content: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                     For the quarterly period ended July 2, 2000
  
                             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.)
  
  
                175 Broad Hollow Road, Melville, New York 11747-8905
                ----------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
  
         Registrant's telephone number, including area code: (631) 844-7800
                                                             --------------
  
  
       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 July 2, 2000, was 20,620,426.
  
  
  <PAGE>
  
                                        INDEX
  
                                                                          Page No.
                                                                          --------
  PART I - FINANCIAL INFORMATION
  
           Item 1. Interim Financial Statements
  
                   Consolidated Balance Sheets -- July 2, 2000
                   (Unaudited) and January 2, 2000                          2
  
                   Consolidated Statements of Operations (Unaudited) -
                   Three and Six Months Ended July 2, 2000 and
                   July 4, 1999                                             3
  
                   Consolidated Statements of Cash Flows (Unaudited) -
                   Six Months Ended July 2, 2000 and July 4, 1999           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                                              17-18
  
  PART II - OTHER INFORMATION
  
           Item 1. Legal Proceedings                                        19-20
  
           Item 2. Change in Securities and Use of Proceeds                 20-21
  
           Item 3. Defaults Upon Senior Securities                          21
  
           Item 4. Submission of Matters to a Vote of Security Holders      21
  
           Item 5. Other Information                                        21-23
  
           Item 6. Exhibits and Reports on Form 8-K                         23-25
  
  SIGNATURES                                                                26
  
  <PAGE>
  
                           PART I - FINANCIAL INFORMATION
  
  
  Item 1.  Financial Statements.
  
  <TABLE>
  <CAPTION>
                   Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
  
                                                                                 July 2, 2000          January 2, 2000
                                                                                 ------------          ---------------
                                                                                  (Unaudited)
  ASSETS
  Current Assets:
  <S>                                                                         <C>                     <C>
         Cash and cash equivalents                                            $        2,299          $        2,942
         Receivables, net                                                            604,372                 575,460
         Inventories                                                                  74,492                  93,218
         Prepaid expenses and other current assets                                    39,410                  87,611
                                                                              --------------          --------------
               Total current assets                                                  720,573                 759,231
  Fixed Assets, Net                                                                   44,562                  51,809
  Intangible Assets, Net                                                             244,654                 250,297
  Other Assets                                                                         4,348                   1,678
                                                                              --------------          --------------
               Total assets                                                       $1,014,137              $1,063,015
                                                                              ==============          ==============
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current Liabilities:
         Current portion of long-term debt                                      $     68,562             $    78,562
         Accounts payable                                                             85,460                 114,197
         Accrued expenses                                                             59,863                  76,746
         Payroll and related taxes                                                    20,876                  20,020
         Insurance costs                                                              31,094                  31,170
                                                                              --------------          --------------
               Total current liabilities                                             265,855                 320,695
  Other Liabilities                                                                   37,129                  37,029
  Long-Term Debt                                                                      26,191                       -
  Gentiva - Obligated Mandatorily Redeemable Convertible
  Securities of a Subsidiary Holding Solely Gentiva Debentures                        20,000                       -
  Shareholders' Equity:
         Common stock, $.10 par value; authorized 100,000,000 shares;
         issued and outstanding 20,620,426 and 20,345,029 shares,                      2,062                   2,035
         respectively
         Additional paid-in capital                                                  685,327                 725,998
         Accumulated deficit                                                         (20,105)                (20,370)
         Accumulated other comprehensive loss                                         (2,322)                 (2,372)
                                                                              --------------          --------------
               Total shareholders' equity                                            664,962                 705,291
                                                                              --------------          --------------
                        Total liabilities and shareholders' equity                $1,014,137              $1,063,015
                                                                              ==============          ==============
  </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                           Six Months Ended
                                               -----------------------------------   -----------------------------------
                                                 July 2, 2000      July 4, 1999        July 2, 2000      July 4, 1999
                                               -----------------------------------   -----------------------------------
  
  <S>                                           <C>               <C>                 <C>               <C>
  Net revenues                                  $    383,270      $   372,573         $    767,877       $   740,733
  Cost of services sold                              254,646           245,331             510,751           487,817
                                                --------------    ----------------   ---------------    ----------------
       Gross Profit                                  128,624           127,242             257,126           252,916
  
  Selling, general and administrative expenses       122,785           119,875             250,317           257,427
  Interest expense, net                                2,112             4,284               6,348             8,557
                                                --------------    ----------------   ---------------    ----------------
       Income (loss) before income taxes               3,727             3,083                 461           (13,068)
  
  Income tax expense (benefit)                         1,556               648                 196            (2,697)
                                                --------------    ----------------   ---------------    ----------------
       Net income (loss)                        $      2,171      $      2,435        $        265      $    (10,371)
                                                ==============    ================   ===============    ================
  
  Net income (loss) per share:
                          Basic                 $       0.11      $       0.12        $       0.01      $      (0.51)
                                                ==============    ================   ===============    ================
                          Diluted               $       0.10      $       0.12        $       0.01      $      (0.51)
                                                ==============    ================   ===============    ================
  
  Average shares outstanding:
                          Basic                       20,513            20,345              20,429            20,345
                                                ==============    ================   ===============    ================
                          Diluted                     21,823            20,345              21,681            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)
  
  
                                                                                        Six Months Ended
                                                                                ---------------------------------
                                                                                July 2, 2000         July 4, 1999
                                                                                --------------       ------------
  OPERATING ACTIVITIES:
  <S>                                                                             <C>                <C>
  Net income (loss)                                                             $      265           $   (10,371)
  Adjustments to reconcile net income (loss) to net cash used in
  operating activities:
           Depreciation and amortization                                            16,141                17,406
           Provision for doubtful accounts                                          16,917                12,408
           Changes in assets and liabilities, net of effect from
           acquisitions:
                    Accounts receivable                                            (45,829)             (112,710)
                    Inventories                                                     18,726                  (811)
                    Prepaid expenses and other current assets                         (899)               (1,645)
                    Current liabilities                                            (48,696)               23,623
           Other, net                                                                1,834                 1,191
                                                                                ----------           -----------
  Net cash used in operating activities                                            (41,541)              (70,909)
                                                                                ----------           -----------
  INVESTING ACTIVITIES:
  Purchase of fixed assets                                                          (3,620)              (11,182)
  Acquisitions of businesses, net of cash acquired                                       -                (1,655)
                                                                                ----------           -----------
  Net cash used in investing activities                                             (3,620)              (12,837)
                                                                                ----------           -----------
  FINANCING ACTIVITIES:
  Issuance of mandatorily redeemable securities                                     20,100                     -
  Net transactions with Olsten                                                       5,226                90,635
  Increase in book overdrafts                                                        3,856                     -
  Retirement of debt                                                                (9,525)               (7,688)
  Proceeds from revolving credit facility                                           26,191                     -
  Debt issuance costs                                                               (2,564)                    -
  Proceeds from stock options                                                        1,234                     -
                                                                                ----------           -----------
  Net cash provided by financing activities                                         44,518                82,947
                                                                                ----------           -----------
  Net decrease in cash and cash equivalents                                           (643)                 (799)
  Cash and cash equivalents at beginning of period                                   2,942                   799
                                                                                ----------           -----------
  Cash and cash equivalents at end of period                                    $    2,299           $         -
                                                                                ==========           ===========
  See notes to consolidated financial statements.
  </TABLE>
  
  
  
  
                                         -4-
  <PAGE>
  
  
                   Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") pursuant
  to the rules and regulations of the Securities and Exchange Commission and, in
  the opinion of management, include all adjustments necessary for a fair
  presentation of results of operations, financial position and cash flows for
  each period presented. Results for interim periods are not necessarily
  indicative of results for a full year. The year-end balance sheet data was
  derived from audited financial statements, but does not include all disclosures
  required by generally accepted accounting principles.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company was 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 thereto, 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 $1.3 million for the second quarter of fiscal
  1999 and $0.9 million and $2.5 million for the first six months of fiscal 2000
  and 1999, respectively. 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 are reasonable; however, the costs of these items deemed to be charged
  to the Company are 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 has
  begun to perform these functions using its own resources or purchased services
  and 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 statements of
  operations included net interest expense of approximately $3.2 million for the
  second quarter of fiscal 1999 and
  
  
  
                                         -5-
  <PAGE>
  
  $2.7 million and $6.5 million for the first six months of fiscal 2000 and 1999,
  respectively, relating to the intercompany balances with Olsten. Such
  intercompany balances have been reflected as a contribution to capital at
  January 2, 2000 and as of the split-off date.
  
       3. Earnings per Share
  
       Basic net income per share for the fiscal 2000 periods has been computed
  using the weighted average number of shares outstanding. Such amount is based on
  20,345,029 shares of common stock, representing the number of shares of the
  Company's stock issued on the split-off date, adjusted to reflect 275,397 shares
  of common stock issued during the second quarter of fiscal 2000 in connection
  with the exercise of stock options.
  
       Diluted net income per share for the fiscal 2000 periods has been computed
  using the weighted average number of common and dilutive common equivalent
  shares outstanding during each period. Dilutive common equivalent shares
  represent the incremental shares that would be issued upon the assumed
  conversion of approximately 3.3 million stock options. The computation of
  dilutive net income per share excludes the effect of any shares issuable upon
  the conversion of the 4 3/4% convertible subordinated debentures due October 1,
  2000 and the $20 million of 10% convertible trust preferred securities and the
  exercise of approximately 0.9 million stock options since their inclusion would
  have had an antidilutive effect on earnings.
  
       Basic and diluted net income (loss) per share for the fiscal 1999 periods
  have been computed based solely on the shares of the Company's stock issued on
  the split-off date.
  
       4. Non-recurring and Special Charges
  
       During the six months ended July 2, 2000, the Company recorded
  non-recurring and special charges aggregating $6.8 million. Of this amount,
  non-recurring 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 non-recurring charges included change of control,
  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, including approximately $1.0 million which is based on Olsten's
  methodology for allocating general corporate overhead expenses as discussed in
  Note 7, and transition costs of $0.5 million relating to registration costs,
  professional fees and other items. Substantially all amounts were paid as of
  July 2, 2000.
  
       Special charges of $1.2 million in second quarter and $2.7 million in the
  first six months of fiscal 2000 were incurred in connection with the change of
  the Company's name
  
  
  
                                         -6-
  <PAGE>
  
  to Gentiva Health Services, Inc. These special charges primarily consisted of
  costs incurred and paid for consulting fees, promotional items and advertising.
  
       In the quarter ended April 4, 1999, the Company recorded a special charge
  aggregating $16.7 million. This charge was for the realignment of business units
  as part of a new restructuring plan, including compensation and severance costs
  of $5 million to be paid to operational support staff, branch administrative
  personnel and management, asset write-offs of $6.5 million related primarily to
  fixed assets being disposed of in offices being closed and facilities being
  consolidated, as well as fixed assets and goodwill attributable to the Company's
  exit from certain business previously acquired but not within the Company's
  strategic objectives, and integration costs of $5.2 million, primarily related
  to obligations under lease agreements for offices and other facilities being
  closed. Substantially all of the closures and consolidations of facilities and
  expected terminations had occurred by January 2, 2000. These activities resulted
  in lower costs than originally estimated and, as a result, the Company
  recognized a benefit of $1.5 million in the fourth quarter of fiscal 1999 to
  reflect this change in estimate. Approximately $1.2 million of this special
  charge remains unpaid as of July 2, 2000, representing compensation and
  severance costs of $0.8 million and integration costs of $0.4 million.
  
       5. Long-Term Debt
  
       On March 13, 2000, the Company entered into 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.
  
       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 and provides
  limitations on certain other activities. Loans under the credit facility are
  collateralized by all of the Company's tangible and intangible personal
  property, other than equipment.
  
       At July 2, 2000, borrowings under the credit facility aggregated $26.2
  million and there were approximately $19.4 million of standby letters of credit
  outstanding. As of such date, the Company had borrowing capacity of
  approximately $104.4 million available under the credit facility.
  
       At July 2, 2000, the current portion of long-term debt aggregated $68.6
  million, which represents the 4 3/4 percent convertible subordinated debentures
  which mature on October 1, 2000. In June 2000, $10 million of the debentures
  were retired at 95.25 percent of the princi-
  
  
  
                                         -7-
  <PAGE>
  
  pal amount, resulting in a gain of $475,000. In January 1999, $7.7 million of
  the debentures were retired at 88.5 percent of the principal amount, resulting
  in a gain of approximately $900,000.
  
       6.   Mandatorily Redeemable Securities
  
       On March 15, 2000, certain of the Company's and Olsten's directors,
  officers and management and other related parties and other investors purchased
  $20 million of 10 percent convertible trust preferred securities issued by a
  trust, of which the Company owns all the common equity. The convertible trust
  preferred securities are mandatorily redeemable five years from issuance at a
  declining premium over face amount. Upon a change of control, as defined, the
  holders of convertible trust preferred securities may require the trust to
  purchase these securities at 100 percent of their face amount. Dividends are
  payable quarterly in cash at the rate of 10 percent per annum, but the trust may
  defer dividend payments for up to a total of twenty quarters, in which case
  dividends will accrue. The convertible trust preferred securities are
  convertible into the Company's common stock at a conversion price of $9.319219.
  Such conversion price is 17.5 percent above the average closing price of the
  Company's common stock during the ten trading days following the earnings
  announcement of the first quarter 2000 results.
  
       Simultaneously with, and in connection with the issuance by the trust of
  the convertible trust preferred securities, the Company issued to the trust $20
  million of its 10 percent convertible subordinated debentures. The convertible
  subordinated debentures have the same terms as the convertible trust preferred
  securities, including but not limited to maturity, interest, conversion and
  redemption price.
  
       The trust which issued the convertible trust preferred securities is a
  special purpose trust. The trust's operations are limited to issuing the
  convertible trust preferred securities and holding the Company's convertible
  subordinated debentures. The trust may pay dividends only to the extent that the
  Company pays interest on its convertible subordinated debentures.
  
       In March 2000, the Company also issued 100 shares of Series A Cumulative
  Non-voting Redeemable Preferred Stock for proceeds of $100,000. Such amount is
  included in other liabilities in the consolidated balance sheet at July 2, 2000.
  
  
  
                                         -8-
  <PAGE>
  
       7. Shareholders' Equity
  
       Changes in shareholders' equity during the six months ended July 2, 2000
  were as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                                                            Accumulated
                                                          Additional                           Other
                                            Common         paid-in        Accumulated      Comprehensive
                                            Stock          capital          Deficit             Loss             Total
                                        --------------- --------------- ----------------- ----------------- ----------------
  <S>                                    <C>               <C>           <C>               <C>               <C>
  Balance at January 2, 2000             $      2,035      $ 725,998     $     (20,370)    $       (2,372)   $    705,291
     Comprehensive income:
       Net income and cumulative
       translation adjustment                                                      265                 50             315
  
     True-up payment made by Olsten                            8,851                                                8,851
  
     Obligations assumed in connection
     with the split-off, net of tax
     benefit                                                  (1,029)                                              (1,029)
     Transfer to Olsten of tax benefits
     relating to net operating losses                        (49,700)                                             (49,700)
     Issuance of stock upon exercise of
     stock options                                 27          1,207                                                1,234
                                         ------------      ---------     -------------     --------------    ------------
  
     Balance at July 2, 2000             $      2,062      $ 685,327     $     (20,105)    $       (2,322)   $    664,962
                                         ============      =========     =============     ==============    ============
  </TABLE>
  
           See Note 8 for a description of the true-up payment made by Olsten.
  
  
       Under the terms of the separation agreement relating to the split-off, the
  Company assumed the obligation for the funding of liabilities of the
  non-qualified supplemental executive retirement plan for certain of its
  employees and former employees of Olsten. During the first quarter of 2000,
  payments of $12.1 million were made under this program; these payments exceeded
  assets of the plan which were transferred to the Company by $3.6 million due
  primarily to benefits paid to former Olsten employees and a current executive
  officer of the Company. Furthermore, the Company also assumed excise tax
  obligations of approximately $0.8 million for a former executive officer of
  Olsten (and current executive officer of the Company). Approximately $1.0
  million of the aggregate net obligations of $4.4 million were included in
  non-recurring and special charges in the consolidated statements of operations
  based on Olsten's allocation methodology for general corporate overhead
  expenses. The remaining $3.4 million associated with these obligations were
  charged directly to additional paid-in capital.
  
       In addition, under the terms of the Separation Agreement the Company also
  agreed to assume the lease for an Olsten subsidiary commencing September 2000.
  In this connection, the present value of future lease obligations and other
  costs exceed estimated sublease rentals by $1.7 million. Such amount was charged
  directly to additional paid-in capital during the first quarter of 2000.
  
  
  
                                         -9-
  <PAGE>
  
       An estimated tax benefit of $4.1 million relating to the aforementioned
  obligations was credited to additional paid-in capital.
  
       In accordance with the Tax Sharing Agreement governing the split-off, any
  net operating losses generated up to the split-off were to be transferred and
  utilized by Olsten. Accordingly, on March 15, 2000 the Company transferred
  approximately $49.7 million of tax benefits relating to those net operating
  losses to Olsten. Such amount is reflected as a reduction of additional paid-in
  capital during the first six months of fiscal 2000.
  
       Total comprehensive income (loss) amounted to $2.1 million and $2.5 million
  during the second quarter of fiscal 2000 and 1999, respectively, and $0.3
  million and $(10.3) million during the first six months of fiscal 2000 and 1999,
  respectively.
  
       8. Transactions with Olsten
  
       Net transactions with Olsten, included in shareholders' equity, include the
  accumulated excess of cash outlays made on the Company's behalf and management
  fees charged to the Company by Olsten over cash receipts generated by the
  Company. In accordance with the terms of the Separation Agreement, intercompany
  balances at October 31, 1999 of approximately $507 million have been contributed
  to the Company's capital in its entirety. Pursuant to the terms described in the
  Separation Agreement, the Company was to receive approximately $32 million in
  cash (referred to as the true-up amount) on or prior to the split-off date.
  Approximately $23.1 million of the true-up amount was received by the Company
  prior to January 2, 2000; the remaining $8.9 million was received by the Company
  during the first quarter of 2000.
  
       Following the split-off, the Company paid Olsten approximately $13 million
  to settle the intercompany account balance which primarily related to advances
  for management fees, additional borrowings and interest expense on intercompany
  balances.
  
       9. Business Segment Information
  
       The Company operates in the United States and Canada, servicing patients
  and customers through the following business segments: Specialty Pharmaceutical
  Services, Home Care Nursing Services and 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 and (iii) distribution services
  for pharmaceutical, biotechnology and medical service firms.
  
  
  
                                        -10-
  <PAGE>
  
       Home Care Nursing 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 includes (i) services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs and (ii) clinical support services for
  pharmaceutical and biotechnology firms.
  
       The Company evaluates performance and allocates resources based on
  operating contributions of the reportable segments, which excludes corporate
  expenses, depreciation, amortization and interest expense, but includes revenues
  and all other costs directly attributable to the specific 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.
  
       Information about the Company's operations is as follows (in thousands):
  
  <TABLE>
  <CAPTION>
                                                       Specialty        Home Care
                                                     Pharmaceutical      Nursing        Staffing
                                                        Services         Services       Services         Total
                                                    ----------------- --------------- -------------- --------------
  Three months ended July 2, 2000
  -------------------------------
  <S>                                                <C>               <C>             <C>            <C>
  Net revenues                                       $     185,044     $  161,026      $  37,200      $  383,270
                                                    ================= =============== ============== ==============
  Operating contribution                             $      23,345     $    9,718      $   3,139      $   36,202
                                                    ================= =============== ==============
  Non-recurring and special charges
                                                                                                          (1,191)
  Corporate expenses                                                                                     (21,198)
                                                                                                     --------------
  Earnings before interest expense, taxes
       depreciation and amortization                                                                      13,813
  Depreciation and amortization
                                                                                                          (7,974)
  Interest expense, net
                                                                                                          (2,112)
                                                                                                     --------------
  Income before income taxes                                                                          $    3,727
                                                                                                     ==============
  </TABLE>
  
                                        -11-
  <PAGE>
  
  <TABLE>
  <CAPTION>
  
  
                                                        Specialty        Home Care
                                                      Pharmaceutical      Nursing         Staffing
                                                         Services         Services        Services         Total
                                                    ----------------   --------------  ------------  --------------
  Three months ended July 4, 1999
  -------------------------------
  <S>                                                <C>               <C>             <C>            <C>
  Net revenues                                       $     173,395     $  168,779      $  30,399      $  372,573
                                                    ================= =============== ============== ==============
  Operating contribution                             $      29,167     $    8,898      $   2,454      $   40,519
                                                    ================= =============== ==============
  Corporate expenses                                                                                     (24,479)
                                                                                                     --------------
  Earnings before interest expense, taxes
       depreciation and amortization                                                                      16,040
  Depreciation and amortization                                                                           (8,673)
  Interest expense, net                                                                                   (4,284)
                                                                                                     --------------
  Income before income taxes                                                                          $    3,083
                                                                                                     ==============
  
  Six months ended July 2, 2000
  -----------------------------
  Net revenues                                       $     365,862     $  328,921      $  73,094     $   767,877
                                                    ================= =============== ============== ==============
  Operating contribution                             $      48,557     $   18,337      $   5,770     $    72,664
                                                    ================= =============== ==============
  Non-recurring and special charges                                                                       (6,791)
  Corporate expenses                                                                                     (42,603)
                                                                                                     --------------
  Earnings before interest expense, taxes
     depreciation and amortization                                                                        23,270
  Depreciation and amortization                                                                          (16,461)
  Interest expense, net                                                                                   (6,348)
                                                                                                     --------------
  Income before income taxes                                                                         $       461
                                                                                                     ==============
  Segment assets                                      $    460,075     $  192,629      $  26,160     $   678,864
                                                    ================= =============== ============== ==============
  Six months ended July 4, 1999
  -----------------------------
  Net revenues                                        $    341,814     $  338,509      $  60,410     $   740,733
                                                    ================= =============== ============== ==============
  
  Operating contribution before special charges       $     55,920     $   14,221      $   4,902     $    75,043
  Special charges                                           (1,730)       (14,590)          (380)        (16,700)
                                                      ------------     ----------      ----------    -----------
  Operating contribution (loss)                       $     54,190     $     (369)     $   4,522     $    58,343
                                                      ============     ==========      ==========
  Corporate expenses                                                                                     (45,448)
                                                                                                     -----------
  Earnings before interest expense, taxes
     depreciation and amortization                                                                        12,895
  Depreciation and amortization                                                                          (17,406)
  Interest expense, net                                                                                   (8,557)
                                                                                                     -----------
  Loss before income taxes                                                                           $   (13,068)
                                                                                                     ===========
  Segment assets                                      $   401,465      $  222,207      $  20,034     $   643,706
                                                      ===========      ==========      ==========    ===========
  </TABLE>
  
  
  
  
  
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations.
  
       On March 15, 2000, the Company was split-off from Olsten Corporation
  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 thereto, the Company op-
  
  
  
                                        -12-
  <PAGE>
  
  erated 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 historical financial information may not be indicative of future
  performance and may not necessarily reflect what the Company's financial
  position and results of operations would have been if it were a separate
  stand-alone entity during the periods covered. As an independent company, the
  Company would be expected to incur additional legal, risk management, tax,
  treasury, human resources and administrative and other expenses that it did not
  experience as a wholly-owned subsidiary of Olsten. 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 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 January 2, 2000.
  
  Results of Operations
  
  Revenues
  
       Net revenues increased by $11 million or 2.9 percent to $383 million during
  the second quarter of fiscal 2000 as compared to the second quarter of fiscal
  1999 driven by growth in Specialty Pharmaceutical Services of $12 million or 6.7
  percent and Staffing Services of $7 million or 22.4 percent. These increases
  were partially offset by an $8 million or 4.6 percent decrease in net revenues
  in Home Care Nursing Services.
  
       For the first six months of fiscal 2000, net revenues increased by $27
  million or 3.7% to $768 million as compared to net revenues of $741 million
  during the first six months of fiscal 1999. Net revenue growth resulted from
  increases in Specialty Pharmaceutical Services of $24 million or 7.0% and
  Staffing Services of $13 million or 21.0% offset by a decrease of $10 million or
  2.8% in Home Care Nursing Services.
  
       In the Specialty Pharmaceutical Services business, revenue growth in both
  the quarter and the six month period was attributable to increases in
  coagulation therapies, Flolan, IVIG, Oxandrin and Total Parental Nutrition (TPN)
  therapies offset somewhat by a decrease in Prolastin revenue. Staffing Services
  revenue growth during the periods reflects volume and rate increases due to
  strong market demand created by industry growth and a shortage of full time
  employees in the institutional, occupational and alternate site health care
  organizations serviced by the Staffing Services business. The decline in Home
  Care Nursing Services during the periods was attributable to the continued
  shortage of nursing and caregiver personnel in cer-
  
  
  
                                        -13-
  <PAGE>
  
  tain parts of the country as well as the impact of the closing of certain home
  care nursing branches during 1999.
  
  Gross Profit
  
       Gross profit margins, as a percentage of net revenues, decreased from 34.2
  percent in the fiscal 1999 second quarter to 33.6 percent in the second quarter
  of fiscal 2000 and from 34.1 percent in the first six months of fiscal 1999 to
  33.5 percent in the first six months of fiscal 2000. This decrease in margins
  was primarily attributable to a change in business mix reflecting growth in the
  lower margin Staffing Services business and higher costs attributable to certain
  biological and pharmaceutical products in the Specialty Pharmaceutical Services
  business due to product shortages, partly offset by productivity enhancements
  and rate increases in Home Care Nursing Services.
  
  Selling, general and administrative expenses
  
       Selling, general and administrative expenses increased to $123 million
  during the second quarter of fiscal 2000 as compared to $120 million during the
  second quarter of fiscal 1999 due to the special charges of $1.2 million and an
  increase in the provision for doubtful accounts of $2.8 million as well as
  increases in health insurance costs offset somewhat by the impact of efficiency
  improvement efforts in Home Care Nursing Services and corporate administrative
  support departments and the closing of certain home care nursing branches.
  
       For the first six months of fiscal 2000, selling, general and
  administrative expenses were $250 million as compared to $257 million for the
  first six months of fiscal 1999. This decrease resulted from a change in
  non-recurring and special charges from $16.7 million in the fiscal 1999 period
  to $6.8 million in the fiscal 2000 period as well as the impact of efficiency
  improvement efforts and the closing of home care nursing branches offset by an
  increase of $4.5 million in the provision for doubtful accounts.
  
       During the six months ended July 2, 2000, the Company recorded
  non-recurring and special charges aggregating $6.8 million. Of this amount,
  non-recurring 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 non-recurring charges included change of control,
  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, including approximately $1.0 million which was based on Olsten's
  methodology for allocating general corporate overhead expenses, and transition
  costs of $0.5 million relating to registration costs, professional fees and
  other items.
  
  
  
                                        -14-
  <PAGE>
  
       Special charges of $1.2 million in the second quarter and $2.7 million in
  the first six months of fiscal 2000 were incurred in connection with the change
  of the Company's name to Gentiva Health Services, Inc. These special charges
  primarily consisted of costs incurred and paid for consulting fees, promotional
  items and advertising.
  
       In the quarter ended April 4, 1999, the Company recorded a special charge
  aggregating $16.7 million. This charge was for the realignment of business units
  as part of a new restructuring plan, including compensation and severance costs
  of $5 million to be paid to operational support staff, branch administrative
  personnel and management, asset write-offs of $6.5 million related primarily to
  fixed assets being disposed of in offices being closed and facilities being
  consolidated, as well as fixed assets and goodwill attributable to the Company's
  exit from certain business previously acquired but not within the Company's
  strategic objectives, and integration costs of $5.2 million, primarily related
  to obligations under lease agreements for offices and other facilities being
  closed. Substantially all of the closures and consolidations of facilities and
  expected terminations occurred by January 2, 2000. These activities resulted in
  lower costs than originally estimated and, as a result, the Company recognized a
  benefit of $1.5 million in the fourth quarter of fiscal 1999 to reflect this
  change in estimate.
  
       Excluding the effects of non-recurring and special charges recorded in the
  periods as described below, selling, general and administrative expenses as a
  percentage of net revenues were 31.7 percent and 32.2 percent during the second
  quarters of fiscal 2000 and 1999, respectively, and 31.7 percent and 32.5
  percent during the first six months of fiscal 2000 and 1999, respectively.
  
  Interest Expense, Net
  
       Interest expense, net was approximately $2.1 million and $4.3 million in
  the second quarters of fiscal 2000 and 1999, respectively, and $6.3 million and
  $8.6 million during the first six months of fiscal 2000 and 1999, respectively.
  Interest expense, net represented primarily interest on the outstanding 4 3/4
  percent convertible subordinated debentures during each period, net intercompany
  borrowings with Olsten for the fiscal 1999 periods and the period from January
  3, 2000 to March 15, 2000 and interest on borrowings under the credit facility
  and the mandatorily redeemable securities subsequent to March 15, 2000.
  
  Income Taxes
  
       The effective income tax rate on income (loss) before income taxes was
  approximately 42 percent for the fiscal 2000 periods and approximately 21
  percent for the fiscal 1999 periods. The rates differ from statutory rates
  primarily because of the impact of non-deductible goodwill amortization and
  other non-deductible items.
  
  
  
                                        -15-
  <PAGE>
  
  Liquidity and Capital Resources
  
       Prior to the split-off, the Company relied on cash flow from operations and
  advances from Olsten to meet the requirements of its operating and investing
  activities. In the past, when liquidity needs exceeded cash flow, Olsten
  provided the necessary funds. In accordance with the separation agreement
  governing the split-off, the Company received approximately $32 million in cash
  (referred to as the true-up amount), including $8.9 million prior to the March
  15, 2000 split-off date. Following the split-off, the Company paid Olsten
  approximately $13 million to settle the intercompany account balance which
  related primarily to management fees, additional advances and interest expense
  on intercompany balances. Furthermore, in connection with the split-off the
  Company assumed certain liabilities, including supplemental executive retirement
  plan and excise tax obligations for former Olsten employees and of the office
  lease obligations for an Olsten subsidiary. As of March 15, 2000, the Company
  had acquired third party financing, as described below, to meet its funding
  requirements.
  
       The Company received $20 million of proceeds from the issuance by Gentiva
  Trust, a Delaware statutory trust (the "Trust"), of 10% convertible trust
  preferred securities on March 15, 2000. The Company owns all the common equity
  in the Trust. The Trust's only asset is the 10% convertible subordinated
  debentures of the Company. The Company entered into 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 80 percent of
  eligible accounts receivable, as defined. The credit facility, which expires in
  2004, includes 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: limitations on
  mergers, consolidations, acquisitions, indebtedness, liens, capital expenditures
  and disposition of assets and other limitations with respect to the Company's
  operations. The interest rate on borrowings under the credit facility is based
  on the London Interbank Offered Rate (LIBOR) plus 2.5 percent or the lender's
  prime rate plus 0.25 percent.
  
       As of July 2, 2000, borrowings under the credit facility aggregated $26.2
  million and there were approximately $19.4 million of standby letters of credit
  outstanding. As of such date, the Company had an aggregate borrowing capacity of
  approximately $104.4 million under the credit facility. In June 2000, the
  Company retired $10 million of its 4 3/4 percent convertible subordinated
  debentures at 95.25 percent of the principal amount, resulting in a gain of
  $475,000. By October 1, 2000, the Company will be required to repay the
  remaining $68.6 million of these debentures and, in this connection, is
  currently evaluating various financing options. Such options include use of the
  revolving credit facility, issuing securities under a $150 million shelf
  registration statement which was filed with the Securities and Exchange
  Commission in July 2000, and using cash proceeds which may be generated should
  the Com-
  
  
  
                                        -16-
  <PAGE>
  
  pany consummate the sale of its health care staffing services business. The
  Company announced in July 2000 that it is in discussions regarding the possible
  sale of this business. Furthermore, the Company is also engaged in discussions
  with its lenders under the credit facility with respect to certain amendments to
  the credit facility.
  
       Working capital at July 2, 2000 was $455 million, an increase of $16
  million versus $439 million at January 2, 2000. Net receivables increased by $29
  million in the first quarter of fiscal 2000, predominantly due to conversion
  issues resulting from the implementation of and transition to a new billing
  system for the Specialty Pharmaceutical Services business. Net receivables
  remained stable during the second quarter and aggregated $604 million at July 2,
  2000. The Company will continue to make investments in billing and accounts
  receivable systems and has restructured its contracting, delivery, billing and
  collection units in an effort to improve cash flow from operations. In this
  regard, the Company used $41.9 million of cash in operating activities during
  the first quarter of fiscal 2000; in the second quarter of fiscal 2000, $0.4
  million of cash was provided by operating activities.
  
       Management believes cash flows from operations, borrowings available under
  the new credit facility and other financing activities will be adequate to
  support the ongoing operations and to meet debt service and principal repayment
  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 relocate its headquarters. 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 for operations and to refinance the 4 3/4 percent
  convertible subordinated debentures which mature on October 1, 2000.
  
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
       The Company's exposure to market risk for changes in interest rates relates
  primarily to the fair value of its fixed rate 4 3/4 percent convertible
  subordinated debentures. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise.
  
       Based on the overall interest rate exposure on the Company's fixed rate
  borrowings at July 2, 2000, a 10 percent change in market interest rates would
  not have a material effect on the fair value of the Company's debt.
  
       Based on variable rate debt levels, a 10 percent change in market interest
  rates (90 basis points on a weighted average) would have less than a 1 percent
  impact on the Company's interest expense, net.
  
  
  
                                        -17-
  <PAGE>
  
       Other than intercompany transactions between the Company and its Canadian
  subsidiary, the Company generally does not have any transactions that are
  denominated in a currency other than the functional currency applicable to each
  entity.
  
       Although currency fluctuations impact the Company's reported results of
  operations, such fluctuations generally do not affect the Company's cash flow or
  result in actual economic gains or losses. Each of the Company's subsidiaries
  derives revenues and incurs expenses primarily within a single country, and
  consequently, does not generally incur currency risks in connection with the
  conduct of normal business operations.
  
       Fluctuations in currency exchange rates may also impact the shareholders'
  equity of the Company. The assets and liabilities of the Company's Canadian
  subsidiary are translated into U.S dollars at the exchange rates in effect at
  the balance sheet date. Revenues and expenses are translated into U.S. dollars
  at the weighted average exchange rate for the quarter. The resulting translation
  adjustments are recorded in shareholders' equity as accumulated other
  comprehensive income (loss).
  
       Foreign exchange gains and losses have not been significant. The Company
  does not engage in hedging activities. The Company did not hold any derivative
  instruments at July 2, 2000.
  
  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.
  
  
  
  
  
                                        -18-
  <PAGE>
  
  
  
                             PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings
  
       There is presently pending in the U.S. District Court for the Eastern
  District of New York a purported class action filed by some Olsten stockholders
  against Olsten and some of its directors and officers, captioned In re Olsten
  Corporation Securities Litigation, No. 97-5056 (the "Class Action"). The Class
  Action asserts claims for violations of the Securities Act and the Securities
  Exchange Act, including claims that the directors and officers of Olsten
  misrepresented information to stockholders relating to the government
  investigations into Olsten's health services business described Item 5 - Other
  Information. In December 1998, defendants filed a motion to dismiss the Amended
  Complaint in this Class Action. In response to a request from the parties, the
  Court, by Order dated April 27, 2000, dismissed without prejudice defendants'
  dismissal motion, subject to its being re-filed on the previously-submitted
  papers, and stayed the Class Action pending the outcome of the parties'
  mediation efforts.
  
       There is also pending in the Delaware Chancery Court a purported derivative
  lawsuit filed by some Olsten stockholders against some directors and officers of
  Olsten (and Olsten, as nominal defendant), captioned Rubin v. May, No. 17135-NC
  (the "Derivative Suit"). This purported derivative lawsuit alleges that the
  Olsten directors and officers breached their fiduciary duties to stockholders in
  connection with the above-described class action and the below-described
  government investigations. In September 1999, defendants filed a motion to
  dismiss or, in the alternative, stay this Derivative Lawsuit. Prior to the
  briefing of defendants' dismissal motion and prior to filing any responses to
  discovery requests, the parties jointly petitioned the Chancery Court to stay
  all proceedings in the Derivative Lawsuit pending the outcome of the parties'
  mediation efforts.
  
       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. Discovery continues in
  this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly") 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 arbitration be consolidated and stayed, in
  part based upon its alleged claims against Kimberly for breach of
  
  
  
                                        -19-
  <PAGE>
  
  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. The parties
  agreed to suspend the proceedings until September 2000.
  
       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 (Nashville). Thereafter, the Company
  was served with an Amended Complaint on July 21, 2000. The Amended Complaint,
  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, alleges, among other things, that the
  defendants' business practices in connection with the home healthcare patient
  referrals during the 1994 and 1996 time period violated provisions of Federal
  antitrust laws, the Racketeer Influenced and Corrupt Organizations Act, the
  Tennessee Consumer Protection Act, and the common law of Tennessee, Texas,
  Georgia and Florida. The 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 and allegedly lost business or property
  due to defendants' business practices.
  
       Because the above lawsuits and arbitration proceedings are in relatively
  preliminary stages and seek unspecified damages, penalties and/or reimbursement
  for costs and expenses, the Company is unable at this time to assess the
  probable outcome or potential liability arising from such litigation.
  
       Furthermore, in connection with the split-off, the Company agreed to
  assume, to the extent permitted by law, and indemnify Olsten for, the above
  lawsuits and arbitration proceedings, together with any other liabilities
  arising out of the health services business before or after the split-off,
  including any such liabilities arising after the split-off in connection with
  the government investigations described below.
  
       Reference is made to the descriptions of legal proceedings in the Company's
  Annual Report on Form 10-K for the year ended January 2, 2000.
  
  Item 2.  Change in Securities and Use of Proceeds
  
       In March 2000, the Company sold 100 shares of its Series A Cumulative
  non-voting Redeemable Preferred Stock in exchange for services in the amount of
  $100,000. In March 2000, a subsidiary trust of the Company issued $20 million of
  10% convertible trust preferred securities to certain of the Company's and
  Olsten's directors, officers and management, other related parties and other
  investors. The trust used the $20 million of gross proceeds to purchase $20
  million of the Company's 10% Convertible Subordinated Debentures. The Com-
  
  
  
                                        -20-
  <PAGE>
  
  pany used the net proceeds of the transaction to pay Olsten the amount owed for
  the intercompany balance and for other corporate purposes. The above issuances
  were made in reliance on the exemption from registration provided in Section
  4(2) of the Securities Act.
  
       Reference is made to the notes to the Consolidated Financial Statement in
  this Form 10-Q for a further description of the above securities.
  
  Item 3.  Defaults Upon Senior Securities
  
       None
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
       None
  
  Item 5.  Other Information
  
       The Company's business has been subject to extensive federal and state
  governmental investigations regarding, among other things, some of the health
  care practices of Quantum Health Resources, Inc. ("Quantum"), including alleged
  improper billing and fraud against various federally funded medical assistance
  programs, which largely occurred during the period prior to Olsten's acquisition
  of Quantum in June 1996, which is referred to as the "Quantum Investigation."
  
       In October 1998, Olsten entered into a final settlement agreement with
  several government agencies related to the Quantum Investigation. Under the
  settlement, Olsten reimbursed the government approximately $4.5 million for
  disputed claims under the Medicaid and CHAMPUS programs and entered into a
  corporate integrity agreement.
  
       On January 28, 1999, Olsten announced that it had been advised by the
  United States Attorney's Office for the District of New Mexico ("New Mexico U.S.
  Attorney's Office") that it had dropped its criminal investigation into
  allegations of improper billing and fraud against various federally funded
  medical assistance programs by Quantum during the period between January 1992
  and April 1997. By letter dated February 1, 1999, the New Mexico U.S. Attorney's
  Office advised Olsten that, having ended its criminal inquiry, the Office has
  referred the Quantum matter to its Affirmative Civil Enforcement Section. The
  Company continues to cooperate with the remaining civil inquiry into the Quantum
  matter and to explore with the New Mexico U.S. Attorney's Office the possibility
  of reaching a negotiated monetary resolution of the matter. Any negotiated
  amount could include multiple damages, interest and civil penalties.
  
  
  
                                        -21-
  <PAGE>
  
       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 intends to
  provide the Office of Inspector General with the requested documents and
  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 more of these
  investigations may be triggered by lawsuits under federal or state whistle
  blower statutes against Olsten or the Company.
  
       The Company continues to have discussions with the North Carolina Attorney
  General's Office concerning questions that the Office has raised as to the
  eligibility of a certain class of the Company's patients to receive
  Medicaid-reimbursed home health services and, thus, the Company's entitlement to
  Medicaid reimbursement in connection with those services. At this time, the
  Company is unable to assess the probable outcome of or potential liability
  arising from this matter.
  
       As noted above, in connection with the October 1998 settlement of the
  Quantum Investigation, Olsten executed a corporate integrity agreement with the
  U.S. Department of Justice, the Office of Inspector General of the U.S.
  Department of Health and Human Services, the U.S. Secretary of Defense (for the
  CHAMPUS/Tricare Program) and the Attorneys General for the States of New York
  and Oklahoma that will be in effect until December 31, 2001. Also, 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. Under each of the corporate integrity agreements,
  the Company is, for example, required:
  
       o    to maintain a corporate compliance officer to develop and implement
            compliance programs;
  
       o    to retain an independent review organization to perform annual
            reviews; and
  
       o    to maintain a compliance program and reporting systems, as well as
            provide certain training to employees.
  
       The corporate integrity agreement entered into in connection with the
  Quantum Investigation applies to the Company's specialty pharmaceutical services
  business and focuses on
  
  
  
                                        -22-
  <PAGE>
  
  the training and billing of blood factor products for hemophiliacs. The July 19,
  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). That corporate integrity agreement focuses on issues and training
  related to cost report preparation, contracting, medical necessity and billing
  of claims.
  
       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. If the Company fails to
  comply with the terms of either of its corporate integrity agreements, the
  Company will be subject to penalties ranging from $1,500 to $2,500 for each day
  of the breach.
  
       In March 2000, Gentiva was notified by the U.S. Department of Justice that,
  in light of the Adecco/Olsten merger and the split-off of Gentiva as an
  independent public company, the Company has been substituted for Olsten in
  connection with the civil settlement and corporate integrity agreements
  referenced in this "Government Investigations" section.
  
       Reference is made to the full descriptions of government investigations in
  the Company's Annual Report on the Form 10-K for the year ended January 2, 2000.
  
  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  Indenture dated October 8, 1993, between Quantum Health
                      Resources Inc. and First Trust National Association, as
                      Trustee. (1)
  
                 4.3  Supplemental Indenture dated June 28, 1996, between Quantum
                      Health Resources Inc. and First Trust National Association,
                      as Trustee. (1)
  
                 4.4  Form of Certificate of Designation of Series A Junior
                      Participating Preferred Stock. (2)
  
                 4.5  Form of Certificate of Designation of Series A Cumulative
                      Non-Voting Redeemable Preferred Stock. (2)
  
                 4.6  Second Supplemental Indenture dated March 15, 2000, be-
  
  
  
                                        -23-
  <PAGE>
  
                      tween Quantum Health Resources, Inc. and U.S. Bank Trust
                      National Association (formerly known as First Trust National
                      Association) as Trustee. (5)
  
                 4.7  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. (5)
  
                 4.8  Indenture between the Company and Wilmington Trust Company
                      dated March 15, 2000. (5)
  
                 10.1 Separation Agreement dated August 17, 1999, among Olsten
                      Corporation, Aaronco Corp. and Adecco SA. (1)
  
                 10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                      Olsten Corporation, Aaronco Corp., Adecco SA and Olsten
                      Health Services Holding Corp. (1)
  
                 10.3 Form of Rights Agreement dated March 2, 2000 between the
                      Registrant and Equiserve Limited Partnership, as rights
                      agent. (1)
  
                 10.4 Company's Executive Officers Bonus Plan. (1)
  
                 10.5 Company's 1999 Stock Incentive Plan. (5)
  
                 10.6 Company's stock & Deferred Compensation Plan for
                      Non-Employee Directors. (5)
  
                 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. (5)
  
                 10.10 Form of Employment Agreement with Edward A. Blechschmidt.
                       (2)
  
                 10.11 Form of Change of Control Agreement with Executive Officers
                       of Company. (5)
  
                 10.12 Form of Change in Control Agreement with Edward A.
                       Blechschmidt. (5)
  
                 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
  
  
  
                                        -24-
  <PAGE>
  
                       named therein and the holders from time to time of the
                       convertible trust preferred securities.
  
                 10.15 Amendment No. 1 dated June 30, 2000 to Indenture between
                       the Company and Wilmington Trust Company.
  
                 21.1 List of Subsidiaries of Company. (2)
  
                 27   Financial Data Schedule
  
                 (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 the Post-Effective
                      Amendment No. 1 on Form S-8 to Form S-4 dated March 27, 2000
                      (File No. 333-88663).
  
                 (5)  Incorporated herein by reference to the Form 10-K for the
                      Registrant for the Fiscal Year ended January 2, 2000
  
       (b) Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the last quarter for the
  period covered by this report.
  
  Exhibit Index
  
  Exhibit                           Description
  
      27                   Financial Data Schedule
  
  
  
  
  
                                        -25-
  <PAGE>
  
                                     SIGNATURES
  
  
       Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  Date:  August 16, 2000               /s/ Edward A. Blechschmidt
                                      --------------------------
                                      Edward A. Blechschmidt
                                      President and Chief Executive
                                       Officer
  
  
  Date:  August 16, 2000               /s/ John J. Collura
                                       -------------------
                                       John J. Collura
                                       Executive Vice President,
                                       Chief Financial Officer and
                                        Treasurer
  
  
  
  
  
  
  
  
                                        -26-
metadata_documents: [{"type": "10-Q", "sequence": "1", "filename": "0001.txt", "description": "FORM 10-Q", "secsgml_size_bytes": 79774}]
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": "704139"}, "business-address": {"street1": "175 BROAD HOLLOW ROAD", "city": "MELVILLE", "state": "NY", "zip": "11747-8905", "phone": "516847800"}, "mail-address": {"street1": "175 BROAD HOLLOW ROAD", "city": "MELVILLE", "state": "NY", "zip": "11747-8905"}, "former-company": {"former-conformed-name": "OLSTEN HEALTH SERVICES HOLDING CORP", "date-changed": "19991001"}}
text: SECURITIES AND EXCHANGE COMMISSION
                               WASHINGTON, D.C. 20549
  
                                      FORM 10-Q
  
                  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                       OF THE SECURITIES EXCHANGE ACT OF 1934
  
                     For the quarterly period ended July 2, 2000
  
                             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.)
  
                175 Broad Hollow Road, Melville, New York 11747-8905
                ----------------------------------------------------
                 (Address of principal executive offices) (Zip Code)
  
         Registrant's telephone number, including area code: (631) 844-7800
                                                             --------------
  
       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 July 2, 2000, was 20,620,426.
  INDEX
  
                                                                          Page No.
                                                                          --------
  PART I - FINANCIAL INFORMATION
  
           Item 1. Interim Financial Statements
  
                   Consolidated Balance Sheets -- July 2, 2000
                   (Unaudited) and January 2, 2000                          2
  
                   Consolidated Statements of Operations (Unaudited) -
                   Three and Six Months Ended July 2, 2000 and
                   July 4, 1999                                             3
  
                   Consolidated Statements of Cash Flows (Unaudited) -
                   Six Months Ended July 2, 2000 and July 4, 1999           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                                              17-18
  
  PART II - OTHER INFORMATION
  
           Item 1. Legal Proceedings                                        19-20
  
           Item 2. Change in Securities and Use of Proceeds                 20-21
  
           Item 3. Defaults Upon Senior Securities                          21
  
           Item 4. Submission of Matters to a Vote of Security Holders      21
  
           Item 5. Other Information                                        21-23
  
           Item 6. Exhibits and Reports on Form 8-K                         23-25
  
  SIGNATURES                                                                26
  PART I - FINANCIAL INFORMATION
  
  Item 1.  Financial Statements.
  Gentiva Health Services, Inc. and Subsidiaries
                             Consolidated Balance Sheets
                        (In thousands, except share amounts)
  
                                                                                 July 2, 2000          January 2, 2000
                                                                                 ------------          ---------------
                                                                                  (Unaudited)
  ASSETS
  Current Assets:
  Cash and cash equivalents                                            $        2,299          $        2,942
         Receivables, net                                                            604,372                 575,460
         Inventories                                                                  74,492                  93,218
         Prepaid expenses and other current assets                                    39,410                  87,611
                                                                              --------------          --------------
               Total current assets                                                  720,573                 759,231
  Fixed Assets, Net                                                                   44,562                  51,809
  Intangible Assets, Net                                                             244,654                 250,297
  Other Assets                                                                         4,348                   1,678
                                                                              --------------          --------------
               Total assets                                                       $1,014,137              $1,063,015
                                                                              ==============          ==============
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current Liabilities:
         Current portion of long-term debt                                      $     68,562             $    78,562
         Accounts payable                                                             85,460                 114,197
         Accrued expenses                                                             59,863                  76,746
         Payroll and related taxes                                                    20,876                  20,020
         Insurance costs                                                              31,094                  31,170
                                                                              --------------          --------------
               Total current liabilities                                             265,855                 320,695
  Other Liabilities                                                                   37,129                  37,029
  Long-Term Debt                                                                      26,191                       -
  Gentiva - Obligated Mandatorily Redeemable Convertible
  Securities of a Subsidiary Holding Solely Gentiva Debentures                        20,000                       -
  Shareholders' Equity:
         Common stock, $.10 par value; authorized 100,000,000 shares;
         issued and outstanding 20,620,426 and 20,345,029 shares,                      2,062                   2,035
         respectively
         Additional paid-in capital                                                  685,327                 725,998
         Accumulated deficit                                                         (20,105)                (20,370)
         Accumulated other comprehensive loss                                         (2,322)                 (2,372)
                                                                              --------------          --------------
               Total shareholders' equity                                            664,962                 705,291
                                                                              --------------          --------------
                        Total liabilities and shareholders' equity                $1,014,137              $1,063,015
                                                                              ==============          ==============
  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                           Six Months Ended
                                               -----------------------------------   -----------------------------------
                                                 July 2, 2000      July 4, 1999        July 2, 2000      July 4, 1999
                                               -----------------------------------   -----------------------------------
  Net revenues                                  $    383,270      $   372,573         $    767,877       $   740,733
  Cost of services sold                              254,646           245,331             510,751           487,817
                                                --------------    ----------------   ---------------    ----------------
       Gross Profit                                  128,624           127,242             257,126           252,916
  
  Selling, general and administrative expenses       122,785           119,875             250,317           257,427
  Interest expense, net                                2,112             4,284               6,348             8,557
                                                --------------    ----------------   ---------------    ----------------
       Income (loss) before income taxes               3,727             3,083                 461           (13,068)
  
  Income tax expense (benefit)                         1,556               648                 196            (2,697)
                                                --------------    ----------------   ---------------    ----------------
       Net income (loss)                        $      2,171      $      2,435        $        265      $    (10,371)
                                                ==============    ================   ===============    ================
  
  Net income (loss) per share:
                          Basic                 $       0.11      $       0.12        $       0.01      $      (0.51)
                                                ==============    ================   ===============    ================
                          Diluted               $       0.10      $       0.12        $       0.01      $      (0.51)
                                                ==============    ================   ===============    ================
  
  Average shares outstanding:
                          Basic                       20,513            20,345              20,429            20,345
                                                ==============    ================   ===============    ================
                          Diluted                     21,823            20,345              21,681            20,345
                                                ==============    ================   ===============    ================
  See notes to consolidated financial statements.
  
                                         -3-
  Gentiva Health Services, Inc. and Subsidiaries
                        Consolidated Statements of Cash Flows
                                   (In thousands)
                                     (Unaudited)
  
                                                                                        Six Months Ended
                                                                                ---------------------------------
                                                                                July 2, 2000         July 4, 1999
                                                                                --------------       ------------
  OPERATING ACTIVITIES:
  Net income (loss)                                                             $      265           $   (10,371)
  Adjustments to reconcile net income (loss) to net cash used in
  operating activities:
           Depreciation and amortization                                            16,141                17,406
           Provision for doubtful accounts                                          16,917                12,408
           Changes in assets and liabilities, net of effect from
           acquisitions:
                    Accounts receivable                                            (45,829)             (112,710)
                    Inventories                                                     18,726                  (811)
                    Prepaid expenses and other current assets                         (899)               (1,645)
                    Current liabilities                                            (48,696)               23,623
           Other, net                                                                1,834                 1,191
                                                                                ----------           -----------
  Net cash used in operating activities                                            (41,541)              (70,909)
                                                                                ----------           -----------
  INVESTING ACTIVITIES:
  Purchase of fixed assets                                                          (3,620)              (11,182)
  Acquisitions of businesses, net of cash acquired                                       -                (1,655)
                                                                                ----------           -----------
  Net cash used in investing activities                                             (3,620)              (12,837)
                                                                                ----------           -----------
  FINANCING ACTIVITIES:
  Issuance of mandatorily redeemable securities                                     20,100                     -
  Net transactions with Olsten                                                       5,226                90,635
  Increase in book overdrafts                                                        3,856                     -
  Retirement of debt                                                                (9,525)               (7,688)
  Proceeds from revolving credit facility                                           26,191                     -
  Debt issuance costs                                                               (2,564)                    -
  Proceeds from stock options                                                        1,234                     -
                                                                                ----------           -----------
  Net cash provided by financing activities                                         44,518                82,947
                                                                                ----------           -----------
  Net decrease in cash and cash equivalents                                           (643)                 (799)
  Cash and cash equivalents at beginning of period                                   2,942                   799
                                                                                ----------           -----------
  Cash and cash equivalents at end of period                                    $    2,299           $         -
                                                                                ==========           ===========
  See notes to consolidated financial statements.
  -4-
  Gentiva Health Services, Inc. and Subsidiaries
                     Notes to Consolidated Financial Statements
                                     (Unaudited)
  
       1. Accounting Policies
  
       The accompanying interim consolidated financial statements are unaudited,
  but have been prepared by Gentiva Health Services, Inc. (the "Company") pursuant
  to the rules and regulations of the Securities and Exchange Commission and, in
  the opinion of management, include all adjustments necessary for a fair
  presentation of results of operations, financial position and cash flows for
  each period presented. Results for interim periods are not necessarily
  indicative of results for a full year. The year-end balance sheet data was
  derived from audited financial statements, but does not include all disclosures
  required by generally accepted accounting principles.
  
       2. Background and Basis of Presentation
  
       On March 15, 2000, the Company was 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 thereto, 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 $1.3 million for the second quarter of fiscal
  1999 and $0.9 million and $2.5 million for the first six months of fiscal 2000
  and 1999, respectively. 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 are reasonable; however, the costs of these items deemed to be charged
  to the Company are 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 has
  begun to perform these functions using its own resources or purchased services
  and 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 statements of
  operations included net interest expense of approximately $3.2 million for the
  second quarter of fiscal 1999 and
  
                                         -5-
  $2.7 million and $6.5 million for the first six months of fiscal 2000 and 1999,
  respectively, relating to the intercompany balances with Olsten. Such
  intercompany balances have been reflected as a contribution to capital at
  January 2, 2000 and as of the split-off date.
  
       3. Earnings per Share
  
       Basic net income per share for the fiscal 2000 periods has been computed
  using the weighted average number of shares outstanding. Such amount is based on
  20,345,029 shares of common stock, representing the number of shares of the
  Company's stock issued on the split-off date, adjusted to reflect 275,397 shares
  of common stock issued during the second quarter of fiscal 2000 in connection
  with the exercise of stock options.
  
       Diluted net income per share for the fiscal 2000 periods has been computed
  using the weighted average number of common and dilutive common equivalent
  shares outstanding during each period. Dilutive common equivalent shares
  represent the incremental shares that would be issued upon the assumed
  conversion of approximately 3.3 million stock options. The computation of
  dilutive net income per share excludes the effect of any shares issuable upon
  the conversion of the 4 3/4% convertible subordinated debentures due October 1,
  2000 and the $20 million of 10% convertible trust preferred securities and the
  exercise of approximately 0.9 million stock options since their inclusion would
  have had an antidilutive effect on earnings.
  
       Basic and diluted net income (loss) per share for the fiscal 1999 periods
  have been computed based solely on the shares of the Company's stock issued on
  the split-off date.
  
       4. Non-recurring and Special Charges
  
       During the six months ended July 2, 2000, the Company recorded
  non-recurring and special charges aggregating $6.8 million. Of this amount,
  non-recurring 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 non-recurring charges included change of control,
  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, including approximately $1.0 million which is based on Olsten's
  methodology for allocating general corporate overhead expenses as discussed in
  Note 7, and transition costs of $0.5 million relating to registration costs,
  professional fees and other items. Substantially all amounts were paid as of
  July 2, 2000.
  
       Special charges of $1.2 million in second quarter and $2.7 million in the
  first six months of fiscal 2000 were incurred in connection with the change of
  the Company's name
  
                                         -6-
  to Gentiva Health Services, Inc. These special charges primarily consisted of
  costs incurred and paid for consulting fees, promotional items and advertising.
  
       In the quarter ended April 4, 1999, the Company recorded a special charge
  aggregating $16.7 million. This charge was for the realignment of business units
  as part of a new restructuring plan, including compensation and severance costs
  of $5 million to be paid to operational support staff, branch administrative
  personnel and management, asset write-offs of $6.5 million related primarily to
  fixed assets being disposed of in offices being closed and facilities being
  consolidated, as well as fixed assets and goodwill attributable to the Company's
  exit from certain business previously acquired but not within the Company's
  strategic objectives, and integration costs of $5.2 million, primarily related
  to obligations under lease agreements for offices and other facilities being
  closed. Substantially all of the closures and consolidations of facilities and
  expected terminations had occurred by January 2, 2000. These activities resulted
  in lower costs than originally estimated and, as a result, the Company
  recognized a benefit of $1.5 million in the fourth quarter of fiscal 1999 to
  reflect this change in estimate. Approximately $1.2 million of this special
  charge remains unpaid as of July 2, 2000, representing compensation and
  severance costs of $0.8 million and integration costs of $0.4 million.
  
       5. Long-Term Debt
  
       On March 13, 2000, the Company entered into 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.
  
       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 and provides
  limitations on certain other activities. Loans under the credit facility are
  collateralized by all of the Company's tangible and intangible personal
  property, other than equipment.
  
       At July 2, 2000, borrowings under the credit facility aggregated $26.2
  million and there were approximately $19.4 million of standby letters of credit
  outstanding. As of such date, the Company had borrowing capacity of
  approximately $104.4 million available under the credit facility.
  
       At July 2, 2000, the current portion of long-term debt aggregated $68.6
  million, which represents the 4 3/4 percent convertible subordinated debentures
  which mature on October 1, 2000. In June 2000, $10 million of the debentures
  were retired at 95.25 percent of the princi-
  
                                         -7-
  pal amount, resulting in a gain of $475,000. In January 1999, $7.7 million of
  the debentures were retired at 88.5 percent of the principal amount, resulting
  in a gain of approximately $900,000.
  
       6.   Mandatorily Redeemable Securities
  
       On March 15, 2000, certain of the Company's and Olsten's directors,
  officers and management and other related parties and other investors purchased
  $20 million of 10 percent convertible trust preferred securities issued by a
  trust, of which the Company owns all the common equity. The convertible trust
  preferred securities are mandatorily redeemable five years from issuance at a
  declining premium over face amount. Upon a change of control, as defined, the
  holders of convertible trust preferred securities may require the trust to
  purchase these securities at 100 percent of their face amount. Dividends are
  payable quarterly in cash at the rate of 10 percent per annum, but the trust may
  defer dividend payments for up to a total of twenty quarters, in which case
  dividends will accrue. The convertible trust preferred securities are
  convertible into the Company's common stock at a conversion price of $9.319219.
  Such conversion price is 17.5 percent above the average closing price of the
  Company's common stock during the ten trading days following the earnings
  announcement of the first quarter 2000 results.
  
       Simultaneously with, and in connection with the issuance by the trust of
  the convertible trust preferred securities, the Company issued to the trust $20
  million of its 10 percent convertible subordinated debentures. The convertible
  subordinated debentures have the same terms as the convertible trust preferred
  securities, including but not limited to maturity, interest, conversion and
  redemption price.
  
       The trust which issued the convertible trust preferred securities is a
  special purpose trust. The trust's operations are limited to issuing the
  convertible trust preferred securities and holding the Company's convertible
  subordinated debentures. The trust may pay dividends only to the extent that the
  Company pays interest on its convertible subordinated debentures.
  
       In March 2000, the Company also issued 100 shares of Series A Cumulative
  Non-voting Redeemable Preferred Stock for proceeds of $100,000. Such amount is
  included in other liabilities in the consolidated balance sheet at July 2, 2000.
  
                                         -8-
  7. Shareholders' Equity
  
       Changes in shareholders' equity during the six months ended July 2, 2000
  were as follows (in thousands):
  Accumulated
                                                          Additional                           Other
                                            Common         paid-in        Accumulated      Comprehensive
                                            Stock          capital          Deficit             Loss             Total
                                        --------------- --------------- ----------------- ----------------- ----------------
  Balance at January 2, 2000             $      2,035      $ 725,998     $     (20,370)    $       (2,372)   $    705,291
     Comprehensive income:
       Net income and cumulative
       translation adjustment                                                      265                 50             315
  
     True-up payment made by Olsten                            8,851                                                8,851
  
     Obligations assumed in connection
     with the split-off, net of tax
     benefit                                                  (1,029)                                              (1,029)
     Transfer to Olsten of tax benefits
     relating to net operating losses                        (49,700)                                             (49,700)
     Issuance of stock upon exercise of
     stock options                                 27          1,207                                                1,234
                                         ------------      ---------     -------------     --------------    ------------
  
     Balance at July 2, 2000             $      2,062      $ 685,327     $     (20,105)    $       (2,322)   $    664,962
                                         ============      =========     =============     ==============    ============
  See Note 8 for a description of the true-up payment made by Olsten.
  
       Under the terms of the separation agreement relating to the split-off, the
  Company assumed the obligation for the funding of liabilities of the
  non-qualified supplemental executive retirement plan for certain of its
  employees and former employees of Olsten. During the first quarter of 2000,
  payments of $12.1 million were made under this program; these payments exceeded
  assets of the plan which were transferred to the Company by $3.6 million due
  primarily to benefits paid to former Olsten employees and a current executive
  officer of the Company. Furthermore, the Company also assumed excise tax
  obligations of approximately $0.8 million for a former executive officer of
  Olsten (and current executive officer of the Company). Approximately $1.0
  million of the aggregate net obligations of $4.4 million were included in
  non-recurring and special charges in the consolidated statements of operations
  based on Olsten's allocation methodology for general corporate overhead
  expenses. The remaining $3.4 million associated with these obligations were
  charged directly to additional paid-in capital.
  
       In addition, under the terms of the Separation Agreement the Company also
  agreed to assume the lease for an Olsten subsidiary commencing September 2000.
  In this connection, the present value of future lease obligations and other
  costs exceed estimated sublease rentals by $1.7 million. Such amount was charged
  directly to additional paid-in capital during the first quarter of 2000.
  
                                         -9-
  An estimated tax benefit of $4.1 million relating to the aforementioned
  obligations was credited to additional paid-in capital.
  
       In accordance with the Tax Sharing Agreement governing the split-off, any
  net operating losses generated up to the split-off were to be transferred and
  utilized by Olsten. Accordingly, on March 15, 2000 the Company transferred
  approximately $49.7 million of tax benefits relating to those net operating
  losses to Olsten. Such amount is reflected as a reduction of additional paid-in
  capital during the first six months of fiscal 2000.
  
       Total comprehensive income (loss) amounted to $2.1 million and $2.5 million
  during the second quarter of fiscal 2000 and 1999, respectively, and $0.3
  million and $(10.3) million during the first six months of fiscal 2000 and 1999,
  respectively.
  
       8. Transactions with Olsten
  
       Net transactions with Olsten, included in shareholders' equity, include the
  accumulated excess of cash outlays made on the Company's behalf and management
  fees charged to the Company by Olsten over cash receipts generated by the
  Company. In accordance with the terms of the Separation Agreement, intercompany
  balances at October 31, 1999 of approximately $507 million have been contributed
  to the Company's capital in its entirety. Pursuant to the terms described in the
  Separation Agreement, the Company was to receive approximately $32 million in
  cash (referred to as the true-up amount) on or prior to the split-off date.
  Approximately $23.1 million of the true-up amount was received by the Company
  prior to January 2, 2000; the remaining $8.9 million was received by the Company
  during the first quarter of 2000.
  
       Following the split-off, the Company paid Olsten approximately $13 million
  to settle the intercompany account balance which primarily related to advances
  for management fees, additional borrowings and interest expense on intercompany
  balances.
  
       9. Business Segment Information
  
       The Company operates in the United States and Canada, servicing patients
  and customers through the following business segments: Specialty Pharmaceutical
  Services, Home Care Nursing Services and 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 and (iii) distribution services
  for pharmaceutical, biotechnology and medical service firms.
  
                                        -10-
  Home Care Nursing 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 includes (i) services to institutional, occupational and
  alternate site health care organizations by providing health care professionals
  to meet supplemental staffing needs and (ii) clinical support services for
  pharmaceutical and biotechnology firms.
  
       The Company evaluates performance and allocates resources based on
  operating contributions of the reportable segments, which excludes corporate
  expenses, depreciation, amortization and interest expense, but includes revenues
  and all other costs directly attributable to the specific 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.
  
       Information about the Company's operations is as follows (in thousands):
  Specialty        Home Care
                                                     Pharmaceutical      Nursing        Staffing
                                                        Services         Services       Services         Total
                                                    ----------------- --------------- -------------- --------------
  Three months ended July 2, 2000
  -------------------------------
  Net revenues                                       $     185,044     $  161,026      $  37,200      $  383,270
                                                    ================= =============== ============== ==============
  Operating contribution                             $      23,345     $    9,718      $   3,139      $   36,202
                                                    ================= =============== ==============
  Non-recurring and special charges
                                                                                                          (1,191)
  Corporate expenses                                                                                     (21,198)
                                                                                                     --------------
  Earnings before interest expense, taxes
       depreciation and amortization                                                                      13,813
  Depreciation and amortization
                                                                                                          (7,974)
  Interest expense, net
                                                                                                          (2,112)
                                                                                                     --------------
  Income before income taxes                                                                          $    3,727
                                                                                                     ==============
  -11-
  Specialty        Home Care
                                                      Pharmaceutical      Nursing         Staffing
                                                         Services         Services        Services         Total
                                                    ----------------   --------------  ------------  --------------
  Three months ended July 4, 1999
  -------------------------------
  Net revenues                                       $     173,395     $  168,779      $  30,399      $  372,573
                                                    ================= =============== ============== ==============
  Operating contribution                             $      29,167     $    8,898      $   2,454      $   40,519
                                                    ================= =============== ==============
  Corporate expenses                                                                                     (24,479)
                                                                                                     --------------
  Earnings before interest expense, taxes
       depreciation and amortization                                                                      16,040
  Depreciation and amortization                                                                           (8,673)
  Interest expense, net                                                                                   (4,284)
                                                                                                     --------------
  Income before income taxes                                                                          $    3,083
                                                                                                     ==============
  
  Six months ended July 2, 2000
  -----------------------------
  Net revenues                                       $     365,862     $  328,921      $  73,094     $   767,877
                                                    ================= =============== ============== ==============
  Operating contribution                             $      48,557     $   18,337      $   5,770     $    72,664
                                                    ================= =============== ==============
  Non-recurring and special charges                                                                       (6,791)
  Corporate expenses                                                                                     (42,603)
                                                                                                     --------------
  Earnings before interest expense, taxes
     depreciation and amortization                                                                        23,270
  Depreciation and amortization                                                                          (16,461)
  Interest expense, net                                                                                   (6,348)
                                                                                                     --------------
  Income before income taxes                                                                         $       461
                                                                                                     ==============
  Segment assets                                      $    460,075     $  192,629      $  26,160     $   678,864
                                                    ================= =============== ============== ==============
  Six months ended July 4, 1999
  -----------------------------
  Net revenues                                        $    341,814     $  338,509      $  60,410     $   740,733
                                                    ================= =============== ============== ==============
  
  Operating contribution before special charges       $     55,920     $   14,221      $   4,902     $    75,043
  Special charges                                           (1,730)       (14,590)          (380)        (16,700)
                                                      ------------     ----------      ----------    -----------
  Operating contribution (loss)                       $     54,190     $     (369)     $   4,522     $    58,343
                                                      ============     ==========      ==========
  Corporate expenses                                                                                     (45,448)
                                                                                                     -----------
  Earnings before interest expense, taxes
     depreciation and amortization                                                                        12,895
  Depreciation and amortization                                                                          (17,406)
  Interest expense, net                                                                                   (8,557)
                                                                                                     -----------
  Loss before income taxes                                                                           $   (13,068)
                                                                                                     ===========
  Segment assets                                      $   401,465      $  222,207      $  20,034     $   643,706
                                                      ===========      ==========      ==========    ===========
  Item 2. Management's Discussion and Analysis of Financial Condition and Results
          of Operations.
  
       On March 15, 2000, the Company was split-off from Olsten Corporation
  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 thereto, the Company op-
  
                                        -12-
  erated 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 historical financial information may not be indicative of future
  performance and may not necessarily reflect what the Company's financial
  position and results of operations would have been if it were a separate
  stand-alone entity during the periods covered. As an independent company, the
  Company would be expected to incur additional legal, risk management, tax,
  treasury, human resources and administrative and other expenses that it did not
  experience as a wholly-owned subsidiary of Olsten. 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 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 January 2, 2000.
  
  Results of Operations
  
  Revenues
  
       Net revenues increased by $11 million or 2.9 percent to $383 million during
  the second quarter of fiscal 2000 as compared to the second quarter of fiscal
  1999 driven by growth in Specialty Pharmaceutical Services of $12 million or 6.7
  percent and Staffing Services of $7 million or 22.4 percent. These increases
  were partially offset by an $8 million or 4.6 percent decrease in net revenues
  in Home Care Nursing Services.
  
       For the first six months of fiscal 2000, net revenues increased by $27
  million or 3.7% to $768 million as compared to net revenues of $741 million
  during the first six months of fiscal 1999. Net revenue growth resulted from
  increases in Specialty Pharmaceutical Services of $24 million or 7.0% and
  Staffing Services of $13 million or 21.0% offset by a decrease of $10 million or
  2.8% in Home Care Nursing Services.
  
       In the Specialty Pharmaceutical Services business, revenue growth in both
  the quarter and the six month period was attributable to increases in
  coagulation therapies, Flolan, IVIG, Oxandrin and Total Parental Nutrition (TPN)
  therapies offset somewhat by a decrease in Prolastin revenue. Staffing Services
  revenue growth during the periods reflects volume and rate increases due to
  strong market demand created by industry growth and a shortage of full time
  employees in the institutional, occupational and alternate site health care
  organizations serviced by the Staffing Services business. The decline in Home
  Care Nursing Services during the periods was attributable to the continued
  shortage of nursing and caregiver personnel in cer-
  
                                        -13-
  tain parts of the country as well as the impact of the closing of certain home
  care nursing branches during 1999.
  
  Gross Profit
  
       Gross profit margins, as a percentage of net revenues, decreased from 34.2
  percent in the fiscal 1999 second quarter to 33.6 percent in the second quarter
  of fiscal 2000 and from 34.1 percent in the first six months of fiscal 1999 to
  33.5 percent in the first six months of fiscal 2000. This decrease in margins
  was primarily attributable to a change in business mix reflecting growth in the
  lower margin Staffing Services business and higher costs attributable to certain
  biological and pharmaceutical products in the Specialty Pharmaceutical Services
  business due to product shortages, partly offset by productivity enhancements
  and rate increases in Home Care Nursing Services.
  
  Selling, general and administrative expenses
  
       Selling, general and administrative expenses increased to $123 million
  during the second quarter of fiscal 2000 as compared to $120 million during the
  second quarter of fiscal 1999 due to the special charges of $1.2 million and an
  increase in the provision for doubtful accounts of $2.8 million as well as
  increases in health insurance costs offset somewhat by the impact of efficiency
  improvement efforts in Home Care Nursing Services and corporate administrative
  support departments and the closing of certain home care nursing branches.
  
       For the first six months of fiscal 2000, selling, general and
  administrative expenses were $250 million as compared to $257 million for the
  first six months of fiscal 1999. This decrease resulted from a change in
  non-recurring and special charges from $16.7 million in the fiscal 1999 period
  to $6.8 million in the fiscal 2000 period as well as the impact of efficiency
  improvement efforts and the closing of home care nursing branches offset by an
  increase of $4.5 million in the provision for doubtful accounts.
  
       During the six months ended July 2, 2000, the Company recorded
  non-recurring and special charges aggregating $6.8 million. Of this amount,
  non-recurring 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 non-recurring charges included change of control,
  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, including approximately $1.0 million which was based on Olsten's
  methodology for allocating general corporate overhead expenses, and transition
  costs of $0.5 million relating to registration costs, professional fees and
  other items.
  
                                        -14-
  Special charges of $1.2 million in the second quarter and $2.7 million in
  the first six months of fiscal 2000 were incurred in connection with the change
  of the Company's name to Gentiva Health Services, Inc. These special charges
  primarily consisted of costs incurred and paid for consulting fees, promotional
  items and advertising.
  
       In the quarter ended April 4, 1999, the Company recorded a special charge
  aggregating $16.7 million. This charge was for the realignment of business units
  as part of a new restructuring plan, including compensation and severance costs
  of $5 million to be paid to operational support staff, branch administrative
  personnel and management, asset write-offs of $6.5 million related primarily to
  fixed assets being disposed of in offices being closed and facilities being
  consolidated, as well as fixed assets and goodwill attributable to the Company's
  exit from certain business previously acquired but not within the Company's
  strategic objectives, and integration costs of $5.2 million, primarily related
  to obligations under lease agreements for offices and other facilities being
  closed. Substantially all of the closures and consolidations of facilities and
  expected terminations occurred by January 2, 2000. These activities resulted in
  lower costs than originally estimated and, as a result, the Company recognized a
  benefit of $1.5 million in the fourth quarter of fiscal 1999 to reflect this
  change in estimate.
  
       Excluding the effects of non-recurring and special charges recorded in the
  periods as described below, selling, general and administrative expenses as a
  percentage of net revenues were 31.7 percent and 32.2 percent during the second
  quarters of fiscal 2000 and 1999, respectively, and 31.7 percent and 32.5
  percent during the first six months of fiscal 2000 and 1999, respectively.
  
  Interest Expense, Net
  
       Interest expense, net was approximately $2.1 million and $4.3 million in
  the second quarters of fiscal 2000 and 1999, respectively, and $6.3 million and
  $8.6 million during the first six months of fiscal 2000 and 1999, respectively.
  Interest expense, net represented primarily interest on the outstanding 4 3/4
  percent convertible subordinated debentures during each period, net intercompany
  borrowings with Olsten for the fiscal 1999 periods and the period from January
  3, 2000 to March 15, 2000 and interest on borrowings under the credit facility
  and the mandatorily redeemable securities subsequent to March 15, 2000.
  
  Income Taxes
  
       The effective income tax rate on income (loss) before income taxes was
  approximately 42 percent for the fiscal 2000 periods and approximately 21
  percent for the fiscal 1999 periods. The rates differ from statutory rates
  primarily because of the impact of non-deductible goodwill amortization and
  other non-deductible items.
  
                                        -15-
  Liquidity and Capital Resources
  
       Prior to the split-off, the Company relied on cash flow from operations and
  advances from Olsten to meet the requirements of its operating and investing
  activities. In the past, when liquidity needs exceeded cash flow, Olsten
  provided the necessary funds. In accordance with the separation agreement
  governing the split-off, the Company received approximately $32 million in cash
  (referred to as the true-up amount), including $8.9 million prior to the March
  15, 2000 split-off date. Following the split-off, the Company paid Olsten
  approximately $13 million to settle the intercompany account balance which
  related primarily to management fees, additional advances and interest expense
  on intercompany balances. Furthermore, in connection with the split-off the
  Company assumed certain liabilities, including supplemental executive retirement
  plan and excise tax obligations for former Olsten employees and of the office
  lease obligations for an Olsten subsidiary. As of March 15, 2000, the Company
  had acquired third party financing, as described below, to meet its funding
  requirements.
  
       The Company received $20 million of proceeds from the issuance by Gentiva
  Trust, a Delaware statutory trust (the "Trust"), of 10% convertible trust
  preferred securities on March 15, 2000. The Company owns all the common equity
  in the Trust. The Trust's only asset is the 10% convertible subordinated
  debentures of the Company. The Company entered into 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 80 percent of
  eligible accounts receivable, as defined. The credit facility, which expires in
  2004, includes 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: limitations on
  mergers, consolidations, acquisitions, indebtedness, liens, capital expenditures
  and disposition of assets and other limitations with respect to the Company's
  operations. The interest rate on borrowings under the credit facility is based
  on the London Interbank Offered Rate (LIBOR) plus 2.5 percent or the lender's
  prime rate plus 0.25 percent.
  
       As of July 2, 2000, borrowings under the credit facility aggregated $26.2
  million and there were approximately $19.4 million of standby letters of credit
  outstanding. As of such date, the Company had an aggregate borrowing capacity of
  approximately $104.4 million under the credit facility. In June 2000, the
  Company retired $10 million of its 4 3/4 percent convertible subordinated
  debentures at 95.25 percent of the principal amount, resulting in a gain of
  $475,000. By October 1, 2000, the Company will be required to repay the
  remaining $68.6 million of these debentures and, in this connection, is
  currently evaluating various financing options. Such options include use of the
  revolving credit facility, issuing securities under a $150 million shelf
  registration statement which was filed with the Securities and Exchange
  Commission in July 2000, and using cash proceeds which may be generated should
  the Com-
  
                                        -16-
  pany consummate the sale of its health care staffing services business. The
  Company announced in July 2000 that it is in discussions regarding the possible
  sale of this business. Furthermore, the Company is also engaged in discussions
  with its lenders under the credit facility with respect to certain amendments to
  the credit facility.
  
       Working capital at July 2, 2000 was $455 million, an increase of $16
  million versus $439 million at January 2, 2000. Net receivables increased by $29
  million in the first quarter of fiscal 2000, predominantly due to conversion
  issues resulting from the implementation of and transition to a new billing
  system for the Specialty Pharmaceutical Services business. Net receivables
  remained stable during the second quarter and aggregated $604 million at July 2,
  2000. The Company will continue to make investments in billing and accounts
  receivable systems and has restructured its contracting, delivery, billing and
  collection units in an effort to improve cash flow from operations. In this
  regard, the Company used $41.9 million of cash in operating activities during
  the first quarter of fiscal 2000; in the second quarter of fiscal 2000, $0.4
  million of cash was provided by operating activities.
  
       Management believes cash flows from operations, borrowings available under
  the new credit facility and other financing activities will be adequate to
  support the ongoing operations and to meet debt service and principal repayment
  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 relocate its headquarters. 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 for operations and to refinance the 4 3/4 percent
  convertible subordinated debentures which mature on October 1, 2000.
  
  Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
       The Company's exposure to market risk for changes in interest rates relates
  primarily to the fair value of its fixed rate 4 3/4 percent convertible
  subordinated debentures. Generally, the fair market value of fixed rate debt
  will increase as interest rates fall and decrease as interest rates rise.
  
       Based on the overall interest rate exposure on the Company's fixed rate
  borrowings at July 2, 2000, a 10 percent change in market interest rates would
  not have a material effect on the fair value of the Company's debt.
  
       Based on variable rate debt levels, a 10 percent change in market interest
  rates (90 basis points on a weighted average) would have less than a 1 percent
  impact on the Company's interest expense, net.
  
                                        -17-
  Other than intercompany transactions between the Company and its Canadian
  subsidiary, the Company generally does not have any transactions that are
  denominated in a currency other than the functional currency applicable to each
  entity.
  
       Although currency fluctuations impact the Company's reported results of
  operations, such fluctuations generally do not affect the Company's cash flow or
  result in actual economic gains or losses. Each of the Company's subsidiaries
  derives revenues and incurs expenses primarily within a single country, and
  consequently, does not generally incur currency risks in connection with the
  conduct of normal business operations.
  
       Fluctuations in currency exchange rates may also impact the shareholders'
  equity of the Company. The assets and liabilities of the Company's Canadian
  subsidiary are translated into U.S dollars at the exchange rates in effect at
  the balance sheet date. Revenues and expenses are translated into U.S. dollars
  at the weighted average exchange rate for the quarter. The resulting translation
  adjustments are recorded in shareholders' equity as accumulated other
  comprehensive income (loss).
  
       Foreign exchange gains and losses have not been significant. The Company
  does not engage in hedging activities. The Company did not hold any derivative
  instruments at July 2, 2000.
  
  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.
  
                                        -18-
  PART II - OTHER INFORMATION
  
  Item 1.  Legal Proceedings
  
       There is presently pending in the U.S. District Court for the Eastern
  District of New York a purported class action filed by some Olsten stockholders
  against Olsten and some of its directors and officers, captioned In re Olsten
  Corporation Securities Litigation, No. 97-5056 (the "Class Action"). The Class
  Action asserts claims for violations of the Securities Act and the Securities
  Exchange Act, including claims that the directors and officers of Olsten
  misrepresented information to stockholders relating to the government
  investigations into Olsten's health services business described Item 5 - Other
  Information. In December 1998, defendants filed a motion to dismiss the Amended
  Complaint in this Class Action. In response to a request from the parties, the
  Court, by Order dated April 27, 2000, dismissed without prejudice defendants'
  dismissal motion, subject to its being re-filed on the previously-submitted
  papers, and stayed the Class Action pending the outcome of the parties'
  mediation efforts.
  
       There is also pending in the Delaware Chancery Court a purported derivative
  lawsuit filed by some Olsten stockholders against some directors and officers of
  Olsten (and Olsten, as nominal defendant), captioned Rubin v. May, No. 17135-NC
  (the "Derivative Suit"). This purported derivative lawsuit alleges that the
  Olsten directors and officers breached their fiduciary duties to stockholders in
  connection with the above-described class action and the below-described
  government investigations. In September 1999, defendants filed a motion to
  dismiss or, in the alternative, stay this Derivative Lawsuit. Prior to the
  briefing of defendants' dismissal motion and prior to filing any responses to
  discovery requests, the parties jointly petitioned the Chancery Court to stay
  all proceedings in the Derivative Lawsuit pending the outcome of the parties'
  mediation efforts.
  
       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. Discovery continues in
  this matter.
  
       On January 14, 1999, Kimberly Home Health Care, Inc. ("Kimberly") 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 arbitration be consolidated and stayed, in
  part based upon its alleged claims against Kimberly for breach of
  
                                        -19-
  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. The parties
  agreed to suspend the proceedings until September 2000.
  
       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 (Nashville). Thereafter, the Company
  was served with an Amended Complaint on July 21, 2000. The Amended Complaint,
  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, alleges, among other things, that the
  defendants' business practices in connection with the home healthcare patient
  referrals during the 1994 and 1996 time period violated provisions of Federal
  antitrust laws, the Racketeer Influenced and Corrupt Organizations Act, the
  Tennessee Consumer Protection Act, and the common law of Tennessee, Texas,
  Georgia and Florida. The 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 and allegedly lost business or property
  due to defendants' business practices.
  
       Because the above lawsuits and arbitration proceedings are in relatively
  preliminary stages and seek unspecified damages, penalties and/or reimbursement
  for costs and expenses, the Company is unable at this time to assess the
  probable outcome or potential liability arising from such litigation.
  
       Furthermore, in connection with the split-off, the Company agreed to
  assume, to the extent permitted by law, and indemnify Olsten for, the above
  lawsuits and arbitration proceedings, together with any other liabilities
  arising out of the health services business before or after the split-off,
  including any such liabilities arising after the split-off in connection with
  the government investigations described below.
  
       Reference is made to the descriptions of legal proceedings in the Company's
  Annual Report on Form 10-K for the year ended January 2, 2000.
  
  Item 2.  Change in Securities and Use of Proceeds
  
       In March 2000, the Company sold 100 shares of its Series A Cumulative
  non-voting Redeemable Preferred Stock in exchange for services in the amount of
  $100,000. In March 2000, a subsidiary trust of the Company issued $20 million of
  10% convertible trust preferred securities to certain of the Company's and
  Olsten's directors, officers and management, other related parties and other
  investors. The trust used the $20 million of gross proceeds to purchase $20
  million of the Company's 10% Convertible Subordinated Debentures. The Com-
  
                                        -20-
  pany used the net proceeds of the transaction to pay Olsten the amount owed for
  the intercompany balance and for other corporate purposes. The above issuances
  were made in reliance on the exemption from registration provided in Section
  4(2) of the Securities Act.
  
       Reference is made to the notes to the Consolidated Financial Statement in
  this Form 10-Q for a further description of the above securities.
  
  Item 3.  Defaults Upon Senior Securities
  
       None
  
  Item 4.  Submission of Matters to a Vote of Security Holders
  
       None
  
  Item 5.  Other Information
  
       The Company's business has been subject to extensive federal and state
  governmental investigations regarding, among other things, some of the health
  care practices of Quantum Health Resources, Inc. ("Quantum"), including alleged
  improper billing and fraud against various federally funded medical assistance
  programs, which largely occurred during the period prior to Olsten's acquisition
  of Quantum in June 1996, which is referred to as the "Quantum Investigation."
  
       In October 1998, Olsten entered into a final settlement agreement with
  several government agencies related to the Quantum Investigation. Under the
  settlement, Olsten reimbursed the government approximately $4.5 million for
  disputed claims under the Medicaid and CHAMPUS programs and entered into a
  corporate integrity agreement.
  
       On January 28, 1999, Olsten announced that it had been advised by the
  United States Attorney's Office for the District of New Mexico ("New Mexico U.S.
  Attorney's Office") that it had dropped its criminal investigation into
  allegations of improper billing and fraud against various federally funded
  medical assistance programs by Quantum during the period between January 1992
  and April 1997. By letter dated February 1, 1999, the New Mexico U.S. Attorney's
  Office advised Olsten that, having ended its criminal inquiry, the Office has
  referred the Quantum matter to its Affirmative Civil Enforcement Section. The
  Company continues to cooperate with the remaining civil inquiry into the Quantum
  matter and to explore with the New Mexico U.S. Attorney's Office the possibility
  of reaching a negotiated monetary resolution of the matter. Any negotiated
  amount could include multiple damages, interest and civil penalties.
  
                                        -21-
  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 intends to
  provide the Office of Inspector General with the requested documents and
  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 more of these
  investigations may be triggered by lawsuits under federal or state whistle
  blower statutes against Olsten or the Company.
  
       The Company continues to have discussions with the North Carolina Attorney
  General's Office concerning questions that the Office has raised as to the
  eligibility of a certain class of the Company's patients to receive
  Medicaid-reimbursed home health services and, thus, the Company's entitlement to
  Medicaid reimbursement in connection with those services. At this time, the
  Company is unable to assess the probable outcome of or potential liability
  arising from this matter.
  
       As noted above, in connection with the October 1998 settlement of the
  Quantum Investigation, Olsten executed a corporate integrity agreement with the
  U.S. Department of Justice, the Office of Inspector General of the U.S.
  Department of Health and Human Services, the U.S. Secretary of Defense (for the
  CHAMPUS/Tricare Program) and the Attorneys General for the States of New York
  and Oklahoma that will be in effect until December 31, 2001. Also, 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. Under each of the corporate integrity agreements,
  the Company is, for example, required:
  
       o    to maintain a corporate compliance officer to develop and implement
            compliance programs;
  
       o    to retain an independent review organization to perform annual
            reviews; and
  
       o    to maintain a compliance program and reporting systems, as well as
            provide certain training to employees.
  
       The corporate integrity agreement entered into in connection with the
  Quantum Investigation applies to the Company's specialty pharmaceutical services
  business and focuses on
  
                                        -22-
  the training and billing of blood factor products for hemophiliacs. The July 19,
  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). That corporate integrity agreement focuses on issues and training
  related to cost report preparation, contracting, medical necessity and billing
  of claims.
  
       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. If the Company fails to
  comply with the terms of either of its corporate integrity agreements, the
  Company will be subject to penalties ranging from $1,500 to $2,500 for each day
  of the breach.
  
       In March 2000, Gentiva was notified by the U.S. Department of Justice that,
  in light of the Adecco/Olsten merger and the split-off of Gentiva as an
  independent public company, the Company has been substituted for Olsten in
  connection with the civil settlement and corporate integrity agreements
  referenced in this "Government Investigations" section.
  
       Reference is made to the full descriptions of government investigations in
  the Company's Annual Report on the Form 10-K for the year ended January 2, 2000.
  
  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  Indenture dated October 8, 1993, between Quantum Health
                      Resources Inc. and First Trust National Association, as
                      Trustee. (1)
  
                 4.3  Supplemental Indenture dated June 28, 1996, between Quantum
                      Health Resources Inc. and First Trust National Association,
                      as Trustee. (1)
  
                 4.4  Form of Certificate of Designation of Series A Junior
                      Participating Preferred Stock. (2)
  
                 4.5  Form of Certificate of Designation of Series A Cumulative
                      Non-Voting Redeemable Preferred Stock. (2)
  
                 4.6  Second Supplemental Indenture dated March 15, 2000, be-
  
                                        -23-
  tween Quantum Health Resources, Inc. and U.S. Bank Trust
                      National Association (formerly known as First Trust National
                      Association) as Trustee. (5)
  
                 4.7  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. (5)
  
                 4.8  Indenture between the Company and Wilmington Trust Company
                      dated March 15, 2000. (5)
  
                 10.1 Separation Agreement dated August 17, 1999, among Olsten
                      Corporation, Aaronco Corp. and Adecco SA. (1)
  
                 10.2 Omnibus Amendment No. 1 dated October 7, 1999, by and among
                      Olsten Corporation, Aaronco Corp., Adecco SA and Olsten
                      Health Services Holding Corp. (1)
  
                 10.3 Form of Rights Agreement dated March 2, 2000 between the
                      Registrant and Equiserve Limited Partnership, as rights
                      agent. (1)
  
                 10.4 Company's Executive Officers Bonus Plan. (1)
  
                 10.5 Company's 1999 Stock Incentive Plan. (5)
  
                 10.6 Company's stock & Deferred Compensation Plan for
                      Non-Employee Directors. (5)
  
                 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. (5)
  
                 10.10 Form of Employment Agreement with Edward A. Blechschmidt.
                       (2)
  
                 10.11 Form of Change of Control Agreement with Executive Officers
                       of Company. (5)
  
                 10.12 Form of Change in Control Agreement with Edward A.
                       Blechschmidt. (5)
  
                 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
  
                                        -24-
  named therein and the holders from time to time of the
                       convertible trust preferred securities.
  
                 10.15 Amendment No. 1 dated June 30, 2000 to Indenture between
                       the Company and Wilmington Trust Company.
  
                 21.1 List of Subsidiaries of Company. (2)
  
                 27   Financial Data Schedule
  
                 (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 the Post-Effective
                      Amendment No. 1 on Form S-8 to Form S-4 dated March 27, 2000
                      (File No. 333-88663).
  
                 (5)  Incorporated herein by reference to the Form 10-K for the
                      Registrant for the Fiscal Year ended January 2, 2000
  
       (b) Reports on Form 8-K
  
       No reports on Form 8-K have been filed during the last quarter for the
  period covered by this report.
  
  Exhibit Index
  
  Exhibit                           Description
  
      27                   Financial Data Schedule
  
                                        -25-
  SIGNATURES
  
       Pursuant to the requirements of the Securities Exchange Act of 1934, the
  registrant has duly caused this report to be signed on its behalf by the
  undersigned thereunto duly authorized.
  
  Date:  August 16, 2000               /s/ Edward A. Blechschmidt
                                      --------------------------
                                      Edward A. Blechschmidt
                                      President and Chief Executive
                                       Officer
  
  Date:  August 16, 2000               /s/ John J. Collura
                                       -------------------
                                       John J. Collura
                                       Executive Vice President,
                                       Chief Financial Officer and
                                        Treasurer
  
                                        -26-