content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                     For the quarterly period ended July 1, 2001
  
                             Commission File No. 1-15669
  
                            Gentiva Health Services, Inc.
               (Exact name of Registrant as specified in its charter)
  
  
              DELAWARE                                      36-433-5801
              --------                                      -----------
   (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                       Identification No.)
  
  
                 3 Huntington Quadrangle 2S, Melville, NY 11747-8943
                 ---------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
  
           Registrant's telephone number, including area code:  (631) 501-7000
  
  
       Indicate by check mark whether the registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that 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
  
         The number of shares outstanding of the Registrant's Common Stock,
                        as of August 9, 2001 was 23,049,907.
  
  
  <PAGE>
  
  
                                        INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
       Item 1. Financial Statements
  
               Consolidated Balance Sheets - July 1, 2001 (Unaudited)
               and December 31, 2000                                         2
  
               Consolidated Statements of Income (Unaudited) -  Three and
               Six Months Ended July 1, 2001 and July 2, 2000                3
  
               Consolidated Statements of Cash Flows (Unaudited) -  Six
               Months Ended July 1, 2001 and July 2, 2000                    4
  
               Notes to Consolidated Financial Statements (Unaudited)        5-14
  
       Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations                           15-20
  
       Item 3. Quantitative and Qualitative Disclosures about Market Risk    20
  
  PART II - OTHER INFORMATION
  
       Item 1. Legal Proceedings                                             21-23
  
       Item 2. Change in Securities and Use of Proceeds                      23
  
       Item 3. Defaults Upon Senior Securities                               23
  
       Item 4. Submission of Matters to a Vote of Security Holders           23
  
       Item 5. Other Information                                             23-24
  
       Item 6. Exhibits and Reports on Form 8-K                              24-27
  
  SIGNATURES                                                                 28
  
  
  
  <PAGE>
  
  
  
  
                           PART I - FINANCIAL INFORMATION
  
  Item 1.           Financial Statements.
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
  
                                                                   July 1, 2001     December 31, 2000
                                                                 ----------------- --------------------
  ASSETS                                                           (Unaudited)
  
  Current assets:
  
  <S>                                                            <C>                <C>
         Cash and cash equivalents                               $   77,070          $    452
  
         Receivables, less allowance for doubtful accounts
         of $91,222 and $105,962, respectively                      384,896           419,178
  
         Inventories                                                 48,813            51,111
  
         Prepaid expenses and other current
         assets                                                      46,723            50,333
                                                                 ----------------- --------------------
              Total current assets                                  557,502           521,074
  
  Fixed assets, net                                                  31,252            36,961
  
  Intangible assets, net                                            225,474           230,702
  
  Other assets                                                       17,534            16,747
                                                                 ----------------- --------------------
              Total assets                                        $ 831,762         $ 805,484
                                                                 ================= ====================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current liabilities:
  
         Accounts payable                                         $ 71,566          $  74,083
  
         Accrued expenses                                           61,086             50,682
  
         Payroll and related taxes                                  19,112             17,305
  
         Insurance costs                                            28,136             30,320
                                                                 ----------------- --------------------
              Total current liabilities                            179,900            172,390
  
  Other liabilities                                                 47,344             46,945
  
  Gentiva - obligated mandatorily redeemable
    convertible securities of a subsidiary holding solely
    Gentiva debentures                                              19,400             20,000
  
  Shareholders' equity:
  
         Common stock, $.10 par value; authorized
         100,000,000 shares; issued and outstanding
         22,995,058 and 21,196,693 shares, respectively              2,300              2,120
  
         Additional paid-in capital                                699,774            689,163
  
         Accumulated deficit                                      (116,140)          (124,570)
  
         Accumulated other comprehensive loss                         (816)              (564)
                                                                 ----------------- --------------------
              Total shareholders' equity                           585,118            566,149
                                                                 ----------------- --------------------
  
              Total liabilities and
              shareholders' equity                               $ 831,762          $ 805,484
                                                                 ================= ====================
  </TABLE>
  
  See notes to consolidated financial statements.
  
                                        -2-
  
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                          Consolidated Statements of Income
                      (In thousands, except per share amounts)
                                     (Unaudited)
  
  
                                                 Three Months Ended                    Six Months Ended
                                          ----------------------------------  -----------------------------------
                                           July 1, 2001     July 2, 2000        July 1, 2001      July 2, 2000
                                          --------------  ------------------  ----------------  -----------------
  
  <S>                                     <C>              <C>                  <C>                <C>
  Net revenues                            $335,444         $383,270             $692,622           $767,877
  
  Cost of services sold                    221,809          254,646              462,557            510,751
                                          --------------  ------------------  ----------------  -----------------
       Gross profit                        113,635          128,624              230,065            257,126
  
  Selling, general and administrative
  expenses                                 110,964          122,785              220,349            250,317
  
  Interest expense, net                        152            2,112                  585              6,348
                                          --------------  ------------------  ----------------  -----------------
       Income before income taxes            2,519            3,727                9,131                461
  
  Income tax expense                           201            1,556                  701                196
                                          --------------  ------------------  ----------------  -----------------
  
       Net income                         $  2,318         $  2,171            $   8,430           $    265
                                          ==============  ==================  ================  =================
  
  Net income per share:
  
       Basic                              $   0.10         $   0.11            $    0.39           $   0.01
                                          ==============  ==================  ================  =================
       Diluted                            $   0.10         $   0.10            $    0.36           $   0.01
                                          ==============  ==================  ================  =================
  
  Average shares outstanding:
  
       Basic                                22,265           20,513               21,859             20,429
                                          ==============  ==================  ================  =================
       Diluted                              23,859           21,823               23,382             21,681
                                          ==============  ==================  ================  =================
  
  </TABLE>
  
  See notes to consolidated financial statements.
  
                                        -3-
  
  <PAGE>
  
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
  
                                                                          Six Months Ended
                                                                 ------------------------------------
                                                                   July 1, 2001      July 2, 2000
                                                                 ------------------------------------
  OPERATING ACTIVITIES:
  <S>                                                            <C>                <C>
  Net income                                                     $  8,430           $     265
  
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  
      Depreciation and amortization                                13,625              16,141
  
      Provision for doubtful accounts                              18,550              16,917
  
      Gain on sale/disposal of assets                                (167)                 -
  
      Changes in assets and liabilities:
  
              Accounts receivable                                  15,732             (45,829)
  
              Inventories                                           2,298              18,726
  
              Prepaid expenses and other current
              assets                                                3,610                (899)
  
              Current liabilities                                  (2,989)            (48,696)
  
              Other, net                                             (640)              1,834
                                                                 ------------------------------------
  
  Net cash provided by (used in) operating
  activities                                                       58,449             (41,541)
                                                                 ------------------------------------
  
  INVESTING ACTIVITIES:
  Purchase of fixed assets                                         (2,796)             (3,620)
  
  Proceeds from sale of assets                                        275                  -
                                                                 ------------------------------------
  Net cash used in investing
  activities                                                       (2,521)             (3,620)
                                                                 ------------------------------------
  
  FINANCING ACTIVITIES:
  Proceeds from issuance of common stock                           10,191               1,234
  
  Issuance of mandatorily redeemable and other
  securities                                                           -               20,100
  
  Net transactions with Olsten                                         -                5,226
  
  Proceeds from revolving credit facility                              -               26,191
  
  Debt issuance costs                                                  -               (2,564)
  
  Increase (decrease) in book overdrafts                          (10,379)              3,856
  
  Retirement of debt                                                   -               (9,525)
  
  Advances from Medicare program                                   20,878                  -
                                                                 ------------------------------------
  Net cash provided by financing activities                        20,690              44,518
                                                                 ------------------------------------
  
  Net increase (decrease) in cash and cash
  equivalents                                                      76,618                (643)
  
  Cash and cash equivalents at beginning of
  period                                                              452                2,942
                                                                 ------------------------------------
  Cash and cash equivalents at end of period                     $ 77,070          $     2,299
                                                                 ====================================
  </TABLE>
  
  See notes to consolidated financial statements.
  
  
                                        -4-
  <PAGE>
  
  
                   Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") pursuant
  to the rules and regulations of the Securities and Exchange Commission and, in
  the opinion of management, include all adjustments necessary for a fair
  presentation of results of operations, financial position and cash flows for
  each period presented. Results for interim periods are not necessarily
  indicative of results for a full year. The year-end balance sheet data was
  derived from audited financial statements, but does not include all disclosures
  required by accounting principles generally accepted in the United States of
  America.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company and its subsidiaries were split-off (the
  "Split-off") from Olsten Corporation ("Olsten") through the issuance of all of
  the Company's shares of common stock to Olsten's shareholders and the Company
  became an independent, publicly-owned company. Prior to the Split-off, the
  Company operated Olsten's health services business as a wholly-owned subsidiary
  of Olsten.
  
       The accompanying interim consolidated financial statements for periods
  prior to or including March 15, 2000 reflect the results of operations,
  financial position and cash flows of the Company as if it were a separate entity
  for all periods presented. Such consolidated financial statements have been
  prepared using the historical basis in the assets and liabilities and historical
  results of operations related to the Company.
  
       The Company's selling, general and administrative expenses included a
  management fee of approximately $1.0 million for the first six months of fiscal
  2000. This fee represented an allocation of certain general corporate overhead
  expenses related to Olsten's corporate headquarters. Management believes the
  allocations related to general corporate overhead expenses were reasonable;
  however, the costs charged to the Company were not necessarily indicative of the
  costs that would have been incurred if the Company had been a stand-alone entity
  during the period for which such expenses were allocated. Subsequent to the
  Split-off, the Company began to perform these functions using its own resources
  or purchased services.
  
       Net interest expense as presented in the consolidated statement of income
  included net interest expense of approximately $2.7 million for the first six
  months of fiscal 2000 relating to the intercompany balances with Olsten. Such
  intercompany balances were reflected as a contribution to capital as of the
  Split-off date.
  
  
  
                                        -5-
  <PAGE>
  
       3. Earnings per Share
  
       Basic net income per share for each period presented has been computed by
  dividing net income by the weighted average number of shares outstanding for
  each respective period. Diluted net income per share for each period presented
  has been computed using the weighted average number of common and dilutive
  common equivalent shares outstanding.
  
       For the second quarter and first six months of fiscal 2001, the weighted
  average numbers of shares outstanding were 22,265,000 and 21,859,000,
  respectively. Dilutive common equivalent shares represented 1,594,000 shares for
  the second quarter and 1,523,000 shares for the six month period that would be
  issued upon the assumed exercise of approximately 2.8 million stock options
  under the treasury stock method.
  
       For the second quarter and first six months of fiscal 2000, the weighted
  average numbers of shares outstanding were 20,513,000 and 20,429,000,
  respectively. Dilutive common equivalent shares represented 1,310,000 shares for
  the second quarter and 1,252,000 shares for the six month period that would be
  issued upon the assumed conversion of stock options under the treasury stock
  method.
  
       The computation of diluted net income per share excluded the effect of
  approximately 2.1 million shares issuable upon the conversion of the 10 percent
  convertible preferred trust securities for the quarter and year to date fiscal
  2001 and 2000 periods since the increase in net income resulting from the
  exclusion of after-tax interest expense relating to these securities and the
  increase in shares outstanding resulting from conversion would have an
  antidilutive effect on earnings. For the fiscal 2000 periods, shares issuable
  upon the conversion of the 4 3/4 percent convertible subordinated debentures,
  which matured and were retired in October 2000, were also excluded from the
  diluted net income per share computation because of their antidilutive effect on
  earnings.
  
       4. Restructuring and Special Charges
  
       During the second quarter of fiscal 2001, the Company recorded special
  charges of approximately $3.0 million in connection with the settlement of the
  Gile v. Olsten Corporation, et al, and the State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc. lawsuits and for various other
  legal costs. These legal matters are further discussed in Note 8. These special
  charges are reflected in selling, general and administrative expenses in the
  accompanying consolidated statement of income.
  
       During the six months ended July 2, 2000, the Company recorded special
  charges aggregating $6.8 million which were reflected in selling, general and
  administration expenses in the accompanying statement of income. Of this amount,
  charges of $4.1 million were incurred to reflect obligations resulting from the
  Company's Split-off from Olsten and transition costs associated with the
  establishment of the Company as an independent, publicly-owned entity. These
  special charges included change of control and compensation and benefit payments
  of $3.6 million made to certain former employees of the Company and Olsten and a
  
  
                                        -6-
  <PAGE>
  
  current executive officer of the Company, and transition costs of $0.5 million
  relating to registration costs, professional fees and other items.
  
       In addition, special charges of $1.2 million in the second quarter and $2.7
  million in the first six months of fiscal 2000 were incurred in connection with
  the change of the Company's name to Gentiva Health Services, Inc. These special
  charges primarily consisted of costs incurred and paid for consulting fees,
  promotional items and advertising.
  
       The Company recorded charges of $5.5 million in the fourth quarter of
  fiscal 2000 in connection with a restructuring of certain business operations.
  As of December 31, 2000 and July 1, 2001, the unpaid portion of these
  restructuring charges aggregated $3.4 million and $1.8 million, respectively, as
  a result of cash payments made during the six month period.
  
       5. Current Liabilities
  
       In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the Interim
  Payment System to the Prospective Payment System for Medicare reimbursement.
  Such advances are expected to be repaid during the first quarter of fiscal 2002.
  In the first quarter of fiscal 2001, the Company received a cash advance, net of
  payments for estimated settlements relating to cost report filings, of
  approximately $20.9 million which was reflected in accrued expenses in the
  accompanying consolidated balance sheet as of July 1, 2001.
  
       6. Cash and Revolving Credit Facility
  
       As of July 1, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.7 million under the Company's
  $150 million amended revolving credit facility which expires in 2004. The
  Company was in compliance with the financial covenants of the credit facility as
  of July 1, 2001.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. As of July 1, 2001, a
  supersedeas bond in the amount of $35.2 million was posted to satisfy the
  judgment plus interest. Under the terms of the bond, cash equal to the amount of
  the bond is held in a segregated account as collateral for the bond and the
  interest relating thereto accrues to the Company. The cash in the segregated
  account is reflected in cash and cash equivalents in the accompanying
  consolidated balance sheet. At its discretion, the Company may substitute a
  letter of credit for the segregated cash to collateralize the bond.
  
  
                                        -7-
  <PAGE>
  
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the six months ended July 1, 2001
  were as follows (in thousands):
  
  
  
  <TABLE>
  <CAPTION>
                                                       Common     Additional     Accumulated      Accumulated       Total
                                                        Stock       Paid-in        Deficit           Other
                                                                    Capital                      Comprehensive
                                                                                                     Loss
                                                     ------------ ------------ ---------------------------------- -----------
  
  <S>                                                <C>           <C>           <C>              <C>             <C>
  Balance at December 31, 2000                       $2,120        $689,163      $(124,570)       $   (564)       $  566,149
  
     Comprehensive income:
        Net income                                                                   8,430                             8,430
  
        Unrealized loss on investments                                                                (252)             (252)
  
     Issuance of stock upon conversion of
       convertible preferred trust securities             6             594                                              600
  
     Issuance of stock upon exercise of stock
     options and under stock plans for employees
       and directors                                    174          10,017                                           10,191
                                                     ------------ ------------ ---------------------------------- -----------
  
  Balance at July 1, 2001                            $2,300        $699,774      $ (116,140)       $   (816)       $ 585,118
                                                     ============ ============ ================================== ===========
  </TABLE>
  
       Total comprehensive income amounted to $2.7 million and $2.1 million during
  the second quarter of fiscal 2001 and 2000, respectively, and $8.2 million and
  $0.3 million during the first six months of fiscal 2001 and 2000, respectively.
  
       In June 2001, the Company issued 64,383 shares of common stock upon the
  conversion of $0.6 million of the convertible preferred trust securities at a
  conversion price of $9.319219.
  
       8. Legal Matters
  
  Litigation
  
       In addition to the matters referenced below, the Company is party to
  certain legal actions arising in the ordinary course of business including legal
  actions arising out of services rendered by its various operations, personal
  injury and employment disputes.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to
  
  
  
                                        -8-
  <PAGE>
  
  approval by the respective courts. The Company's insurers funded $18 million of
  the proposed settlement sum. The Company funded the $7 million balance and
  recorded a special charge for that amount during fiscal 2000. By order dated
  April 30, 2001, the District Court preliminarily approved the settlement of the
  Class Action and scheduled a settlement fairness hearing for August 31, 2001. On
  August 7, 2001, the Delaware Chancery Court approved the settlement of the
  Derivative Lawsuit.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/ HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
       On June 23, 2000, the Company was served with a Complaint in a purported
  class action lawsuit filed by Ultimate Home Health Care Inc. in the U.S.
  District Court for the Middle District of Tennessee, captioned Ultimate Home
  Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560, (the
  "Tennessee Lawsuit"). The Company was served with an Amended Complaint in the
  Tennessee Lawsuit on July 21, 2000, which names as defendants Columbia/HCA,
  Columbia Homecare Group, Olsten Health Management a/k/a Hospital Contract
  Management Services (one of the Company's subsidiaries) and Olsten Corporation.
  The Amended Complaint alleges, among other things, that the defendants' business
  practices in connection with home health care patient referrals between 1994 and
  1996 violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act (TCPA),
  and state common law. The Amended Complaint seeks unspecified compensatory
  damages, punitive damages, treble damages and attorneys' fees on behalf of a
  proposed class of home healthcare companies and/or agencies which conducted
  business in Tennessee, Texas, Florida and/or Georgia. In September 2000, the
  defendants filed a motion to dismiss the Amended Complaint, and by an order
  dated January 21,
  
  
  
                                        -9-
  <PAGE>
  
  2001, the Court dismissed plaintiffs' RICO and state common law tort claims. The
  Court also held that the plaintiffs had properly pleaded the antitrust, TCPA and
  civil conspiracy claims and allowed those claims to proceed to discovery.
  Plaintiff's motion for class certification is due to be filed with the court by
  August 24, 2001. Because the Tennessee Lawsuit is in a relatively preliminary
  discovery stage, the Company is unable at this time to assess the probable
  outcome of or potential liability arising from such lawsuit.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio
  (the "Fredrickson Lawsuit"), returned a verdict in favor of the plaintiff
  against Olsten consisting of $675,000 in compensatory damages, $30 million in
  punitive damages and an undetermined amount of attorneys' fees. The jury found
  that, although Olsten had lawfully terminated the plaintiff's employment, its
  failure to transfer or rehire the plaintiff rendered Olsten liable to the
  plaintiff. The defendants posted a court ordered bond in the amount of $675,000
  and filed several post-trial motions, including a motion seeking the entry of
  judgment in the defendants' favor notwithstanding the verdict or, in the
  alternative, a new trial or a remittitur of the punitive damages award. The
  plaintiff filed post-trial motions in connection with the entry of the judgment
  and the amount of the bond posted by defendants. Following a hearing on the
  parties' respective post-trial motions on March 23, 2001, the trial court, on
  May 17, 2001, denied all post-trial motions, and entered judgment for the
  plaintiff for the full amount of compensatory and punitive damages, and awarded
  the plaintiff reduced attorney's fees of $247,938. On June 14, 2001, defendants
  timely filed a Notice of Appeal with the Court of Appeals, Seventh Appellate
  District, Mahoning County, Ohio, and on June 19, 2001, the Company posted a
  supersedeas bond for the full amount of the judgment, plus interest. The Company
  continues to defend this matter vigorously.
  
       In Gile v. Olsten Corporation, et al, U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation, Olsten Health Services, and a certain
  individual in December 1997. The defendants denied the allegations of
  discrimination on the basis that plaintiff's termination was part of a reduction
  in force. The individual defendant was dismissed from the action, and the
  remaining corporate defendants filed a motion for summary judgment that was
  granted by the District Court in February 1999. The plaintiff appealed the
  District Court's order to the Ninth Circuit Court of Appeals and in December,
  2000, the Court of Appeals issued its ruling which reversed the District Court
  and remanded the case for trial. On or about June 19, 2001, the Company and the
  plaintiff agreed to settle this matter and entered into a confidential
  settlement agreement with full release.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
  
                                        -10-
  <PAGE>
  
  Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. After preliminary discussions with the Office of Inspector
  General, the Company believes the subpoena relates to an investigation of
  possible overpayments to it by the Medicare program. In early February 2000, the
  Company received a document subpoena from the Department of Health and Human
  Services, Office of Inspector General, and Office of Investigations. The Company
  believes the subpoena relates to its agencies' cost reporting procedures
  concerning contracted nursing and home health aide costs. The Company has
  provided and continues to provide the Office of Inspector General with the
  requested documents and continues to cooperate fully with its investigations. At
  this time, the Company is unable to assess the probable outcome or potential
  liability, if any, arising from these subpoenas. The Company believes that it is
  possible that one or both of these investigations may have been triggered by
  lawsuits under federal or state whistle blower statutes against Olsten or the
  Company.
  
       9. Subsequent Event
  
       On August 7, 2001, the Company's Board of Directors authorized the Company
  to redeem its 10 percent convertible subordinated debentures at a redemption
  price of 108 percent of the original principal amount of the debentures plus
  accrued and unpaid interest in accordance with the terms of an Indenture dated
  March 15, 2000, between the Company and Wilmington Trust Company. These
  debentures, which are due in 2005, were issued to a Trust of which the Company
  owns all the common equity. Upon such redemption, the Trust, in turn, is
  required to use the proceeds of such redemption to redeem all of its convertible
  preferred trust securities in accordance with the terms of a Trust Agreement
  dated March 9, 2000. Holders of the trust securities may elect to convert such
  securities into the Company's common stock until two business days prior to the
  redemption date at a conversion price of $9.319219. The scheduled redemption
  date is September 14, 2001.
  
       At July 1, 2001, $19.4 million of the above referenced Gentiva-obligated
  mandatorily redeemable securities were outstanding. If all such securities are
  converted, the Company's outstanding common stock will increase by approximately
  2.1 million shares.
  
  
       10. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 periods, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for a portion of the fiscal 2000 periods, Staffing Services and Canada. These
  segments are briefly described below.
  
  
  
                                        -11-
  <PAGE>
  
       Specialty Pharmaceutical Services includes (i) the distribution of drugs
  and other biological and pharmaceutical products and professional support
  services for individuals with chronic diseases, such as hemophilia, primary
  pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the
  administration of antibiotics, chemotherapy, nutrients and other medications for
  patients with acute or episodic disease states, (iii) distribution services for
  pharmaceutical, biotechnology and medical service firms and (iv) clinical
  support services for pharmaceutical and biotechnology firms.
  
       Home Health Services includes (i) professional and paraprofessional
  services, including skilled nursing, rehabilitation and other therapies, home
  health aide and personal care services, to individuals with acute illnesses,
  long-term chronic health conditions, permanent disabilities, terminal illnesses
  or post-procedural needs and (ii) care management and coordination for managed
  care organizations and self-insured employees.
  
       Staffing Services included services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs. Canada included professional and
  paraprofessional services to individuals in home and institutional settings.
  Both Staffing Services and Canada constituted less than 10 percent of the net
  revenues, operating contribution and the total assets of the Company and, as
  such, were combined for segment reporting purposes.
  
       The Company and its chief decision makers evaluate performance and allocate
  resources based on operating contributions of the reportable segments, which
  exclude corporate expenses, depreciation, amortization and interest expense, but
  include revenues and all other costs directly attributable to the specific
  segment. Intersegment revenues represent Specialty Pharmaceutical Services
  segment revenues generated from services provided to the Home Health Services
  segment. Identifiable assets of the segments reflect net accounts receivable and
  inventories associated with segment activities. All other assets are assigned to
  the Company for the benefit of all segments.
  
       During fiscal 2001, the Company changed its evaluation performance
  methodology, as described below, which resulted in a change in reportable
  segments. In the fiscal 2000 periods, clinical support services for the
  pharmaceutical and biotechnology firms and staffing services provided under a
  state contract were included in the Staffing Services segment. The Company now
  considers these services to be part of the Specialty Pharmaceutical Services
  segment and Home Health Services segment, respectively. In addition, services
  relating to care management and coordination for managed care organizations and
  self-insured employees were allocated between Specialty Pharmaceutical Services
  and Home Care Nursing Services segments in the fiscal 2000 periods based on the
  nature of services rendered; the Company now considers these services to be part
  of the Home Health Services segment. Furthermore, Canadian operating results
  were included in the Home Care Nursing Services segment in the prior year
  periods and are now reflected in the Staffing and Canada results for
  presentation purposes. Prior period segment data has been reclassified to
  conform with the current year presentation.
  
  
                                        -12-
  <PAGE>
  
  
  
  
      Information about the Company's operations is as follows (in thousands):
  
  
  <TABLE>
  <CAPTION>
                                              Specialty          Home       Staffing       Total
                                            Pharmaceutical      Health         and
                                               Services        Services       Canada
                                          -----------------  ------------  -----------  -----------
  Three months ended July 1, 2001
  -------------------------------
  <S>                                     <C>                 <C>            <C>          <C>
  Net revenues - segments                 $178,328            $179,705       $     -      $358,033
                                          =================  ============  ===========
  Intersegment revenues                                                                    (22,589)
                                                                                        -----------
  Net revenues                                                                          $  335,444
                                                                                        ===========
  
  Operating contribution                  $ 17,072            $ 12,774       $     -    $   29,846
                                          =================  ============  ===========
  
  Corporate expenses                                                                       (17,529)
  
  Special charges - corporate                                                               (3,011)
                                                                                        -----------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                            9,306
  
  Depreciation and amortization                                                             (6,635)
  
  Interest expense, net                                                                       (152)
                                                                                        -----------
  Income before income taxes                                                            $    2,519
                                                                                        ===========
  
  Three months ended July 2, 2000
  -------------------------------
  Net revenues - segments                 $ 171,899          $ 187,167      $  42,089   $  401,155
                                          ===============   =============  ===========
  
  Intersegment revenues                                                                    (17,885)
                                                                                        -----------
  Net revenues                                                                          $  383,270
                                                                                        ===========
  
  Operating contribution                  $20,848            $  11,114       $   3,153  $   35,115
                                          ===============   =============  ===========
  
  Corporate expenses                                                                       (20,111)
  
  Special charges - corporate                                                               (1,191)
                                                                                        -----------
  Earnings before interest expense,
   taxes, depreciation and amortization                                                     13,813
  
  Depreciation and amortization                                                             (7,974)
  
  Interest expense, net                                                                     (2,112)
                                                                                        -----------
  Income before income taxes                                                            $    3,727
                                                                                        ===========
  </TABLE>
  
  
  
                                        -13-
  <PAGE>
  
  
  
  
  <TABLE>
  <CAPTION>
                                          Specialty          Home           Staffing
                                       Pharmaceutical       Health             and
                                          Services         Services          Canada          Total
                                      ------------------ -------------- -------------------------------
  Six months ended July 1, 2001
  -----------------------------
  <S>                                 <C>                 <C>             <C>            <C>
  Net revenues - segments             $374,215            $365,322        $       -      $   739,537
                                      ================== ============== =================
  
  Intersegment revenues                                                                      (46,915)
                                                                                         --------------
  Net revenues                                                                            $  692,622
                                                                                         ==============
  
  Operating contribution              $ 33,919            $ 27,554        $       -       $   61,473
                                      ================== ============== =================
  
  Corporate expenses                                                                         (35,121)
  
  Special charges - corporate                                                                 (3,011)
                                                                                         --------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                             23,341
  
  Depreciation and amortization                                                              (13,625)
  
  Interest expense, net                                                                         (585)
                                                                                         --------------
  
  Income before income taxes                                                              $    9,131
                                                                                         ==============
  
  Segment assets                      $275,899            $157,810        $       -       $  433,709
                                      ================== ============== =================
  
  Corporate assets                                                                           398,053
                                                                                        ---------------
  Total assets                                                                            $  831,762
                                                                                        ===============
  
  Six months ended July 2, 2000
  -----------------------------
  Net revenues - segments             $340,894            $376,711         $  83,768      $  801,373
                                      ================== ============== =================
  
  Intersegment revenues                                                                      (33,496)
                                                                                         --------------
  Net revenues                                                                            $  767,877
                                                                                         ==============
  
  Operating contribution              $ 43,421            $ 22,147         $   5,652      $   71,220
                                      ================== ============== =================
  
  Corporate expenses                                                                         (41,159)
  
  Special charges - corporate                                                                 (6,791)
                                                                                         --------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                             23,270
  
  Depreciation and amortization                                                              (16,461)
  
  Interest expense, net                                                                       (6,348)
                                                                                         --------------
  Income before income taxes                                                             $       461
                                                                                        ===============
  
  Segment assets                      $460,075            $192,629        $  26,160      $   678,864
                                      ================== ============== =================
  
  Corporate assets                                                                           335,273
                                                                                        ---------------
  Total assets                                                                           $ 1,014,137
                                                                                        ===============
  
  </TABLE>
  
                                        -14-
  <PAGE>
  
  
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations
  
  
  General
  
       The comparability of the Company's results of operations between the second
  quarter and the first six months of fiscal 2001 and 2000 was impacted by several
  items which are briefly described below.
  
       o    On March 15, 2000, the Company was Split-off from Olsten Corporation
            ("Olsten") through the issuance of all of the Company's common stock
            to Olsten's shareholders and the Company became an independent,
            publicly-owned company. Prior thereto, the Company operated Olsten's
            health services business as a wholly-owned subsidiary of Olsten. The
            accompanying consolidated financial statements for periods prior to
            and including March 15, 2000 reflect the financial position, results
            of operations and cash flows of the Company as if it were a separate
            entity for all periods presented. Such consolidated financial
            statements have been prepared using historical basis of assets and
            liabilities and historical results of operations related to the
            Company.
  
       o    During the second quarter of fiscal 2001, the Company recorded special
            charges of approximately $3.0 million in connection with the
            settlement of the Gile v. Olsten Corporation, et al, and the State of
            Indiana v. Quantum Health Resources, Inc. and Olsten Health Services,
            Inc. lawsuits and for various other legal costs. These legal matters
            are further discussed in Note 8. These special charges were reflected
            in selling, general and administration expenses in the accompanying
            consolidated statement of income.
  
            During the six months ended July 2, 2000, the Company recorded special
            charges aggregating $6.8 million which were reflected in selling,
            general and administration expenses in the accompanying statement of
            income. Of this amount, charges of $4.1 million were incurred to
            reflect obligations resulting from the Company's Split-off from Olsten
            and transition costs associated with the establishment of the Company
            as an independent, publicly-owned entity. These special charges
            included change of control and compensation and benefit payments of
            $3.6 million made to certain former employees of the Company and
            Olsten and a current executive officer of the Company, and transition
            costs of $0.5 million relating to registration costs, professional
            fees and other items.
  
            In addition, special charges of $1.2 million in the second quarter of
            fiscal 2000 and $2.7 million in the first six months of fiscal 2000
            were incurred in connection with the change of the Company's name to
            Gentiva Health Services, Inc. These special
  
  
  
                                        -15-
  <PAGE>
  
            charges primarily consisted of costs incurred and paid for consulting
            fees, promotional items and advertising.
  
       o    Prior to October 1, 2000, reimbursement of Medicare home care nursing
            services was based on reasonable, allowable costs incurred in
            providing services to eligible beneficiaries subject to both per visit
            and per beneficiary limits in accordance with the Interim Payment
            System (the "IPS") established through the Balanced Budget Act of
            1997. These costs are reported in annual cost reports which are filed
            with the Medicare fiscal intermediary and are subject to audit.
            Effective October 1, 2000, the IPS was replaced by a Prospective
            Payment System ("PPS") for Medicare home care reimbursement. Under
            PPS, the Company is eligible to receive a fixed reimbursement which
            covers a specified treatment period for each patient. The
            reimbursement rate is established based on a clinical assessment of
            the severity of the patient's condition, service needs and certain
            other factors. The rate is subject to adjustment if there are
            significant changes in the patient's condition during the specified
            treatment period. Net revenues attributable to the Medicare program as
            a percentage of total consolidated net revenues were 17 percent in the
            second quarter and first six months of both fiscal 2001 and 2000.
  
       o    During the fourth quarter of fiscal 2000, the Company sold its health
            care staffing services business and its Canadian operations. In the
            first quarter and first six months of fiscal 2000, the Company
            recorded revenues of $42 million and $84 million, respectively, gross
            profit of $11 million and $22 million, respectively, and selling,
            general and administrative expenses of $8 million and $16 million,
            respectively, relating to the businesses that were sold.
  
       The Company's results of operations are impacted by various regulations and
  other matters that are implemented from time to time in its industry, some of
  which are described in the Company's Annual Report on Form 10-K for the fiscal
  year ended December 31, 2000.
  
  Results of Operations
  
       Revenues
  
       After adjusting for the Staffing and Canadian operations which were sold
  during the fourth quarter of fiscal 2000, net revenues decreased by $6 million
  or 1.7% to $335 million during the second quarter of fiscal 2001 as compared to
  the second quarter of fiscal 2000 primarily due to a $7 million or 4 percent
  decline in Home Health Services revenues. This decrease was partially offset by
  a $6 million or 3.7 percent increase in the Specialty Pharmaceutical Services
  segment which included an increase of $5 million in intersegment revenues
  generated from services provided to the Home Health Services segment that is
  eliminated in consolidation. Overall, net revenues in the second quarter of
  fiscal 2001 decreased by $48 million or 12.5 percent as compared to the second
  quarter of fiscal 2000, of which $42 million in revenues related to the
  aforementioned sold operations.
  
  
  
                                        -16-
  <PAGE>
  
       After adjusting for the sales of the Staffing and Canadian operations as
  noted above, net revenues increased by $9 million or 1.2 percent to $693 million
  during the first six months of fiscal 2001 as compared to the corresponding
  period of fiscal 2000. This increase was driven by growth in the Specialty
  Pharmaceutical Services segment of $33 million or 9.8 percent, of which $13
  million related to intersegment revenues, offset by a decline of $11 million in
  Home Health Services revenue. Overall, net revenues decreased by $75 million or
  9.8 percent during the first six months of fiscal 2001 as compared to the
  corresponding period of the prior year which included $84 million in revenue
  related to the sold operations.
  
       In the Specialty Pharmaceutical Services business, revenue growth was
  attributable to volume increases in several core chronic therapies, including
  Flolan, IVIG, growth hormone products and biological response modifiers. This
  revenue growth, however, was negatively impacted by some product shortages of
  recombinant coagulation therapy, which is used in the treatment of hemophilia.
  The decline in Home Health Services revenue during the second quarter and first
  six months of fiscal 2001 was attributable primarily to the continuing
  transition to new clinical protocols as part of the new Medicare reimbursement
  system and the impact of the closing of certain home care nursing branches
  during the fourth fiscal quarter at 2000 as well as the continued shortage of
  nursing and caregiver personnel in certain parts of the country.
  
       Gross Profit
  
       Gross profit margins, as a percentage of net revenues, increased from 33.6
  percent in the second quarter of fiscal 2000 to 33.9 percent in the second
  quarter of fiscal 2001. The increase in margins was primarily attributable to
  productivity enhancements resulting from a change in clinical protocols and rate
  increases in Home Health Services as well as the absence of lower margin
  Staffing and Canadian operations which were sold in late 2000 offset by a change
  in business mix reflecting growth in the lower margin Specialty Pharmaceutical
  Services products and higher costs attributable to certain biological and
  pharmaceutical products due to product shortages. Gross profit margins decreased
  from 33.5 percent in the first six months of fiscal 2000 to 33.2 percent in the
  first six months of fiscal 2001. This decrease in margins was primarily
  attributable to growth in lower margin Specialty Pharmaceutical Services
  products and higher costs associated with certain biological and pharmaceutical
  products due to product shortages.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $111 million
  during the second quarter of fiscal 2001 as compared to $123 million during the
  second quarter of fiscal 2000 due to (i) the reduction of $8 million in costs
  associated with the sale of the Staffing and Canadian operations, (ii)
  efficiency improvement efforts in Home Health Services and corporate
  administrative support departments, and (iii) the closing of certain home care
  nursing branches during the fourth quarter of fiscal 2000. These decreases were
  offset by special charges of $3 million in connection with certain legal matters
  recorded during the second
  
  
  
                                        -17-
  <PAGE>
  
  quarter of fiscal 2001, compared to $1.2 million in special charges associated
  with the Company's name change recorded during the second quarter of fiscal
  2000.
  
       For the first six months of fiscal 2001, selling, general and
  administrative expenses were $220 million as compared to $250 million for the
  first six months of fiscal 2000. This decrease resulted from the reduction of
  $16 million in costs associated with the sale of the Staffing and Canadian
  operations, the impact of efficiency improvement efforts and the closing of home
  care nursing branches as well as a change in special charges from $6.8 million
  in the fiscal 2000 period to $3 million in the fiscal 2001 period.
  
       Excluding the effects of the Canadian and Staffing Services businesses that
  were sold and the special charges recorded in the periods as described above,
  selling, general and administrative expenses as a percentage of net revenues
  were 32.2 percent and 33.3 percent during the first six months of fiscal 2001
  and 2000, respectively, and 31.4 percent and 33.2 percent during the second
  quarter of fiscal 2001 and 2000, respectively.
  
       Interest Expense, Net
  
       Interest expense, net was approximately $0.6 million and $6.3 million in
  the first six months of fiscal 2001 and 2000, respectively, and $0.2 million and
  $2.1 million in the second quarters of fiscal 2001 and 2000, respectively.
  Interest expense, net for the second quarter and first six months of fiscal 2001
  represented primarily interest on the mandatorily redeemable securities and fees
  relating to the revolving credit facility offset by interest income of
  approximately $0.9 million and $1.4 million, respectively. During the second
  quarter and six month periods of fiscal 2000, interest expense, net also
  included interest on the outstanding 4 3/4 percent convertible subordinated
  debentures which matured and were retired in October 2000, net intercompany
  borrowings with Olsten up to the Split-off date and interest on borrowings under
  the credit facility subsequent to the Split-off date.
  
       Income Taxes
  
       Income tax expense for the fiscal 2001 period consisted primarily of taxes
  relating to certain state jurisdictions. The Company had estimated net operating
  loss carryforwards (NOLs) of approximately $76 million as of December 31, 2000.
  Because of the uncertainty of ultimate realization of the net deferred tax
  asset, the Company has established a valuation allowance for the deferred tax
  asset that is not otherwise used to offset deferred tax liabilities. The Company
  expects its effective tax rate to be below 10 percent until such time as the
  NOLs are utilized.
  
       For the fiscal 2000 periods, the effective tax rates approximated 42
  percent which differed from the statutory rate due to nondeductible goodwill
  amortization and other nondeductible items.
  
  
  
                                        -18-
  <PAGE>
  
       Liquidity and Capital Resources
  
       Working capital at July 1, 2001, was $378 million, an increase of $29
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $34 million in the first six months of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system for
  Specialty Pharmaceutical Services as well as increases in billings through
  electronic data interchange. After adjusting for the sale of the Company's
  staffing services business and Canadian operations, adjusted Days Sales
  Outstanding ("DSO") was 111 days at December 31, 2000. DSO was reduced by 7 days
  to 104 days at July 1, 2001 as a result of improved cash collections.
  
       Cash and cash equivalents increased by approximately $77 million as of July
  1, 2001 as compared to December 31, 2000 as a result of (i) cash flow from
  operations, net of decrease in book overdrafts which were included in accounts
  payable at December 31, 2000, of approximately $48 million, (ii) Medicare
  advances, net of payments for estimated settlements, of approximately $21
  million, and (iii) proceeds from the exercise of stock options of approximately
  $10 million, offset somewhat by capital expenditures of approximately $2
  million. In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the IPS to the
  PPS for Medicare reimbursement. Such advances are expected to be repaid during
  the first quarter of fiscal 2002. In the first quarter of fiscal 2001, the
  Company received a cash advance, net of payments for estimated settlements
  relating to cost report filings, of approximately $21 million which was
  reflected in accrued expenses in the accompanying consolidated balance sheet as
  of July 1, 2001.
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings, including amounts which are available for letters of
  credit. The Company may borrow up to a maximum of 80 percent of eligible
  accounts receivable, as defined. At the Company's option, the interest rate on
  borrowings under the credit facility is based on the London Interbank Offered
  Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25 percent. As
  of July 1, 2001, there were no borrowings outstanding under the credit facility
  and total outstanding letters of credit approximated $25.7 million. The Company
  is subject to an unused line fee equal to 0.375 percent per annum of the average
  daily difference between $150 million and the total outstanding borrowings and
  letters of credit. In addition, the Company must pay a fee equal to 2.25 percent
  per annum of the aggregate face amount of outstanding standby letters of credit.
  
       The amended credit facility, which expires in 2004, includes certain
  covenants requiring the Company to maintain a minimum tangible net worth and
  minimum earnings before interest, taxes, depreciation and amortization. Other
  covenants in the credit facility include limitation on mergers, consolidations,
  acquisitions, indebtedness, liens, capital expenditures and dispositions of
  assets and other limitations with respect to the Company's operations. The
  Company's obligations under the credit facility are collateralized by all of the
  Company's tangible and intangible personal property, and other equipment. As of
  July 1, 2001, the Company was in compliance with its financial covenants and had
  borrowing capacity under the credit facility of approximately $124 million.
  
  
  
                                        -19-
  <PAGE>
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. As of July 1, 2001, a
  supersedeas bond in the amount of $35 million was posted to satisfy the judgment
  plus interest. Under the terms of the bond, cash equal to the amount of the bond
  is held in a segregated account as collateral for the bond and the interest
  relating thereto accrues to the Company. The cash in the segregated account is
  reflected in cash and cash equivalents in the accompanying consolidated balance
  sheet. At its discretion, the Company may substitute a letter of credit for the
  segregated cash to collateralize the bond.
  
       Management believes cash flows from operations, borrowings available under
  the credit facility and other financing options, including issuance of debt or
  equity securities under an effective shelf registration statement will be
  adequate to support the ongoing operations and to meet debt service requirements
  for the foreseeable future. The Company intends to make investments and other
  expenditures to, among other things, upgrade its computer technology and system
  infrastructure and comply with regulatory changes in the industry. If cash flows
  from operations or availability under the credit facility fall below
  expectations, the Company may be forced to delay planned capital expenditures,
  reduce operating expenses, seek additional financing or consider alternatives
  designed to enhance liquidity.
  
  
  
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
       The Company's exposure to the market risk for changes in the interest rates
  related to the fair value of its fixed rate Quantum debentures until their
  repayment in October 2000. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise. The
  Company had no interest rate exposure on fixed rate debt at July 1, 2001.
  
  OTHER:
  
       INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
  CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES.
  FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE RISKS OF
  COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND REGULATIONS
  AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS DISCUSSED IN THIS
  DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE
  COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
  EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
  
  
                                        -20-
  <PAGE>
  
  
  
                            PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings
  
       In addition to the matters referenced below, the Company is party to
  certain legal actions arising in the ordinary course of business including legal
  actions arising out of services rendered by its various operations, personal
  injury and employment disputes.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million, which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement of the Class Action and
  scheduled a settlement fairness hearing date for August 31, 2001. On August 7,
  2001, the Delaware Chancery Court approved the settlement of the Derivative
  Lawsuit.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties have resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
                                        -21-
  <PAGE>
  
  
       On June 23, 2000, the Company was served with a Complaint in a purported
  class action lawsuit filed by Ultimate Home Health Care Inc. in the U.S.
  District Court for the Middle District of Tennessee, captioned Ultimate Home
  Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560, (the
  "Tennessee Lawsuit"). The Company was served with an Amended Complaint in the
  Tennessee Lawsuit on July 21, 2000, which names as defendants Columbia/HCA,
  Columbia Homecare Group, Olsten Health Management a/k/a Hospital Contract
  Management Services (one of the Company's subsidiaries) and Olsten Corporation.
  The Amended Complaint alleges, among other things, that the defendants' business
  practices in connection with home health care patient referrals between 1994 and
  1996 violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act (TCPA),
  and state common law. The Amended Complaint seeks unspecified compensatory
  damages, punitive damages, treble damages and attorneys' fees on behalf of a
  proposed class of home healthcare companies and/or agencies which conducted
  business in Tennessee, Texas, Florida and/or Georgia. In September 2000, the
  defendants filed a motion to dismiss the Amended Complaint, and by an order
  dated January 21, 2001, the Court dismissed plaintiffs' RICO and state common
  law tort claims. The Court also held that the plaintiffs had properly pleaded
  the antitrust, TCPA and civil conspiracy claims and allowed those claims to
  proceed to discovery. Plaintiff's motion for class certification is due to be
  filed with the court by August 24, 2001. Because the Tennessee Lawsuit is in a
  relatively preliminary discovery stage, the Company is unable at this time to
  assess the probable outcome of or potential liability arising from such lawsuit.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio
  (the "Fredrickson Lawsuit"), returned a verdict in favor of the plaintiff
  against Olsten consisting of $675,000 in compensatory damages, $30 million in
  punitive damages and an undetermined amount of attorneys' fees. The jury found
  that, although Olsten had lawfully terminated the plaintiff's employment, its
  failure to transfer or rehire the plaintiff rendered Olsten liable to the
  plaintiff. The defendants posted a court ordered bond in the amount of $675,000
  and filed several post-trial motions, including a motion seeking the entry of
  judgment in the defendants' favor notwithstanding the verdict or, in the
  alternative, a new trial or a remittitur of the punitive damages award. The
  plaintiff filed post-trial motions in connection with the entry of the judgment
  and the amount of the bond posted by defendants. Following a hearing on the
  parties' respective post-trial motions on March 23, 2001, the trial court, on
  May 17, 2001, denied all post-trial motions, and entered judgment for the
  plaintiff for the full amount of compensatory and punitive damages, and awarded
  the plaintiff reduced attorney's fees of $247,938. On June 14, 2001, defendants
  timely filed a Notice of Appeal with the Court of Appeals, Seventh Appellate
  District, Mahoning County, Ohio, and on June 19, 2001, the Company posted a
  supersedeas bond for the full amount of the judgment, plus interest. The Company
  continues to defend this matter vigorously.
  
       In Gile v. Olsten Corporation, et al, U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation,
  
  
  
                                        -22-
  <PAGE>
  
  Olsten Health Services, and a certain individual in December 1997. The
  defendants denied the allegations of discrimination on the basis that
  plaintiff's termination was part of a reduction in force. The individual
  defendant was dismissed from the action, and the remaining corporate defendants
  filed a motion for summary judgment that was granted by the District Court in
  February 1999. The plaintiff appealed the District Court's order to the Ninth
  Circuit Court of Appeals and in December 2000, the Court of Appeals issued its
  ruling which reversed the District Court and remanded the case for trial. On or
  about June 19, 2001, the Company and the plaintiff agreed to settle this matter
  and entered into a confidential settlement agreement with full release.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below in Item 5. Other Information.
  
  Item 2.  Change in Securities and Use of Proceeds
  
           None.
  
  Item 3.  Defaults Upon Senior Securities
  
           None.
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
  
  The annual meeting of stockholders was held on May 18, 2001. The shareholders of
  the Company ratified the Board of Directors' appointment of
  PricewaterhouseCoopers LLP as independent accountants for the Company for the
  2001 fiscal year as follows:
  
  
        For           Against      Abstentions      Broker Non-Votes
        ---           -------      -----------      ----------------
  
    21,033,545        12,464         7,864                0
  
  The following directors were nominated and elected to serve as Directors of the
  Company for a term of three years or until their successors shall have been duly
  elected and qualified:
  
  
  Nominee                     For         Withheld
  -------                     ---         --------
  
  Victor F. Ganzi        20,052,340      1,001,533
  
  Josh S. Weston         21,034,503         19,370
  
  Gail Wilensky          20,046,235      1,007,638
  
  
  The term of office as a Director of the Company for Edward A. Blechschmidt,
  Steven E. Grabowski and Raymond S. Troubh continued after the meeting and
  expires in 2002 or until their successors shall have been duly elected and
  qualified. The term of office as a Director of the Company for Stuart R. Levine
  and Stuart Olsten continued after the meeting and expires in 2003 or until their
  successors shall have been duly elected and qualified.
  
  Item 5.  Other Information
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. After preliminary discussions with the Office of Inspector
  General, the Company believes the subpoena relates to an investigation of
  possible overpayments to it by the Medicare program. In early February 2000, the
  Company received a document subpoena from the Department of Health and Human
  Services, Office of Inspector General, and Office of Investigations. The Company
  believes the subpoena relates to its agencies' cost reporting procedures
  concerning contracted nursing and home health aide costs. The Company has
  provided and continues to provide the Office of Inspector General with the
  requested documents and continues to cooperate fully with its investigations. At
  this time, the Company is unable to assess the probable outcome or potential
  liability, if any, arising from these subpoenas. The Company believes that it is
  possible that one or both of these investigations may have been triggered by
  lawsuits under federal or state whistle blower statutes against Olsten or the
  Company.
  
       In connection with the July 19, 1999 settlement with various government
  agencies, Olsten executed a separate corporate integrity agreement with the
  Office of Inspector General
  
  
  
                                        -23-
  <PAGE>
  
  of the Department of Health and Human Services which will remain in effect until
  August 18, 2004. The July 1999 corporate integrity agreement applies to the
  Company's businesses that bill the federal government health programs directly
  for services, such as its home care nursing business (but excluding the
  specialty pharmaceutical services business). This corporate integrity agreement
  focuses on issues and training related to cost report preparation, contracting,
  medical necessity and billing of claims.
  
       Under each of the corporate integrity agreements, the Company is required,
  for example, to maintain a corporate compliance officer to develop and implement
  compliance programs, to retain an independent review organization to perform
  annual reviews and to maintain a compliance program and reporting systems, as
  well as provide certain training to employees.
  
       The Company's compliance program will be implemented for all newly
  established or acquired business units if their type of business is covered by
  the corporate integrity agreements. Reports under each integrity agreement are
  to be filed annually with the Department of Health and Human Services, Office of
  Inspector General. After each corporate integrity agreement expires, the Company
  is to file a final annual report with the government. The Company is in
  compliance with both corporate integrity agreements and has timely filed all
  required reports. If the Company fails to comply with the terms of either of its
  corporate integrity agreements, the Company will be subject to penalties.
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a) Exhibit Number Description
  
            3.1  Restated Certificate of Incorporation of Company. (1)
  
            3.2  Restated By-Laws of Company. (1)
  
            4.1  Specimen of common stock. (3)
  
            4.2  Form of Certificate of Designation of Series A Junior
                 Participating Preferred Stock. (1)
  
            4.3  Form of Certificate of Designation of Series A Cumulative
                 Non-Voting Redeemable Preferred Stock. (2)
  
            4.4  Trust Agreement among the Company, Wilmington Trust Company, the
                 Administrative Trustees named therein and the holders from time
                 to time of the convertible trust preferred securities dated March
                 9, 2000. (4)
  
            4.5  Indenture between the Company and Wilmington Trust Company dated
                 March 15, 2000. (4)
  
  
  
                                        -24-
  <PAGE>
  
            10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
            10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                 Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health
                 Services Holding Corp. (1)
  
            10.3 Form of Rights Agreement dated March 2, 2000 between the
                 Registrant and Equiserve Limited Partnership, as rights agent.
                 (1)
  
            10.4 Company's Executive Officers Bonus Plan. (1)*
  
            10.5 Company's 1999 Stock Incentive Plan. (4)*
  
            10.6 Company's Stock & Deferred Compensation Plan for Non-Employee
                 Directors. (4)*
  
            10.7 Company's Employee Stock Purchase Plan. (1)*
  
            10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among
                 Olsten Corporation, Adecco SA, Olsten Health Services Holding
                 Corp., the Company and Staffing Acquisition Corporation. (1)
  
            10.9 Loan and Security Agreement by and between Fleet Capital Corp.,
                 on behalf of the lenders named therein, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein,
                 dated March 13, 2000. (4)
  
            10.10 Form of Employment Agreement with Edward A. Blechschmidt. (2)*
  
            10.11 Form of Change of Control Agreement with Executive Officers of
                 Company. (4)*
  
            10.12 Form of Change in Control Agreement with Edward A. Blechschmidt.
                 (4)*
  
            10.13 Form of Severance Agreement with Executive Officers of Company.
                 (2)*
  
            10.14 Amendment No. 1 dated June 30, 2000 to Trust Agreement among the
                 Company, Wilmington Trust Company, the Administrative Trustees
                 named therein and the holders from time
  
  
  
                                        -25-
  <PAGE>
  
                 to time of the convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between the
                 Company and Wilmington Trust Company. (5)
  
            10.16 First Amendment and Consent Agreement dated September 15, 2000
                 to the Loan Agreement by and among the lending institutions named
                 therein, Fleet Capital Corporation, the Company, Olsten Health
                 Services Holding Corp. and the subsidiaries named therein. (6)
  
            10.17 Purchase and Sale Agreement dated August 25, 2000 by and between
                 the Company and Intelistaf Group, Inc. (formerly known as GS
                 Acquisition Co.) (6)
  
            10.18 Second Amendment and Consent Agreement dated as of November 20,
                 2000 to the Loan Agreement by and among the lending institutions
                 named therein, Fleet Capital Corporation, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein
                 (7)
  
            10.19 Third Amendment to Loan and Security Agreement dated as of June
                 1, 2001 by and among the lending institutions named therein,
                 Fleet Capital Corporation, the Company, Olsten Health Services
                 Holding Corp. and the subsidiaries named therein.**
  
            21.1 List of Subsidiaries of Company. (2)
  
            ----------------------------------------------------------------------
  
            (1)  Incorporated herein by reference to Amendment No. 2 to the
                 Registration Statement on Form S-4, dated January 20, 2000 (File
                 No. 333-88663).
  
            (2)  Incorporated herein by reference to Amendment No. 3 to the
                 Registration Statement on Form S-4, dated February 4, 2000 (File
                 No. 333-88663).
  
            (3)  Incorporated herein by reference to Amendment No. 4 to the
                 Registration Statement on Form S-4, dated February 9, 2000 (File
                 No. 333-88663).
  
            (4)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended January 2, 2000.
  
            (5)  Incorporated herein by reference to Form 10-Q for the Regis-
  
  
  
  
                                        -26-
  <PAGE>
                 trant for the period ended July 2, 2000.
  
            (6)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended October 1, 2000.
  
            (7)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended December 31, 2000.
  
            *    Management contract or compensatory plan or arrangement.
  
            **   Filed herewith
  
  (b)      Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
  
  
  
                                        -27-
  <PAGE>
  
                                     SIGNATURES
  
  
       Pursuant to the requirements 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.
  
  Date:  August 15, 2001             /S/ Edward A. Blechschmidt
                                     ------------------------------------
                                     Edward A. Blechschmidt
                                     President and Chief Executive
                                     Officer
  
  
  Date:  August 15, 2001             /S/ John J. Collura
                                     ------------------------------------
                                     John J. Collura
                                     Executive Vice President,
                                     Chief Financial Officer and
                                     Treasurer
  
  
  
                                        -28-
metadata_documents: [{"type": "10-Q", "sequence": "1", "filename": "gentiva2ndqtr2001.txt", "description": "2ND QUARTER 10Q", "secsgml_size_bytes": 88876}]
metadata_filer: {"company-data": {"conformed-name": "GENTIVA HEALTH SERVICES INC", "cik": "0001096142", "assigned-sic": "7363", "irs-number": "364335801", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "001-15669", "film-number": "1715719"}, "business-address": {"street1": "3 HUNTINGTON QUADRANGLE 2S", "city": "MELVILLE", "state": "NY", "zip": "11747-8943", "phone": "6315017000"}, "mail-address": {"street1": "3 HUNTINGTON QUADRANGLE 2S", "city": "MELVILLE", "state": "NY", "zip": "11747-8943"}, "former-company": {"former-conformed-name": "OLSTEN HEALTH SERVICES HOLDING CORP", "date-changed": "19991001"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                     For the quarterly period ended July 1, 2001
  
                             Commission File No. 1-15669
  
                            Gentiva Health Services, Inc.
               (Exact name of Registrant as specified in its charter)
  
              DELAWARE                                      36-433-5801
              --------                                      -----------
   (State or other jurisdiction of                       (I.R.S. Employer
   incorporation or organization)                       Identification No.)
  
                 3 Huntington Quadrangle 2S, Melville, NY 11747-8943
                 ---------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
           Registrant's telephone number, including area code:  (631) 501-7000
  
       Indicate by check mark whether the registrant (1) has filed all reports
  required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
  1934 during the preceding 12 months (or for such shorter period that 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
  
         The number of shares outstanding of the Registrant's Common Stock,
                        as of August 9, 2001 was 23,049,907.
  INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
       Item 1. Financial Statements
  
               Consolidated Balance Sheets - July 1, 2001 (Unaudited)
               and December 31, 2000                                         2
  
               Consolidated Statements of Income (Unaudited) -  Three and
               Six Months Ended July 1, 2001 and July 2, 2000                3
  
               Consolidated Statements of Cash Flows (Unaudited) -  Six
               Months Ended July 1, 2001 and July 2, 2000                    4
  
               Notes to Consolidated Financial Statements (Unaudited)        5-14
  
       Item 2. Management's Discussion and Analysis of Financial
               Condition and Results of Operations                           15-20
  
       Item 3. Quantitative and Qualitative Disclosures about Market Risk    20
  
  PART II - OTHER INFORMATION
  
       Item 1. Legal Proceedings                                             21-23
  
       Item 2. Change in Securities and Use of Proceeds                      23
  
       Item 3. Defaults Upon Senior Securities                               23
  
       Item 4. Submission of Matters to a Vote of Security Holders           23
  
       Item 5. Other Information                                             23-24
  
       Item 6. Exhibits and Reports on Form 8-K                              24-27
  
  SIGNATURES                                                                 28
  PART I - FINANCIAL INFORMATION
  
  Item 1.           Financial Statements.
  Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
                                                                   July 1, 2001     December 31, 2000
                                                                 ----------------- --------------------
  ASSETS                                                           (Unaudited)
  
  Current assets:
  Cash and cash equivalents                               $   77,070          $    452
  
         Receivables, less allowance for doubtful accounts
         of $91,222 and $105,962, respectively                      384,896           419,178
  
         Inventories                                                 48,813            51,111
  
         Prepaid expenses and other current
         assets                                                      46,723            50,333
                                                                 ----------------- --------------------
              Total current assets                                  557,502           521,074
  
  Fixed assets, net                                                  31,252            36,961
  
  Intangible assets, net                                            225,474           230,702
  
  Other assets                                                       17,534            16,747
                                                                 ----------------- --------------------
              Total assets                                        $ 831,762         $ 805,484
                                                                 ================= ====================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  
  Current liabilities:
  
         Accounts payable                                         $ 71,566          $  74,083
  
         Accrued expenses                                           61,086             50,682
  
         Payroll and related taxes                                  19,112             17,305
  
         Insurance costs                                            28,136             30,320
                                                                 ----------------- --------------------
              Total current liabilities                            179,900            172,390
  
  Other liabilities                                                 47,344             46,945
  
  Gentiva - obligated mandatorily redeemable
    convertible securities of a subsidiary holding solely
    Gentiva debentures                                              19,400             20,000
  
  Shareholders' equity:
  
         Common stock, $.10 par value; authorized
         100,000,000 shares; issued and outstanding
         22,995,058 and 21,196,693 shares, respectively              2,300              2,120
  
         Additional paid-in capital                                699,774            689,163
  
         Accumulated deficit                                      (116,140)          (124,570)
  
         Accumulated other comprehensive loss                         (816)              (564)
                                                                 ----------------- --------------------
              Total shareholders' equity                           585,118            566,149
                                                                 ----------------- --------------------
  
              Total liabilities and
              shareholders' equity                               $ 831,762          $ 805,484
                                                                 ================= ====================
  See notes to consolidated financial statements.
  
                                        -2-
  Gentiva Health Services, Inc. and Subsidiaries
                          Consolidated Statements of Income
                      (In thousands, except per share amounts)
                                     (Unaudited)
  
                                                 Three Months Ended                    Six Months Ended
                                          ----------------------------------  -----------------------------------
                                           July 1, 2001     July 2, 2000        July 1, 2001      July 2, 2000
                                          --------------  ------------------  ----------------  -----------------
  Net revenues                            $335,444         $383,270             $692,622           $767,877
  
  Cost of services sold                    221,809          254,646              462,557            510,751
                                          --------------  ------------------  ----------------  -----------------
       Gross profit                        113,635          128,624              230,065            257,126
  
  Selling, general and administrative
  expenses                                 110,964          122,785              220,349            250,317
  
  Interest expense, net                        152            2,112                  585              6,348
                                          --------------  ------------------  ----------------  -----------------
       Income before income taxes            2,519            3,727                9,131                461
  
  Income tax expense                           201            1,556                  701                196
                                          --------------  ------------------  ----------------  -----------------
  
       Net income                         $  2,318         $  2,171            $   8,430           $    265
                                          ==============  ==================  ================  =================
  
  Net income per share:
  
       Basic                              $   0.10         $   0.11            $    0.39           $   0.01
                                          ==============  ==================  ================  =================
       Diluted                            $   0.10         $   0.10            $    0.36           $   0.01
                                          ==============  ==================  ================  =================
  
  Average shares outstanding:
  
       Basic                                22,265           20,513               21,859             20,429
                                          ==============  ==================  ================  =================
       Diluted                              23,859           21,823               23,382             21,681
                                          ==============  ==================  ================  =================
  See notes to consolidated financial statements.
  
                                        -3-
  Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
                                                                          Six Months Ended
                                                                 ------------------------------------
                                                                   July 1, 2001      July 2, 2000
                                                                 ------------------------------------
  OPERATING ACTIVITIES:
  Net income                                                     $  8,430           $     265
  
  Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
  
      Depreciation and amortization                                13,625              16,141
  
      Provision for doubtful accounts                              18,550              16,917
  
      Gain on sale/disposal of assets                                (167)                 -
  
      Changes in assets and liabilities:
  
              Accounts receivable                                  15,732             (45,829)
  
              Inventories                                           2,298              18,726
  
              Prepaid expenses and other current
              assets                                                3,610                (899)
  
              Current liabilities                                  (2,989)            (48,696)
  
              Other, net                                             (640)              1,834
                                                                 ------------------------------------
  
  Net cash provided by (used in) operating
  activities                                                       58,449             (41,541)
                                                                 ------------------------------------
  
  INVESTING ACTIVITIES:
  Purchase of fixed assets                                         (2,796)             (3,620)
  
  Proceeds from sale of assets                                        275                  -
                                                                 ------------------------------------
  Net cash used in investing
  activities                                                       (2,521)             (3,620)
                                                                 ------------------------------------
  
  FINANCING ACTIVITIES:
  Proceeds from issuance of common stock                           10,191               1,234
  
  Issuance of mandatorily redeemable and other
  securities                                                           -               20,100
  
  Net transactions with Olsten                                         -                5,226
  
  Proceeds from revolving credit facility                              -               26,191
  
  Debt issuance costs                                                  -               (2,564)
  
  Increase (decrease) in book overdrafts                          (10,379)              3,856
  
  Retirement of debt                                                   -               (9,525)
  
  Advances from Medicare program                                   20,878                  -
                                                                 ------------------------------------
  Net cash provided by financing activities                        20,690              44,518
                                                                 ------------------------------------
  
  Net increase (decrease) in cash and cash
  equivalents                                                      76,618                (643)
  
  Cash and cash equivalents at beginning of
  period                                                              452                2,942
                                                                 ------------------------------------
  Cash and cash equivalents at end of period                     $ 77,070          $     2,299
                                                                 ====================================
  See notes to consolidated financial statements.
  
                                        -4-
  Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") pursuant
  to the rules and regulations of the Securities and Exchange Commission and, in
  the opinion of management, include all adjustments necessary for a fair
  presentation of results of operations, financial position and cash flows for
  each period presented. Results for interim periods are not necessarily
  indicative of results for a full year. The year-end balance sheet data was
  derived from audited financial statements, but does not include all disclosures
  required by accounting principles generally accepted in the United States of
  America.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company and its subsidiaries were split-off (the
  "Split-off") from Olsten Corporation ("Olsten") through the issuance of all of
  the Company's shares of common stock to Olsten's shareholders and the Company
  became an independent, publicly-owned company. Prior to the Split-off, the
  Company operated Olsten's health services business as a wholly-owned subsidiary
  of Olsten.
  
       The accompanying interim consolidated financial statements for periods
  prior to or including March 15, 2000 reflect the results of operations,
  financial position and cash flows of the Company as if it were a separate entity
  for all periods presented. Such consolidated financial statements have been
  prepared using the historical basis in the assets and liabilities and historical
  results of operations related to the Company.
  
       The Company's selling, general and administrative expenses included a
  management fee of approximately $1.0 million for the first six months of fiscal
  2000. This fee represented an allocation of certain general corporate overhead
  expenses related to Olsten's corporate headquarters. Management believes the
  allocations related to general corporate overhead expenses were reasonable;
  however, the costs charged to the Company were not necessarily indicative of the
  costs that would have been incurred if the Company had been a stand-alone entity
  during the period for which such expenses were allocated. Subsequent to the
  Split-off, the Company began to perform these functions using its own resources
  or purchased services.
  
       Net interest expense as presented in the consolidated statement of income
  included net interest expense of approximately $2.7 million for the first six
  months of fiscal 2000 relating to the intercompany balances with Olsten. Such
  intercompany balances were reflected as a contribution to capital as of the
  Split-off date.
  
                                        -5-
  3. Earnings per Share
  
       Basic net income per share for each period presented has been computed by
  dividing net income by the weighted average number of shares outstanding for
  each respective period. Diluted net income per share for each period presented
  has been computed using the weighted average number of common and dilutive
  common equivalent shares outstanding.
  
       For the second quarter and first six months of fiscal 2001, the weighted
  average numbers of shares outstanding were 22,265,000 and 21,859,000,
  respectively. Dilutive common equivalent shares represented 1,594,000 shares for
  the second quarter and 1,523,000 shares for the six month period that would be
  issued upon the assumed exercise of approximately 2.8 million stock options
  under the treasury stock method.
  
       For the second quarter and first six months of fiscal 2000, the weighted
  average numbers of shares outstanding were 20,513,000 and 20,429,000,
  respectively. Dilutive common equivalent shares represented 1,310,000 shares for
  the second quarter and 1,252,000 shares for the six month period that would be
  issued upon the assumed conversion of stock options under the treasury stock
  method.
  
       The computation of diluted net income per share excluded the effect of
  approximately 2.1 million shares issuable upon the conversion of the 10 percent
  convertible preferred trust securities for the quarter and year to date fiscal
  2001 and 2000 periods since the increase in net income resulting from the
  exclusion of after-tax interest expense relating to these securities and the
  increase in shares outstanding resulting from conversion would have an
  antidilutive effect on earnings. For the fiscal 2000 periods, shares issuable
  upon the conversion of the 4 3/4 percent convertible subordinated debentures,
  which matured and were retired in October 2000, were also excluded from the
  diluted net income per share computation because of their antidilutive effect on
  earnings.
  
       4. Restructuring and Special Charges
  
       During the second quarter of fiscal 2001, the Company recorded special
  charges of approximately $3.0 million in connection with the settlement of the
  Gile v. Olsten Corporation, et al, and the State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc. lawsuits and for various other
  legal costs. These legal matters are further discussed in Note 8. These special
  charges are reflected in selling, general and administrative expenses in the
  accompanying consolidated statement of income.
  
       During the six months ended July 2, 2000, the Company recorded special
  charges aggregating $6.8 million which were reflected in selling, general and
  administration expenses in the accompanying statement of income. Of this amount,
  charges of $4.1 million were incurred to reflect obligations resulting from the
  Company's Split-off from Olsten and transition costs associated with the
  establishment of the Company as an independent, publicly-owned entity. These
  special charges included change of control and compensation and benefit payments
  of $3.6 million made to certain former employees of the Company and Olsten and a
  
                                        -6-
  current executive officer of the Company, and transition costs of $0.5 million
  relating to registration costs, professional fees and other items.
  
       In addition, special charges of $1.2 million in the second quarter and $2.7
  million in the first six months of fiscal 2000 were incurred in connection with
  the change of the Company's name to Gentiva Health Services, Inc. These special
  charges primarily consisted of costs incurred and paid for consulting fees,
  promotional items and advertising.
  
       The Company recorded charges of $5.5 million in the fourth quarter of
  fiscal 2000 in connection with a restructuring of certain business operations.
  As of December 31, 2000 and July 1, 2001, the unpaid portion of these
  restructuring charges aggregated $3.4 million and $1.8 million, respectively, as
  a result of cash payments made during the six month period.
  
       5. Current Liabilities
  
       In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the Interim
  Payment System to the Prospective Payment System for Medicare reimbursement.
  Such advances are expected to be repaid during the first quarter of fiscal 2002.
  In the first quarter of fiscal 2001, the Company received a cash advance, net of
  payments for estimated settlements relating to cost report filings, of
  approximately $20.9 million which was reflected in accrued expenses in the
  accompanying consolidated balance sheet as of July 1, 2001.
  
       6. Cash and Revolving Credit Facility
  
       As of July 1, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.7 million under the Company's
  $150 million amended revolving credit facility which expires in 2004. The
  Company was in compliance with the financial covenants of the credit facility as
  of July 1, 2001.
  
       In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. As of July 1, 2001, a
  supersedeas bond in the amount of $35.2 million was posted to satisfy the
  judgment plus interest. Under the terms of the bond, cash equal to the amount of
  the bond is held in a segregated account as collateral for the bond and the
  interest relating thereto accrues to the Company. The cash in the segregated
  account is reflected in cash and cash equivalents in the accompanying
  consolidated balance sheet. At its discretion, the Company may substitute a
  letter of credit for the segregated cash to collateralize the bond.
  
                                        -7-
  7. Shareholders' Equity
  
       Changes in shareholders' equity during the six months ended July 1, 2001
  were as follows (in thousands):
  Common     Additional     Accumulated      Accumulated       Total
                                                        Stock       Paid-in        Deficit           Other
                                                                    Capital                      Comprehensive
                                                                                                     Loss
                                                     ------------ ------------ ---------------------------------- -----------
  Balance at December 31, 2000                       $2,120        $689,163      $(124,570)       $   (564)       $  566,149
  
     Comprehensive income:
        Net income                                                                   8,430                             8,430
  
        Unrealized loss on investments                                                                (252)             (252)
  
     Issuance of stock upon conversion of
       convertible preferred trust securities             6             594                                              600
  
     Issuance of stock upon exercise of stock
     options and under stock plans for employees
       and directors                                    174          10,017                                           10,191
                                                     ------------ ------------ ---------------------------------- -----------
  
  Balance at July 1, 2001                            $2,300        $699,774      $ (116,140)       $   (816)       $ 585,118
                                                     ============ ============ ================================== ===========
  Total comprehensive income amounted to $2.7 million and $2.1 million during
  the second quarter of fiscal 2001 and 2000, respectively, and $8.2 million and
  $0.3 million during the first six months of fiscal 2001 and 2000, respectively.
  
       In June 2001, the Company issued 64,383 shares of common stock upon the
  conversion of $0.6 million of the convertible preferred trust securities at a
  conversion price of $9.319219.
  
       8. Legal Matters
  
  Litigation
  
       In addition to the matters referenced below, the Company is party to
  certain legal actions arising in the ordinary course of business including legal
  actions arising out of services rendered by its various operations, personal
  injury and employment disputes.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million which was subject to
  
                                        -8-
  approval by the respective courts. The Company's insurers funded $18 million of
  the proposed settlement sum. The Company funded the $7 million balance and
  recorded a special charge for that amount during fiscal 2000. By order dated
  April 30, 2001, the District Court preliminarily approved the settlement of the
  Class Action and scheduled a settlement fairness hearing for August 31, 2001. On
  August 7, 2001, the Delaware Chancery Court approved the settlement of the
  Derivative Lawsuit.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/ HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
       On June 23, 2000, the Company was served with a Complaint in a purported
  class action lawsuit filed by Ultimate Home Health Care Inc. in the U.S.
  District Court for the Middle District of Tennessee, captioned Ultimate Home
  Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560, (the
  "Tennessee Lawsuit"). The Company was served with an Amended Complaint in the
  Tennessee Lawsuit on July 21, 2000, which names as defendants Columbia/HCA,
  Columbia Homecare Group, Olsten Health Management a/k/a Hospital Contract
  Management Services (one of the Company's subsidiaries) and Olsten Corporation.
  The Amended Complaint alleges, among other things, that the defendants' business
  practices in connection with home health care patient referrals between 1994 and
  1996 violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act (TCPA),
  and state common law. The Amended Complaint seeks unspecified compensatory
  damages, punitive damages, treble damages and attorneys' fees on behalf of a
  proposed class of home healthcare companies and/or agencies which conducted
  business in Tennessee, Texas, Florida and/or Georgia. In September 2000, the
  defendants filed a motion to dismiss the Amended Complaint, and by an order
  dated January 21,
  
                                        -9-
  2001, the Court dismissed plaintiffs' RICO and state common law tort claims. The
  Court also held that the plaintiffs had properly pleaded the antitrust, TCPA and
  civil conspiracy claims and allowed those claims to proceed to discovery.
  Plaintiff's motion for class certification is due to be filed with the court by
  August 24, 2001. Because the Tennessee Lawsuit is in a relatively preliminary
  discovery stage, the Company is unable at this time to assess the probable
  outcome of or potential liability arising from such lawsuit.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio
  (the "Fredrickson Lawsuit"), returned a verdict in favor of the plaintiff
  against Olsten consisting of $675,000 in compensatory damages, $30 million in
  punitive damages and an undetermined amount of attorneys' fees. The jury found
  that, although Olsten had lawfully terminated the plaintiff's employment, its
  failure to transfer or rehire the plaintiff rendered Olsten liable to the
  plaintiff. The defendants posted a court ordered bond in the amount of $675,000
  and filed several post-trial motions, including a motion seeking the entry of
  judgment in the defendants' favor notwithstanding the verdict or, in the
  alternative, a new trial or a remittitur of the punitive damages award. The
  plaintiff filed post-trial motions in connection with the entry of the judgment
  and the amount of the bond posted by defendants. Following a hearing on the
  parties' respective post-trial motions on March 23, 2001, the trial court, on
  May 17, 2001, denied all post-trial motions, and entered judgment for the
  plaintiff for the full amount of compensatory and punitive damages, and awarded
  the plaintiff reduced attorney's fees of $247,938. On June 14, 2001, defendants
  timely filed a Notice of Appeal with the Court of Appeals, Seventh Appellate
  District, Mahoning County, Ohio, and on June 19, 2001, the Company posted a
  supersedeas bond for the full amount of the judgment, plus interest. The Company
  continues to defend this matter vigorously.
  
       In Gile v. Olsten Corporation, et al, U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation, Olsten Health Services, and a certain
  individual in December 1997. The defendants denied the allegations of
  discrimination on the basis that plaintiff's termination was part of a reduction
  in force. The individual defendant was dismissed from the action, and the
  remaining corporate defendants filed a motion for summary judgment that was
  granted by the District Court in February 1999. The plaintiff appealed the
  District Court's order to the Ninth Circuit Court of Appeals and in December,
  2000, the Court of Appeals issued its ruling which reversed the District Court
  and remanded the case for trial. On or about June 19, 2001, the Company and the
  plaintiff agreed to settle this matter and entered into a confidential
  settlement agreement with full release.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below.
  
                                        -10-
  Government Investigations
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. After preliminary discussions with the Office of Inspector
  General, the Company believes the subpoena relates to an investigation of
  possible overpayments to it by the Medicare program. In early February 2000, the
  Company received a document subpoena from the Department of Health and Human
  Services, Office of Inspector General, and Office of Investigations. The Company
  believes the subpoena relates to its agencies' cost reporting procedures
  concerning contracted nursing and home health aide costs. The Company has
  provided and continues to provide the Office of Inspector General with the
  requested documents and continues to cooperate fully with its investigations. At
  this time, the Company is unable to assess the probable outcome or potential
  liability, if any, arising from these subpoenas. The Company believes that it is
  possible that one or both of these investigations may have been triggered by
  lawsuits under federal or state whistle blower statutes against Olsten or the
  Company.
  
       9. Subsequent Event
  
       On August 7, 2001, the Company's Board of Directors authorized the Company
  to redeem its 10 percent convertible subordinated debentures at a redemption
  price of 108 percent of the original principal amount of the debentures plus
  accrued and unpaid interest in accordance with the terms of an Indenture dated
  March 15, 2000, between the Company and Wilmington Trust Company. These
  debentures, which are due in 2005, were issued to a Trust of which the Company
  owns all the common equity. Upon such redemption, the Trust, in turn, is
  required to use the proceeds of such redemption to redeem all of its convertible
  preferred trust securities in accordance with the terms of a Trust Agreement
  dated March 9, 2000. Holders of the trust securities may elect to convert such
  securities into the Company's common stock until two business days prior to the
  redemption date at a conversion price of $9.319219. The scheduled redemption
  date is September 14, 2001.
  
       At July 1, 2001, $19.4 million of the above referenced Gentiva-obligated
  mandatorily redeemable securities were outstanding. If all such securities are
  converted, the Company's outstanding common stock will increase by approximately
  2.1 million shares.
  
       10. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 periods, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for a portion of the fiscal 2000 periods, Staffing Services and Canada. These
  segments are briefly described below.
  
                                        -11-
  Specialty Pharmaceutical Services includes (i) the distribution of drugs
  and other biological and pharmaceutical products and professional support
  services for individuals with chronic diseases, such as hemophilia, primary
  pulmonary hypertension, autoimmune deficiencies and growth disorders, (ii) the
  administration of antibiotics, chemotherapy, nutrients and other medications for
  patients with acute or episodic disease states, (iii) distribution services for
  pharmaceutical, biotechnology and medical service firms and (iv) clinical
  support services for pharmaceutical and biotechnology firms.
  
       Home Health Services includes (i) professional and paraprofessional
  services, including skilled nursing, rehabilitation and other therapies, home
  health aide and personal care services, to individuals with acute illnesses,
  long-term chronic health conditions, permanent disabilities, terminal illnesses
  or post-procedural needs and (ii) care management and coordination for managed
  care organizations and self-insured employees.
  
       Staffing Services included services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs. Canada included professional and
  paraprofessional services to individuals in home and institutional settings.
  Both Staffing Services and Canada constituted less than 10 percent of the net
  revenues, operating contribution and the total assets of the Company and, as
  such, were combined for segment reporting purposes.
  
       The Company and its chief decision makers evaluate performance and allocate
  resources based on operating contributions of the reportable segments, which
  exclude corporate expenses, depreciation, amortization and interest expense, but
  include revenues and all other costs directly attributable to the specific
  segment. Intersegment revenues represent Specialty Pharmaceutical Services
  segment revenues generated from services provided to the Home Health Services
  segment. Identifiable assets of the segments reflect net accounts receivable and
  inventories associated with segment activities. All other assets are assigned to
  the Company for the benefit of all segments.
  
       During fiscal 2001, the Company changed its evaluation performance
  methodology, as described below, which resulted in a change in reportable
  segments. In the fiscal 2000 periods, clinical support services for the
  pharmaceutical and biotechnology firms and staffing services provided under a
  state contract were included in the Staffing Services segment. The Company now
  considers these services to be part of the Specialty Pharmaceutical Services
  segment and Home Health Services segment, respectively. In addition, services
  relating to care management and coordination for managed care organizations and
  self-insured employees were allocated between Specialty Pharmaceutical Services
  and Home Care Nursing Services segments in the fiscal 2000 periods based on the
  nature of services rendered; the Company now considers these services to be part
  of the Home Health Services segment. Furthermore, Canadian operating results
  were included in the Home Care Nursing Services segment in the prior year
  periods and are now reflected in the Staffing and Canada results for
  presentation purposes. Prior period segment data has been reclassified to
  conform with the current year presentation.
  
                                        -12-
  Information about the Company's operations is as follows (in thousands):
  Specialty          Home       Staffing       Total
                                            Pharmaceutical      Health         and
                                               Services        Services       Canada
                                          -----------------  ------------  -----------  -----------
  Three months ended July 1, 2001
  -------------------------------
  Net revenues - segments                 $178,328            $179,705       $     -      $358,033
                                          =================  ============  ===========
  Intersegment revenues                                                                    (22,589)
                                                                                        -----------
  Net revenues                                                                          $  335,444
                                                                                        ===========
  
  Operating contribution                  $ 17,072            $ 12,774       $     -    $   29,846
                                          =================  ============  ===========
  
  Corporate expenses                                                                       (17,529)
  
  Special charges - corporate                                                               (3,011)
                                                                                        -----------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                            9,306
  
  Depreciation and amortization                                                             (6,635)
  
  Interest expense, net                                                                       (152)
                                                                                        -----------
  Income before income taxes                                                            $    2,519
                                                                                        ===========
  
  Three months ended July 2, 2000
  -------------------------------
  Net revenues - segments                 $ 171,899          $ 187,167      $  42,089   $  401,155
                                          ===============   =============  ===========
  
  Intersegment revenues                                                                    (17,885)
                                                                                        -----------
  Net revenues                                                                          $  383,270
                                                                                        ===========
  
  Operating contribution                  $20,848            $  11,114       $   3,153  $   35,115
                                          ===============   =============  ===========
  
  Corporate expenses                                                                       (20,111)
  
  Special charges - corporate                                                               (1,191)
                                                                                        -----------
  Earnings before interest expense,
   taxes, depreciation and amortization                                                     13,813
  
  Depreciation and amortization                                                             (7,974)
  
  Interest expense, net                                                                     (2,112)
                                                                                        -----------
  Income before income taxes                                                            $    3,727
                                                                                        ===========
  -13-
  Specialty          Home           Staffing
                                       Pharmaceutical       Health             and
                                          Services         Services          Canada          Total
                                      ------------------ -------------- -------------------------------
  Six months ended July 1, 2001
  -----------------------------
  Net revenues - segments             $374,215            $365,322        $       -      $   739,537
                                      ================== ============== =================
  
  Intersegment revenues                                                                      (46,915)
                                                                                         --------------
  Net revenues                                                                            $  692,622
                                                                                         ==============
  
  Operating contribution              $ 33,919            $ 27,554        $       -       $   61,473
                                      ================== ============== =================
  
  Corporate expenses                                                                         (35,121)
  
  Special charges - corporate                                                                 (3,011)
                                                                                         --------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                             23,341
  
  Depreciation and amortization                                                              (13,625)
  
  Interest expense, net                                                                         (585)
                                                                                         --------------
  
  Income before income taxes                                                              $    9,131
                                                                                         ==============
  
  Segment assets                      $275,899            $157,810        $       -       $  433,709
                                      ================== ============== =================
  
  Corporate assets                                                                           398,053
                                                                                        ---------------
  Total assets                                                                            $  831,762
                                                                                        ===============
  
  Six months ended July 2, 2000
  -----------------------------
  Net revenues - segments             $340,894            $376,711         $  83,768      $  801,373
                                      ================== ============== =================
  
  Intersegment revenues                                                                      (33,496)
                                                                                         --------------
  Net revenues                                                                            $  767,877
                                                                                         ==============
  
  Operating contribution              $ 43,421            $ 22,147         $   5,652      $   71,220
                                      ================== ============== =================
  
  Corporate expenses                                                                         (41,159)
  
  Special charges - corporate                                                                 (6,791)
                                                                                         --------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                             23,270
  
  Depreciation and amortization                                                              (16,461)
  
  Interest expense, net                                                                       (6,348)
                                                                                         --------------
  Income before income taxes                                                             $       461
                                                                                        ===============
  
  Segment assets                      $460,075            $192,629        $  26,160      $   678,864
                                      ================== ============== =================
  
  Corporate assets                                                                           335,273
                                                                                        ---------------
  Total assets                                                                           $ 1,014,137
                                                                                        ===============
  -14-
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations
  
  General
  
       The comparability of the Company's results of operations between the second
  quarter and the first six months of fiscal 2001 and 2000 was impacted by several
  items which are briefly described below.
  
       o    On March 15, 2000, the Company was Split-off from Olsten Corporation
            ("Olsten") through the issuance of all of the Company's common stock
            to Olsten's shareholders and the Company became an independent,
            publicly-owned company. Prior thereto, the Company operated Olsten's
            health services business as a wholly-owned subsidiary of Olsten. The
            accompanying consolidated financial statements for periods prior to
            and including March 15, 2000 reflect the financial position, results
            of operations and cash flows of the Company as if it were a separate
            entity for all periods presented. Such consolidated financial
            statements have been prepared using historical basis of assets and
            liabilities and historical results of operations related to the
            Company.
  
       o    During the second quarter of fiscal 2001, the Company recorded special
            charges of approximately $3.0 million in connection with the
            settlement of the Gile v. Olsten Corporation, et al, and the State of
            Indiana v. Quantum Health Resources, Inc. and Olsten Health Services,
            Inc. lawsuits and for various other legal costs. These legal matters
            are further discussed in Note 8. These special charges were reflected
            in selling, general and administration expenses in the accompanying
            consolidated statement of income.
  
            During the six months ended July 2, 2000, the Company recorded special
            charges aggregating $6.8 million which were reflected in selling,
            general and administration expenses in the accompanying statement of
            income. Of this amount, charges of $4.1 million were incurred to
            reflect obligations resulting from the Company's Split-off from Olsten
            and transition costs associated with the establishment of the Company
            as an independent, publicly-owned entity. These special charges
            included change of control and compensation and benefit payments of
            $3.6 million made to certain former employees of the Company and
            Olsten and a current executive officer of the Company, and transition
            costs of $0.5 million relating to registration costs, professional
            fees and other items.
  
            In addition, special charges of $1.2 million in the second quarter of
            fiscal 2000 and $2.7 million in the first six months of fiscal 2000
            were incurred in connection with the change of the Company's name to
            Gentiva Health Services, Inc. These special
  
                                        -15-
  charges primarily consisted of costs incurred and paid for consulting
            fees, promotional items and advertising.
  
       o    Prior to October 1, 2000, reimbursement of Medicare home care nursing
            services was based on reasonable, allowable costs incurred in
            providing services to eligible beneficiaries subject to both per visit
            and per beneficiary limits in accordance with the Interim Payment
            System (the "IPS") established through the Balanced Budget Act of
            1997. These costs are reported in annual cost reports which are filed
            with the Medicare fiscal intermediary and are subject to audit.
            Effective October 1, 2000, the IPS was replaced by a Prospective
            Payment System ("PPS") for Medicare home care reimbursement. Under
            PPS, the Company is eligible to receive a fixed reimbursement which
            covers a specified treatment period for each patient. The
            reimbursement rate is established based on a clinical assessment of
            the severity of the patient's condition, service needs and certain
            other factors. The rate is subject to adjustment if there are
            significant changes in the patient's condition during the specified
            treatment period. Net revenues attributable to the Medicare program as
            a percentage of total consolidated net revenues were 17 percent in the
            second quarter and first six months of both fiscal 2001 and 2000.
  
       o    During the fourth quarter of fiscal 2000, the Company sold its health
            care staffing services business and its Canadian operations. In the
            first quarter and first six months of fiscal 2000, the Company
            recorded revenues of $42 million and $84 million, respectively, gross
            profit of $11 million and $22 million, respectively, and selling,
            general and administrative expenses of $8 million and $16 million,
            respectively, relating to the businesses that were sold.
  
       The Company's results of operations are impacted by various regulations and
  other matters that are implemented from time to time in its industry, some of
  which are described in the Company's Annual Report on Form 10-K for the fiscal
  year ended December 31, 2000.
  
  Results of Operations
  
       Revenues
  
       After adjusting for the Staffing and Canadian operations which were sold
  during the fourth quarter of fiscal 2000, net revenues decreased by $6 million
  or 1.7% to $335 million during the second quarter of fiscal 2001 as compared to
  the second quarter of fiscal 2000 primarily due to a $7 million or 4 percent
  decline in Home Health Services revenues. This decrease was partially offset by
  a $6 million or 3.7 percent increase in the Specialty Pharmaceutical Services
  segment which included an increase of $5 million in intersegment revenues
  generated from services provided to the Home Health Services segment that is
  eliminated in consolidation. Overall, net revenues in the second quarter of
  fiscal 2001 decreased by $48 million or 12.5 percent as compared to the second
  quarter of fiscal 2000, of which $42 million in revenues related to the
  aforementioned sold operations.
  
                                        -16-
  After adjusting for the sales of the Staffing and Canadian operations as
  noted above, net revenues increased by $9 million or 1.2 percent to $693 million
  during the first six months of fiscal 2001 as compared to the corresponding
  period of fiscal 2000. This increase was driven by growth in the Specialty
  Pharmaceutical Services segment of $33 million or 9.8 percent, of which $13
  million related to intersegment revenues, offset by a decline of $11 million in
  Home Health Services revenue. Overall, net revenues decreased by $75 million or
  9.8 percent during the first six months of fiscal 2001 as compared to the
  corresponding period of the prior year which included $84 million in revenue
  related to the sold operations.
  
       In the Specialty Pharmaceutical Services business, revenue growth was
  attributable to volume increases in several core chronic therapies, including
  Flolan, IVIG, growth hormone products and biological response modifiers. This
  revenue growth, however, was negatively impacted by some product shortages of
  recombinant coagulation therapy, which is used in the treatment of hemophilia.
  The decline in Home Health Services revenue during the second quarter and first
  six months of fiscal 2001 was attributable primarily to the continuing
  transition to new clinical protocols as part of the new Medicare reimbursement
  system and the impact of the closing of certain home care nursing branches
  during the fourth fiscal quarter at 2000 as well as the continued shortage of
  nursing and caregiver personnel in certain parts of the country.
  
       Gross Profit
  
       Gross profit margins, as a percentage of net revenues, increased from 33.6
  percent in the second quarter of fiscal 2000 to 33.9 percent in the second
  quarter of fiscal 2001. The increase in margins was primarily attributable to
  productivity enhancements resulting from a change in clinical protocols and rate
  increases in Home Health Services as well as the absence of lower margin
  Staffing and Canadian operations which were sold in late 2000 offset by a change
  in business mix reflecting growth in the lower margin Specialty Pharmaceutical
  Services products and higher costs attributable to certain biological and
  pharmaceutical products due to product shortages. Gross profit margins decreased
  from 33.5 percent in the first six months of fiscal 2000 to 33.2 percent in the
  first six months of fiscal 2001. This decrease in margins was primarily
  attributable to growth in lower margin Specialty Pharmaceutical Services
  products and higher costs associated with certain biological and pharmaceutical
  products due to product shortages.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $111 million
  during the second quarter of fiscal 2001 as compared to $123 million during the
  second quarter of fiscal 2000 due to (i) the reduction of $8 million in costs
  associated with the sale of the Staffing and Canadian operations, (ii)
  efficiency improvement efforts in Home Health Services and corporate
  administrative support departments, and (iii) the closing of certain home care
  nursing branches during the fourth quarter of fiscal 2000. These decreases were
  offset by special charges of $3 million in connection with certain legal matters
  recorded during the second
  
                                        -17-
  quarter of fiscal 2001, compared to $1.2 million in special charges associated
  with the Company's name change recorded during the second quarter of fiscal
  2000.
  
       For the first six months of fiscal 2001, selling, general and
  administrative expenses were $220 million as compared to $250 million for the
  first six months of fiscal 2000. This decrease resulted from the reduction of
  $16 million in costs associated with the sale of the Staffing and Canadian
  operations, the impact of efficiency improvement efforts and the closing of home
  care nursing branches as well as a change in special charges from $6.8 million
  in the fiscal 2000 period to $3 million in the fiscal 2001 period.
  
       Excluding the effects of the Canadian and Staffing Services businesses that
  were sold and the special charges recorded in the periods as described above,
  selling, general and administrative expenses as a percentage of net revenues
  were 32.2 percent and 33.3 percent during the first six months of fiscal 2001
  and 2000, respectively, and 31.4 percent and 33.2 percent during the second
  quarter of fiscal 2001 and 2000, respectively.
  
       Interest Expense, Net
  
       Interest expense, net was approximately $0.6 million and $6.3 million in
  the first six months of fiscal 2001 and 2000, respectively, and $0.2 million and
  $2.1 million in the second quarters of fiscal 2001 and 2000, respectively.
  Interest expense, net for the second quarter and first six months of fiscal 2001
  represented primarily interest on the mandatorily redeemable securities and fees
  relating to the revolving credit facility offset by interest income of
  approximately $0.9 million and $1.4 million, respectively. During the second
  quarter and six month periods of fiscal 2000, interest expense, net also
  included interest on the outstanding 4 3/4 percent convertible subordinated
  debentures which matured and were retired in October 2000, net intercompany
  borrowings with Olsten up to the Split-off date and interest on borrowings under
  the credit facility subsequent to the Split-off date.
  
       Income Taxes
  
       Income tax expense for the fiscal 2001 period consisted primarily of taxes
  relating to certain state jurisdictions. The Company had estimated net operating
  loss carryforwards (NOLs) of approximately $76 million as of December 31, 2000.
  Because of the uncertainty of ultimate realization of the net deferred tax
  asset, the Company has established a valuation allowance for the deferred tax
  asset that is not otherwise used to offset deferred tax liabilities. The Company
  expects its effective tax rate to be below 10 percent until such time as the
  NOLs are utilized.
  
       For the fiscal 2000 periods, the effective tax rates approximated 42
  percent which differed from the statutory rate due to nondeductible goodwill
  amortization and other nondeductible items.
  
                                        -18-
  Liquidity and Capital Resources
  
       Working capital at July 1, 2001, was $378 million, an increase of $29
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $34 million in the first six months of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system for
  Specialty Pharmaceutical Services as well as increases in billings through
  electronic data interchange. After adjusting for the sale of the Company's
  staffing services business and Canadian operations, adjusted Days Sales
  Outstanding ("DSO") was 111 days at December 31, 2000. DSO was reduced by 7 days
  to 104 days at July 1, 2001 as a result of improved cash collections.
  
       Cash and cash equivalents increased by approximately $77 million as of July
  1, 2001 as compared to December 31, 2000 as a result of (i) cash flow from
  operations, net of decrease in book overdrafts which were included in accounts
  payable at December 31, 2000, of approximately $48 million, (ii) Medicare
  advances, net of payments for estimated settlements, of approximately $21
  million, and (iii) proceeds from the exercise of stock options of approximately
  $10 million, offset somewhat by capital expenditures of approximately $2
  million. In early 2001, the Center for Medicare and Medicaid Services, formerly
  known as the Health Care Financing Administration, issued cash advances to
  certain Medicare providers in connection with the transition from the IPS to the
  PPS for Medicare reimbursement. Such advances are expected to be repaid during
  the first quarter of fiscal 2002. In the first quarter of fiscal 2001, the
  Company received a cash advance, net of payments for estimated settlements
  relating to cost report filings, of approximately $21 million which was
  reflected in accrued expenses in the accompanying consolidated balance sheet as
  of July 1, 2001.
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings, including amounts which are available for letters of
  credit. The Company may borrow up to a maximum of 80 percent of eligible
  accounts receivable, as defined. At the Company's option, the interest rate on
  borrowings under the credit facility is based on the London Interbank Offered
  Rate (LIBOR) plus 2.5 percent or the lender's prime rate plus 0.25 percent. As
  of July 1, 2001, there were no borrowings outstanding under the credit facility
  and total outstanding letters of credit approximated $25.7 million. The Company
  is subject to an unused line fee equal to 0.375 percent per annum of the average
  daily difference between $150 million and the total outstanding borrowings and
  letters of credit. In addition, the Company must pay a fee equal to 2.25 percent
  per annum of the aggregate face amount of outstanding standby letters of credit.
  
       The amended credit facility, which expires in 2004, includes certain
  covenants requiring the Company to maintain a minimum tangible net worth and
  minimum earnings before interest, taxes, depreciation and amortization. Other
  covenants in the credit facility include limitation on mergers, consolidations,
  acquisitions, indebtedness, liens, capital expenditures and dispositions of
  assets and other limitations with respect to the Company's operations. The
  Company's obligations under the credit facility are collateralized by all of the
  Company's tangible and intangible personal property, and other equipment. As of
  July 1, 2001, the Company was in compliance with its financial covenants and had
  borrowing capacity under the credit facility of approximately $124 million.
  
                                        -19-
  In June 2001, the Company's credit facility was amended to increase the
  portion of the facility available for letters of credit from $30 million to
  either (i) $40 million or (ii) $70 million in the event that the Company elects
  to post a letter of credit in lieu of an appellate bond for all or a part of the
  total amount of the judgment plus interest in the Fredrickson v. Olsten Health
  Services Corp. and Olsten Corporation case while the Company pursues its appeal
  of the judgment as further discussed in Note 8. As of July 1, 2001, a
  supersedeas bond in the amount of $35 million was posted to satisfy the judgment
  plus interest. Under the terms of the bond, cash equal to the amount of the bond
  is held in a segregated account as collateral for the bond and the interest
  relating thereto accrues to the Company. The cash in the segregated account is
  reflected in cash and cash equivalents in the accompanying consolidated balance
  sheet. At its discretion, the Company may substitute a letter of credit for the
  segregated cash to collateralize the bond.
  
       Management believes cash flows from operations, borrowings available under
  the credit facility and other financing options, including issuance of debt or
  equity securities under an effective shelf registration statement will be
  adequate to support the ongoing operations and to meet debt service requirements
  for the foreseeable future. The Company intends to make investments and other
  expenditures to, among other things, upgrade its computer technology and system
  infrastructure and comply with regulatory changes in the industry. If cash flows
  from operations or availability under the credit facility fall below
  expectations, the Company may be forced to delay planned capital expenditures,
  reduce operating expenses, seek additional financing or consider alternatives
  designed to enhance liquidity.
  
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
       The Company's exposure to the market risk for changes in the interest rates
  related to the fair value of its fixed rate Quantum debentures until their
  repayment in October 2000. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise. The
  Company had no interest rate exposure on fixed rate debt at July 1, 2001.
  
  OTHER:
  
       INFORMATION CONTAINED HEREIN, OTHER THAN HISTORICAL INFORMATION, SHOULD BE
  CONSIDERED FORWARD-LOOKING AND IS SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES.
  FOR INSTANCE, THE COMPANY'S STRATEGIES AND OPERATIONS INVOLVE RISKS OF
  COMPETITION, CHANGING MARKET CONDITIONS, CHANGES IN LAWS AND REGULATIONS
  AFFECTING THE COMPANY'S INDUSTRIES AND NUMEROUS OTHER FACTORS DISCUSSED IN THIS
  DOCUMENT AND IN OTHER COMPANY FILINGS WITH THE SECURITIES AND EXCHANGE
  COMMISSION. ACCORDINGLY, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
  EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS CONTAINED HEREIN.
  
                                        -20-
  PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings
  
       In addition to the matters referenced below, the Company is party to
  certain legal actions arising in the ordinary course of business including legal
  actions arising out of services rendered by its various operations, personal
  injury and employment disputes.
  
       In late 2000, after engaging in a mediation conducted by a third-party
  mediator, the parties to the previously disclosed Class Action (In re Olsten
  Corporation Securities Litigation, No. 97-CV-5056 (DRH), U.S. District Court for
  the Eastern District of New York) and Derivative Lawsuit (Rubin v. May, No.
  17135-NC, Delaware Chancery Court) reached an agreement to settle both lawsuits
  for the aggregate sum of $25 million, which was subject to approval by the
  respective courts. The Company's insurers funded $18 million of the proposed
  settlement sum. The Company funded the $7 million balance and recorded a special
  charge for that amount during fiscal 2000. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement of the Class Action and
  scheduled a settlement fairness hearing date for August 31, 2001. On August 7,
  2001, the Delaware Chancery Court approved the settlement of the Derivative
  Lawsuit.
  
       In July 1999, the Indiana Attorney General's Office filed a lawsuit against
  Olsten in Indiana Superior Court, captioned State of Indiana v. Quantum Health
  Resources, Inc. and Olsten Health Services, Inc., No. 49D029907CP001011,
  alleging that Olsten was overpaid by Medicaid, failed to properly disclose
  information to Medicaid and engaged in improper billing. The alleged violations
  predate Olsten's acquisition of Quantum Health Resources in June 1996. The
  lawsuit sought unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties have resolved this matter during the second
  quarter of fiscal 2001 pursuant to a confidential Settlement agreement and full
  release. There is no ongoing obligation on the part of the Company arising from
  this settlement.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly"), one of
  the Company's subsidiaries, initiated three arbitration proceedings against
  hospitals owned by Columbia/HCA Healthcare Corp. ("Columbia/HCA") with which
  Kimberly had management services agreements to provide services to the
  hospitals' home health agencies. The basis for each of the arbitrations is that
  Columbia/HCA sold the home health agencies without assigning the management
  services agreements and, as a result, Columbia/HCA has breached the management
  services agreements. In response to the arbitrations, Columbia/HCA has asserted
  that the arbitrations be consolidated and stayed, in part based upon its alleged
  claims against Kimberly for breach of contract, and requested indemnity and
  possibly return of management fees. Columbia/HCA has not yet formally presented
  these claims in the arbitrations or other legal proceedings and has not yet
  quantified the claims. Still pending before the arbitrators is Columbia/HCA's
  request to consolidate the proceedings, which Kimberly has opposed.
  
                                        -21-
  On June 23, 2000, the Company was served with a Complaint in a purported
  class action lawsuit filed by Ultimate Home Health Care Inc. in the U.S.
  District Court for the Middle District of Tennessee, captioned Ultimate Home
  Health Care, Inc. v. Columbia/HCA Healthcare Corp., No. 3-00-0560, (the
  "Tennessee Lawsuit"). The Company was served with an Amended Complaint in the
  Tennessee Lawsuit on July 21, 2000, which names as defendants Columbia/HCA,
  Columbia Homecare Group, Olsten Health Management a/k/a Hospital Contract
  Management Services (one of the Company's subsidiaries) and Olsten Corporation.
  The Amended Complaint alleges, among other things, that the defendants' business
  practices in connection with home health care patient referrals between 1994 and
  1996 violated provisions of Federal antitrust laws, the Racketeer Influenced and
  Corrupt Organizations Act (RICO), the Tennessee Consumer Protection Act (TCPA),
  and state common law. The Amended Complaint seeks unspecified compensatory
  damages, punitive damages, treble damages and attorneys' fees on behalf of a
  proposed class of home healthcare companies and/or agencies which conducted
  business in Tennessee, Texas, Florida and/or Georgia. In September 2000, the
  defendants filed a motion to dismiss the Amended Complaint, and by an order
  dated January 21, 2001, the Court dismissed plaintiffs' RICO and state common
  law tort claims. The Court also held that the plaintiffs had properly pleaded
  the antitrust, TCPA and civil conspiracy claims and allowed those claims to
  proceed to discovery. Plaintiff's motion for class certification is due to be
  filed with the court by August 24, 2001. Because the Tennessee Lawsuit is in a
  relatively preliminary discovery stage, the Company is unable at this time to
  assess the probable outcome of or potential liability arising from such lawsuit.
  
       On November 22, 2000, the jury in an age-discrimination lawsuit commenced
  in 1998, captioned Fredrickson v. Olsten Health Services Corp. and Olsten
  Corporation, Case No. 98 CV 1937, Court of Common Pleas, Mahoning County, Ohio
  (the "Fredrickson Lawsuit"), returned a verdict in favor of the plaintiff
  against Olsten consisting of $675,000 in compensatory damages, $30 million in
  punitive damages and an undetermined amount of attorneys' fees. The jury found
  that, although Olsten had lawfully terminated the plaintiff's employment, its
  failure to transfer or rehire the plaintiff rendered Olsten liable to the
  plaintiff. The defendants posted a court ordered bond in the amount of $675,000
  and filed several post-trial motions, including a motion seeking the entry of
  judgment in the defendants' favor notwithstanding the verdict or, in the
  alternative, a new trial or a remittitur of the punitive damages award. The
  plaintiff filed post-trial motions in connection with the entry of the judgment
  and the amount of the bond posted by defendants. Following a hearing on the
  parties' respective post-trial motions on March 23, 2001, the trial court, on
  May 17, 2001, denied all post-trial motions, and entered judgment for the
  plaintiff for the full amount of compensatory and punitive damages, and awarded
  the plaintiff reduced attorney's fees of $247,938. On June 14, 2001, defendants
  timely filed a Notice of Appeal with the Court of Appeals, Seventh Appellate
  District, Mahoning County, Ohio, and on June 19, 2001, the Company posted a
  supersedeas bond for the full amount of the judgment, plus interest. The Company
  continues to defend this matter vigorously.
  
       In Gile v. Olsten Corporation, et al, U.S. District Court for the Central
  District of California, No. 97-9363-NM, plaintiff filed an age discrimination
  suit against Olsten Corporation,
  
                                        -22-
  Olsten Health Services, and a certain individual in December 1997. The
  defendants denied the allegations of discrimination on the basis that
  plaintiff's termination was part of a reduction in force. The individual
  defendant was dismissed from the action, and the remaining corporate defendants
  filed a motion for summary judgment that was granted by the District Court in
  February 1999. The plaintiff appealed the District Court's order to the Ninth
  Circuit Court of Appeals and in December 2000, the Court of Appeals issued its
  ruling which reversed the District Court and remanded the case for trial. On or
  about June 19, 2001, the Company and the plaintiff agreed to settle this matter
  and entered into a confidential settlement agreement with full release.
  
       In connection with the Split-Off, the Company agreed to assume, to the
  extent permitted by law, the liabilities, if any, arising out of (and to
  indemnify Olsten for) the above lawsuits and arbitration proceedings and other
  liabilities arising out of the health services business, including any such
  liabilities arising after the Split-Off in connection with the government
  investigations described below in Item 5. Other Information.
  
  Item 2.  Change in Securities and Use of Proceeds
  
           None.
  
  Item 3.  Defaults Upon Senior Securities
  
           None.
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
  The annual meeting of stockholders was held on May 18, 2001. The shareholders of
  the Company ratified the Board of Directors' appointment of
  PricewaterhouseCoopers LLP as independent accountants for the Company for the
  2001 fiscal year as follows:
  
        For           Against      Abstentions      Broker Non-Votes
        ---           -------      -----------      ----------------
  
    21,033,545        12,464         7,864                0
  
  The following directors were nominated and elected to serve as Directors of the
  Company for a term of three years or until their successors shall have been duly
  elected and qualified:
  
  Nominee                     For         Withheld
  -------                     ---         --------
  
  Victor F. Ganzi        20,052,340      1,001,533
  
  Josh S. Weston         21,034,503         19,370
  
  Gail Wilensky          20,046,235      1,007,638
  
  The term of office as a Director of the Company for Edward A. Blechschmidt,
  Steven E. Grabowski and Raymond S. Troubh continued after the meeting and
  expires in 2002 or until their successors shall have been duly elected and
  qualified. The term of office as a Director of the Company for Stuart R. Levine
  and Stuart Olsten continued after the meeting and expires in 2003 or until their
  successors shall have been duly elected and qualified.
  
  Item 5.  Other Information
  
       In early December 1999, Olsten received a document subpoena from the
  Department of Health and Human Services, Office of Inspector General, and Office
  of Investigations. After preliminary discussions with the Office of Inspector
  General, the Company believes the subpoena relates to an investigation of
  possible overpayments to it by the Medicare program. In early February 2000, the
  Company received a document subpoena from the Department of Health and Human
  Services, Office of Inspector General, and Office of Investigations. The Company
  believes the subpoena relates to its agencies' cost reporting procedures
  concerning contracted nursing and home health aide costs. The Company has
  provided and continues to provide the Office of Inspector General with the
  requested documents and continues to cooperate fully with its investigations. At
  this time, the Company is unable to assess the probable outcome or potential
  liability, if any, arising from these subpoenas. The Company believes that it is
  possible that one or both of these investigations may have been triggered by
  lawsuits under federal or state whistle blower statutes against Olsten or the
  Company.
  
       In connection with the July 19, 1999 settlement with various government
  agencies, Olsten executed a separate corporate integrity agreement with the
  Office of Inspector General
  
                                        -23-
  of the Department of Health and Human Services which will remain in effect until
  August 18, 2004. The July 1999 corporate integrity agreement applies to the
  Company's businesses that bill the federal government health programs directly
  for services, such as its home care nursing business (but excluding the
  specialty pharmaceutical services business). This corporate integrity agreement
  focuses on issues and training related to cost report preparation, contracting,
  medical necessity and billing of claims.
  
       Under each of the corporate integrity agreements, the Company is required,
  for example, to maintain a corporate compliance officer to develop and implement
  compliance programs, to retain an independent review organization to perform
  annual reviews and to maintain a compliance program and reporting systems, as
  well as provide certain training to employees.
  
       The Company's compliance program will be implemented for all newly
  established or acquired business units if their type of business is covered by
  the corporate integrity agreements. Reports under each integrity agreement are
  to be filed annually with the Department of Health and Human Services, Office of
  Inspector General. After each corporate integrity agreement expires, the Company
  is to file a final annual report with the government. The Company is in
  compliance with both corporate integrity agreements and has timely filed all
  required reports. If the Company fails to comply with the terms of either of its
  corporate integrity agreements, the Company will be subject to penalties.
  
  Item 6.  Exhibits and Reports on Form 8-K
  
  (a) Exhibit Number Description
  
            3.1  Restated Certificate of Incorporation of Company. (1)
  
            3.2  Restated By-Laws of Company. (1)
  
            4.1  Specimen of common stock. (3)
  
            4.2  Form of Certificate of Designation of Series A Junior
                 Participating Preferred Stock. (1)
  
            4.3  Form of Certificate of Designation of Series A Cumulative
                 Non-Voting Redeemable Preferred Stock. (2)
  
            4.4  Trust Agreement among the Company, Wilmington Trust Company, the
                 Administrative Trustees named therein and the holders from time
                 to time of the convertible trust preferred securities dated March
                 9, 2000. (4)
  
            4.5  Indenture between the Company and Wilmington Trust Company dated
                 March 15, 2000. (4)
  
                                        -24-
  10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
            10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                 Olsten Corporation, Aaronco Corp., Adecco SA and Olsten Health
                 Services Holding Corp. (1)
  
            10.3 Form of Rights Agreement dated March 2, 2000 between the
                 Registrant and Equiserve Limited Partnership, as rights agent.
                 (1)
  
            10.4 Company's Executive Officers Bonus Plan. (1)*
  
            10.5 Company's 1999 Stock Incentive Plan. (4)*
  
            10.6 Company's Stock & Deferred Compensation Plan for Non-Employee
                 Directors. (4)*
  
            10.7 Company's Employee Stock Purchase Plan. (1)*
  
            10.8 Omnibus Amendment No. 2 dated January 18, 2000, by and among
                 Olsten Corporation, Adecco SA, Olsten Health Services Holding
                 Corp., the Company and Staffing Acquisition Corporation. (1)
  
            10.9 Loan and Security Agreement by and between Fleet Capital Corp.,
                 on behalf of the lenders named therein, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein,
                 dated March 13, 2000. (4)
  
            10.10 Form of Employment Agreement with Edward A. Blechschmidt. (2)*
  
            10.11 Form of Change of Control Agreement with Executive Officers of
                 Company. (4)*
  
            10.12 Form of Change in Control Agreement with Edward A. Blechschmidt.
                 (4)*
  
            10.13 Form of Severance Agreement with Executive Officers of Company.
                 (2)*
  
            10.14 Amendment No. 1 dated June 30, 2000 to Trust Agreement among the
                 Company, Wilmington Trust Company, the Administrative Trustees
                 named therein and the holders from time
  
                                        -25-
  to time of the convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between the
                 Company and Wilmington Trust Company. (5)
  
            10.16 First Amendment and Consent Agreement dated September 15, 2000
                 to the Loan Agreement by and among the lending institutions named
                 therein, Fleet Capital Corporation, the Company, Olsten Health
                 Services Holding Corp. and the subsidiaries named therein. (6)
  
            10.17 Purchase and Sale Agreement dated August 25, 2000 by and between
                 the Company and Intelistaf Group, Inc. (formerly known as GS
                 Acquisition Co.) (6)
  
            10.18 Second Amendment and Consent Agreement dated as of November 20,
                 2000 to the Loan Agreement by and among the lending institutions
                 named therein, Fleet Capital Corporation, the Company, Olsten
                 Health Services Holding Corp. and the subsidiaries named therein
                 (7)
  
            10.19 Third Amendment to Loan and Security Agreement dated as of June
                 1, 2001 by and among the lending institutions named therein,
                 Fleet Capital Corporation, the Company, Olsten Health Services
                 Holding Corp. and the subsidiaries named therein.**
  
            21.1 List of Subsidiaries of Company. (2)
  
            ----------------------------------------------------------------------
  
            (1)  Incorporated herein by reference to Amendment No. 2 to the
                 Registration Statement on Form S-4, dated January 20, 2000 (File
                 No. 333-88663).
  
            (2)  Incorporated herein by reference to Amendment No. 3 to the
                 Registration Statement on Form S-4, dated February 4, 2000 (File
                 No. 333-88663).
  
            (3)  Incorporated herein by reference to Amendment No. 4 to the
                 Registration Statement on Form S-4, dated February 9, 2000 (File
                 No. 333-88663).
  
            (4)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended January 2, 2000.
  
            (5)  Incorporated herein by reference to Form 10-Q for the Regis-
  
                                        -26-
  trant for the period ended July 2, 2000.
  
            (6)  Incorporated herein by reference to Form 10-Q for the Registrant
                 for the period ended October 1, 2000.
  
            (7)  Incorporated herein by reference to Form 10-K for the Registrant
                 for the fiscal year ended December 31, 2000.
  
            *    Management contract or compensatory plan or arrangement.
  
            **   Filed herewith
  
  (b)      Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
                                        -27-
  SIGNATURES
  
       Pursuant to the requirements 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.
  
  Date:  August 15, 2001             /S/ Edward A. Blechschmidt
                                     ------------------------------------
                                     Edward A. Blechschmidt
                                     President and Chief Executive
                                     Officer
  
  Date:  August 15, 2001             /S/ John J. Collura
                                     ------------------------------------
                                     John J. Collura
                                     Executive Vice President,
                                     Chief Financial Officer and
                                     Treasurer
  
                                        -28-