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 April 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 May 11, 2001 was 22,052,228.
  
  
  <PAGE>
  
  
                                        INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
     Item 1.     Financial Statements
  
                 Consolidated Balance Sheets - April 1, 2001
                 (Unaudited) and December 31, 2000                        2
  
                 Consolidated Statements of Operations (Unaudited) -
                 Three Months Ended April 1, 2001 and April 2, 2000       3
  
                 Consolidated Statements of Cash Flows (Unaudited) -
                 Three Months Ended April 1, 2001 and April 2, 2000       4
  
                 Notes to Consolidated Financial Statements (Unaudited)   5-12
  
     Item 2.     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                      13-17
  
     Item 3.     Quantitative and Qualitative Disclosures about
                 Market Risk                                              17
  
  PART II - OTHER INFORMATION
  
     Item 1.     Legal Proceedings                                        18-20
  
     Item 2.     Change in Securities and Use of Proceeds                 20
  
     Item 3.     Defaults Upon Senior Securities                          20
  
     Item 4.     Submission of Matters to a Vote of Security Holders      20
  
     Item 5.     Other Information                                        20-21
  
     Item 6.     Exhibits and Reports on Form 8-K                         21-23
  
  SIGNATURES                                                              24
  
  
  
  <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)
  
  
                                                                       April 1, 2001         December 31, 2000
                                                                     -------------------  ------------------------
  ASSETS                                                                 (Unaudited)
  Current assets:
  <S>                                                                   <C>                   <C>
         Cash and cash equivalents                                      $   49,553            $     452
  
         Receivables, less allowance for doubtful accounts
         of $93,907 and $105,962, respectively                             407,366              419,178
  
         Inventories                                                        51,261               51,111
  
         Prepaid expenses and other current
         assets                                                             48,917               50,333
                                                                     --------------       -----------------
              Total current assets                                         557,097              521,074
  
  
  Fixed assets, net                                                         33,734               36,961
  
  Intangible assets, net                                                   228,055              230,702
  
  Other assets                                                              15,956               16,747
                                                                     --------------       -----------------
              Total assets                                           $     834,842        $     805,484
                                                                     ==============       =================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
  
         Accounts payable                                            $      85,520        $      74,083
  
         Accrued expenses                                                   56,596               50,682
  
         Payroll and related taxes                                          20,067               17,305
  
         Insurance costs                                                    29,339               30,320
                                                                     --------------       -----------------
              Total current liabilities                                    191,522              172,390
  
  Other liabilities                                                         46,055               46,945
  
  Gentiva - obligated mandatorily redeemable
    convertible securities of a subsidiary holding solely
    Gentiva debentures                                                      20,000               20,000
  
  Shareholders' equity:
  
         Common stock, $.10 par value; authorized 100,000,000
           shares; issued and outstanding 21,974,582 and
           21,196,693 shares, respectively                                   2,197                2,120
  
         Additional paid-in capital                                        694,728              689,163
  
         Accumulated deficit                                              (118,458)            (124,570)
  
  
         Accumulated other comprehensive loss                               (1,202)                (564)
                                                                     --------------       -----------------
              Total shareholders' equity                                   577,265              566,149
                                                                     --------------       -----------------
              Total liabilities and
              shareholders' equity                                   $     834,842        $     805,484
                                                                     ==============       =================
  </TABLE>
  
  See notes to consolidated financial statements.
  
  
                                        -2-
  <PAGE>
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Operations
                      (In thousands, except per share amounts)
                                     (Unaudited)
  
  
                                                               Three Months Ended
                                                     ---------------------------------------
                                                        April 1, 2001      April 2, 2000
                                                     ---------------------------------------
  
  <S>                                                           <C>               <C>
  Net revenues                                        $         357,178   $       384,607
  Cost of services sold                                         240,748           256,105
                                                     -------------------- ------------------
       Gross profit                                             116,430           128,502
  
  Selling, general and administrative expenses                  109,385           127,532
  Interest expense, net                                             433             4,236
                                                     -------------------- ------------------
       Income (loss) before income taxes                          6,612            (3,266)
  
  
  Income tax expense (benefit)                                      500            (1,360)
                                                     -------------------- ------------------
       Net income (loss)                              $           6,112   $        (1,906)
                                                     ==================== ==================
  
  Net income (loss) per share:
       Basic                                          $            0.28   $         (0.09)
                                                     ==================== ==================
       Diluted                                        $            0.26   $         (0.09)
  
                                                     ==================== ==================
  Average shares outstanding:
       Basic                                                     21,448            20,345
                                                     ==================== ==================
       Diluted                                                   25,701            20,345
                                                     ==================== ==================
  </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)
  
  
                                                                    Three Months Ended
                                                            ------------------------------------
                                                              April 1, 2001     April 2, 2000
                                                            ------------------------------------
  
  OPERATING ACTIVITIES:
  <S>                                                        <C>               <C>
  Net income (loss)                                          $  6,112          $  (1,906)
  
  Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  
      Depreciation and amortization                             6,990              8,487
  
      Provision for doubtful accounts                           9,200              7,545
  
      Changes in assets and liabilities:
  
              Accounts receivable                               2,612            (36,589)
  
              Inventories                                        (150)            10,235
  
              Prepaid expenses and other current assets         1,416              1,631
  
              Current liabilities                               8,633            (30,596)
  
              Other, net                                         (737)              (732)
                                                             --------------  -------------------
  Net cash provided by (used in) operating
  activities                                                   34,076            (41,925)
                                                             --------------  -------------------
  INVESTING ACTIVITIES:
  
  Purchase of fixed assets                                     (1,116)            (2,186)
                                                             --------------  -------------------
  Net cash used in investing
  activities                                                   (1,116)            (2,186)
                                                             --------------  -------------------
  
  FINANCING ACTIVITIES:
  
  Proceeds from issuance of common stock                        5,642             -
  
  Issuance of mandatorily redeemable and other
  securities                                                    -                 20,100
  
  Net transactions with Olsten                                  -                  5,226
  
  Proceeds from revolving credit
  facility                                                      -                 25,477
  
  Debt issuance costs                                           -                 (2,564)
  
  Decrease in book overdrafts                                 (10,379)            (2,684)
  
  Advances from Medicare program                               20,878            -
                                                             -------------  --------------------
  Net cash provided by financing activities                    16,141            45,555
                                                             -------------  --------------------
  Net increase in cash and cash equivalents                    49,101             1,444
  
  Cash and cash equivalents at beginning of
  period                                                          452             2,942
                                                             -------------  --------------------
  Cash and cash equivalents at end of period                 $ 49,553       $     4,386
                                                             =============  ====================
  
  See notes to consolidated financial statements.
  
                                        -4-
  </TABLE>
  
  <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 generally accepted accounting principles.
  
       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 reflect the
  results of operations, financial position and cash flows of the Company as if it
  were a separate entity for all periods presented. The 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 quarter 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 and, additionally, the Company has been responsible for
  the costs and expenses associated with the management of a public corporation.
  
       Net interest expense as presented in the consolidated statement of
  operations included net interest expense of approximately $2.7 million for the
  first quarter of fiscal 2000 relating to the intercompany balances with Olsten.
  Such intercompany balances have been reflected as a contribution to capital as
  of the Split-off date.
  
                                        -5-
  <PAGE>
  
       3. Earnings per Share
  
       Basic net income per share for the first quarter of fiscal 2001 has been
  computed using the weighted average number of shares outstanding (21,448,000).
  Diluted earnings per share for the fiscal 2001 period has been computed using
  the weighted average number of common and dilutive common equivalent shares
  outstanding. Dilutive common equivalent shares represented (i) 2,107,000 shares
  that would be issued upon the assumed exercise of approximately 3.8 million
  stock options under the treasury stock method and (ii) 2,146,000 shares that
  would be issued upon the assumed conversion of the 10 percent convertible
  preferred trust securities at a conversion price of $9.32 per share.
  
       Basic and diluted net loss per share for the first quarter of fiscal 2000
  have been computed based solely on the shares of the Company's stock issued on
  the Split-off date. The computation of dilutive net loss per share for the first
  quarter of fiscal 2000 excluded the effect of shares issuable upon the
  conversion of the 4 3/4 percent convertible subordinated debentures, which
  matured and were retired in October 2000, and the 10 percent convertible
  preferred trust securities and the exercise of stock options since their
  inclusion would have an antidilutive effect on earnings.
  
       4. Restructuring and Special Charges
  
       During the first quarter of fiscal 2000, the Company recorded special
  charges aggregating $5.6 million which were reflected in selling, general and
  administrative expenses in the accompanying consolidated statement of
  operations. 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 approximately $1.5 million were incurred
  during the first quarter of fiscal 2000 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 April 1, 2001, the unpaid portion of these
  restructuring charges aggregated $3.4 million and $2.3 million, respectively, as
  a result of cash payments made during the quarter. The Company expects the
  restructuring plan to be fully executed by mid-2001.
  
       5. Current Liabilities
  
                                        -6-
  <PAGE>
  
       In early 2001, 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 fourth quarter
  of fiscal 2001. In this connection, 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 April 1, 2001.
  
       6. Revolving Credit Facility
  
       As of April 1, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.5 million under the Company's
  $150 million revolving credit facility which expires in 2004. The Company was in
  compliance with the financial covenants of the credit facility as of April 1,
  2001.
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the three months ended April 1, 2001
  were as follows (in thousands):
  
  
  
  <TABLE>
  <CAPTION>
                                                                     Additional                   Accumulated
                                                          Common      Paid-in     Accumulated        Other
                                                           Stock      Capital       Deficit      Comprehensive      Total
                                                                                                     Loss
                                                        --------------------------------------------------------- -----------
  
  <S>                                                   <C>          <C>
  Balance at December 31, 2000                          $   2,120    $  689,163   $  (124,570)   $    (564)       $  566,149
  
   Comprehensive income:
  
          Net income                                                                    6,112                          6,112
          Unrealized loss on investments                                                              (638)             (638)
  
   Issuance of stock upon exercise of stock options            77         5,565                                        5,642
                                                        ----------  ------------  ------------  -------------  -------------
  Balance at April 1, 2001                              $   2,197   $   694,728   $  (118,458)  $   (1,202)    $     577,265
                                                        ==========  ============  ============  =============  =============
  </TABLE>
  
  
  
       Total comprehensive income amounted to $5.5 million during the first
  quarter of fiscal 2001 and total comprehensive loss amounted to $1.8 million for
  the first quarter of fiscal 2000.
  
                                        -7-
  <PAGE>
  
  
       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 in principle to settle
  both lawsuits for the aggregate sum of $25 million. The proposed settlement is
  subject to final approval of the respective courts before which the Class Action
  and the Derivative Lawsuit are pending. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement and scheduled a settlement
  fairness hearing date for August 31, 2001. The Company's insurers have 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. The
  funds are subject to return if the settlement is not approved.
  
       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 seeks unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties are engaging in discussions in an attempt
  to resolve this matter.
  
       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. Currently pending before one of the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed. There has been no new development in this matter.
  
                                        -8-
  <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. Because the Tennessee Lawsuit is in a relatively
  preliminary 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. In vigorously contesting the verdict and judgment, the defendants
  posted a bond ordered by the trial court in the amount of $675,000 and filed
  with that court 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 has filed post-trial motions in connection with the entry of the
  judgment and the amount of the bond posted by defendants. A hearing before the
  trial court on the parties' respective post-trial motions was held on March 23,
  2001. The decision on the hearing is pending.
  
       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"), Olsten Health Services, and a
  certain individual in December 1997. The complaint seeks an unspecified amount
  of compensatory and punitive damages. 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
  
                                        -9-
  <PAGE>
  
  reversed the District Court and remanded the case for trial. Under the
  Separation Agreement of August 17, 1999 by and among Olsten, Adecco SA, and the
  Company (the "Separation Agreement"), the Company is obligated to indemnify
  Olsten with respect to this matter. The District Court scheduled the trial for
  October 2001 and ordered mediation between the parties. The court-ordered
  mediation took place on May 10, 2001 but no settlement was reached. The Company
  continues to defend this matter, but is continuing settlement discussions with
  the plaintiff.
  
       Furthermore, 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.
  
  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. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 period, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for the fiscal 2000 period, Staffing Services. These segments are briefly
  described below.
  
       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.
  
  
                                        -10-
  <PAGE>
  
       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 period, 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 period
  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.
  
  
                                        -11-
  <PAGE>
  
  
       Information about the Company's operations is as follows (in thousands):
  
  
  <TABLE>
  <CAPTION>
  
                                                            Specialty          Home Health     Staffing and
                                                          Pharmaceutical        Services          Canada          Total
                                                             Services
                                                       --------------------- ---------------- --------------- ----------------
  <S>                                                  <C>                   <C>              <C>             <C>
  Three months ended April 1, 2001
  Net revenues - segments                              $  195,887            $    185,617     $        -      $   381,504
                                                       ===================== ================ ===============
  Intersegment revenues                                                                                           (24,326)
                                                                                                             -----------------
  Net revenues                                                                                                $   357,178
                                                                                                             =================
  Operating contribution                               $   16,847            $    14,780      $        -      $    31,627
                                                       ===================== ================ ===============
  Corporate expenses                                                                                              (17,592)
                                                                                                             -----------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                                  14,035
  
  Depreciation and amortization                                                                                    (6,990)
  
  Interest expense, net                                                                                              (433)
                                                                                                             -----------------
  Income before income taxes                                                                                  $     6,612
                                                                                                             =================
  Segment assets                                       $  284,750            $   173,877      $        -      $   458,627
                                                       ===================== ================ ===============
  Corporate assets                                                                                                376,215
                                                                                                             -----------------
  Total assets                                                                                                $   834,842
                                                                                                             =================
  
  Three months ended April 2, 2000
  Net revenues - segments                              $  168,995            $   189,544      $    41,679     $   400,218
                                                       ===================== ================ ===============
  Intersegment revenues                                                                                           (15,611)
                                                                                                             -----------------
  Net revenues                                                                                                $   384,607
                                                                                                             =================
  
  Operating contribution                               $   22,573            $    11,033      $     2,499     $    36,105
                                                       ===================== =============== ================
  
  Corporate expenses                                                                                              (21,048)
  Special charges - corporate                                                                                      (5,600)
                                                                                                             -----------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                                   9,457
  
  Depreciation and amortization                                                                                    (8,487)
  
  Interest expense, net                                                                                            (4,236)
                                                                                                             -----------------
  Loss before income taxes                                                                                    $    (3,266)
                                                                                                             =================
  Segment assets                                       $  447,504            $   216,701      $    23,282     $   687,487
                                                       ===================== =============== ================
  Corporate assets                                                                                                344,176
                                                                                                             -----------------
  Total assets                                                                                                $ 1,031,663
                                                                                                             =================
  </TABLE>
  
                                        -12-
  
  <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 first
  quarter 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 reflect the financial position, results of operations and
            cash flows of the Company as if it were a separate entity for all
            periods presented. The 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 first quarter of fiscal 2000, the Company recorded special
            charges aggregating $5.6 million which were reflected in selling,
            general and administrative expenses in the accompanying consolidated
            statement of operations. 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
            approximately $1.5 million were incurred during the first quarter of
            fiscal 2000 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.
  
       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,
  
  
                                        -13-
  <PAGE>
  
            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 first quarter 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. Revenues,
            gross profit and selling, general and administrative expenses recorded
            in the first quarter of fiscal 2000 relating to the businesses that
            were sold amounted to approximately $42 million, $11 million and $8
            million, respectively.
  
       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
  
       Net revenues decreased by $27 million or 7.0 percent to $357 million during
  the first quarter of fiscal 2001 as compared to the first quarter of fiscal
  2000. This decrease related primarily to $42 million in revenue for the first
  quarter of fiscal 2000 associated with the Staffing and Canadian operations
  which were sold during the fourth quarter of fiscal 2000. After adjusting for
  these sales, net revenues increased by $14 million or 4.1% driven by growth in
  Specialty Pharmaceutical Services of $27 million or 15.9%, which included an
  increase of $9 million in intersegment revenues generated from services provided
  to the Home Health Services segment which is eliminated in consolidation. This
  increase was partially offset by a $4 million or 2.1% decrease in the Home
  Health Services segment.
  
       In the Specialty Pharmaceutical Services business, revenue growth in the
  first quarter was attributable to volume increases in Flolan, IVIG, Synagis and
  several wholesale pharmaceutical therapies. The revenue growth in these
  therapies, 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 first quarter 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.
  
  
                                        -14-
  <PAGE>
  
       Gross Profit
  
       Gross profit margins, as a percentage of net revenues, decreased from 33.4
  percent in the first quarter of fiscal 2000 to 32.6 percent in the first quarter
  of fiscal 2001 The decrease in margins was primarily attributable to a change in
  business mix reflecting growth in the lower margin Specialty Pharmaceutical
  Services business and higher costs attributable to certain biological and
  pharmaceutical products due to product shortages, partly offset by productivity
  enhancements and rate increases in Home Health Services.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $109 million
  during the first quarter of fiscal 2001 as compared to $128 million during the
  first quarter of fiscal 2000 due to (i) the reduction 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, (iii) the closing of certain home care nursing branches during the
  fourth quarter of fiscal 2000 and (iv) the absence of special charges which were
  recorded in the first quarter of fiscal 2000 as discussed above. These decreases
  were offset by increased investments in sales, billing and collection personnel
  in the Specialty Pharmaceutical Services business.
  
       Interest Expense, Net
  
       Interest expense, net was approximately $.4 million and $4.2 million in the
  first quarters of fiscal 2001 and 2000, respectively. Interest expense, net for
  the first quarter of fiscal 2001 represented primarily interest on the
  mandatorily redeemable securities and fees relating to the revolving credit
  facility offset by interest income. During the first quarter of fiscal 2000,
  interest expense, net also included interest on intercompany borrowings with
  Olsten for the period from January 3, 2000 to March 15, 2000 (the Split-off
  date) and interest on the outstanding 4 3/4 percent convertible subordinated
  debentures which matured and were retired in October 2000.
  
       Income Taxes
  
       For the first quarter of fiscal 2000, the effective tax rate was 41.6
  percent which differed from the statutory rate primarily due to non-deductible
  goodwill amortization and other non-deductible items. 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.
  
  
                                        -15-
  <PAGE>
  
       Liquidity and Capital Resources
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings, including up to $30 million which is 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 April 1, 2001, there were no borrowings outstanding under the
  credit facility and total outstanding letters of credit approximated $25.5
  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 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
  April 1, 2001, the Company was in compliance with its financial covenants and
  had borrowing capacity under the credit facility of approximately $124 million.
  
       Working capital at April 1, 2001, was $366 million, an increase of $17
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $12 million in the first quarter of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system and
  management reporting 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 April 1, 2001 as a result of improved cash collections.
  
       Cash and cash equivalents increased by approximately $49 million as of
  April 1, 2001 as compared to December 31, 2000 as a result of (i) cash flow from
  operations, net of decreases in book overdrafts which were included in accounts
  payable at December 31, 2000, of approximately $24 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
  $5 million, offset somewhat by capital expenditures of $1 million. In early
  2001, 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 fourth quarter of fiscal 2001. In
  this connection, the Company received a cash advance, net of payments for
  estimated settlements relating to cost report filings, of approximately $21
  mil-
  
                                        -16-
  <PAGE>
  
  lion which is reflected in accrued expenses in the accompanying consolidated
  balance sheet as of April 1, 2001.
  
       Inventory was essentially unchanged with a balance of $51 million at both
  April 1, 2001 and December 31, 2000.
  
       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 April 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.
  
  
                                        -17-
  <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 in principle to settle
  both lawsuits for the aggregate sum of $25 million. The proposed settlement is
  subject to final approval of the respective courts before which the Class Action
  and the Derivative Lawsuit are pending. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement and scheduled a settlement
  fairness hearing date for August 31, 2001. The Company funded the $7 million
  balance and recorded a special charge for that amount during fiscal 2000. The
  funds are subject to return if the settlement is not approved.
  
       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 seeks unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties are engaging in discussions in an attempt
  to resolve this matter.
  
       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. Currently pending before one of the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed. There has been no new development in this matter.
  
       On June 23, 2000, the Company was served with a Complaint in a purported
  class ac-
  
                                        -18-
  <PAGE>
  
  tion 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. Because the
  Tennessee Lawsuit is in a relatively preliminary 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. In vigorously contesting the verdict and judgment, the defendants
  posted a bond ordered by the trial court in the amount of $675,000 and filed
  with that court 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 has filed post-trial motions in connection with the entry of the
  judgment and the amount of the bond posted by defendants. A hearing before the
  trial court on the parties' respective post-trial motions was held on March 23,
  2001. The decision on the hearing is pending.
  
       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"), Olsten Health Services, and a
  certain individual in December 1997. The complaint seeks an unspecified amount
  of compensatory and punitive damages. 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. Under the Separation Agreement of August 17,
  1999 by and among Olsten, Adecco SA, and the Company (the "Separation
  
                                        -19-
  <PAGE>
  
  Agreement"), the Company is obligated to indemnify Olsten with respect to this
  matter. The District Court scheduled the trial for October 2001 and ordered
  mediation between the parties. The court-ordered mediation took place on May 10,
  2001 but no settlement was reached. The Company continues to defend this matter,
  but is continuing settlement discussions with the plaintiff.
  
       Furthermore, 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
  
           (a) None.
  
  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 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
  
                                        -20-
  <PAGE>
  
  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 an 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)
  
            10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
  
                                        -21-
  <PAGE>
  
            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 to time of the
                 convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between
  
  
                                        -22-
  <PAGE>
  
                 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)
  
            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
                      Registrant 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.
  
                                        -23-
  <PAGE>
  
  (b)  Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
  
  
  
  
  
  
                                        -24-
  <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:  May 16, 2001                     /s/ Edward A. Blechschmidt
                                          --------------------------------------
                                          Edward A. Blechschmidt
                                          President and Chief Executive
                                          Officer
  
  
  Date:  May 16, 2001                     /s/ John J. Collura
                                          --------------------------------------
                                          John J. Collura
                                          Executive Vice President,
                                          Chief Financial Officer and
                                          Treasurer
  
  
  
  
  
  
                                        -25-
metadata_documents: [{"type": "10-Q", "sequence": "1", "filename": "gen10q.txt", "description": "FORM 10-Q", "secsgml_size_bytes": 74709}]
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": "1641743"}, "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 April 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 May 11, 2001 was 22,052,228.
  INDEX
  
                                                                          Page No.
  
  PART I - FINANCIAL INFORMATION
  
     Item 1.     Financial Statements
  
                 Consolidated Balance Sheets - April 1, 2001
                 (Unaudited) and December 31, 2000                        2
  
                 Consolidated Statements of Operations (Unaudited) -
                 Three Months Ended April 1, 2001 and April 2, 2000       3
  
                 Consolidated Statements of Cash Flows (Unaudited) -
                 Three Months Ended April 1, 2001 and April 2, 2000       4
  
                 Notes to Consolidated Financial Statements (Unaudited)   5-12
  
     Item 2.     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations                      13-17
  
     Item 3.     Quantitative and Qualitative Disclosures about
                 Market Risk                                              17
  
  PART II - OTHER INFORMATION
  
     Item 1.     Legal Proceedings                                        18-20
  
     Item 2.     Change in Securities and Use of Proceeds                 20
  
     Item 3.     Defaults Upon Senior Securities                          20
  
     Item 4.     Submission of Matters to a Vote of Security Holders      20
  
     Item 5.     Other Information                                        20-21
  
     Item 6.     Exhibits and Reports on Form 8-K                         21-23
  
  SIGNATURES                                                              24
  PART I - FINANCIAL INFORMATION
  
  Item 1.           Financial Statements.
  Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
                                                                       April 1, 2001         December 31, 2000
                                                                     -------------------  ------------------------
  ASSETS                                                                 (Unaudited)
  Current assets:
  Cash and cash equivalents                                      $   49,553            $     452
  
         Receivables, less allowance for doubtful accounts
         of $93,907 and $105,962, respectively                             407,366              419,178
  
         Inventories                                                        51,261               51,111
  
         Prepaid expenses and other current
         assets                                                             48,917               50,333
                                                                     --------------       -----------------
              Total current assets                                         557,097              521,074
  
  Fixed assets, net                                                         33,734               36,961
  
  Intangible assets, net                                                   228,055              230,702
  
  Other assets                                                              15,956               16,747
                                                                     --------------       -----------------
              Total assets                                           $     834,842        $     805,484
                                                                     ==============       =================
  
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
  
         Accounts payable                                            $      85,520        $      74,083
  
         Accrued expenses                                                   56,596               50,682
  
         Payroll and related taxes                                          20,067               17,305
  
         Insurance costs                                                    29,339               30,320
                                                                     --------------       -----------------
              Total current liabilities                                    191,522              172,390
  
  Other liabilities                                                         46,055               46,945
  
  Gentiva - obligated mandatorily redeemable
    convertible securities of a subsidiary holding solely
    Gentiva debentures                                                      20,000               20,000
  
  Shareholders' equity:
  
         Common stock, $.10 par value; authorized 100,000,000
           shares; issued and outstanding 21,974,582 and
           21,196,693 shares, respectively                                   2,197                2,120
  
         Additional paid-in capital                                        694,728              689,163
  
         Accumulated deficit                                              (118,458)            (124,570)
  
         Accumulated other comprehensive loss                               (1,202)                (564)
                                                                     --------------       -----------------
              Total shareholders' equity                                   577,265              566,149
                                                                     --------------       -----------------
              Total liabilities and
              shareholders' equity                                   $     834,842        $     805,484
                                                                     ==============       =================
  See notes to consolidated financial statements.
  
                                        -2-
  Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Operations
                      (In thousands, except per share amounts)
                                     (Unaudited)
  
                                                               Three Months Ended
                                                     ---------------------------------------
                                                        April 1, 2001      April 2, 2000
                                                     ---------------------------------------
  Net revenues                                        $         357,178   $       384,607
  Cost of services sold                                         240,748           256,105
                                                     -------------------- ------------------
       Gross profit                                             116,430           128,502
  
  Selling, general and administrative expenses                  109,385           127,532
  Interest expense, net                                             433             4,236
                                                     -------------------- ------------------
       Income (loss) before income taxes                          6,612            (3,266)
  
  Income tax expense (benefit)                                      500            (1,360)
                                                     -------------------- ------------------
       Net income (loss)                              $           6,112   $        (1,906)
                                                     ==================== ==================
  
  Net income (loss) per share:
       Basic                                          $            0.28   $         (0.09)
                                                     ==================== ==================
       Diluted                                        $            0.26   $         (0.09)
  
                                                     ==================== ==================
  Average shares outstanding:
       Basic                                                     21,448            20,345
                                                     ==================== ==================
       Diluted                                                   25,701            20,345
                                                     ==================== ==================
  See notes to consolidated financial statements.
  
                                        -3-
  Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
                                                                    Three Months Ended
                                                            ------------------------------------
                                                              April 1, 2001     April 2, 2000
                                                            ------------------------------------
  
  OPERATING ACTIVITIES:
  Net income (loss)                                          $  6,112          $  (1,906)
  
  Adjustments to reconcile net income (loss) to net cash
  provided by (used in) operating activities:
  
      Depreciation and amortization                             6,990              8,487
  
      Provision for doubtful accounts                           9,200              7,545
  
      Changes in assets and liabilities:
  
              Accounts receivable                               2,612            (36,589)
  
              Inventories                                        (150)            10,235
  
              Prepaid expenses and other current assets         1,416              1,631
  
              Current liabilities                               8,633            (30,596)
  
              Other, net                                         (737)              (732)
                                                             --------------  -------------------
  Net cash provided by (used in) operating
  activities                                                   34,076            (41,925)
                                                             --------------  -------------------
  INVESTING ACTIVITIES:
  
  Purchase of fixed assets                                     (1,116)            (2,186)
                                                             --------------  -------------------
  Net cash used in investing
  activities                                                   (1,116)            (2,186)
                                                             --------------  -------------------
  
  FINANCING ACTIVITIES:
  
  Proceeds from issuance of common stock                        5,642             -
  
  Issuance of mandatorily redeemable and other
  securities                                                    -                 20,100
  
  Net transactions with Olsten                                  -                  5,226
  
  Proceeds from revolving credit
  facility                                                      -                 25,477
  
  Debt issuance costs                                           -                 (2,564)
  
  Decrease in book overdrafts                                 (10,379)            (2,684)
  
  Advances from Medicare program                               20,878            -
                                                             -------------  --------------------
  Net cash provided by financing activities                    16,141            45,555
                                                             -------------  --------------------
  Net increase in cash and cash equivalents                    49,101             1,444
  
  Cash and cash equivalents at beginning of
  period                                                          452             2,942
                                                             -------------  --------------------
  Cash and cash equivalents at end of period                 $ 49,553       $     4,386
                                                             =============  ====================
  
  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 generally accepted accounting principles.
  
       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 reflect the
  results of operations, financial position and cash flows of the Company as if it
  were a separate entity for all periods presented. The 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 quarter 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 and, additionally, the Company has been responsible for
  the costs and expenses associated with the management of a public corporation.
  
       Net interest expense as presented in the consolidated statement of
  operations included net interest expense of approximately $2.7 million for the
  first quarter of fiscal 2000 relating to the intercompany balances with Olsten.
  Such intercompany balances have been reflected as a contribution to capital as
  of the Split-off date.
  
                                        -5-
  3. Earnings per Share
  
       Basic net income per share for the first quarter of fiscal 2001 has been
  computed using the weighted average number of shares outstanding (21,448,000).
  Diluted earnings per share for the fiscal 2001 period has been computed using
  the weighted average number of common and dilutive common equivalent shares
  outstanding. Dilutive common equivalent shares represented (i) 2,107,000 shares
  that would be issued upon the assumed exercise of approximately 3.8 million
  stock options under the treasury stock method and (ii) 2,146,000 shares that
  would be issued upon the assumed conversion of the 10 percent convertible
  preferred trust securities at a conversion price of $9.32 per share.
  
       Basic and diluted net loss per share for the first quarter of fiscal 2000
  have been computed based solely on the shares of the Company's stock issued on
  the Split-off date. The computation of dilutive net loss per share for the first
  quarter of fiscal 2000 excluded the effect of shares issuable upon the
  conversion of the 4 3/4 percent convertible subordinated debentures, which
  matured and were retired in October 2000, and the 10 percent convertible
  preferred trust securities and the exercise of stock options since their
  inclusion would have an antidilutive effect on earnings.
  
       4. Restructuring and Special Charges
  
       During the first quarter of fiscal 2000, the Company recorded special
  charges aggregating $5.6 million which were reflected in selling, general and
  administrative expenses in the accompanying consolidated statement of
  operations. 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 approximately $1.5 million were incurred
  during the first quarter of fiscal 2000 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 April 1, 2001, the unpaid portion of these
  restructuring charges aggregated $3.4 million and $2.3 million, respectively, as
  a result of cash payments made during the quarter. The Company expects the
  restructuring plan to be fully executed by mid-2001.
  
       5. Current Liabilities
  
                                        -6-
  In early 2001, 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 fourth quarter
  of fiscal 2001. In this connection, 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 April 1, 2001.
  
       6. Revolving Credit Facility
  
       As of April 1, 2001, there were no outstanding borrowings and total
  outstanding letters of credit approximated $25.5 million under the Company's
  $150 million revolving credit facility which expires in 2004. The Company was in
  compliance with the financial covenants of the credit facility as of April 1,
  2001.
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the three months ended April 1, 2001
  were as follows (in thousands):
  Additional                   Accumulated
                                                          Common      Paid-in     Accumulated        Other
                                                           Stock      Capital       Deficit      Comprehensive      Total
                                                                                                     Loss
                                                        --------------------------------------------------------- -----------
  Balance at December 31, 2000                          $   2,120    $  689,163   $  (124,570)   $    (564)       $  566,149
  
   Comprehensive income:
  
          Net income                                                                    6,112                          6,112
          Unrealized loss on investments                                                              (638)             (638)
  
   Issuance of stock upon exercise of stock options            77         5,565                                        5,642
                                                        ----------  ------------  ------------  -------------  -------------
  Balance at April 1, 2001                              $   2,197   $   694,728   $  (118,458)  $   (1,202)    $     577,265
                                                        ==========  ============  ============  =============  =============
  Total comprehensive income amounted to $5.5 million during the first
  quarter of fiscal 2001 and total comprehensive loss amounted to $1.8 million for
  the first quarter of fiscal 2000.
  
                                        -7-
  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 in principle to settle
  both lawsuits for the aggregate sum of $25 million. The proposed settlement is
  subject to final approval of the respective courts before which the Class Action
  and the Derivative Lawsuit are pending. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement and scheduled a settlement
  fairness hearing date for August 31, 2001. The Company's insurers have 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. The
  funds are subject to return if the settlement is not approved.
  
       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 seeks unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties are engaging in discussions in an attempt
  to resolve this matter.
  
       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. Currently pending before one of the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed. There has been no new development in this matter.
  
                                        -8-
  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. Because the Tennessee Lawsuit is in a relatively
  preliminary 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. In vigorously contesting the verdict and judgment, the defendants
  posted a bond ordered by the trial court in the amount of $675,000 and filed
  with that court 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 has filed post-trial motions in connection with the entry of the
  judgment and the amount of the bond posted by defendants. A hearing before the
  trial court on the parties' respective post-trial motions was held on March 23,
  2001. The decision on the hearing is pending.
  
       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"), Olsten Health Services, and a
  certain individual in December 1997. The complaint seeks an unspecified amount
  of compensatory and punitive damages. 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
  
                                        -9-
  reversed the District Court and remanded the case for trial. Under the
  Separation Agreement of August 17, 1999 by and among Olsten, Adecco SA, and the
  Company (the "Separation Agreement"), the Company is obligated to indemnify
  Olsten with respect to this matter. The District Court scheduled the trial for
  October 2001 and ordered mediation between the parties. The court-ordered
  mediation took place on May 10, 2001 but no settlement was reached. The Company
  continues to defend this matter, but is continuing settlement discussions with
  the plaintiff.
  
       Furthermore, 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.
  
  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. Business Segment Information
  
       The Company operates in the United States and operated in Canada during the
  fiscal 2000 period, servicing patients and customers through the following
  business segments: Specialty Pharmaceutical Services, Home Health Services and,
  for the fiscal 2000 period, Staffing Services. These segments are briefly
  described below.
  
       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.
  
                                        -10-
  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 period, 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 period
  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.
  
                                        -11-
  Information about the Company's operations is as follows (in thousands):
  Specialty          Home Health     Staffing and
                                                          Pharmaceutical        Services          Canada          Total
                                                             Services
                                                       --------------------- ---------------- --------------- ----------------
  Three months ended April 1, 2001
  Net revenues - segments                              $  195,887            $    185,617     $        -      $   381,504
                                                       ===================== ================ ===============
  Intersegment revenues                                                                                           (24,326)
                                                                                                             -----------------
  Net revenues                                                                                                $   357,178
                                                                                                             =================
  Operating contribution                               $   16,847            $    14,780      $        -      $    31,627
                                                       ===================== ================ ===============
  Corporate expenses                                                                                              (17,592)
                                                                                                             -----------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                                  14,035
  
  Depreciation and amortization                                                                                    (6,990)
  
  Interest expense, net                                                                                              (433)
                                                                                                             -----------------
  Income before income taxes                                                                                  $     6,612
                                                                                                             =================
  Segment assets                                       $  284,750            $   173,877      $        -      $   458,627
                                                       ===================== ================ ===============
  Corporate assets                                                                                                376,215
                                                                                                             -----------------
  Total assets                                                                                                $   834,842
                                                                                                             =================
  
  Three months ended April 2, 2000
  Net revenues - segments                              $  168,995            $   189,544      $    41,679     $   400,218
                                                       ===================== ================ ===============
  Intersegment revenues                                                                                           (15,611)
                                                                                                             -----------------
  Net revenues                                                                                                $   384,607
                                                                                                             =================
  
  Operating contribution                               $   22,573            $    11,033      $     2,499     $    36,105
                                                       ===================== =============== ================
  
  Corporate expenses                                                                                              (21,048)
  Special charges - corporate                                                                                      (5,600)
                                                                                                             -----------------
  Earnings before interest expense, taxes,
    depreciation and amortization                                                                                   9,457
  
  Depreciation and amortization                                                                                    (8,487)
  
  Interest expense, net                                                                                            (4,236)
                                                                                                             -----------------
  Loss before income taxes                                                                                    $    (3,266)
                                                                                                             =================
  Segment assets                                       $  447,504            $   216,701      $    23,282     $   687,487
                                                       ===================== =============== ================
  Corporate assets                                                                                                344,176
                                                                                                             -----------------
  Total assets                                                                                                $ 1,031,663
                                                                                                             =================
  -12-
  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 first
  quarter 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 reflect the financial position, results of operations and
            cash flows of the Company as if it were a separate entity for all
            periods presented. The 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 first quarter of fiscal 2000, the Company recorded special
            charges aggregating $5.6 million which were reflected in selling,
            general and administrative expenses in the accompanying consolidated
            statement of operations. 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
            approximately $1.5 million were incurred during the first quarter of
            fiscal 2000 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.
  
       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,
  
                                        -13-
  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 first quarter 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. Revenues,
            gross profit and selling, general and administrative expenses recorded
            in the first quarter of fiscal 2000 relating to the businesses that
            were sold amounted to approximately $42 million, $11 million and $8
            million, respectively.
  
       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
  
       Net revenues decreased by $27 million or 7.0 percent to $357 million during
  the first quarter of fiscal 2001 as compared to the first quarter of fiscal
  2000. This decrease related primarily to $42 million in revenue for the first
  quarter of fiscal 2000 associated with the Staffing and Canadian operations
  which were sold during the fourth quarter of fiscal 2000. After adjusting for
  these sales, net revenues increased by $14 million or 4.1% driven by growth in
  Specialty Pharmaceutical Services of $27 million or 15.9%, which included an
  increase of $9 million in intersegment revenues generated from services provided
  to the Home Health Services segment which is eliminated in consolidation. This
  increase was partially offset by a $4 million or 2.1% decrease in the Home
  Health Services segment.
  
       In the Specialty Pharmaceutical Services business, revenue growth in the
  first quarter was attributable to volume increases in Flolan, IVIG, Synagis and
  several wholesale pharmaceutical therapies. The revenue growth in these
  therapies, 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 first quarter 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.
  
                                        -14-
  Gross Profit
  
       Gross profit margins, as a percentage of net revenues, decreased from 33.4
  percent in the first quarter of fiscal 2000 to 32.6 percent in the first quarter
  of fiscal 2001 The decrease in margins was primarily attributable to a change in
  business mix reflecting growth in the lower margin Specialty Pharmaceutical
  Services business and higher costs attributable to certain biological and
  pharmaceutical products due to product shortages, partly offset by productivity
  enhancements and rate increases in Home Health Services.
  
       Selling, General and Administrative Expenses
  
       Selling, general and administrative expenses decreased to $109 million
  during the first quarter of fiscal 2001 as compared to $128 million during the
  first quarter of fiscal 2000 due to (i) the reduction 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, (iii) the closing of certain home care nursing branches during the
  fourth quarter of fiscal 2000 and (iv) the absence of special charges which were
  recorded in the first quarter of fiscal 2000 as discussed above. These decreases
  were offset by increased investments in sales, billing and collection personnel
  in the Specialty Pharmaceutical Services business.
  
       Interest Expense, Net
  
       Interest expense, net was approximately $.4 million and $4.2 million in the
  first quarters of fiscal 2001 and 2000, respectively. Interest expense, net for
  the first quarter of fiscal 2001 represented primarily interest on the
  mandatorily redeemable securities and fees relating to the revolving credit
  facility offset by interest income. During the first quarter of fiscal 2000,
  interest expense, net also included interest on intercompany borrowings with
  Olsten for the period from January 3, 2000 to March 15, 2000 (the Split-off
  date) and interest on the outstanding 4 3/4 percent convertible subordinated
  debentures which matured and were retired in October 2000.
  
       Income Taxes
  
       For the first quarter of fiscal 2000, the effective tax rate was 41.6
  percent which differed from the statutory rate primarily due to non-deductible
  goodwill amortization and other non-deductible items. 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.
  
                                        -15-
  Liquidity and Capital Resources
  
       The Company maintains a credit facility, which provides for up to $150
  million in borrowings, including up to $30 million which is 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 April 1, 2001, there were no borrowings outstanding under the
  credit facility and total outstanding letters of credit approximated $25.5
  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 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
  April 1, 2001, the Company was in compliance with its financial covenants and
  had borrowing capacity under the credit facility of approximately $124 million.
  
       Working capital at April 1, 2001, was $366 million, an increase of $17
  million as compared to $349 million at December 31, 2000. Net receivables
  decreased by $12 million in the first quarter of fiscal 2001 as a result of
  improved cash collections driven by enhancements in the billing system and
  management reporting 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 April 1, 2001 as a result of improved cash collections.
  
       Cash and cash equivalents increased by approximately $49 million as of
  April 1, 2001 as compared to December 31, 2000 as a result of (i) cash flow from
  operations, net of decreases in book overdrafts which were included in accounts
  payable at December 31, 2000, of approximately $24 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
  $5 million, offset somewhat by capital expenditures of $1 million. In early
  2001, 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 fourth quarter of fiscal 2001. In
  this connection, the Company received a cash advance, net of payments for
  estimated settlements relating to cost report filings, of approximately $21
  mil-
  
                                        -16-
  lion which is reflected in accrued expenses in the accompanying consolidated
  balance sheet as of April 1, 2001.
  
       Inventory was essentially unchanged with a balance of $51 million at both
  April 1, 2001 and December 31, 2000.
  
       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 April 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.
  
                                        -17-
  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 in principle to settle
  both lawsuits for the aggregate sum of $25 million. The proposed settlement is
  subject to final approval of the respective courts before which the Class Action
  and the Derivative Lawsuit are pending. By order dated April 30, 2001, the
  District Court preliminarily approved the settlement and scheduled a settlement
  fairness hearing date for August 31, 2001. The Company funded the $7 million
  balance and recorded a special charge for that amount during fiscal 2000. The
  funds are subject to return if the settlement is not approved.
  
       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 seeks unspecified monetary damages, double or treble damages, penalties
  and investigative costs. The parties are engaging in discussions in an attempt
  to resolve this matter.
  
       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. Currently pending before one of the arbitrators is
  Columbia/HCA's request to consolidate the proceedings, which Kimberly has
  opposed. There has been no new development in this matter.
  
       On June 23, 2000, the Company was served with a Complaint in a purported
  class ac-
  
                                        -18-
  tion 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. Because the
  Tennessee Lawsuit is in a relatively preliminary 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. In vigorously contesting the verdict and judgment, the defendants
  posted a bond ordered by the trial court in the amount of $675,000 and filed
  with that court 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 has filed post-trial motions in connection with the entry of the
  judgment and the amount of the bond posted by defendants. A hearing before the
  trial court on the parties' respective post-trial motions was held on March 23,
  2001. The decision on the hearing is pending.
  
       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"), Olsten Health Services, and a
  certain individual in December 1997. The complaint seeks an unspecified amount
  of compensatory and punitive damages. 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. Under the Separation Agreement of August 17,
  1999 by and among Olsten, Adecco SA, and the Company (the "Separation
  
                                        -19-
  Agreement"), the Company is obligated to indemnify Olsten with respect to this
  matter. The District Court scheduled the trial for October 2001 and ordered
  mediation between the parties. The court-ordered mediation took place on May 10,
  2001 but no settlement was reached. The Company continues to defend this matter,
  but is continuing settlement discussions with the plaintiff.
  
       Furthermore, 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
  
           (a) None.
  
  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 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
  
                                        -20-
  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 an 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)
  
            10.1 Separation Agreement dated August 17, 1999, among Olsten
                 Corporation, Aaronco Corp. and Adecco SA. (1)*
  
                                        -21-
  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 to time of the
                 convertible trust preferred securities. (5)
  
            10.15 Amendment No. 1 dated June 30, 2000 to Indenture between
  
                                        -22-
  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)
  
            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
                      Registrant 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.
  
                                        -23-
  (b)  Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the period covered by this
  report.
  
                                        -24-
  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:  May 16, 2001                     /s/ Edward A. Blechschmidt
                                          --------------------------------------
                                          Edward A. Blechschmidt
                                          President and Chief Executive
                                          Officer
  
  Date:  May 16, 2001                     /s/ John J. Collura
                                          --------------------------------------
                                          John J. Collura
                                          Executive Vice President,
                                          Chief Financial Officer and
                                          Treasurer
  
                                        -25-