------       --------

Current:
Federal income taxes from                 $     --       $     --       $     --
continuing operations
Federal income taxes from
discontinued operations                         --             --             --
State income taxes from
continuing operations                       78,628        (67,176)        26,145
                                          --------       --------       --------

                                          $ 78,628       $(67,176)      $ 26,145
                                          ========       ========       ========


                                      F-22


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




                                             2005           2004             2003
                                          -----------     -----------      ----------
                                                                    
Statutory Federal income tax rate            34%             34%             34%
State taxes, net of Federal tax benefit      12              12              12
Valuation allowance                         (45)            (45)            (45)
Over/under accrual                           (1)             (1)             (1)
                                          -----------     -----------      ----------
                                             --              --              --
                                          ===========     ===========      ==========


NOTE 9 - FAIR VALUE OF FINANCIAL INSTRUMENTS:

As of  December  31,  2005  and  2004,  the  carrying  amount  of cash  and cash
equivalents, accounts receivable, accounts payable and accrued expenses, accrued
payroll and due to HRA, approximates fair value due to their short-term nature.

NOTE 10 - SHAREHOLDERS' EQUITY:

Common Stock

In January 2003,  the Company  issued  327,327  shares of common stock for gross
proceeds of $1,072,000.

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

On August 20,  2003,  the Company  issued  1,000,000  shares of common  stock in
connection with the purchase of intangible assets.

On February 24, 2005,  the Company issued  7,899,362  shares of common stock and
warrants to purchase 3,949,681 shares of common stock in a private placement for
gross proceeds of $4,897,600 and net proceeds of $4,197,396.

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

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


                                      F-23


Preferred Stock

In June 2005,  the  holders of all of the  outstanding  shares of the  Company's
preferred  stock, a total of 590,375 shares,  elected to convert their preferred
stock to  shares  of  common  stock in  accordance  with the  provisions  of the
preferred  stock. The holders of the preferred stock received a total of 393,584
shares of common  stock upon  conversion.  The  Company has no  preferred  stock
outstanding as of December 31, 2005.

Treasury Stock

The Company  issued  treasury stock for the exercise of options that occurred in
September and October 2003.  The Company  assigned a cost to the treasury  stock
based on the first-in, first-out method.

NOTE 11 - STOCK OPTION/WARRANTS:

The  following  tables  summarize  options and warrants  issued during the years
ended December 31, 2005, 2004 and 2003 to consultants  and employees  (including
non-employee Board of Directors) and in connection with the Offering:

Warrants:

      These  warrants  were  issued to or earned by  consultants  but may not be
outstanding at each year end.





      Grant Date                 Number of warrants        Exercise Price      Expiration term
      ----------                 ------------------        ---------------     ---------------
                                                                              
      January 1, 2003                      7,205              $    3.47                5 yrs
      January 1, 2003                     25,528              $    3.22                5 yrs
      January 1, 2003                     15,653              $    3.37                5 yrs
      January 15, 2003                   100,000              $    4.15                1 yr
      February 3, 2003                    35,000              $    3.40                1 yr
      April 14, 2003                     500,000              $    2.50                1 yr
      July 15, 2003                      135,000              $    2.70                1 yr
      September 15, 2003                 100,000              $    3.69                5 yrs
      December 17, 2003                   75,000              $    2.51                2 yrs

      February 24, 2005                5,726,993               $   0.78                5 yrs
      August 31, 2005                     20,000              $   1.20                 5 yrs
      September 1, 2005                  150,000              $   1.21                 5 yrs



      No warrants were issued to consultants in 2004.


                                      F-24


Some of these  warrants  granted vest  immediately,  some warrants vest monthly.
These  warrants  are  expensed  at the fair  value on the date of  vesting.  For
accounting purposes,  unvested warrants are not considered outstanding.  For the
year ended December 31, 2005, $134,731 was expensed as compensation  expense for
these  warrants.  For the year ended December 31, 2004,  $15,743 was expensed as
compensation  expense for these warrants.  For the year ended December 31, 2003,
$870,359  was  expensed  as  compensation  for these  warrants,  which  includes
compensation  expense for the BioBalance  warrants of $33,928 for the year ended
December 31, 2003 and 75,000  performance based warrants earned in December 2003
of $102,203.

Nasdaq  implemented  a rule on July 1, 2003 that  requires  a company  to obtain
shareholder  approval  prior to the  issuance  of  warrants  to  consultants  or
non-employee  members of the Board of Directors.  The Company committed to issue
warrants to certain  consultants  subsequent to July 1, 2003.  Therefore,  these
commitments  of  warrants  are  re-valued  at each  balance  sheet date with the
appropriate  adjustment made to compensation  expense. Once shareholder approval
is obtained, no further adjustment to compensation expense will be recorded. For
the year ended December 31, 2005, the re-valued  warrants  generated an increase
in compensation  of $8,710.  For the year ended December 31, 2004, the re-valued
warrants  generated a reduction in compensation of $381,565.  For the year ended
December 31, 2003, the re-valued  warrants  generated a compensation  expense of
$19,511.  The  shareholders  approved a new option plan on August 31, 2005, that
allows for the issuance of warrants and options to consultants.  Therefore,  the
above  warrants  were  valued on August 31,  2005,  and no further  compensation
expense will be recorded for these warrants.

Performance Incentive Plan:

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


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



                                      F-25


Options/Warrants:

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




         Grant Date                  Number of Options          Exercise Price     Expiration Term
         ----------                  -----------------          --------------     ---------------
                                                                          
         *February 24, 2005                  1,000,000              $0.85               10 yrs
         May 6, 2005                           100,000              $0.80               10 yrs
         June 6, 2005                           75,000              $0.84               10 yrs
         August 1, 2005                        200,000              $0.75                5 yrs
         August 31, 2005                        85,000              $1.20                5 yrs
         October 3, 2005                        50,000              $1.00                5 yrs

         Grant Date                  Number of Options          Exercise Price     Expiration Term
         ----------                  -----------------          --------------     ---------------
         January 29, 2004                      450,000              $ 2.13              10 yrs
         September 14, 2004                    100,000              $ 0.50              10 yrs

         Grant Date                  Number of Options          Exercise Price     Expiration Term
         ----------                  -----------------          --------------     ---------------
         March 7, 2003                         560,000              $ 3.14              10 yrs
         June 16, 2003                           7,500              $ 2.87               3 yrs
         June 26, 2003                         200,000              $ 2.48              10 yrs
         September 26, 2003                     80,000              $ 3.77              10 yrs


*The  1,000,000  options  issued on  February  24,  2005,  to  Messrs  Braun and
Rosenberg  were  returned  to the  Company  on  August 4,  2005,  as part of the
termination agreement with Messrs Braun and Rosenberg.

Other  than the  200,000  options  issued  on  August  1,  2005 to  non-employee
directors,  for  which a  compensation  expense  in the  amount of  $90,000  was
recorded,  all other options were issued to employees and non-employee directors
at not less than fair value on the date of grant,  no  compensation  expense was
recorded.

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

At December 31, 2005, the Company has 7,906,778  shares of common stock reserved
for  issuance  of  these  options/warrants  and  for  options/warrants   granted
previously.


                                      F-26


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

                                        Shares Under     Weighted Average
                                       Options/Warrants   Exercise Price
                                       ----------------   --------------
Balance at December 31, 2003              3,255,651         $   2.27

Options and warrants granted                550,000             1.83

Options exercised                                --               --

Options canceled/expired                   (952,532)            2.31
                                         ----------         --------
Balance at December 31, 2004              2,853,119             2.17

Options and warrants granted              7,406,993             0.81

Options exercised                                --               --

Options canceled/expired                 (2,353,334)            1.82
                                         ----------         --------
Balance at December 31, 2005              7,906,778         $   0.98
                                         ==========         ========
Options eligible for exercise at
December 31, 2005                         7,856,778         $   0.98
                                         ==========         ========

*Includes the performance based warrants discussed above.

The  following  table   summarizes   information   about  options  and  warrants
outstanding and exercisable at December 31, 2005.




                             Options/Warrants Outstanding               Options/Warrants Exercisable
                             ----------------------------               ----------------------------
                                        Weighted                                           Weighted
                                         Average         Weighted                          Average
                      Options/          Remaining         Average         Options          Options
   Range of           Warrants         Contractual       Exercise         Warrants         Warrants
Exercise Price      Outstanding           Life             Price        Exercisable      Exercisable
- ---------------    ---------------    --------------    ------------    -------------    -------------

                                                                         
         $3.69            100,000         2.71            $3.69              100,000     $   3.69
    $3.22-3.47             48,386         2.00             3.31               48,386         3.31
         $3.14            160,000         7.19             3.14              160,000         3.14
         $3.00             33,900         0.92             3.00               33,900         3.00
         $3.00             39,166         1.08             3.00               39,166         3.00
         $2.87              7,500         0.46             2.87                7,500         2.87
         $2.55             75,333         2.42             2.55               75,333         2.55
         $2.48            200,000         7.49             2.48              200,000         2.48
         $2.44              6,667         2.42             2.44                6,667         2.44
         $2.13             50,000         8.08             2.13               50,000         2.13
         $1.50             51,333         2.98             1.50               51,333         1.50
         $1.21            200,000         4.69             1.21              200,000         1.21
         $1.20            105,000         4.67             1.20              105,000         1.20
         $1.00            200,000         5.42             1.00              150,000         1.00
         $0.97             66,667         3.87             0.97               66,667         0.97
    $0.89-0.98            227,500         2.93             0.93              227,500         0.93
         $0.84             75,000         9.43             0.84               75,000         0.84
         $0.80            100,000         9.35             0.80              100,000         0.80
         $0.78          5,726,993         4.15             0.78            5,726,993         0.78
         $0.75            133,333         4.52             0.75              133,333         0.75
         $0.75            200,000         4.58             0.75              200,000         0.75
         $0.50            100,000         8.70             0.50              100,000         0.50
                        ---------                                          ---------
                        7,906,778         4.55            $0.98            7,856,778        $0.98
                        =========                                          =========





                                      F-27


NOTE 12 - COMMITMENTS AND CONTINGENCIES:


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

See Note 1 Company Developments for other commitments and contingencies.

Lease Commitments

The Company  leases office space under  noncancellable  operating  leases in New
York expire between June 2006 and March 2010.

At December 31, 2005,  future minimum lease payments due under operating  leases
approximate:

                                                    Consolidated
                                                    ------------
                  2006                               $252,000
                  2007                                143,000
                  2008                                123,000
                  2009                                127,000
                  2010                                 32,000
                                                     -----------
                  Total minimum future
                  payments                           $677,000(1)
                                                     ===========

      (1) BioBalance  whose office will become the corporate  office has a lease
      that expires on May 30, 2005.  BioBalance  is looking for new office space
      in New York.


                                      F-28


Rent expense  charged to operations  was  approximately  $403,000,  $461,000 and
$432,000 for the years ended December 31, 2005, 2004 and 2003 respectively.

As of May 1,  2005,  all of  the  New  Jersey  office  leases  were  assumed  by
Accredited Health Care.

Employment Agreements:

In June 2004,  the Company  entered  into an  employment  agreement  with Dennis
O'Donnell the president and CEO of the Company that expires on May 5, 2006 at an
annual compensation of $200,000.  The board approved an increase of $25,000 upon
the closing of the  Offering  that took place on February  24,  2005.  On May 6,
2005, the board of directors approved a bonus of $90,000 and granted him 100,000
options to acquire common stock.

In June 2005,  the Company  entered into an employment  agreement  with A. James
Forbes to become the chief  financial  officer of the Company  which  expired on
December  31,  2005.  The  agreement  was renewed on January 1, 2006 and expires
December 31, 2006.  Mr.  Forbes has been on a leave of absence due to an illness
since November 1, 2005.

On January 13, 2005 and March 15,  2004,  the  Compensation  Committee  approved
bonuses of  $500,000 to be paid to the two former  officers  for the years ended
December  31,  2004 and 2003  respectively,  such  amounts  were  accrued  as of
December 31, 2004 and 2003.

401(k) Plan:

The Home Healthcare  segment  maintains an Internal  Revenue Code Section 401(k)
salary deferred  savings plan (the "Plan") for eligible  employees who have been
employed for at least one year and are at least 21 years old. Subject to certain
limitations, the Plan allows participants to voluntarily contribute up to 15% of
their pay on a pretax  basis.  The  Company  currently  contributes  50% of each
dollar  contributed  to the Plan by  participants  up to a maximum  of 3% of the
participant's   salary.  The  Plan  also  provides  for  certain   discretionary
contributions  by the  Company  as  determined  by the Board of  Directors.  The
Company's contributions offset by unvested, forfeited matching funds amounted to
$54,000,  $40,000 and $54,000 for the years ended December 31, 2005 and 2004 and
2003, respectively.

Bonus Plan:

The Home Healthcare segment of the Company has established a bonus plan pursuant
to which 10% of the Company's  pre-tax net income is contributed to a bonus pool
which is available for distribution to all employees as decided by the Company's
Compensation  Committee.  There was no bonus accrued at December 31, 2005, as it
was paid out to the plan participants in December 2005 in the amount of $38,100.
A bonus of $44,000 and  $58,000  was  accrued as of  December  31, 2004 and 2003
respectively.


                                      F-29


Concentrations of Credit Risk:

Financial  instruments that potentially subject the Company to concentrations of
credit risk  consist of  temporary  cash  investments,  which from  time-to-time
exceed  the  Federal  depository  insurance  coverage  and  commercial  accounts
receivable.  The Company has cash investment policies that restrict placement of
these investments to financial  institutions  evaluated as highly  creditworthy.
Cash and cash equivalents  held in one bank exceed  federally  insured limits by
approximately  $6,772,000  at December  31,  2005.  The Company does not require
collateral on  commercial  accounts  receivable  as the customer base  generally
consists of large, well-established institutions.

Major Customers:

Two major customers  accounted for approximately 58%, 54% and 60% of net patient
service  revenue  for  the  years  ended  December  31,  2005,  2004  and  2003,
respectively.  In addition,  three customers represented  approximately 44%, 49%
and  44%  of  accounts   receivable  at  December  31,  2005,   2004  and  2003,
respectively.

Business Risks:

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

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

Cautionary Statement

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


                                      F-30


NOTE 13 - THIRD-PARTY RATE ADJUSTMENTS AND REVENUE AND
CERTAIN CONTRACTS RELATED TO OPERATIONS:

Approximately 4%, 4% and 5% of net patient service revenue was derived under New
York State Medicaid  reimbursement  programs during the years ended December 31,
2005,  2004 and 2003,  respectively.  These revenues are based, in part, on cost
reimbursement  principles and are subject to audit and  retroactive  adjustment.
Differences between current rates and subsequent  revisions are reflected in the
year that the  revisions  are  determined.  There was no  revenue  generated  by
BioBalance for the years ended 2005, 2004 and 2003.

The  Company  has an  agreement  with the City of New York  acting  through  the
Department of Social Services of The Human Resources  Administration  ("HRA") to
provide personal care services to certain qualified individuals as determined by
HRA. The agreement with HRA sets a fixed direct labor cost in the  reimbursement
rate.  Should the Company incur direct costs of home  attendant  services  below
this fixed rate, the Company must repay the difference to HRA,  subject to final
audit by the City of New York.  As of  December  31,  2005 and 2004,  the amount
included in due to HRA relating to direct  labor costs  amounted to $202,833 and
$844,950,  respectively.  In addition, the City's reimbursement  methodology for
general and administrative  expenses is based on a fixed amount per client based
on the number of cases.  The Company is reimbursed at an hourly rate. Any amount
over this fixed rate must be repaid to HRA.  As of  December  31, 2005 and 2004,
this amount was $5,957,079 and $4,419,745,  respectively, subject to final audit
by the City of New York.  The  aggregate  amount due to HRA was  $6,159,912  and
$5,264,695 at December 31, 2005 and 2004, respectively. As of December 31, 2005,
HRA had completed their audit for the fiscal year ended June 30, 2002.

In  January  2003,  the New York State  Department  of Health  ("DOH")  approved
additional funding to home healthcare agencies in a form of a rate increase. The
additional  funding is to be used  exclusively for the recruitment and retention
of home  healthcare  employees.  Any unspent money relating to  recruitment  and
retention is recorded as an accrued liability until such time as it is spent. As
of December 31, 2005 and 2004, the Company accrued approximately  $1,966,000 and
$1,716,000,  respectively,  related to recruitment  and retention  funds not yet
expended and are included in accrued employee benefits.


                                      F-31


NOTE 14- SUPPLEMENTAL CASH FLOW DISCLOSURES:




                                                Year Ended              Year Ended           Year Ended
                                                December 31,           December 31,         December 31,
                                                    2005                   2004                 2003
                                             ----------------         -------------          ----------
                                                                                    
Supplemental cash flow disclosures:

   Cash paid during the period for:
      Interest                                $        37,693         $       29,583         $    2,173
                                              ===============         ==============         ==========
      Income taxes                            $        70,888         $       49,608         $   58,465
                                              ===============         ==============         ==========
Supplemental schedule of noncash
investing and financing activities:

The Company purchased intangibles
which were partially acquired through
the issuance of 1,000,000 shares
of common stock. (See note 5)
                                              $            --         $           --         $3,600,000
                                              ===============         ==============         ==========
The Company issued Placement
Agent Warrants as part of the
Private Placement Offering                    $       624,705         $           --         $       --
                                              ===============         ==============         ===========


NOTE 15 - SEGMENT REPORTING:

The Company has two reportable  business segments:  New York Health Care, a home
health care agency that  provides a broad range of health care support  services
to patients in their  homes,  and  BioBalance,  a company  that is  developing a
patented  biotherapeutic agent for the treatment of gastrointestinal  disorders.
In the segment reporting which follows, revenue, loss from continuing operations
and total assets  excludes  Helping Hands,  which is part of the New York Health
Care segment. See Note 3 - Discontinued  Operations,  which includes the gain on
the sale of assets of approximately $2,700,000. BioBalance has not generated any
revenue as of September 30, 2005.



                                                                                             Elimination
                                                                                                 of
                                                     New York                                Intersegment          Total
                                                    Health Care         BioBalance            Activity          Consolidated
                                                  ---------------      ---------------      --------------      ------------
                                                                                                    
Year ended December 31, 2005
Revenue:
   Net patient service revenue                    $    44,722,823      $            --      $           --      $ 44,722,823
   Sales                                          $            --      $            --      $           --      $         --
                                                  ---------------      ---------------      --------------      ------------
     Total revenue                                $    44,722,823      $            --      $           --      $ 44,722,823
                                                  ===============      ===============      ==============      ============
Income (loss) continuing from continuing
 operations before provision for income taxes     $    (2,180,416)     $    (6,845,850)     $           --      $ (9,026,266)
                                                  ===============      ===============      ==============      ============
 Income from discontinued operations              $     2,783,232      $            --      $           --      $  2,783,232
                                                  ===============      ===============      ==============      ============
Depreciation and amortization                     $       102,381      $       549,771      $           --      $    652,152
                                                  ===============      ===============      ==============      ============
Interest income                                   $        69,785      $        33,118      $     (13,795)      $     89,108
                                                  ===============      ===============      ==============      ============
Interest expense                                  $       (24,135)     $       (13,795)     $     (13,795)      $    (24,135)
                                                  ===============      ===============      ==============      ============
Income tax expense                                $        81,281      $            --      $           --      $     81,281
                                                  ===============      ===============      ==============      ============
Noncash compensation                              $            --      $     1,223,661      $           --      $  1,223,661
                                                  ===============      ===============      ==============      ============
Assets                                            $    14,253,009      $     3,036,068      $           --      $ 17,289,077
                                                  ===============      ===============      ==============      ============
Expenditures for long lived assets                $        40,566      $        77,405      $           --      $    117,971
                                                  ===============      ===============      ==============      ============




                                      F-32





                                                                                          Elimination
                                                                                              of
                                                     New York                             Intersegment           Total
                                                   Health Care         BioBalance           Activity          Consolidated
                                                  -------------       -------------       -------------       ------------
                                                                                                  
Year ended December 31, 2004
Revenue:
   Net patient service revenue                    $  42,286,444       $          --       $          --       $ 42,286,444
   Sales                                          $          --       $          --       $          --       $         --
                                                  -------------       -------------       -------------       ------------
     Total revenue                                $  42,286,444       $          --       $          --       $ 42,286,444
                                                  =============       =============       =============       ============
 Income (loss) from continuing operations
before provision for income taxes                 $     304,360       $  (6,425,013)      $          --       $ (6,187,829)
                                                  =============       =============       =============       ============
 Income from discontinued operations              $      48,968       $          --       $          --       $     48,968
                                                  =============       =============       =============       ============
Depreciation and amortization                     $     107,296       $     712,591       $          --       $    819,887
                                                  =============       =============       =============       ============
Interest income                                   $      90,307       $       2,343       $     (22,773)      $     69,877
                                                  =============       =============       =============       ============
Interest expense                                  $     (29,538)       $     22,773       $     (22,773)      $    (29,538)
                                                  =============       =============       =============       ============
Income tax (benefit) expense                      $     (65,077)      $      (2,099)      $          --       $    (67,176)
                                                  =============       =============       =============       ============
Noncash compensation                              $          --       $    (365,822)      $          --       $   (365,822)
                                                  =============       =============       =============       ============
Assets                                            $  13,123,228       $   3,379,967       $          --       $ 16,503,195
                                                  =============       =============       =============       ============
Expenditures for long lived assets                $          --       $      77,805       $          --       $     77,805
                                                  =============       =============       =============       ============






                                                                                        Elimination
                                                                                            of
                                                   New York                             Intersegment          Total
                                                  Health Care         BioBalance          Activity        Consolidated
                                                  ------------        ------------       ----------       ------------
                                                                                              
Year ended December 31, 2003
Revenue:
   Net patient service revenue                    $ 38,569,627        $         --       $       --       $ 38,569,627
   Sales                                          $         --        $         --       $       --       $         --
                                                  ------------        ------------       ----------       ------------
     Total revenue                                $ 38,569,627        $         --       $       --       $ 38,569,627
                                                  ============        ============       ==========       ============
 Loss from continuing operations before
provision for income taxes                        $(17,451,758)       $ (4,642,572)      $       --       $(22,094,330)
                                                  ============        ============       ==========       ============
 Income from discontinued operations              $     68,305        $         --       $       --       $     68,305
                                                  ============        ============       ==========       ============
Depreciation and amortization                     $    166,487        $    381,184       $       --       $    547,671
                                                  ============        ============       ==========       ============
Interest income                                   $     35,720        $     15,535       $       --       $     51,255
                                                  ============        ============       ==========       ============
Interest expense                                  $     (2,173)       $         --       $       --       $     (2,173)
                                                  ============        ============       ==========       ============
Income tax (benefit) expense                      $     11,645        $     14,500       $       --       $     26,145
                                                  ============        ============       ==========       ============
Noncash compensation                              $         --        $  1,591,459       $       --       $  1,591,459
                                                  ============        ============       ==========       ============
Expenditures for long lived assets                $     12,245        $  4,061,092       $-               $  4,073,337
                                                  ============        ============       ==========       ============



                                      F-33


NOTE 16 - QUARTERLY FINANCIAL DATA (UNAUDITED):

The following table summarizes the unaudited quarterly  statements of operations
for the  Company  for 2005 and 2004.  Net  patient  service  revenue and cost of
professional  care  of  patients  is  related  to the  healthcare  segment.  The
following  table includes the activity of Helping Hands,  which is recorded as a
discounted operations, see note 3.




                                                         Cost of
                               Net Patient           Professional Care           Loss from             Basic and
              2005           Service Revenue            of Patients              Operations           Diluted EPS
              ----           ---------------          ---------------          ---------------      ---------------
                                                                                          
         First quarter          $12,462,405            $10,024,030               $(958,269)           $ (0.03)
         Second quarter          10,913,774              9,010,914              (1,080,318)             (0.03)
         Third quarter           11,497,791              9,544,957              (3,850,894)             (0.12)
         Fourth quarter           9,848,853              8,500,355                (422,970)(1)          (0.01)


              2004
              ----
         First quarter          $11,506,458            $ 9,187,896             $ (1,227,584)          $ (0.05)
         Second quarter          12,171,007              9,807,932               (1,162,071)            (0.05)
         Third quarter           12,397,208              9,961,241               (1,013,904)            (0.04)
         Fourth quarter          12,779,685             10,257,147               (2,668,126)(2)         (0.11)



      (1) In the fourth quarter of 2005, the Company entered into two settlement
      agreements  and has  recorded  an  expense  of  $1,761,931.  (See Note 1 -
      Company Developments)

      (2) In the  fourth  quarter  of 2004,  it was  determined  that the NexGen
      intangible assets were impaired by $1,740,326 as a result of an impairment
      analysis performed. See Note 5.


                                      F-34


                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS




Column A                                 Column B                  Column C                  Column D         Column E
- --------                                 --------                  --------                  --------         --------
                                                                            Additions
                                         Balance at          Charged to    Charged to
                                         Beginning           Costs and       Other                            Balance at
Description                              of Period            Expenses      Accounts        Deductions       End of Period
- -----------                              ---------           ----------    ----------       ----------      --------------
                                                                                               
Year ended December 31, 2005
Deducted from asset accounts:
  Allowance for doubtful accounts        $  460,000       $  267,059        $       --       $ (262,059)       $  465,000
  Deferred tax asset valuation
  allowance                              $4,659,000       $  584,000        $   33,000       $       --        $5,276,000

Year ended December 31, 2004
Deducted from asset accounts:
  Allowance for doubtful accounts        $  397,000       $   90,400        $       --       $  (27,400)       $  460,000
  Deferred tax asset valuation
   allowance                             $1,859,000       $2,800,000        $       --       $       --        $4,659,000




*Cash collected in excess of the estimated fair value of accounts receivable of
New York Health Care acquired in the reverse merger, offset by an additional
equal amount of $347,000.


                                      F-35



                                   SIGNATURES

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

April 17, 2004
                                        NEW YORK HEALTH CARE, INC.

                                        /s/ Dennis O'Donnell
                                        ----------------------------------------
                                        By:  Dennis O'Donnell
                                        Chief Executive Officer and
                                        Principal Financial Officer

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




SIGNATURE                           TITLE                                           DATE
- ---------                           -----                                           ----

                                                                          
/s/ Dennis M.O'Donnell              President and Chief Executive Officer       April 17, 2006
- -----------------------------       and Principal Financial Officer
Dennis M. O'Donnell

/s/ Murry Englard                   Director                                    April 17,2006
- ------------------------------
Murry Englard

/s/  Michael Nafash                 Director                                    April 17, 2006
- ------------------------------
Michael Nafash

/s/ Stuart Ehrlich                  Director                                    April 17, 2006
- ------------------------------
Stuart Ehrlich





                                INDEX TO EXHIBITS

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

Exhibit
Number    Description of Exhibit
- --------  ----------------------

2.1         Stock for Stock Exchange Agreement between the Company and
            BioBalance dated October 11, 2001, as amended by Amendment No. 1
            dated February 13, 2002, Amendment No. 2 dated July 10, 2002,
            Amendment No. 3 dated August 13, 2002 and Amendment No. 4 dated
            October 25, 2002 (Incorporated by reference to Exhibits No. 2.1-2.4,
            inclusive, to the Company's Registration Statement on Form S-4, SEC
            File No. 333-85054).
2.2         Asset Purchase Agreement dated as of April 11, 2005 by and among
            Accredited Health Services, Inc., the Company and NYHC Newco Paxxon
            Inc. (Incorporated by reference to Exhibit 2.1 to the Company's Form
            8-K filed on May 26, 2005).
3.1         Restated Certificate of Incorporation filed on March 26, 1996.
            (Incorporated by reference to Exhibit 3.2 to the Company's
            Registration Statement on Form SB-2, SEC File No. 333-08152,
            declared effective on December 20, 1996).
3.2         Certificate of Correction of Restated Certificate of Incorporation
            filed on March 26, 1996. (Incorporated by reference to Exhibit 3.3
            to the Company's Registration Statement on Form SB-2, SEC File No.
            333-08152, declared effective on December 20, 1996).
3.3         Amendment to the Certificate of Incorporation filed October 17,
            1996. (Incorporated by reference to Exhibit 3.4 to the Company's
            Registration Statement on Form SB-2, SEC File No. 333-08152,
            declared effective on December 20, 1996).
3.4         Amendment to the Certificate of Incorporation filed December 4,
            2006. (Incorporated by reference to Exhibit 3.6 to the Company's
            Registration Statement on Form SB-2, SEC File No. 333-08152,
            declared effective on December 20, 1996).
3.5*        Amendment to the Certificate of Incorporation filed February 5,
            2001.
3.6*        Amendment to the Certificate of Incorporation filed January 7, 2002.
3.7         Certificate of Amendment to the Restated Certificate of
            Incorporation filed on September 10, 2004 (Incorporated by reference
            to Exhibit 3.1 to the Company's 8-K filed on September 15, 2004).
3.8         Amended and Restated Bylaws (Incorporated by reference to Appendix B
            to the Company's Definitive Proxy Statement on Schedule 14A filed on
            August 5, 2005 with respect to the Company's Annual Meeting of
            Stockholders held on August 31, 2005).
4.1         Form of certificate evidencing shares of Common Stock. (Incorporated
            by reference to Exhibit 4.1 to the Company's Registration Statement
            on Form SB-2, SEC File No. 333-08152, declared effective on December
            20, 1996).


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


10.16       Placement Agreement between the Company and Sterling Financial
            Investment Corp., Inc. dated November 19, 2004. (Incorporated by
            reference to Exhibit 10.1 to the Company's Form 8-K filed on
            November 23, 2004).
10.18       Amendment dated February 7, 2005 to the Placement Agreement between
            the Company and Sterling Financial Group, Inc. dated November 19,
            2004. (Incorporated by reference to Exhibit 10.2 to the Company's
            Form 10-Q filed on May 23, 2005 for the quarter ended March 31,
            2005).
10.19       Amendment dated February 18, 2005 to the Placement Agreement between
            the Company and Sterling Financial Group, Inc. dated November 19,
            2004. (Incorporated by reference to Exhibit 10.3 to the Company's
            Form 10-Q filed on May 23, 2005 for the quarter ended March 31,
            2005).
10.19       State of New York Department of Health Office of Health Systems
            Management Home Care Service Agency License for the Company doing
            business in Rockland, Westchester and Bronx Counties dated May 8,
            1995. (Incorporated by reference to Exhibit 10.8 to the Company's
            Registration Statement on Form S-4, SEC File No. 333-85054).
10.20       State of New York Department of Health Office of Health Systems
            Management Home Care Service Agency License for the Company doing
            business in Dutchess, Orange, Putnam, Sullivan and Ulster Counties
            dated May 8, 1995. (Incorporated by reference to Exhibit 10.9 to the
            Company's Registration Statement on Form S-4, SEC File No.
            333-85054).
10.21       State of New York Department of Health Office of Health Systems
            Management Home Care Service Agency License for the Company doing
            business in Nassau, Suffolk and Queens Counties dated May 8, 1995.
            (Incorporated by reference to Exhibit 10.10 to the Company's
            Registration Statement on Form S-4, SEC File No. 333-85054).
10.22       State of New York Department of Health Office of Health Systems
            Management Home Care Service Agency License for the Company doing
            business in Orange and Rockland Counties dated July 1, 1995.
            (Incorporated by reference to Exhibit 10.11 to the Company's
            Registration Statement on Form S-4, SEC File No. 333-85054).
10.23       Personal Care Aide Agreement by and between the Company and Nassau
            County Department of Social Services dated October 18, 1995.
            (Incorporated by reference to Exhibit 10.15 to the Company's
            Registration Statement on Form S-4, SEC File No. 333-85054).
10.24       State of New York Department of Health Offices of Health Systems
            Management Home Care Service Agency License for the Company doing
            business in Bronx, Kings, New York, Queens and Richmond Counties
            dated December 29, 1995. (Incorporated by reference to Exhibit 10.17
            to the Company's Registration Statement on Form S-4, SEC File No.
            333-85054).
10.25       Homemaker and Personal Care Agreements by and between the Company
            and the County of Rockland Department of Social Services dated
            January 1, 1996. (Incorporated by reference to Exhibit 10.19 to the
            Company's Registration Statement on Form S-4, SEC File No.
            333-85054).


10.25       Termination Agreement and Release among the Company, NYHC Newco
            Paxxon, Inc., New York Health Care, LLC, Jerry Braun and Jacob
            Rosenberg dated July 27, 2005. (Incorporated by reference to Exhibit
            10.1 to the Company's Form 8-K filed on August 10, 2005).
10.26       Settlement Agreement among Corval International, Inc., Mark
            Olshenitsky and the Company dated March 9, 2006. (Incorporated by
            reference to Exhibit 10.2 to the Company's Form 8-K filed on March
            10, 2006).
10.27       Settlement Agreement among Emerald Asset Management, Inc., Yitz
            Grossman and the Company dated March 1, 2006. (Incorporated by
            reference to Exhibit 10.4 to the Company's Form 8-K filed on March
            10, 2006).
14.1        Code of Ethics for Senior Financial Officers. (Incorporated by
            reference to Exhibit 14.1 of the Company's Form 10-K filed on March
            31, 2004 for the fiscal year ended December 31, 2003.
23.1*       Consent of Weiser LLP.
31.1*       Certification of Chief Executive Officer and Principal Financial
            Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*       Certification of Chief Executive Officer and Principal Financial
            Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
            906 of the Sarbanes- Oxley Act of 2002.
- -------------------

*     Filed herewith.

++    Compensation plan.

EX-3.5

            AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF NEW YORK
                                HEALTH CARE INC.
                Under Section 805 of the Business Corporation Law

The undersigned, being respectively, the president and secretary of the
corporation, hereby certify as follows:

FIRST: The name of the corporation is NEW YORK HEALTH CARE INC.

SECOND: The date when the Certificate of Incorporation was filed by the
Department of State is the twenty fourth day of February 1983.

THIRD: The date when the Restated Certificate of Incorporation was filed by the
Department of State is the twenty-six day of March, 1996.

FOURTH: A. The text of Paragraph (3)(a) of the Certificate of lncorporation is
amended to increase the authorized common from 12,500,000 common shares at $.01
par value to 50,000,000 common shares at $.01 par value, and is to read as
follows:

        (3)(a) The corporation shall be authorized to issue the following
            shares:

                  Class                   Number of Shares       Par Value
                  ----------------        ----------------       ----------
                  Common                     50,000,000             $.01
                  Preferred                   2,000,000             $.01

        B.  A new paragraph, Paragraph (7) is added to the text of the
            Certificate of Incorporation to read as follows:

            (7)   The shareholders of the corporation may act, without a
                  meeting, by a vote on written consent signed by the holders of
                  a sufficient number of outstanding shares to constitute not
                  less than the minimum number of votes which would be necessary
                  to authorize or take such action at a shareholders meeting at
                  which all shares entitled to vote were present and voted.

FIFTH: This Amendment to the Restated Certificate of Incorporation was
authorized at a meeting of the shareholders by the majority vote of the holders
of all of the outstanding shares entitled to vote thereon. Said authorization is
subsequent to the affirmative vote of the Board of Directors.

IN WITNESS THEREOF, we hereunto sign our names and affirm that the statements
made herein are true under the penalties of perjury, this 9th day of January
2001.

NEW YORK HEALTH CARE INC.


/s/ Jerry Braun
- -------------------------------------
Jerry Braun, President

/s/ Jacob Rosenberg
- -------------------------------------
Jacob Rosenberg, Secretary

EX-3.6

              CERTIFICATE OF AMENDMENT OF INCORPORATION OF NEW YORK
                                HEALTH CARE INC.
                Under Section 805 of the Business Corporation Law

The undersigned, being respectively, the president and secretary of the
corporation, hereby certify as follows:

FIRST: The name of the corporation is NEW YORK HEALTH CARE INC.

SECOND: The date when the Certificate of Incorporation was filed by the
Department of State is the twenty fourth day of February 1983.

THIRD: The Certificate of Incorporation is hereby amended:

           (a) to change the currently authorized and issued 3,750,000 shares of
               common stock ("Old Common Stock ) par value $.01 into 2,500,000
               authorized and issued shares of common stock ("New Common Stock")
               par value $.01 each on a one (1) share of Old Common Stock for
               two thirds (2/3) of a share of New Common Stock basis, and;
           (b) to change the currently authorized but unissued 46,250,000 shares
               of common stock par value $.01 into 97,500, 000 authorized but
               unissued shares of common stock par value $.01, on a (1) share of
               Old Common Stock for 2.1081 shares of New Common Stock basis; and
           (c) to increase the number of preferred shares that the corporation
               shall have authority to issue by 3 000000 preferred shares par
               value $.01 each.

               To accomplish the foregoing, paragraph 3 of the Certificate of
               Incorporation relating to the authorized shares of the
               corporation, shall be amended to read in its entirety as
               follows:

                       (3) The corporation shall be authorized to issue the
               following shares:

                        Class                Number of Shares       Par Value
                        -------------        ----------------       ----------
                        Common                  100,000,000            $.01
                        Preferred                 5,000,000            $.01




FOURTH:     Each holder of a certificate or certificates representing
            outstanding shares of Old Common Stock (the "Old Certificates"
            whether one or more) shall be entitled to receive upon surrender of
            such Old Certificates to the corporation's transfer agent for
            cancellation a certificate or certificates (the "New Certificates"
            whether one or more) representing the number of whole shares of the
            new Common Stock into which and for which the shares of the Old
            Common Stock, formerly represented by such Old Certificates so
            surrendered, are reclassified under the terms hereof. Old
            Certificates shall represent only the right to receive New
            Certificates (and where applicable, cash in lieu of fractional
            shares, as provided below) pursuant to the provisions hereof. No
            certificate or scrip representing fractional share interests in New
            Common Stock will be issued, and no such fractional share interest
            will entitle the holder thereof to vote, or to any rights of a
            shareholder of the corporation. A holder of Old Certificates shall
            receive to lieu of any fraction of a share of New Common Stock to
            which the holder would otherwise be entitled, a cash payment
            therefore on the basis of the closing price of the Old Common Stock
            on the Nasdaq SmallCap Market on January 2, 2003. The corporation
            may retain a third party to collect and pool fractional share
            interests, sell the same, and return payment to the holders of the
            interests. In that event, the cash payment may be based on the sale
            price of the pooled fractional interests which maybe more or less
            then the closing price of the Old Common Stock on the Nasdaq
            SmallCap Market on January 2, 2003. If more than one Old Certificate
            shall be surrendered at any one time for the account of the
            shareholder, the number of full shares of New Common Stock for which
            New Certificates shall be issued shall be computed on the basis of
            the aggregate number of shares represented by the Old Certificates
            so surrendered. In the event the corporation's transfer agent
            determines that a holder of Old Certificates has not tendered all
            his certificates for exchange, the transfer agent shall carry
            forward any fractional share until all certificates of that holder
            have been presented for exchange such that payment for fractional
            shares to any one person shall not exceed the value of one share. If
            any New Certificate is to be issued in a name other that that in
            which the Old Certificates surrendered for exchange are issued, the
            Old Certificate so surrendered shall be properly endorsed and
            otherwise in proper form for transfer and the person or persons
            requesting such exchange shall affix any requisite stock transfer
            tax stamps to the Old Certificates surrendered, or provide funds for
            their purchase or establish to the satisfaction of the transfer
            agent that such taxes are not payable. The amount of capital
            represented by the shares of the New Common Stock into which and for
            which the shares of the Old Common Stock are reclassified under the
            terms hereof shall be the same as the amount of capital represented
            by the shares of Old Common Stock so reclassified until thereafter
            reduced or increased in accordance with applicable law.

FIFTH:      This Amendment to the Restated Certificate of Incorporation was
            authorized at a meeting of the shareholders by the majority vote of
            the holders of all of the outstanding shares entitled to vote
            thereon. Said authorization is subsequent to the affirmative vote of
            the Board of Directors.



IN WITNESS THEREOF, we hereunto sign our names and affirm that the statements
made herein are true under the penalties of perjury, this 31st day of December
2002.

NEW YORK HEALTH CARE INC.


/s/ Jerry Braun
- -------------------------------------
Jerry Braun, President

/s/ Jacob Rosenberg
- -------------------------------------
Jacob Rosenberg, Secretary

EX-10.14

EX-23.1

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We consent to the incorporation by reference in the registration statements on
Form s-3/a (No. 333-108761) and S-8 filed on September 11 2003 of New York
Health Care, Inc. and Subsidiaries of our report dated April 17, 2006, with
respect to the consolidated balance sheet of New York Health Care, Inc. and
Subsidiaries as of December 31, 2005 and 2004, and the related consolidated
statements of operations, stockholders, equity and cash flows for the years
ended December 31, 2005, and 2004 and 2003, which report appears in the December
31, 2005 annual report of Form 10-k of New York Health Care, Inc. and
Subsidiaries.


/s/ Weiser LLP
Weiser LLP

New York, New York
April 17, 2006

EX-31.1

Exhibit 31.1

                                  Certification
            Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Dennis O'Donnell, who served as the Chief Executive Officer and Principal
Financial Officer during the period covered by this Form 10-K certify that:

1.      I have reviewed this annual report on Form 10 of New York Health Care,
        Inc.;

2.      Based on my knowledge, this report does not contain any untrue statement
        of a material fact or omit to state a material fact necessary to make
        the statements made, in light of the circumstances under which such
        statements were made, not misleading with respect to the period covered
        by this report;

3.      Based on my knowledge, the financial statements, and other financial
        information included in this report, fairly present in all material
        respects the financial condition, results of operations and cash flows
        of the registrant as of, and for, the periods presented in this report;

4       As the certifying officer in both the capacity of Chief Executive
        Officer and Principal Financial Officer I am responsible for
        establishing and maintaining disclosure controls and procedures (as
        defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
        registrant and have:

        (a) designed such disclosure controls and procedures, or caused such
        disclosure controls and procedures to be designed under our
        supervision, to ensure that material information relating to the
        registrant, including its consolidated subsidiaries, is made known to
        us by others within those entities, particularly during the period in
        which this report is being prepared;

        (b) evaluated the effectiveness of the registrant's disclosure controls
        and procedures and presented in this report our conclusions about the
        effectiveness of the disclosure controls and procedures, as of the end
        of the period covered by this report based on such evaluation; and

        (c) disclosed in this report any change in the registrant's internal
        control over financial reporting that occurred during the registrant's
        fourth fiscal quarter that has materially affected, or is reasonably
        likely to materially affect, the registrant's internal control over
        financial reporting.

5.      I have disclosed, based on my most recent evaluation of internal
        control over financial reporting, to the registrant's auditors and the
        audit committee of the registrant's board of directors (or persons
        performing the equivalent functions):

        (a) All significant deficiencies and material weaknesses in the design
        or operation of internal control over financial reporting which are
        reasonably likely to adversely affect the registrant's ability to
        record, process, summarize and report financial information; and

        (b) Any fraud, whether or not material, that involves management or
        other employees who have a significant role in the registrant's
        internal control over financial reporting.


Dated:  April 14, 2006               By:  /s/ Dennis O'Donnell
                                          --------------------------------------
                                          Dennis O'Donnell
                                          Chief Executive Officer and Principal
                                          Financial Officer

EX-32.1

                                                                    Exhibit 32.1

    Certification of Chief Executive Officer and Principal Financial Officer
                                   Pursuant to
                             18 U.S.C. Section 1350,
                             as Adopted Pursuant to
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the annual report of New York Health Care, Inc. (the
"Company") on Form 10-K for the period ended December 31, 2005 as filed with the
Securities and Exchange Commission (the "Report"), I, Dennis O'Donnell, Chief
Executive Officer and Principal Financial Officer of the Company during the
period covered by this Form 10-K hereby certify as of the date hereof, solely
for purposes of Title 18, Chapter 63, Section 1350 of the United States Code,
that to the best of my knowledge:

      (1) the Report fully complies with the requirements of Section 13(a) or
      15(d), as applicable, of the Securities Exchange Act of 1934, and

      (2) the information contained in the Report fairly presents, in all
      material respects, the financial condition and results of operations of
      the Company at the dates and for the periods indicated.



Dated:  April 14, 2006               By:  /s/ Dennis O'Donnell
                                          --------------------------------------
                                          Dennis O'Donnell
                                          Chief Executive Officer and Principal
                                          Financial Officer