SECURITIES AND EXCHANGE
                                   COMMISSION
                             WASHINGTON, D.C. 20549
                             -----------------------
                                    FORM 10-K
                  (Mark One)

|X|  Annual report under Section 13 or 15(d) of the  Securities  Exchange Act of
     1934 (FEE REQUIRED)

     For the fiscal year ended March 31, 1998

|_|  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934 (NO FEE REQUIRED)

     For transition period from ___________________ to ____________________

                           Commission file No. 0-17292

                                ACCUHEALTH, INC.
                     (Exact name of registrant as specified)

            New York                                     13-3176233
            --------                                     ----------
   (State or other jurisdiction             (I.R.S. Employer Identification No.)
of incorporation or organization)

1575 Bronx River Avenue, Bronx, New York                              10460
----------------------------------------                              -----
(Address of principal executive offices)                            (Zip Code)

       Registrant's telephone number, including area code: (718) 518-9511

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

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $.01 per share
                     --------------------------------------
                                (Title of class)

         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__

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

         As of June 23,  1998,  the  aggregate  market value of the Common Stock
held by non-affiliates of the registrant was approximately $5,922,309.

         As of June 23, 1998,  there were  3,644,498  shares of the Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the Annual Meeting of Stockholders to be held on October 22,
1998 in Part III of this Form 10-K.
<PAGE>

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         Accuhealth,  Inc.  (the  Company)  is  one of  the  largest  integrated
providers of comprehensive  home health care services based in the New York, New
Jersey and Connecticut area.  Together with its wholly owned  subsidiaries,  the
Company   provides   comprehensive   home   health  care   services,   including
administration of a wide array of infusion therapies,  sales of oral medications
and sales and rentals of durable medical  equipment ("DME") and related supplies
and home  nursing.  The  Company has  implemented  a Regional  Growth  Strategy,
expanding  from one location in one state in 1996, to five offices in two states
at June 30, 1998.

         The  Company  was  incorporated  in the State of New York on August 25,
1983. Effective August 20, 1990, the present name, Accuhealth, Inc., was adopted
pursuant to an amendment to the  Company's  Certificate  of  Incorporation.  The
Company's  principal offices are located at 1575 Bronx River Avenue,  Bronx, New
York  10460,  and its  telephone  number is (718)  518-9511.  Unless the context
otherwise requires,  references herein to the "Company" include Accuhealth, Inc.
and all of its wholly owned subsidiaries.

         On  July  1,  1997,  the  Company   consummated   its   acquisition  of
ProHealthCare  Infusion  Services,  Inc.  ("PHCIS") pursuant to an agreement and
plan of  merger,  dated as of March 14,  1997,  by and among  the  Company,  ACH
Acquiring  Corp.,  a New Jersey  corporation  and a  subsidiary  of the Company,
PHCIS,  ProHealthCare,  Inc.,  a Delaware  corporation  and the parent of PHCIS,
Thomas Laurita and David Brian Cohen (the "PHCIS Merger Agreement"). The Company
anticipates  that the initial merger  consideration of 300,000 shares of Company
Common Stock will be decreased by 59,386 shares of Company Common Stock pursuant
to  certain  merger  consideration  adjustment  provisions  of the PHCIS  Merger
Agreement.  PHCIS, based in Springfield,  New Jersey,  specializes in caring for
complex  HIV/AIDS  patients and those  suffering  from cancer.  PHCIS also has a
strong  disease  management  capability  in  treating  patients  suffering  from
congestive heart failure and cardiomyopathy.

         On December 1, 1997, the Company and Healix Healthcare, Inc. ("Healix")
entered into an  agreement  and plan of merger (the  "Merger  Agreement")  which
provided for the merger of Healix with and into the Company (the "Merger"), with
the Company being the surviving corporation. The Merger was consummated on April
9, 1998. In accordance  with the Healix Merger  Agreement,  the  shareholders of
Healix received  .740721 shares of the Company's  common stock for each share of
Healix  common  stock in a tax free  exchange,  with an  aggregate  of 1,488,850
shares of the  Company's  common  stock issued in exchange for all of the issued
and outstanding  common shares of Healix. The merger resulted in Healix becoming
a wholly owned  subsidiary  of  Accuhealth,  Inc. and will be accounted for as a
pooling of interests.

         Healix,  together with its wholly owned  subsidiaries,  provides a full
range of healthcare  services to the alternate site including  infusion therapy,
home  medical  equipment,  renal  dialysis,  skilled  nursing  and  home  health
services.  Healix is  accredited by the JCAHO of  Healthcare  Organizations  and
operates throughout New York and New Jersey.

         The Company has diversified its business mix from  approximately 61% of
home infusion therapy revenues in 1996 to 41% for the year ended March 31, 1998.
This shift reflects the addition and growth in institutional pharmacy management
services, and sales of home medical equipment and oral medications.  The Company
expects  that it will  continue to shift its  business  mix towards home medical
equipment  and  institutional  pharmacy  services  and  oral  medications.  Home
infusion  therapy  however,  will continue to represent an important part of the
Company's business mix.

                                       2
<PAGE>

         The Company  believes  its ability to offer a full range of  integrated
home nursing, respiratory therapy, home medical equipment, oral medications, and
infusion  therapy  throughout  its  market  creates  an  important   competitive
advantage in obtaining patient  referrals.  Managed care organizations and other
referral  sources   generally  favor  home  health  care  providers  that  offer
integrated  health care services,  because  "one-stop  shop"  providers like the
Company provide superior  coordination of care and reduce the administrative and
service quality  complications  of contracting  with multiple  providers.  As an
integrated  provider,  the  Company  rarely  engages  subcontractors,  which the
Company  believes permits it to exercise greater control over quality of service
and to improve patient care.

INDUSTRY OVERVIEW

         Home health care is among the  fastest  growing  segments of the health
care industry with estimated  annual  expenditures  of $36.1 billion in 1995, up
from an estimated $12.9 billion in 1990, representing a compounded annual growth
rate of approximately 23%. The underlying growth factors in the home health care
industry  include:  (i) the  cost-effective  nature of home health care; (ii) an
increasing  number of patients  due to growth in the elderly  population;  (iii)
technological advances that expand the range of home health care procedures; and
(iv) patient preference for treatment in the home.

         The home  health  care  industry  is highly  fragmented  with more than
18,500 providers delivering home health care services in the United States. Many
of these companies are local providers that offer a limited scope of services in
a defined  geographical  area and lack the capital  necessary  to  substantially
expand  their  operations.  Managed  care  organizations  and  cost  containment
initiatives  by payors have driven the growth of home health care by emphasizing
lower cost  alternatives  to hospitals  and skilled  nursing  facilities.  These
organizations and payors seek coordinated,  consistent  quality home health care
across broad geographic areas in order to serve their patients more effectively.

BUSINESS STRATEGY

         Accuhealth's  business  objective  is to enhance its position as one of
the leading  providers of  comprehensive  home health care services in New York,
Connecticut and New Jersey. Elements of the Company's strategy include:

         PROVIDE  ONE-STOP  SHOP  FOR  HOME  HEALTH  CARE  SERVICES.  Accuhealth
provides  payors,  physicians and patients with fully  integrated  one-stop shop
home health care services.  The  integration of  comprehensive  home health care
services  enhances the Company's appeal to managed care  organizations and other
referral sources that increasingly prefer single-source providers of home health
care.  The Company  believes  that full  integration  of services  enables it to
provide highly  coordinated  patient care and enable it to increase revenues and
profitability by providing multiple services to an individual patient referral.

                                       3
<PAGE>

         FOCUS ON MANAGED CARE  RELATIONSHIPS.  The Company has  intensified its
managed  care  marketing  efforts in order to take  advantage  of the  increased
market penetration of managed care organizations in the home health care market.
The Company is the sole or principal provider for a number of large managed care
plans,  and the Company  believes  that its broad product  offering,  quality of
service and regional focus contribute to the Company's competitive advantage.

         EXPAND THE  MANAGEMENT  SERVICES  THE  COMPANY  PROVIDES  ITS  REFERRAL
SOURCES.  The Company seeks to expand the services it currently  provides to the
sources  of its  patient  referrals  to include  the full range of patient  care
coordination  and the management of the network of providers used to service the
patient. As a cornerstone of this service strategy,  the Company is implementing
enhanced  financial and clinical  management  information  systems.  The Company
believes that these systems could improve profitability by efficiently servicing
increased volumes of managed care referrals, increase productivity gains, reduce
costs and provide outcomes data to payors.

SERVICES AND PRODUCTS

         HOME INFUSION THERAPY.  The Company offers  comprehensive home infusion
therapies.  Home  infusion  therapy  involves the  administration  of nutrients,
antibiotics and other medications intravenously (into the vein),  subcutaneously
(under the skin), intramuscularly (into the muscle), intrathecally or epidurally
(via spinal routes), or through feeding tubes into the digestive tract. Infusion
therapy  often begins during  hospitalization  of a patient and continues in the
home. New patients are instructed in the  administration of infusion therapy and
related  services by a registered  nurse who provides the  patient's  first home
treatment and continuing  supervision of care. The Company's  principal infusion
therapies follow:

         ANTIBIOTIC  THERAPY is the infusion of  antibiotic  medications  into a
patient's bloodstream to treat a variety of infections and diseases.

         ENTERAL  NUTRITION  is the infusion of  essential  nutrients  through a
feeding  tube,  and is necessary  for  patients who are unable to orally  ingest
adequate nutrients.

         TOTAL  PARENTERAL  NUTRITION is the infusion of a nutrient  solution to
restore and maintain electrolyte balance and nutritional function.

         PAIN  MANAGEMENT is provided to patients  experiencing  acute pain as a
result of traumatic injury, surgical procedures or other medical disorders.  The
Company  provides a  comprehensive  approach to pain  management that includes a
thorough knowledge of available agents, routes of administration and appropriate
dosage levels as directed.

         CHEMOTHERAPY  is provided in the home or in other  locations and allows
patients with cancer an alternative to frequent and expensive hospital stays.

         PENTAMIDINE is an agent used  specifically in the treatment of patients
with AIDS who have experienced one or more of pneumocystis carinii pneumonia.

                                       4
<PAGE>

HOME  NURSING.  The  Company  provides  a wide  range  of  nursing  services  to
individuals  with  acute  illness,   long-term  chronic  conditions,   permanent
disabilities,  terminal  illness  or  post-procedural  needs.  Primary  care  or
specialty  physicians and managed care case managers typically refer patients to
the Company. After reviewing the patient's medical records and treatment plan, a
nurse,  therapist or home health aide, where  appropriate,  provides care to the
patient  in the home.  The plan of care may  require a few  visits  over a short
period of time or many visits over  several  years.  The  Company  provides  the
following home nursing services.

         GENERAL NURSING care is the periodic  assessment of the appropriateness
         of home  health  care,  the  performance  of clinical  procedures,  and
         instruction of the patient and the family or other caregiver  regarding
         proper  treatments.  Registered  nurses or  licensed  practical  nurses
         provide  such care.  Patients  receiving  such care  typically  include
         stabilized postoperative patients, patients who are acutely ill but who
         do not require  hospitalization,  and patients who are  chronically  or
         terminally ill.

         SPECIALTY NURSING care is the provision of specialized nursing services
         such as geriatric,  pediatric or neonatal nursing.  Nurses provide such
         care  with  the  appropriate   experience  or   certification  in  such
         specialty.  Specialty nursing care also involves the instruction of the
         patient and the family or other caregiver in the self-administration of
         certain procedures, such as wound care and infection control, emergency
         procedures  and the proper  handling and usage of  medication,  medical
         supplies and equipment.

         THERAPY SERVICES consist of rehabilitation  therapies such as physical,
         occupational  and speech therapy to patients  recovering  from strokes,
         trauma  or  certain  surgeries,  services  for high  risk  pregnancies,
         postpartum  care, AIDS therapy,  various medical social  services,  and
         case  management  services  to  insurance  companies  and  self-insured
         employers.

         HOME HEALTH AIDE CARE is the  provision of personal  care  services and
         assistance with activities of daily living such as personal hygiene and
         meal  preparation.  The  Company's  home health aides must pass certain
         competency tests and are supervised by a registered nurse.

         PRIMARY  HOME HEALTH CARE is  provided  by the  Company  through  state
         administered  programs that pay for unskilled homemaker services to the
         elderly or the disabled, as ordered by a physician.  A registered nurse
         makes the  initial  assessment  and  assigns  a  homemaker  to  provide
         housekeeping, shopping and limited personal care.

RESPIRATORY  THERAPY/DURABLE  MEDICAL  EQUIPMENT.  The  Company  provides a wide
variety of home  respiratory,  monitoring  and  medical  equipment.  Respiratory
therapists provide care to the patient according to the physician-directed  plan
of care and educate  the  patient  and the family or other care giver  regarding
treatment requirements, use of equipment and self-care. The Company rents, sells
and  services  respiratory  equipment  for patient use in the home and  supplies
patients with aerosol

                                       5
<PAGE>

medications for use in respiratory therapy  treatments.  The Company's principal
respiratory services include:

         OXYGEN  SYSTEMS  THAT  ASSIST  PATIENTS  WITH  BREATHING.  The  Company
         provides three types of oxygen systems: (i) oxygen concentrators, which
         are  stationary  units that filter  ordinary  air in order to provide a
         continuous  flow of oxygen and are  generally  the most cost  effective
         supply  of  oxygen  for  patients  who  require  a  continuous  flow of
         supplemental  oxygen; (ii) liquid oxygen systems,  which are containers
         used for patients who require a  continuous  high flow of  supplemental
         oxygen;  and (iii) high  pressure  oxygen  cylinders,  which provide an
         ambulatory  patient  with the  ability  to obtain  supplemental  oxygen
         outside of the home.

         NEBULIZERS that deliver aerosol  medications  that are inhaled directly
         by the  patients.  Nebulizers  are used to treat  patients with asthma,
         chronic   obstructive   pulmonary   disease,    cystic   fibrosis   and
         neurologically related respiratory problems, and patients with AIDS.

         HOME  VENTILATORS  that  mechanically  sustain a patient's  respiratory
         function in cases of severe respiratory failure.

         CONTINUOUS  POSITIVE  AIRWAY  PRESSURE  therapy that forces air through
         respiratory  passageways  during sleep.  This  treatment is provided to
         adults  with sleep  apnea,  a  condition  in which a  patient's  normal
         breathing patterns are disturbed during sleep.  Monitoring services are
         usually provided with this therapy.

DURABLE  MEDICAL  EQUIPMENT.  The  Company  also  leases and sells  convalescent
equipment, in connection with the provision of its other services to patients in
the hone.  Such equipment  includes  hospital beds,  wheelchairs,  walkers,  and
patient  lifts as well as medical and surgical  supplies  such as  stethoscopes,
orthopedic supplies,  urinary catheters,  syringes,  and needles. The Company is
able to increase revenues by providing durable medical equipment and supplies to
its patients who are also  receiving  nursing,  respiratory  therapy or infusion
therapy.

         The  Company  has  contracts  with three  hospices  in New York City to
provide DME, on a non-exclusive  basis to patients upon their discharge from the
hospices.  The Company also has  contracts  to provide  DME, on a  non-exclusive
basis,  to patients of seven nursing  services whose trained  personnel  provide
outpatient care. In addition,  the Company's name appears on "approved provider"
lists given to patients upon their discharge from  approximately 30 hospitals in
the New York metropolitan area.

         OTHER  THERAPIES.  Other  therapies  provided by the Company  currently
represent a small  percentage of its business.  These  therapies are  dobutamine
therapy,  blood  components,  IV gamma globulin,  hydration  therapy,  tocolytic
therapy and aerosol pentamidine.

         The Company  also  provides  comprehensive  pharmacy  services to large
institutional   pharmacy  clients   including   sub-acute  and  long  term  care
facilities. These engagements typically

                                       6
<PAGE>

involve the Company's  managing and operating the pharmacy  under  contract with
the  institution and providing the drugs,  medication,  biologicals and supplies
the patients require.

SALES AND MARKETING

         The Company promotes its infusion therapy and durable medical equipment
products  and services via contacts  with  physicians  whose  patients use these
services,  hospital discharge  planners,  social workers and hospital nurses who
work with patients requiring these services. The Company also works closely with
nursing  services and agencies  that provide home care to patients.  The Company
also  markets  its  products  and  services  to  insurance   companies,   Health
Maintenance Organizations ("HMO's"),  Preferred Provider Organizations ("PPO's")
and case management  companies.  Marketing  efforts emphasize the quality of the
Company's services, cost containment and technological excellence offered by the
Company. In addition,  the Company  participates in clinics run by New York City
hospitals.

         Because the Company can  provide  oral  medications  to its home health
care  customers,  the Company  promotes itself as a "one-stop shop" for infusion
therapy,  durable  medical  equipment and  pharmaceuticals.  The Company  stocks
pharmaceuticals  not widely used by the general  population to meet the needs of
critically  ill patients,  including  drugs used to treat AIDS and  AIDS-related
diseases.

         The  Company  has made  special  efforts  to meet the needs of  persons
afflicted with AIDS. The Company has a contract with a nursing  service  program
to supply DME for persons suffering from AIDS and provides special  instructions
to  employees  who  visit  the homes of  persons  afflicted  with AIDS and other
communicable   diseases.  The  Company  also  markets  to  certain  freestanding
AIDS-specific  rehabilitation  centers  and  hospitals.  The  Company  currently
provides  products  and services to patients in two such  facilities  (Rivington
House and Phoenix House in Manhattan).

         The  Company  believes  that its  ability  to  provide a full  range of
services  to  clients  in  all of  its  market  is a  significant  advantage  in
developing  relationships  with managed  care  organizations.  In addition,  the
Company works with managed care organizations to meet their specialized  demands
for services, pricing, billing and other matters.

                                       7
<PAGE>

QUALITY ASSURANCE

         The Company believes that quality of service is critical to its ability
to obtain  referrals  and  increase  revenues and  profitability.  To assure the
delivery of  high-quality  patient  care,  and to assure the overall  quality of
service, the Company has a quality improvement program designed to integrate and
assess the quality improvement activities and processes across all services. The
cornerstone  of this  quality  improvement  program  is the  company's  internal
compliance  and quality  improvement  programs.  These  programs are designed to
routinely  measure  compliance  with  federal  and  state   regulations,   JCAHO
standards,  and the Company's standards of care and practice. The survey process
includes  review of clinical and billing  documentation,  interviews of clinical
personnel and  observations  of home visits  performed by Company  staff.  Other
quality assurance initiatives include measuring customer satisfaction, reporting
adverse medical  incidents  monitoring risk management,  and ensuring a safe and
appropriate working environment.

         The Company is  accredited  by JCAHO and believes that managed care and
other third-party payors generally prefer this accreditation.

HUMAN RESOURCE MANAGEMENT

         The Company continuously recruits,  screens, trains and offers benefits
and other programs in an effort to attract and retain its personnel.  Recruiting
is conducted primarily through advertising,  personnel agencies,  direct contact
with community groups and the use of bonuses.

         The Company  provides  orientation  and training to new  employees  and
continuing education for existing employees.  The Company routinely develops and
distributes quality improvement in-service materials,  manuals, and forms to its
nurses and has  implemented  an  internal  system of  employee  recognition  and
rewards. In addition, skilled nurses are initially assigned to a nurse preceptor
until the  Company  believes  that these new nurses have  acquired a  sufficient
degree of home health  care  knowledge  and  experience.  The  Company  also has
implemented an infusion therapy verification program for skilled nurses.

         The  retention  of  qualified  employees  is a high  priority  for  the
Company.  As of March  31,  1998,  the  Company  employed  over 96  individuals.
Management  believes that the Company's employee relations are good. None of the
Company's  employees  are  represented  by a labor  union  or  other  collective
bargaining organization.

REIMBURSEMENT FROM THIRD-PARTY PAYORS

         The Company accepts  assignment of Medicare  claims,  as well as claims
with respect to other third-party payors, on behalf of its patients whenever the
reimbursement   coverage  is  adequate  to  ensure   payment  of  the  patient's
obligations.  The Company  processes its customers'  claims,  accepts payment at
prevailing  and  allowable  rates and assumes the risks of delay for  improperly
billed  services  or  non-payment  for  services  which  are  determined  by the
third-party payor as being medically  unnecessary.  Although no assurance can be
given that a significant number of future requests for reimbursement will not be
denied, the Company's  policies,  procedures and prices are intended to minimize
this risk.

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<PAGE>

         The  Company  works  closely  with the  patients  it serves to properly
document  and file claims for timely and direct  reimbursement  from third party
payors and governmental  agencies.  Generally,  the Company contacts third-party
payors prior to the  commencement of services or delivery of product in order to
determine the patient's coverage and the percentage of costs that the payor will
reimburse. The Company's reimbursement  specialists carefully review such issues
as lifetime limits,  pre-existing condition clauses, the availability of special
state programs and other  reimbursement-related  issues.  The Company will often
negotiate with the third-party payor on the patient's behalf to help ensure that
coverage is available.  In addition, the Company typically obtains an assignment
of  benefits  from the patient  that  enables the Company to file claims for its
services with the third-party  payors. As a result,  third-party  payors pay the
Company directly for the reimbursable amounts of its charges. Once reimbursement
processing  for a patient has been  established by a third-party  payor,  claims
processing  and  reimbursement  tend to become  routine,  subject  to  continued
patient eligibility and other coverage limitations.

         Like  other  health  care   companies,   the  Company's   revenues  and
profitability  are adversely  affected by the continuing  efforts of third-party
payors to contain or reduce the costs of health care by  lowering  reimbursement
rates,  increasing case management  review of bills for services and negotiating
reduced  contract  pricing.  Home health care, which is generally less costly to
third party  payors  than  hospital-based  care,  has  benefited  from such cost
containment  objective.  However, as expenditures in the home health care market
continue to grow, initiatives aimed at reducing costs of health care delivery at
non-hospital sites are increasing.

COMPETITION

         The home infusion therapy market is highly  competitive and the Company
anticipates  that  competition  will  intensify.  There  are  many  small  local
providers,  some of whom do not offer the variety of  therapies  provided by the
Company.  There are also several large regional or national companies that offer
more therapies than the Company.  The primary competitive factors are quality of
care, including responsiveness of service and quality of professional personnel;
ability to  establish  and maintain  relationships  with  referring  physicians,
hospitals, health maintenance organizations, clinics and nursing services; price
and breadth of infusion therapies  offered;  general reputation with physicians,
other referral  sources and potential  patients and the ability to function as a
"one-stop shop."

                                       9

<PAGE>

         The DME business is also very  competitive.  The Company  competes with
national,  regional and local specialty  suppliers of medical  equipment,  chain
drugstores and local independent drugstores.  Competitive factors in DME markets
generally track those stated above.

         Many  of the  Company's  competitors  have  greater  name  recognition,
broader  geographic markets and substantially  greater marketing,  financial and
administrative  resources  than the  Company.  Some of the larger  existing  and
future competitors can be expected to expand the varieties of therapies offered.

JCAHO ACCREDITATION

         The Company is accredited by JCAHO. Accreditation by JCAHO has become a
prerequisite  for contracts  from many hospices and  hospitals,  certified  home
health agencies, insurance companies, HMO's and PPO's.

INSURANCE

         Physicians,  hospitals and other participants in the health care market
are routinely  subject to lawsuits  alleging  malpractice,  product liability or
related  legal  theories,  many of which  involve  large claims and  significant
defense  costs.  The  Company  has in force  general  liability  insurance  with
coverage  limits of  $1,000,000  per incident and  $2,000,000  in the  aggregate
annually, and professional liability insurance on each of its pharmacy employees
and  professionals  with  coverage  limits  of  $1,000,000  per claim and in the
aggregate  annually.  The Company has not  experienced  difficulty  in obtaining
insurance in the past,  and  management  believes that the  Company's  insurance
coverage is reasonable given its claims history.

         The  Company  believes  that  the  insurance  that  it  maintains,   in
relationship  to the size of its business,  is customary in the home health care
industry.  However,  there can be no assurance  that any such  insurance will be
adequate to cover the Company's liabilities.

CUSTOMERS

         During the years ended March 31, 1998, 1997 and 1996, services provided
to  Rivington  House  accounted  for  15%,  19% and  16%,  respectively,  of the
Company's net sales for that year.

SUPPLIERS

         The Company does not depend upon a limited  number of suppliers for the
conduct of its  continuing  business and generally has second sources for all of
the materials and products used in its business.  The Company  purchases  drugs,
solutions, medical equipment and other materials and leases certain equipment in
connection with the Company's business from many suppliers and distributors. The
Company  is not  currently  experiencing  and does not  anticipate  that it will
experience  in the future any material  difficulty  in purchasing or leasing the
required products, supplies and equipment used in its business.

                                       10

<PAGE>


         In the event that existing  suppliers or distributors  are unable to or
should  fail  to  deliver  products,  supplies  and  equipment  to the  Company,
management  believes that alternate sources are available to adequately meet its
needs at comparable prices.

REGULATION

         The  Company's   business  is  subject  to  extensive  and   increasing
regulation  by  federal,  state and local  government.  Federal  agencies  which
regulate aspects of the Company's  business include the Department of Health and
Human Services,  Healthcare Finance Administration,  the Office of the inspector
General,  the Food and Drug  Administration,  the Department of Labor,  the Drug
Enforcement  Agency, and the Occupational Safety and Health  Administration.  In
most states, home health care providers are regulated by the state department of
health and board of pharmacy.

         The Company is subject to federal laws  regulating the  repackaging and
dispensing of drugs and regulating interstate  motor-carrier  transportation and
state laws  regulating  pharmacies,  nursing  services and certain types of home
health  agency  activities.  Under state laws,  the  Company's  offices  must be
licensed   prior  to   commencing   business  and  must  renew  their   licenses
periodically.  In addition,  certain of the  Company's  employees are subject to
state laws and regulations  governing the  professional  practice of respiratory
therapy,  pharmacy and  nursing.  Failure to comply with  regulatory  laws could
expose the Company to criminal and civil penalties, and jeopardize the licensure
of one or more of its home health care agencies,  or their  participation in the
Medicare, Medicaid and other reimbursement programs.

         As a provider of services under the Medicare and Medicaid programs, the
Company is subject to the various  "anti-fraud  and abuse" laws,  including  the
federal  health care  programs  anti-kickback  statute.  This law  prohibits any
offer,  payment,  solicitation  or receipt of any form of remuneration to induce
the referral of business  reimbursable under a federal health care program or in
return for the purchase, lease, order, arranging for, or recommendation of items
or services  covered by any such  program.  Federal  health care programs or any
health care plans or programs  that are funded by the United  States (other than
certain  federal  employee health  insurance  benefits) and certain state health
care  programs  that  receive  federal  funds under  various  programs,  such as
Medicaid. A related law forbids the offer or transfer of any item or service for
less than fair market value, or certain waivers of co-payment obligations,  to a
beneficiary  of  Medicare  or a state  health  care  program  that is  likely to
influence the  beneficiary's  selection of health care providers.  Violations of
the anti-fraud and abuse laws can result in the imposition of substantial  civil
and criminal  penalties and,  potentially,  exclusion from  furnishing  services
under any federal  health care  programs.  In addition,  the states in which the
Company  operates  generally have laws that prohibit  certain direct or indirect
payments or fee-splitting  arrangements between health care providers where they
are designed to obtain the referral of patients to a particular provider.

         Congress  adopted  legislation in 1989,  known as the "Stark" Law, that
generally  prohibits a physician  ordering  clinical  laboratory  services for a
Medicare  beneficiary  where the entity  providing  that service has a financial
relationship   (including   direct  or  indirect   ownership   or   compensation

                                       11
<PAGE>

relationships)  with the physician (or a member of his  immediate  family),  and
prohibits  such entity  from  billing for or  receiving  reimbursement  for such
services,  unless a specified  exemption is  available.  Additional  legislation
became  effective  as of January 1, 1993  known as "Stark II" that  extends  the
Stark Law  prohibitions  to services under state Medicaid  programs,  and beyond
clinical laboratory services to all "designated health services", including home
health services, durable medical equipment and supplies, outpatient prescription
drugs, and parenteral and enteral nutrients,  equipment, and supplies. Violators
who are compensated by the Company are prohibited  from making  referrals to the
Company,  and the Company  will be  prohibited  from seeking  reimbursement  for
services rendered to such patients unless an exception  applies.  Several of the
states in which the Company conducts business have also enacted statutes similar
in scope and purpose to the federal fraud and abuse laws and the Stark Laws.

         Various  federal and state laws impose criminal and civil penalties for
making false claims for Medicare,  Medicaid or other health care reimbursements.
The  Company  believes  that it  bills  for its  services  under  such  programs
accurately.  However,  the rules governing coverage of, and reimbursements  for,
the Company's  services are complex.  There can be no assurance that these rules
will be interpreted in a manner consistent with the Company's billing practices.

         In May 1995, the federal government instituted Operation Restore Trust,
a health care fraud and abuse initiative  focusing on nursing homes, home health
care agencies and durable medical equipment companies located in the five states
with the largest Medicare  populations.  New York, the Company's corporate base,
was one of the original  targeted  states.  The purpose of this initiative is to
identify  fraudulent  and abusive  practices  such as billing for  services  not
provided, providing unnecessary services and making prohibited referral payments
to health care  professionals.  Operation Restore Trust has been responsible for
significant  fines,  penalties  and  settlements.  Operation  Restore  Trust was
recently  expanded to cover twelve additional states for the next two years. The
program was also expanded to include reviews of psychiatric  hospitals,  certain
independent  laboratories and partial hospitalization  benefits.  Further, there
are plans to  eventually  apply the  program's  investigation  techniques in all
fifty states and  throughout  the Medicare  and  Medicaid  programs.  One of the
results of the program has been increased auditing and inspection of the records
of health care providers and stricter  interpretations  of Medicare  regulations
governing reimbursement and other issues. Specifically,  the government plans to
double the number of  comprehensive  home health  agency audits it performs each
year (from 900-1800) and also to increase the number of claims reviewed by 25.0%
(from 200,000 to 250,000).  In general,  the application of these anti-fraud and
abuse laws is evolving.

         JCAHO  has  established  written  standards  for  home  care  services,
including  standards for services  provided by home infusion therapy  companies.
Many  payors  use this  criteria  in order to select  only the  highest  quality
providers.  The Company's facility presently complies with JCAHO's standards and
has been  accredited  since  February  1990. In addition,  the Company  received
approval in 1991 from the New York State Department of Health to provide nursing
services in New York State.

                                       12
<PAGE>

CONCENTRATIONS OF CREDIT RISK

         Concentrations of credit risk with respect to trade accounts receivable
include  amounts due from third party payors,  primarily  governmental  agencies
(Medicare  and  Medicaid).  At March  31,  1998,  gross  Medicare  and  Medicaid
receivables aggregated $3,450,785.

EMPLOYEES

         As at March 31, 1998, the Company employed 96 persons,  of whom 87 were
full-time  employees  and 9 were  part-time  employees.  The supply of qualified
staff  is  adequate  and  retainable  in the New York  City  area.  The  Company
considers its relations  with its employees to be  satisfactory.  As a result of
the Company's recent mergers, the number of employees has grown to approximately
150 full time employees as of June 25, 1998.

DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS

         The Private  Securities  Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information in Items 1, 2, 3, 6,
7, and 8 of this Form 10-K include information that is forward looking,  such as
the  Company's  opportunities  to increase  sales  through,  among other things,
increasing its number of patients,  its anticipated  liquidity and the Company's
ability  to  achieve  significant  cost  savings  or  synergies  from its recent
acquisition  or  other  restructuring   efforts.  The  matters  referred  to  in
forward-looking  statements  could be  affected  by the risks and  uncertainties
involved in the Company's business.  These risks and uncertainties  include, but
are not limited to, the effect of economic and market conditions,  the impact of
the cost containment  efforts of third-party payors and the Company's ability to
obtain and maintain required licenses,  as well as certain other risks described
above in this Item under "Competition" and "Government  Regulation," and in Item
7 in "Management's Discussion and Analysis of Financial Condition and Results of
Operations." Subsequent written and oral forward looking statements attributable
to the Company or persons acting on its behalf are expressly  qualified in their
entirety by the  cautionary  statements in this  paragraph and elsewhere in this
Form 10-K.

ITEM 2.  PROPERTIES

         The Company's  offices,  pharmacies  and  warehousing  are located in a
31,000 square-foot building (the "Facility") in the Bronx. The Company is lessee
under a ten-year  capital lease dated as of April 1, 1989 with the New York City
Industrial  Development Agency (the "IDA"), the lessor (the "Lease  Agreement").
The IDA acquired the property in April 1989 by issuing an Industrial Development
Bond (the "Bond").

         At the  end of the  term of the  capital  lease,  April  1,  1999,  the
Company,  upon payment in full of the outstanding  principal and interest on the
Bond,  may  purchase  the  Facility for one dollar plus any fees and expenses in
connection  with the  redemption of the Bond. The Company also has the option to
purchase the Facility at any time during the term of the lease for the amount

                                       13
<PAGE>

necessary to redeem the outstanding Bond in accordance with the Indenture,  plus
all expenses of redemption and one dollar.

         The Company  believes the Facility is in good condition and is adequate
to meet its needs in Fiscal 1999.

         As  a  result  of  the  Company's  recent  acquisitions  (see  Item  1.
Description of Business),  the Company also leases the space previously occupied
by Healix  Healthcare,  Inc. in Valhalla,  New York, Long Island City, New York,
and West  Milford,  New  Jersey;  and  ProHealthCare  Infusion  Services,  Inc.,
Springfield,  New Jersey.  Each of these  facilities is separately  leased under
terms ranging from 1-5 years with payments  averaging  from $1200 to $13,000 per
month over the life of each  lease.  Alternative  uses for the space  previously
occupied by Healix in Valhalla are currently under consideration.

ITEM 3.  LEGAL PROCEEDINGS

         None.

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

         None
                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET

         The  Company's  common  stock,  par value $.01 per share  (the  "Common
Stock") trades on the over-the-counter Bulletin Board under the symbol AHLT.U.

         The following table sets forth, for the periods indicated, the high and
low  closing bid prices for the Common  Stock as  reported  by the NASDAQ  Stock
Market Trading and Market  Services  Department.  Such  over-the-counter  market
quotations  reflect  inter-dealer  prices,  without retail mark-up,  markdown or
commission and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>

                                             Fiscal 1998               Fiscal 1997
                                             -----------               -----------
                                           High        Low           High          Low
                                           ----        ---           ----          ---

<S>                                        <C>         <C>           <C>           <C>
         Quarter ended June 30             3-3/8       1-5/8         2             1
         Quarter ended September 30        3-1/4       1-1/2         2             1-1/8
         Quarter ended December 31         2-3/8         3/4         1-3/8         1-1/2
         Quarter ended March 31            2-11/16     1-1/4         3-1/16        1-11/16
</TABLE>

                                       14
<PAGE>

         The Company's 6% Redeemable  Cumulative  Convertible Preferred Stock is
subject to significant  restrictions  on sale and does not have a public trading
market.

NUMBER OF SHAREHOLDERS

         Management has been advised by the Company's  transfer agent that there
were 65 holders of record of the Common  Stock as of June 23,  1998.  Since most
holders of the  Company's  stock have placed their  shares in street name,  this
figure is much  lower  than the actual  number of  beneficial  holders of common
stock, which is estimated to be approximately 300 stockholders.

DIVIDENDS

         To date,  the  Company  has not paid any cash  dividends  on the Common
Stock. The payment of dividends,  if any, in the future is within the discretion
of the Board of  Directors  and will depend  upon the  Company's  earnings,  its
capital  requirements and financial  condition and other relevant  factors.  The
Board does not  intend to  declare  any  dividends  on the  Common  Stock in the
foreseeable future, but instead intends to retain all earnings,  if any, for use
in the Company's business operations.

         The Company is obligated  to pay annual  dividends of $.12 per share on
its  1,350,000  outstanding  shares  of  6%  Redeemable  Cumulative  Convertible
Preferred  Stock.  Such  dividends  accrue  daily,  are payable  each June 1 and
December 1 and, at the election of the Company,  may be paid in shares of Common
Stock  valued in  accordance  with the  terms of such  stock.  Dividends  on the
Company's 6% Redeemable  Cumulative  Convertible  Preferred Stock are payable in
preference and priority to any payment of any dividends on the Common Stock.

         The  Company  satisfied  its  liability  payable at June 1, 1997 and at
December 1, 1997 by the  issuance of 45,556 and 35,354  shares of the  Company's
Common Stock issued July 18, 1997 and January 15, 1998, respectively.

         The  Company  satisfied  its  liability  payable at June 1, 1996 and at
December 1, 1996 by the issuance of 52,856 and 104,509  shares of the  Company's
Common Stock issued July 8, 1996 and April 11, 1997, respectively.

ITEM 6.  SELECTED FINANCIAL DATA

         The  following  selected  financial  data  have been  derived  from the
consolidated  financial statements of Accuhealth,  Inc. and its subsidiaries for
the years ended March 31, 1998,  1997,  1996 and 1995.  The year ended March 31,
1998 was audited and reported upon by Marcum & Kliegman  LLP,  while years ended
March 31, 1997,  1996 and 1995 were  audited and reported  upon by Ernst & Young
LLP, and should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial  Condition and Results of Operations" and the consolidated
financial statements and the notes thereto included elsewhere in this Form 10-K.
The Company has not declared or paid any cash dividends on the Common Stock.

                                       15
<PAGE>
<TABLE>
<CAPTION>
Statement of Operations Data:
-----------------------------
                                                                              Fiscal Year
                                                                              -----------
                                                          1998            1997           1996             1995              1994
                                                          ----            ----           ----             ----              ----
<S>                                                  <C>             <C>             <C>             <C>               <C>
Net sales                                             $ 18,603,823    $ 16,369,376    $ 15,112,071    $ 15,468,402    $ 15,380,043
Gross profit                                             8,045,292       6,770,120       6,931,649       7,211,622       6,920,977
 Selling, general and administrative expenses            7,359,663       6,146,783       7,104,529       6,913,959       7,599,214

Interest expense                                           596,905         496,606         605,452         635,848         270,833

Recovery related to pre-investigation
  management off book cash practices                            --              --              --         525,820        (454,065)
Debt surrendered in settlement of claims                        --              --              --         488,500              -- 
Write off of merger related costs                         (294,832)
Income (loss) from continuing operations before
 income taxes                                             (206,108)        126,731        (778,332)        676,135      (1,403,135)
Income (loss) from continuing operations                  (206,108)        126,731        (778,332)        676,135      (1,358,651)
Discontinued operations                                         --              --              --        (278,733)     (1,184,055)
Income (loss) before extraordinary item                   (206,108)        126,731        (778,332)        397,402      (2,545,706)
Extraordinary gain on debt surrendered
  in settlement of claims                                       --              --              --          60,000              -- 
Net income (loss)                                         (206,108)        126,731        (778,332)        457,402      (2,545,706)
Net income (loss) applicable to common stockholders   $   (368,108)   $    (35,269)   $   (982,168)   $    350,555    $ (2,545,706)


                                                           1998            1997           1996             1995            1994
                                                           ----            ----           ----             ----            ----
Weighted average common stock outstanding
       Basic                                             1,754,342       1,401,112       1,281,460       1,410,153       1,410,153
       Diluted                                           1,754,342       1,401,112       1,281,460       1,506,566       1,506,566

Earning (loss) per share data
       Basic                                                $(0.21)         $(0.03)         $(0.77)          $0.25          $(1.81)
       Diluted                                              $(0.21)         $(0.03)         $(0.77)          $0.23          $(1.69)

Balance Sheet Data
------------------

Total assets                                          $ 12,193,591    $  8,500,165    $  7,650,957    $  7,294,898    $  7,823,526
Long-term liabilities                                      974,386         974,543         488,352         694,628       1,586,394
Total liabilities                                       10,539,091       7,078,786       6,356,309       5,277,090       8,242,117
Convertible Preferred Stock                                     --              --              --       2,710,164              --
Stockholders' equity (deficiency)                        1,654,500       1,421,379       1,294,648        (692,356)       (418,591)
</TABLE>

                                                            16

<PAGE>

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

         This Management's Discussion and Analysis should be read in conjunction
with the  consolidated  financial  statements  of the Company and related  notes
included elsewhere in this Form 10-K.

RESULTS OF OPERATIONS

Fiscal Year Ended March 31, 1998 as Compared to Fiscal Year ended March 31, 1997
--------------------------------------------------------------------------------

         Net  sales  for  Fiscal  1998  increased  approximately  $2,234,800  to
$18,603,800  from the $16,369,000  reported in Fiscal 1997. The increase was the
result of an  increase  of  approximately  $1,221,200,  $767,700,  $124,100  and
$121,400 in the  Company's  oral  medication  revenues,  institutional  pharmacy
business, infusion services and durable medical equipment revenues respectively.
The Company completed its acquisitions of PHCIS on July 1, 1997. Included in the
increase in sales for the year were sales  contributed  by PHCIS of $862,000 for
the nine month period July 1, 1997 through March 31, 1998.

         Gross profits for Fiscal 1998 were  approximately $8.0 million and were
43.2 % of total net sales as compared to approximately $6.8 million or 41.4% for
Fiscal 1997. The increase in the gross profit  percentage was due primarily to a
higher gross  profit  margin on  ProHealthCare's  portion of the increase in the
sales and an increase in managed care sales which carry margins that are greater
than the Company's institutional pharmacy sales.

         Selling,  general and administrative  expenses increased  approximately
$1.2  million to $7.3  million  or 39.2% of sales for 1998 from $6.1  million or
37.6% for sales for fiscal 1997.  The increase was primarily due to increases in
salaries  ($478,000),   consulting  ($110,000),  legal  settlements  ($108,000),
building   repair  and   maintenance   ($29,000),   rent   ($54,000)  and  other
administrative  expenses  including  depreciation and  amortization  ($197,000).
Included in these amounts is  approximately  $720,000,  which was contributed by
ProHealthCare, Infusion Services, Inc. for the period July 1, 1997 through March
31, 1998. The Company  incurred  expenses of $294,832 related to the merger with
Healix Healthcare, Inc. and subsidiaries.

         Interest expense in Fiscal 1998 was $596,905 as compared to $496,606 in
fiscal 1997.

Fiscal Year Ended March 31, 1997 as Compared to Fiscal Year Ended March 31, 1996
--------------------------------------------------------------------------------

         Net  sales  for  Fiscal  1997  increased  approximately  $1,257,000  to
$16,369,000  from the $15,112,000  reported in Fiscal 1996. The increase was the
result of an increase of  approximately  $2,143,000 and $81,000 in the Company's
institutional  pharmacy  business and oral  medication  revenues,  respectively,
offset  partially by decreases in the  Company's  infusion  services and durable
medical equipment revenues of $853,000 and $114,000, respectively.

                                       17
<PAGE>

         The revenues from infusion services were lower than the previous fiscal
year services  partially as a result of the Company's  marketing shift away from
treating a small number of high revenue  patients,  primarily  HIV/AIDS Medicaid
patients, to increased numbers of lower revenue patients referred to the Company
via insurance  companies and HMO's.  The strategy  derived from two trends:  the
HIV/AIDS   population   stabilizing  and  the  downward   pressure  on  Medicaid
reimbursements for infusion therapy services.

         Gross profits for Fiscal 1997 were  approximately $6.8 million and were
41.4 % of total net sales as compared to approximately $6.9 million or 45.9% for
Fiscal 1996.  The  decrease in gross  profits  reflects an overall  shift in the
Company's mix of business,  including expanded  institutional  pharmacy business
which carries lower margins.

         Selling,  general and  administrative  expenses were approximately $6.1
million or 37.6% of net sales for Fiscal  1997 as  compared  to $7.1  million or
47.0% for Fiscal 1996. The decrease was  principally the result of reductions in
professional fees ($283,000),  marketing costs ($190,000),  certain clinical and
administrative salaries ($159,000), and other administrative costs ($368,000).

         Interest expense in Fiscal 1997 was $496,606 as compared to $605,452 in
fiscal 1996.

LIQUIDITY AND FINANCIAL CONDITION

         As of March 31,  1998,  the  Company had a working  capital  deficit of
approximately $1,283,000.

         The Company's  cash provided by financing  activities of  approximately
$1,459,000  was  primarily  attributable  to the net  proceeds of  approximately
$1,606,000 under the Company's revolving credit facility and term loan offset by
principal payments on capital leases.

         Accounts  receivable  include  amounts  due from  third  party  payors,
primarily  governmental  agencies  (Medicare and  Medicaid).  At March 31, 1998,
gross Medicare and Medicaid receivables aggregated $3,450,785.

         On  April  28,  1994,  the  Company  obtained  a $2.5  million  maximum
commitment  working capital facility from Rosenthal and Rosenthal  ("Rosenthal")
and used funds borrowed under that facility to reduce its  indebtedness.  Assets
of the Company  including its receivables,  inventories,  equipment and fixtures
secure the loan. The Company's  ability to use this credit facility is dependent
upon the level of its eligible  receivables  as defined in the Loan and Security
Agreement between the Company and Rosenthal (the "Loan and Security Agreement").
Pursuant  to the terms of a Loan and  Security  Agreement  with  Rosenthal,  the
Company  granted  Rosenthal  warrants to purchase 70,000 shares of the Company's
common stock.

         Effective  February 1, 1996,  the Company agreed to an amendment of the
Loan and Security Agreement.  The amendment extended the agreement through April
28, 1997 and allowed the Company to borrow, under certain conditions and terms,

                                       18
<PAGE>

up to  $3,500,000  at an interest  rate of prime plus 3 7/8%.  In addition,  the
Company  granted  Rosenthal  warrants to purchase 30,000 shares of the Company's
common stock.

         Effective  February 1, 1997,  the Company agreed to an amendment of the
Loan and Security Agreement.  This amendment extends the agreement through April
1, 1998 and  allows  the  Company to borrow,  under  certain  conditions,  up to
$4,000,000  in the form of a term loan of $500,000 at an interest  rate of prime
plus 5%, and a working  capital  facility of  $3,500,000  at an interest rate of
prime plus 2 7/8%. In addition,  the expiration date of the 100,000 warrants was
amended to be the later of April 1, 2001 or thirty-six months following the last
day of any term to which the loan  commitment has been extended and the exercise
price for all warrants was restated to $2.00 per share.

ISSUANCE OF 12% CONVERTIBLE  SUBORDINATED  NOTES.

         At its meeting of the Board of Directors on June 25, 1998,  the Company
approved the issuance of 12% Cumulative  Convertible  Subordinated  Notes in the
face  amount  of  $6,250,000.  As a further  component  of this  financing,  the
Company's current 6% Cumulative Convertible Preferred Stock will be converted to
common stock in Accuhealth at a 15% discount to the original conversion price of
$2.00.  Accordingly,  an  additional  202,500  shares  will be  issued  upon the
conversion of the 1,350,000 preferred shares currently outstanding.

         Effective April 3, 1998, the Company agreed to an amendment of the Loan
and Security  Agreement.  The amendment  extended the agreement through April 1,
2000 and allows the Company to borrow, under certain conditions and terms, up to
$9 million under a revolving  loan agreement at an interest rate of prime plus 1
1/2%, as well as an overdraft line of $1,000,000 at prime plus 3%. The amendment
also increased the term loan available to the Company to $750,000.  In addition,
the  Company  granted  Rosenthal  warrants  to  purchase  50,000  shares  of the
Company's common stock.

         The  Company  operates  under  cash  flow  pressure  primarily  due  to
insufficient working capital.  Management is formulating certain planned actions
to strengthen the Company's  working  capital  position and generate  sufficient
cash to meet its operating  needs  through March 31, 1998 and beyond.  The plans
include, among other actions,  increasing the Company's borrowing capacity under
its revolving credit facility (Note 4), issuing  additional  equity or long term
debt,  obtaining better terms and financing from vendors and reducing  corporate
expenses.  No  assurances  can be made that  management  will be  successful  in
achieving its plans.

                                       19
<PAGE>

         Like any other  company,  advances and changes in available  technology
can  significantly  affect the  business  and  operations  of the  Company.  For
example, a challenging  problem exists as many computer systems worldwide do not
have the capability of recognizing  the year 2000 or years  thereafter.  No easy
technological  "quick fix" has yet been developed for this problem.  The Company
is  expending  approximately  $500,000 to assure that its  computer  systems are
reprogrammed in time to effectively deal with  transactions in the year 2000 and
beyond.  This "Year 2000  Computer  Problem"  creates  risk for the Company from
unforeseen problems in its own computer systems and from third parties with whom
the Company deals on financial  transactions  which are  primarily  governmental
agencies  (Medicare and  Medicaid).  Such  failures of the Company  and/or third
parties'  computer systems could have a material impact on the Company's ability
to conduct its business.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Financial  statements and financial statement schedules are included in
the Consolidated Financial Statements, as a separate section of this Report, set
forth  on pages  F-1  through  F-25,  attached  hereto,  and  found  immediately
following the signature pages of this Report.

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

         At a  meeting  held on March 5,  1998,  the Board of  Directors  of the
Company  approved the  engagement  of Marcum & Kliegman  LLP as its  independent
auditors  for the fiscal year ending March 31, 1998 to replace the firm of Ernst
& Young LLP ("E&Y"),  who were  dismissed  as auditors of the Company  effective
April 15,  1998.  The audit  committee  of the Board of  Directors  approved the
change in auditors on March 25, 1998.

         The reports of E&Y on the Company's  financial  statements for the past
two fiscal years did not contain an adverse  opinion or a disclaimer  of opinion
and were not qualified or modified as to uncertainty, audit scope, or accounting
principles,  except  that E&Y's audit  report for fiscal year 1996 was  modified
with regard to the Company's ability to continue as a going concern.

         In connection with the audits of the Company's financial statements for
each of the two fiscal years ended March 31, 1997,  there were no  disagreements
with  E&Y on any  matters  of  accounting  principles  or  practices,  financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of E&Y would have caused E&Y to make reference to the matter in
their report.

                                       20
<PAGE>

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Listed below are the executive officers and directors of the Company at
June 23, 1998:
<TABLE>
<CAPTION>

                                                                                                 Annual meeting
                                 Officer or                                                         at which
Name                           Director Since          Age        Position                      Term will Expire
----                           --------------          ---        --------                      ----------------

<S>                                 <C>                <C>                                            <C> 
E. Virgil Conway                    1994               68         Director                            1999

Glenn C. Davis                      1994               49         President, Chief                    2000
                                                                  Executive Officer and
                                                                  Director

Stanley Goldstein                   1994               62         Chairman and Director               1998

Donald B. Louria, MD                1994               69         Director                            2000

Sally Hernandez-Pinero              1994               45         Director                            2000

Corbett A. Price                    1994               48         Director                            1999

Jeffrey S. Freed, M.D.              1998               53         Executive Vice President             ---
                                                                  - Strategy

Mary Comerford                      1998               43         Senior Vice President -
                                                                  Chief Operating Officer              ---

Prisco DeMercurio                   1997               47         Senior Vice President -
                                                                  Finance, Chief Financial             ---
                                                                  Officer
</TABLE>

         Set forth below are brief  summaries of the business  experience of the
persons who were directors as of June 23, 1998:

         E. VIRGIL CONWAY chairs the Company's Audit and Stock Option Committees
and was  elected a director  on April 29,  1994.  Mr.  Conway is a member of the
Executive and  Compensation and Nominations  Committees.  Since May 16, 1995, he
has  served  as  Chairman  of  the  Board  of  the  Metropolitan  Transportation
Administration  of the City of New York  and,  from  1989 to 1996,  he served as
Chairman of the Audit  Committee  of the City of New York.  From 1992 until July
1995,  Mr.  Conway  served as Chairman  of the  Financial  Accounting  Standards
Advisory  Council.  From 1968 through  1988,  Mr.  Conway served as Chairman and
Chief Executive Officer and as a director of the Seamen's Bank for Savings, FSB.
From 1986 until  1989,  Mr.  Conway  also  served as Vice  Chairman  of Seamen's
Corporation. From 1967 to 1968, Mr. Conway served as an Executive Vice President
and Trustee at the Manhattan  Savings Bank. From 1964 to 1967, Mr. Conway served
as First Deputy  Superintendent  of Banks of the State of New York and Secretary

                                       21
<PAGE>

of the New York  State  Banking  Board.  Mr.  Conway  specializes  in  financial
consulting.  Mr.  Conway serves on several  corporate  boards,  including  Union
Pacific Corporation, Con Edison, Urstadt-Biddle, a real estate investment trust,
Trism,  Inc., a specialized  trucking  firm, and mutual funds managed by Phoenix
Home Life.

         GLENN C. DAVIS  became  President  of  Accuhealth  Home Care,  Inc.  in
December 1993, and became a director,  Chief Executive  Officer and President of
the  Company  on  February  3,  1994.  Mr.  Davis is a member  of the  Executive
Committee.  Mr. Davis served as the Treasurer of the Company from April 29, 1994
until  August 5,  1994.  From June 1993  until June 30,  1995,  Mr.  Davis was a
general  partner of  Capstone  Management  Company,  an  investment  partnership
engaged principally in the initiation,  acquisition and management of businesses
in the health care industry.  Mr. Davis is a certified public  accountant.  From
1980 until  January  1993,  Mr. Davis was a partner  with Coopers & Lybrand,  an
international accounting and consulting firm.

         STANLEY  GOLDSTEIN  was  elected  Chairman  of the  Company's  Board of
Directors on April 29, 1994. Mr. Goldstein has been a private investor from 1981
until the present.  Mr. Goldstein is Chairman of the Executive  Committee.  From
June 1993 until June 30, 1995, Mr.  Goldstein was a general  partner of Capstone
Management Company, an investment partnership engaged principally in initiation,
acquisition  and  management  of  businesses  in the health care  industry.  Mr.
Goldstein is a certified public accountant.  From 1964 until 1981, Mr. Goldstein
was the founder  and  Managing  Partner of  Goldstein  Golub  Kessler & Company,
Certified Public Accountants. Mr. Goldstein serves on the boards of directors of
Security  Mutual Life  Insurance  Company  and  Security  Equity Life  Insurance
Company.

         DONALD B. LOURIA,  M.D.,  M.A.C.P.  was elected a director on April 29,
1994. He is a member of the Professional Conduct Committee.  Dr. Louria has been
a Professor and Chairman of the Department of Preventive  Medicine and Community
Health of the  University  of Medicine and  Dentistry of New  Jersey-New  Jersey
Medical  School from July 1969 until the present.  Over the same  period,  among
other appointments, Dr. Louria has served as a consultant in Infectious Diseases
to Memorial  Hospital for Cancer and Allied  Diseases  and,  from 1971 until the
present,  has served on the Consultant  Medical Staff in Infectious  Diseases at
St. Michael's Medical Center in Newark, New Jersey.

         SALLY B. HERNANDEZ-PINERO was elected a director on September 20, 1994.
She chairs the  Compensation  and  Nominations  Committee and also serves on the
Professional Conduct Committee. Ms. Hernandez-Pinero is a member of the law firm
of Kalkines  Arky Zall &  Bernstein,  where she is  primarily  engaged in public
finance,  housing  and  economic  development  projects,  low  income tax credit
syndications and intergovernmental  relations.  Ms.  Hernandez-Pinero  served as
Chairwoman of the New York City Housing  Authority from February 1992 to January
1994.  In  that  position  she had  direct  operational  responsibility  for the
nation's  largest  public  housing  program with 325  developments  housing over
600,000  people,  a staff of 16,000 and a budget of $1.45 billion.  From January
1990 to February  1992,  Ms.  Hernandez-Pinero  was Deputy Mayor for Finance and
Economic  Development,  in  which  position  she  designed  and  supervised  the
development   and   implementation   of  business,   industrial  and  commercial

                                       22
<PAGE>

development policies for the City of New York. From January 1988 to January 1990
she served as Commissioner/Chairwoman of the Board of Directors of the Financial
Services  Corporation of New York City where she developed and  implemented  the
course of action and priorities for that agency's economic development programs.
Prior to January 1988, Ms.  Hernandez-Pinero  served as Deputy Borough President
of Manhattan,  General Counsel to the State of New York Mortgage Agency,  and as
an  attorney  with  a  number  of  community   development   and  legal  service
organizations.  Ms. Hernandez-Pinero is a director of Con Edison Corporation and
the Dime Savings Bank and National Income Realty Trust.

         CORBETT A. PRICE was  elected a director on  September  20,  1994.  Mr.
Price is a member of the Professional  Conduct and Audit  Committees.  He is the
Chairman  and Chief  Executive  Officer of KURRON,  a New York based health care
management  company which Mr. Price founded in January 1990. KURRON  specializes
in the rehabilitation of distressed hospitals and health care systems. Mr. Price
began his career in health care  management in 1975 at the Hospital  Corporation
of America,  where he served as a Vice  President  from 1983 to 1989. As head of
Hospital  Corporation  of  America's  Mid-Atlantic  Division,  he  directed  the
operations of approximately  twenty hospitals in four states and the District of
Columbia. Mr. Price has advised the governments of Mexico,  Barbados and Jamaica
on health care delivery systems and facilities.

         The  Company  has  Audit,  Compensation  and  Nominations,   Executive,
Professional  Conduct  and  Stock  Options  Committees.   The  Compensation  and
Nominations Committee administers the Company's stock option plans.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Based solely on a review of Forms 3, 4 and 5 (and  amendments  thereto)
furnished to the Company,  and certain written  representations  received by it,
the Company is not aware of any person who,  during the prior fiscal year, was a
director, officer or beneficial owner of more than 10% of its outstanding Common
Stock,  during  (or with  respect  to) the  prior or  (except  as may have  been
previously  reported)  previous  fiscal  year,  who  failed  to  file  with  the
Securities and Exchange Commission on a timely basis reports required by Section
16 (a) of the  Securities  Exchange Act of 1934,  except that one Form 4 for Mr.
Corbett A. Price was  inadvertently  filed after the due date  thereof,  and two
Form 5s for Donald B. Louria,  M.D. were inadvertently filed after the due dates
thereof.

ITEM 11. EXECUTIVE COMPENSATION

         From April 1, 1994 through May 31, 1994, the Company paid directors who
were not officers of the Company $2,000 per meeting attended.  In June 1994, the
Board of Directors established a policy of paying directors who are not officers
or consultants a fee of $6,000 per annum plus $1,000 per annum ($2,000 per annum
for the Chair) for each committee on which they serve. Messrs. Conway and Price,
Dr. Louria and Ms.  Hernandez-Pinero  are eligible for the foregoing  fees.  The
Company  does not intend to pay any fee to officers  for  serving as  directors.
Effective  June 28, 1994, the Company  entered into a Consulting  Agreement with

                                       23
<PAGE>

Mr.  Goldstein for certain  services to be rendered.  Such consulting  agreement
calls for a monthly consulting fee and expense reimbursement of $5,000.

         The following table sets forth all compensation earned, awarded or paid
by the  Company to its Chief  Executive  Officer for the fiscal year ended March
31, 1998. No other person who was a director,  executive  officer or employee at
any time during the fiscal year ended March 31, 1998,  received salary and bonus
in excess of $100,000 during or attributable to such fiscal year.

<TABLE>
<CAPTION>

                                 Summary Compensation Table
                                 --------------------------

                                                      Annual                    Long Term
                                                   Compensation                Compensation
                                                   ------------                ------------

     Name and                                                                   All other
Principal Position                     Year          Salary         Bonus      Compensation
------------------                     ----          ------         -----      ------------

<S>                                     <C>          <C>            <C>            <C>
Glenn C. Davis                        FY1998         $250,000       $ 25,000       ---
  President and Chief Executive       FY1997         $200,000        ---           ---
  Officer                             FY1996         $219,229        ---         $1,854
</TABLE>

  EMPLOYMENT AGREEMENT

           The Company  renewed its employment  agreement with its President and
  Chief Executive  Officer through May 2, 1998. Under the employment  agreement,
  the Company's  President and Chief Executive  Officer is entitled to an annual
  salary at a rate of $250,000  and 25,000  restricted  shares of the  Company's
  common  stock.  The agreement  also provides for a severance  payment equal to
  150% of his annual  compensation,  including base salary and any initial bonus
  ("Annual  Compensation"),  at the date of termination if (i) his employment is
  terminated  by him due to a breach of the  agreement by the Company,  (ii) the
  Company fails to offer to extend his employment  for  additional  terms of one
  year on the same terms; or (iii) his employment  terminates due to disability.
  If the  employment is terminated  due to his death,  the severance  payment is
  equal to 50% of his Annual  Compensation  at the date of death.  The agreement
  further provides that, in the event of a merger or sale of  substantially  all
  of the assets of the Company, either the successor corporation or he may elect
  to terminate his employment  and that, if his employment is so terminated,  he
  will be entitled to receive a  severance  payment  equal to 300% of his Annual
  Compensation at the date of termination.  In addition,  the agreement provides
  that he will not compete with the Company for 18 months after a termination of
  his employment,  except that, if such termination is by the Company for cause,
  the non-competition period will be for 24 months.

           At the  Company's  Board of Directors  meeting on June 25, 1998,  the
  Company  renewed  its  employment  agreement  with  its  President  and  Chief
  Executive  Officer through May 2, 2001, on  substantially  the same terms. The
  Company's  President  and Chief  Executive  Officer is  entitled  to an annual
  salary at a rate of $275,000  and 62,500  restricted  shares of the  Company's
  common stock.

                                             24
<PAGE>

  STOCK OPTIONS

           The following  tables set forth  information  concerning  exercisable
  options  during the fiscal  year ended  March 31,  1998,  with  respect to the
  Common Stock.  No stock options or stock  appreciation  rights were granted to
  executive  officers  and no stock  options or stock  appreciation  rights were
  exercised by executive officers during such year.

           Additional  information  required  by this  item is  incorporated  by
  reference to the Company's Proxy Statement.

<TABLE>
<CAPTION>
                             FISCAL YEAR-END OPTION VALUES


                            Number of Shares Underlying             Value of Unexercisable in-the-Money
                       Unexercised Options at fiscal Year-End             Options At Fiscal Year-End
                       --------------------------------------             --------------------------

      Name               Exercisable           Unexercisable         Exercisable         Unexercisable
      ----               -----------           -------------         -----------         -------------
<S>                        <C>                    <C>                    <C>                  <C>
  Glenn C. Davis           120,000                80,000                 (1)                  --
</TABLE>

(1)      The option exercise price of such shares is $2.00 per share.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth existing stock ownership as of June 23,
1998, with respect to the beneficial  ownership of shares of Common Stock by (i)
each person known by the Company to be the beneficial owner of 5% of more of the
outstanding  shares of Common Stock, (ii) each nominee for director,  (iii) each
director,  and (iv) all officers and directors as a group, and the percentage of
the outstanding shares of Common Stock represented thereby.

                                             25
<PAGE>

                                    Amount of Nature
      Name of                        of Beneficial
Beneficial Owner(1)                   Ownership(1)         Percent of Class(2)
-------------------                   ------------         -------------------


Glenn C. Davis                       336,947(3)(4)(5)              9.77
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460

Stanley Goldstein                    363,822(3)(4)(6)             10.50
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460

E. Virgil Conway                      25,885(11)(12)               1.43

Donald B. Louria, M.D.                26,500(7)                       *

Sally Hernandez-Pinero                 9,000(12)                      *

Corbett A. Price                      20,860(11)                      *

Special Situation Fund III, L.P.     628,529(8)                   16.98
153 East 53 Street
New York, New York 10022

Penfield Partners, L.P.              289,439(9)                    8.35
153 East 53 Street
New York, New York 10022

Special Situations Cayman Fund, L.P. 218,887(10)                   6.41

CMNY Capital II, L.P.                309,251(13)                   8.77

Jeffrey S. Freed, M.D.               461,883(15)                  14.09

All Directors and Executive          795,514(14)                  21.42
Officers as a Group (10 persons)

  *      Percentage  of  shares  beneficially  owned  does not  exceed 1% of the
         class.

(1)      As used  herein,  the term  "beneficial  ownership"  with  respect to a
         security is defined by Rule 13d-3 under the Securities  Exchange Act of
         1934 as consisting of sole or shared voting power  (including the power
         to vote or direct  the vote)  and/or  sole or shared  investment  power

                                       26
<PAGE>

         (including  the power to  dispose  or  direct  the  disposition  of the
         shares) with respect to the security through any contract, arrangement,
         understanding,  relationship or otherwise, including a right to acquire
         such  power(s)  during  the  next  60  days.  Unless  otherwise  noted,
         beneficial ownership consists of sole ownership,  voting and investment
         rights.

(2)      Percent of class  assumes  issuance of the shares  subject to currently
         exercisable  options  and shares  issuable  upon the  conversion  of 6%
         Preferred  Stock,  as well as an  equivalent  increase in the number of
         shares outstanding.

(3)      Includes  120,000 and 110,000  shares  issuable  pursuant to  currently
         exercisable stock options for Davis and Goldstein, respectively.

(4)      Includes shares owned of record and beneficially for the following:

         Glenn C. Davis
         Stanley Goldstein

(5)      Includes  50,000 shares issuable upon conversion of 50,000 shares of 6%
         Preferred Stock.

(6)      Includes  78,000 shares issuable upon conversion of 78,000 shares of 6%
         Preferred Stock.

(7)      Includes 19,500 shares issuable pursuant to currently exercisable stock
         options and 7,000 shares owned  directly or in trust for the benefit of
         members of Dr. Louria's family.

(8)      Includes  203,529 shares owned of record and  beneficially  and 425,000
         shares  issuable  upon  conversion  of 425,000  shares of 6%  Preferred
         Stock.

(9)      Includes  101,939 shares owned of record and  beneficially  and 187,500
         shares  issuable  upon  conversion  of 187,500  shares of 6%  Preferred
         Stock.

(10)     Includes  81,387  shares owned of record and  beneficially  and 137,500
         shares  issuable  upon  conversion  of 137,500  shares of 6%  Preferred
         Stock.

(11)     Includes  16,860  shares  owned of record and  beneficially  and 10,000
         shares issuable upon conversion of 10,000 shares of 6% Preferred Stock.

(12)     Includes 9,000 shares issuable pursuant to currently  exercisable stock
         options.

(13)     Includes  59,251  shares owned of record and  beneficially  and 250,000
         shares  issuable  upon  conversion  of 250,000  shares of 6%  Preferred
         Stock.

                                       27
<PAGE>

(14)     Includes  349,647  shares  owned of record  and  beneficially,  266,334
         shares  issuable  pursuant to currently  exercisable  stock options and
         148,000  shares  issuable  upon  conversion  of  148,000  shares  of 6%
         Preferred Stock.

(15)     Includes  461,883 shares issued  pursuant to the Healix  acquisition to
         Jeffrey S. Freed, M.D..

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         As of June 28, 1994,  the Company  entered into a Consulting  Agreement
with Stanley  Goldstein,  who is Chairman of the Board.  Mr.  Goldstein does not
receive  compensation for services  provided as a director of the Company during
the term of his consulting agreement.

         Pursuant  to  such  Consulting   Agreement,   Mr.  Goldstein   provides
consulting  services to the Company in,  among other areas,  capital  financing,
mergers and  acquisitions.  The Company has agreed to pay consulting fees to Mr.
Goldstein in the amount of $4,000 per month and an office expense  reimbursement
of $1,000 per month for use of Mr. Goldstein's offices and support facilities in
the  performance  of his  consulting  duties.  In further  consideration  of Mr.
Goldstein's  consulting services, the Company granted to Mr. Goldstein an option
to purchase  150,000  shares of Common  Stock at prices  ranging  from $1.625 to
$3.00 per share.

                                       28
<PAGE>

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

(a)(1), (a)(2) See the separate section of this report following Item 14 for a
         list of financial statements and schedules filed herewith.

(a)(3)   Exhibits as required by Item 601 of  Regulation  S-K are listed in Item
         14(c) below.

(b)      The  Company  did not file any  Reports  on Form  8-K  during  the last
         quarter of the fiscal year ended March 31, 1998.

(c)      EXHIBITS

3.1      Registrant's Articles of Incorporation, as amended (incorporated herein
         by reference to Exhibit 3 (I) to the Registrant's Annual Report on Form
         10-K for the fiscal year ended March 31, 1994)

3.2      Registrant's  By-laws, as amended  (incorporated herein by reference to
         Exhibit  3(ii) to the  Registrant's  Annual Report on Form 10-K for the
         fiscal year ended March 31, 1994)

10.01    Loan and Security  Agreement  dated April 28, 1994 between  Rosenthal &
         Rosenthal, Inc. and the Registrant, Midview Drug, Inc., Accuhealth Home
         Care,  Inc.  and  Citiview  Drug Co.,  Inc.  (the  "Loan  and  Security
         Agreement")  (incorporated herein by reference to Exhibit 10 (l) to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended March
         31, 1994)

10.02    Amendment  No.  1 to the  Loan  and  Security  Agreement,  dated  as of
         February 1, 1996

10.03    Amendment  No.  2 to the  Loan  and  Security  Agreement,  dated  as of
         February 1, 1997.

10.04    Amendment No. 3 to the Loan and Security Agreement dated as of July 30,
         1997.

10.05    Amendment No. 4 to the Loan and Security Agreement dated as of April 9,
         1998.

10.06    Warrant dated April 28, 1994 for the  Registrant's  Common Stock issued
         by the Registrant to Rosenthal & Rosenthal,  Inc.  (incorporated herein
         by reference to Exhibit 10(m) to the Registrant's Annual Report on Form
         10-K for the fiscal year ended March 31, 1994)

                                       29
<PAGE>

10.07    Employment  Agreement  dated May 2, 1994 between Glenn C. Davis and the
         Registrant  (incorporated  herein by reference to Exhibit  10.14 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.08    Consulting Agreement dated June 28, 1994 between Donald B. Louria, M.D.
         and  the   Registrant   (incorporated   herein  by   reference  to  the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.09    Consulting  Agreement dated June 28, 1994 between Stanley Goldstein and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.16 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.10    Amended and  Restated  1988 Stock Option Plan  (incorporated  herein by
         reference  to  Exhibit  B to the  Registrant's  1994  Notice  of Annual
         Meeting and Proxy Statement)

10.11    Option  Agreement dated September 20, 1994 between Corbett A. Price and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.19 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.12    Option  Agreement dated September 20, 1994 between E. Virgil Conway and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.21 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.13    Option    Agreement    dated   September   20,   1994   between   Sally
         Hernandez-Pinero  and the Registrant  (incorporated herein by reference
         to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
         year ended March 31, 1995)

10.14    Option  Agreement  dated June 28, 1994  between  Glenn C. Davis and the
         Registrant  (incorporated  herein by reference to Exhibit  10.24 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.15    Option Agreement dated June 28, 1994 between Stanley  Goldstein and the
         Registrant  (incorporated  herein by reference to Exhibit  10.25 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

                                       30
<PAGE>

10.16    Option Agreement dated June 28, 1994 between Donald B. Louria, M.D. and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.27 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.17    Agreement  and  Plan  of  Merger  dated  as of  March  14,  1997  among
         Accuhealth,   Inc.,   ACH   Acquiring   Corp.,   ProHealthCare,   Inc.,
         ProHealthCare  Infusion Services,  Inc., Thomas Laurita and David Brian
         Cohen.

10.18    Agreement  and  Plan of  Merger,  dated  as of  April  9,  1998,  among
         Accuhealth,  Inc., HHI Acquiring Corp., Healix HealthCare,  Inc., Linda
         Barkan,  Chaim  Charytan,  Mary  Comerford,  Jeffrey S.  Freed,  Donald
         Giaquinto, Robert Giaquinto, Robert Labra, Kathleen P. O'Brien McDonald
         and Arthur Schwacke,  Jr.  (incorporated by reference to Exhibit 2.1 to
         the Registrant's Current Report on Form 8-K, dated April 30, 1998).

10.19    Registration  Rights Agreement between  Accuhealth,  Inc. and Robert M.
         GiaQunito.

10.20    Registration Rights Agreement between  Accuhealth,  Inc. and Jeffrey S.
         Freed, M.D.

10.21    Registration  Rights  Agreement  between  Accuhealth,  Inc.  and  Linda
         Barkan.

11       Statement re Computation of Per-Share Earnings

15.1     Letter from Ernst & Young LLP, dated April 23, 1998,  regarding  change
         in certifying  accountant  (incorporated  by reference to Exhibit 16 to
         the Registrant's Current Report on Form 8-K/A, dated April 23, 1998).

21       Subsidiaries of the Registrant

27       Article 5 - Financial Data Schedule


                                       31
<PAGE>
                                   SIGNATURES

  In  accordance  with Section 13 or 15(d) of the Exchange  Act, the  registrant
  caused  this report to be signed on its behalf by the  undersigned,  thereunto
  duly authorized.

                                ACCUHEALTH, INC.

  Date:  June 30, 1998          By: /s/ GLENN C. DAVIS
                                   ---------------------------------------------
                                        Glenn C. Davis
                                        President and
                                        Chief Executive Officer

  Date:  June 30, 1998          By: /s/ PRISCO J. DEMERCURIO
                                   ---------------------------------------------
                                        Prisco J. DeMercurio
                                        Senior Vice President - Finance
                                        Chief Financial Officer

  In accordance  with the Exchange Act, this report has been signed below by the
  following persons on behalf of the registrant and in the capacities and on the
  dates indicated.

  Date:  June 30, 1998              By:  /s/ STANLEY GOLDSTEIN
                                        ----------------------------------------
                                             Stanley Goldstein,
                                             Chairman of the Board of Directors

  Date:  June 30, 1998              By:  /s/ GLENN C. DAVIS
                                        ----------------------------------------
                                             Glenn C. Davis,
                                             Chief Executive Officer,
                                             President and Director

  Date:  June 30, 1998              By:  /s/ E. VIRGIL CONWAY
                                        ----------------------------------------
                                             E. Virgil Conway, Director

  Date:  June 30, 1998              By:  /s/ DONALD B. LOURIA
                                        ----------------------------------------
                                             Donald B. Louria, M.D., Director

  Date:  June 30, 1998              By: /s/ SALLY HERNANDEZ-PINERO
                                        ----------------------------------------
                                            Sally Hernandez-Pinero, Director

  Date:  June 30, 1998              By: /s/ CORBETT A. PRICE
                                        ----------------------------------------
                                            Corbett A. Price, Director


  In accordance  with the Exchange Act, this report has been signed below by the
  following persons on behalf of the registrant and in the capacities and on the
  dates indicated.


                                       32
<PAGE>


                        ACCUHEALTH, INC. AND SUBSIDIARIES

                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULES



                                                                         Page
                                                                         ----

  Reports of Independent Auditors                                       F - 2, 3

  Consolidated Balance Sheets at
      March 31, 1998 and March 31, 1997                                 F - 4

  Consolidated Statements of Operations for
      the Years Ended March 31, 1998, 1997 and 1996                     F - 5

  Consolidated Statements of Stockholders'
      Equity for the Years Ended March 31, 1998, 1997
      and 1996                                                          F - 6

  Consolidated Statements of Cash Flows for
      the Years Ended March 31, 1998, 1997 and 1996                     F - 7

  Notes to Consolidated Financial Statements                            F - 8


  FINANCIAL STATEMENT SCHEDULES

  II.  Valuation and Qualifying Accounts                                F - 25

      All  other  schedules  for  which  provision  is  made  in the  applicable
      accounting  regulation of the Securities  and Exchange  Commission are not
      required  under  the  related   instructions  or  are  inapplicable   and,
      therefore, have been omitted.

                                      F-1
<PAGE>

                             MARCUM & KLIEGMAN LLP
                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
of Accuhealth, Inc.

We have audited the accompanying consolidated balance sheet of Accuhealth,  Inc.
and subsidiaries as of March 31, 1998, and the related  consolidated  statements
of operations, stockholders' equity, and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the index at item
14(a).  These  financial  statements  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Accuhealth,  Inc. as
of March 31, 1998,  and the results of its operations and its cash flows for the
year then ended in conformity  with generally  accepted  accounting  principles.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.


June 25, 1998 except for note (13c)
as to which the date is July 9, 1998.
New York, New York


                                      F-2


<PAGE>
                                ACCUHEALTH, INC. AND SUBSIDIARIES
                                   CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS                                                                        March 31,
                                                                    ----------------------------
                                                                        1998            1997
                                                                    ------------    ------------
<S>                                                                 <C>             <C>         
Current Assets:
    Cash                                                            $    166,624    $     31,548
    Accounts receivable, less allowance for doubtful
        accounts of $362,352 in 1998 and $317,000 in 1997              6,812,210       5,279,369
    Inventories                                                        1,196,207         665,335
    Prepaid expenses and other current assets                            106,682         191,323
                                                                    ------------    ------------

    Total Current Assets                                               8,281,723       6,167,575
Revenue producing equipment, net                                         493,365         485,305
Fixed assets, net                                                      1,788,276       1,659,056
Goodwill, net                                                          1,152,798              --
Other                                                                    477,429         188,229
                                                                    ------------    ------------

Total Assets                                                          12,193,591       8,500,165
                                                                    ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
    Notes payable - revolving credit facility                          4,388,977       2,782,677
    Notes payable - other                                                470,325         224,869
    Accounts payable                                                   2,797,544       1,801,120
    Accrued expenses and other current liabilities                     1,660,468       1,128,828
    Current portion of capital lease - Facility                           71,500          53,625
    Current portion of other capital lease obligations                   175,891         113,124
                                                                    ------------    ------------

        Total Current Liabilities                                      9,564,705       6,104,243
Notes payable - term loan                                                500,000         500,000
Notes payable - other                                                     51,597         101,031
Capital lease - Facility, less current portion                           232,375         303,875
Other capital lease obligations, less current portion                    190,414          69,637
                                                                    ------------    ------------

        Total Liabilities                                             10,539,091       7,078,786
Commitments and Contingencies (See Notes 6 and 8)

Stockholders' Equity:
    Preferred stock, $.01 par value; authorized 3,650,000 shares;
        no shares issued and outstanding
    6% Redeemable cumulative convertible preferred stock $.01
        par value; $2,754,000 liquidation preference, authorized
        issued and outstanding 1,350,000 shares                           13,500          13,500
    Common stock $0.1 par value; authorized 15,000,000 shares;
        2,109,122 (1998) and 1,787,598 (1997) shares issued and
        outstanding                                                       21,092          17,876
    Additional paid-in capital                                         6,766,377       6,168,364
    (Deficit)                                                         (4,522,149)     (4,154,041)
                                                                    ------------    ------------
                                                                       2,278,820       2,045,699
Less treasury stock (308,004 shares) at cost                             624,320         624,320
                                                                    ------------    ------------
Total Stockholders' Equity                                             1,654,500       1,421,379
                                                                    ------------    ------------

Total Liabilities and Stockholders' Equity                          $ 12,193,591    $  8,500,165
                                                                    ============    ============
</TABLE>

                         See notes to consolidated financial statements.

                                               F-3
<PAGE>

                              ACCUHEALTH, INC. AND SUBSIDIARIES
                            CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                           YEARS ENDED MARCH 31,
                                               --------------------------------------------
                                                  1998            1997             1996
                                               ------------    ------------    ------------

<S>                                            <C>             <C>             <C>         
Net sales                                      $ 18,603,823    $ 16,369,376    $ 15,112,071
Cost of goods sold                               10,558,531       9,599,256       8,180,422
                                               ------------    ------------    ------------
   Gross profit                                   8,045,292       6,770,120       6,931,649
Selling, general and administrative expenses      7,359,663       6,146,783       7,104,529
Merger related costs                                294,832              --              --
                                               ------------    ------------    ------------
Operating income (loss)                             390,797         623,337        (172,880)
Other Expense:
   Interest expense                                (596,905)       (496,606)       (605,452)
                                               ------------    ------------    ------------

Net income (loss)                                  (206,108)        126,731        (778,332)
                                               ------------    ------------    ------------
Redeemable preferred stock dividends
   and accretion                                   (162,000)       (162,000)       (203,836)
                                               ------------    ------------    ------------
Net income (loss) applicable to common
   stockholders                                $   (368,108)   $    (35,269)   $   (982,168)
                                               ============    ============    ============

Weighted average common stock outstanding:
   Basic                                          1,754,342       1,400,423       1,273,274
   Diluted                                        1,754,342       1,400,423       1,273,274
Earning (loss) per share data:
   Basic                                             $(0.21)         $(0.03)         $(0.77)
   Diluted                                           $(0.21)         $(0.03)         $(0.77)
</TABLE>
                       See notes to consolidated financial statements.

                                             F-4
<PAGE>

                                  ACCUHEALTH, INC. AND SUBSIDIARIES

                           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                              YEARS ENDED MARCH 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>
                                               Preferred Stock      Common Stock                    
                                             --------- --------- --------- --------- ---------------
                                              Number     $.01     Number     $.01      Additional   
                                             of Shares Par Value of Shares Par Value Paid-In Capital
                                             --------- --------- --------- --------- ---------------
<S>                                          <C>        <C>      <C>        <C>        <C>          
Balance, March 31, 1995                             --        -- 1,550,000  $ 15,500   $ 3,053,068  

Reclassification of redeemable
preferred stock                              1,325,000 $  13,250                         2,739,282  

Sale of preferred stock                         25,000       250                            62,250  

Preferred stock dividends paid 
with common stock - September 28, 1995                              25,440       254        72,886  

Preferred stock dividends paid 
with common stock - May 7, 1996                                     54,793       548        80,452  

Accretion of redeemable preferred stock
and preferred stock dividends accrued                                                               

Net loss                                                                                            
                                             --------- --------- ---------  --------   -----------  

Balance, March 31, 1996                      1,350,000 $  13,500 1,630,233  $ 16,302   $ 6,007,938  

Preferred stock dividends paid                                      52,856       529        80,471  
with common stock - July 8, 1996

Preferred stock dividends paid                                     104,509     1,045        79,955  
with common stock- April 11, 1997

Net Income                                                                                          
                                             --------- --------- ---------  --------   -----------  

Balance, March 31, 1997                      1,350,000    13,500 1,787,598    17,876     6,168,364  

Shares issued to ProHealthCare Infusion
Services, Inc., upon acquisition July 1,1997                       300,000     3,000       859,500  

Preferred stock dividends paid 
with common stock, July 18, 1997                                    45,556       456        80,544  

Preferred stock dividends paid 
with common stock, January 15, 1998                                 35,354       354        80,646  

Redemption of shares issued to ProHealthCare
Infusion Services, Inc. upon acquisition.                          (59,386)     (594)     (118,177) 

Adjust of ProHealhCare Infusion Services, Inc.
Purchase Price                                                                            (304,500) 

Net Income (Loss)                                   --        --        --        --            --  
                                             --------- --------- ---------  --------   -----------  
Balance, March 31, 1998                      1,350,000 $  13,500 2,109,122  $ 21,092   $ 6,766,377  
                                             ========= ========= =========  ========   ===========  
</TABLE>
<PAGE>
<TABLE>
<CAPTION>

                                                           Treasury Stock
                                             ------------ --------- ---------  ----------
                                                           Number
                                                Deficit   of Shares   Cost       Equity
<S>                                          <C>          <C>       <C>        <C>        
Balance, March 31, 1995                      $ (3,136,604)(308,004) $(624,320) $ (692,356)

Reclassification of redeemable
preferred stock                                                                 2,752,532

Sale of preferred stock                                                            62,500

Preferred stock dividends paid 
with common stock - September 28, 1995            (26,468)                         46,672

Preferred stock dividends paid 
with common stock - May 7, 1996                   (81,000)                             --

Accretion of redeemable preferred stock
and preferred stock dividends accrued             (96,368)                        (96,368)

Net loss                                         (778,332)                       (778,332)
                                             ------------  -------  ---------  ----------

Balance, March 31, 1996                      $ (4,118,772)(308,004) $(624,320) $1,294,648

Preferred stock dividends paid                    (81,000)                             --
with common stock - July 8, 1996

Preferred stock dividends paid                    (81,000)                             --
with common stock- April 11, 1997

Net Income                                        126,731                         126,731
                                             ------------  -------  ---------  ----------

Balance, March 31, 1997                      $ (4,154,041)(308,004) $(624,320) $1,421,379

Shares issued to ProHealthCare Infusion
Services, Inc., upon acquisition July 1,1997                                      862,500

Preferred stock dividends paid 
with common stock, July 18, 1997                  (81,000)

Preferred stock dividends paid 
with common stock, January 15, 1998               (81,000)

Redemption of shares issued to ProHealthCare
Infusion Services, Inc. upon acquisition.                                        (118,771)

Adjust of ProHealhCare Infusion Services, Inc.
Purchase Price                                                                   (304,500)

Net Income (Loss)                                (206,108)      --         --    (206,108)
                                             ------------  -------  ---------  ----------
Balance, March 31, 1998                      $ (4,522,149) 308,004  $(624,320) $1,654,500
                                             ============  =======  =========  ==========
</TABLE>
                                            F-5
<PAGE>
                                         ACCUHEALTH, INC. AND SUBSIDIARIES
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                YEARS ENDED MARCH 31,
                                                                     --------------------------------------------
                                                                        1998            1997              1996
                                                                     -----------     -----------      -----------
<S>                                                                  <C>             <C>              <C>         
OPERATING ACTIVITIES
Net income (loss)                                                    $  (206,108)    $   126,731      $  (778,332)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
    Amortization of financing costs                                       12,462           7,688          142,251
    Depreciation and amortization                                        478,530         343,761          410,354 
    Write off of Revenue Producing Equipment                                                  --           53,376
    Changes in operating assets and liabilities:
         Accounts receivable                                          (1,293,416)       (819,676)        (795,446)
         Inventories                                                     (24,778)        (43,497)         (76,279)
         Prepaid expenses and other current assets                        84,641         (88,209)         (23,040)
         Other assets                                                   (301,662)         (4,297)         (49,530)
         Accounts payable                                                 94,130         288,284          225,260
         Notes payable, other                                                 --              --         (248,373)
         Accrued expenses and other current liabilities                  274,640        (249,594)         103,466
                                                                     -----------     -----------      -----------

         Cash used in operating activities                              (881,561)       (438,809)      (1,036,293)
                                                                     -----------     -----------      -----------

INVESTING ACTIVITIES
    Notes receivable                                                                          --           82,000
    Purchase of fixed assets and revenue producing equipment            (185,838)        (11,295)         (32,629)
    Cash acquired in connection with acquisition                          22,661              --               --
                                                                     -----------     -----------      -----------
    Cash provided by (used in) by investing activities                  (163,177)        (11,295)          49,371
                                                                     -----------     -----------      -----------

FINANCING ACTIVITIES
    Proceeds from sale of redeemable convertible preferred shares                             --           62,500
    Proceeds from note payable - revolving credit facility, net of
      payments                                                         1,606,300         369,285          916,227
    Proceed from notes payable - term loan                                    --         500,000               --
    Notes payable - other                                               (246,627)         31,302          395,565
    Principal payments on capital lease - facility                       (53,625)        (89,375)         (71,500)
    Payments on other capital lease obligations                         (126,234)       (332,254)        (271,261)
    Due to prior officers                                                     --              --         (189,222)
                                                                     -----------     -----------      -----------

    Cash provided by financing activities                              1,179,814         478,958          842,309
                                                                     -----------     -----------      -----------

    Net increase (decrease) in cash                                      135,076          28,854         (144,613)
    Cash at beginning of period                                           31,548           2,694          147,307
                                                                     -----------     -----------      -----------
    Cash at end of period                                            $   166,624     $    31,548      $     2,694
                                                                     ===========     ===========      ===========
Supplemental disclosure of cash flow information:
    Interest paid                                                    $   597,000     $   500,000      $   613,000
                                                                     ===========     ===========      ===========
    Income taxes paid --                                             $        --     $        --      $        --
                                                                     ===========     ===========      ===========
Noncash investing and financing activities:
    Additions to capital leases and notes payable                    $   752,426     $    48,000      $   212,000
    Goodwill recorded pursuant to acquisition                        $ 1,208,449
    Redemption of common shares                                      $  (118,771)

The Company acquired the following  noncash assets
 and liabilities in connection with its acquisition
 of ProHealthCare Infusion Services Inc:

    Accounts Receivable                                              $   658,196
    Inventory                                                             63,446
    Property and Equipment                                                64,542
    Accounts Payable                                                    (902,294)
                                                                     -----------
        Total                                                        $  (116,110)
                                                                     ===========

                                  See notes to consolidated financial statements.
</TABLE>
                                                        F-6
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF BUSINESS

         Accuhealth  Inc.,  together with its  subsidiaries  (collectively,  the
         "Company"), provides comprehensive home health care services, including
         administration  of a wide array of  infusion  therapies,  sales of oral
         medications  and sales and  rentals of durable  medical  equipment  and
         related  supplies.  The Company  operates  throughout the New York, New
         Jersey and Connecticut metropolitan area.

         BASIS OF PREPARATION

         The  consolidated   financial   statements   include  the  accounts  of
         Accuhealth,  Inc. and its subsidiaries,  all of which are wholly owned.
         Significant intercompany accounts and transactions have been eliminated
         in consolidation.

         Management is  formulating  certain  planned  actions to strengthen the
         Company's working capital position and generate sufficient cash to meet
         its  operating  needs  through  March 31,  1998 and  beyond.  The plans
         include,  among  other  actions,  increasing  the  Company's  borrowing
         capacity  under  its  revolving   credit  facility  (Note  4),  issuing
         additional  equity  or long  term  debt,  obtaining  better  terms  and
         financing  from vendors and reducing  corporate  expenses (Note 13). No
         assurances can be made that  management will be successful in achieving
         its plans.

         INVENTORIES

         Inventories  consist  of   over-the-counter   and  prescription  drugs,
         infusion  products and  supplies,  and home health care  equipment  and
         supplies  and are  priced  at the  lower of cost or  market  using  the
         first-in, first-out ("FIFO") method.

         CONTRACTUAL ALLOWANCES

         Certain prescription pharmaceutical sales, medical equipment and supply
         revenues are recorded at the Company's established rates and reduced by
         estimated contractual allowances pursuant to third-party  reimbursement
         arrangements.

         GOODWILL

         Goodwill in connection with the acquisition of  ProHealthCare  Infusion
         Services,  Inc.  is being  amortized  on a  straight-line  basis over a
         fifteen-year period. Amortization of goodwill charged to operations for
         the year ended March 31, 1998 amounted to $55,651. (Note 12)

         FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards No. 107, "Disclosures about
         Fair Value of Financial Instruments" requires that the Company disclose
         estimated fair values of financial  instruments.  The carrying  amounts
         reported in the statement of financial  position for current assets and
         current liabilities qualifying as financial instruments is a reasonable
         estimate of fair value.  The fair value of long-term  debt is estimated
         to approximate  fair market value based on the current rates offered to
         the Company for debt of the same remaining maturities.

                                       F-7
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


         MERGER RELATED COSTS

         Merger  transaction  costs related to the Healix  Healthcare,  Inc. and
         subsidiaries  merger  consists  of  fees  for  attorneys,  accountants,
         financial  printing and other expenses  directly related to the merger.
         The Company  recorded  expenses  incurred  of $294,832  related to this
         merger.

         FIXED ASSETS AND REVENUE PRODUCING EQUIPMENT

         Fixed  assets  and  revenue  producing  equipment  are  stated at cost.
         Depreciation is computed  principally by the straight-line  method over
         the  estimated  useful  lives of the assets and for  revenue  producing
         equipment and leasehold improvements, over the shorter of the estimated
         useful lives or the term of the related leases.

         EARNINGS PER SHARE

         During the year ended March 31, 1998, the Company adopted the provision
         of statements of accounting standards No. 128 Earnings per Share ("SFAS
         No. 128").  SFAS No. 128  eliminates  the  presentation  of primary and
         fully diluted  earnings per share ("EPS") and requires  presentation of
         basic and diluted EPS. Basic EPS is computed by dividing  income (loss)
         available  to common  stockholders  by the  weighted-average  number of
         common shares  outstanding  for the period.  Diluted EPS is computed by
         dividing the weighted  average number of common shares and common stock
         equivalents outstanding at year end. Common stock equivalents have been
         excluded from the  weighted-average  shares for 1998,  1997,  1996, and
         1995, as inclusion is anti-dilutive. All prior period EPS data has been
         restated to conform to the new pronouncement.

         INCOME TAXES

         The Company  files  consolidated  Federal,  combined New York State and
         combined  New York City income tax  returns.  The  Company's  method of
         accounting  for income taxes is the liability  method  required by FASB
         Statement No. 109 "Accounting for Income Taxes."

         Deferred income taxes reflect the tax effects of temporary  differences
         between the carrying  amounts of assets and  liabilities  for financial
         reporting purposes and the amounts used for income tax purposes.

         CASH EQUIVALENTS

         The Company  considers all highly liquid  financial  instruments with a
         maturity of three months or less when purchased to be cash equivalents.
         At March 31, 1998 and 1997, the Company had no cash equivalents.

         USE OF ESTIMATES

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

         LONG-LIVED ASSETS

         In  1995,  the  Company  adopted  Statement  of  Financial   Accounting
         Standards  ("SFAS") No. 121,  ACCOUNTING  FOR  IMPAIRMENT OF LONG-LIVED
         ASSETS AND FOR LONG-LIVED  ASSETS TO BE DISPOSED OF. In accordance with
         SFAS No. 121, the carrying values of long-lived assets are periodically
         reviewed by the Company and  impairments are recognized if the expected
         future  operating  non-discounted  cash flows derived from an asset are
         less than its carrying value.



                                      F-8
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         CONCENTRATIONS OF CREDIT RISK

         Concentrations of credit risk with respect to trade accounts receivable
         include  amounts due from third party  payers,  primarily  governmental
         agencies  (Medicare and  Medicaid).  At March 31, 1998 and 1997,  gross
         Medicare and Medicaid receivables aggregated $3,450,785 and $2,415,732,
         respectively.

         Laws and regulations  governing the Medicare and Medicaid  programs are
         complex   and   subject  to   interpretation   for  which   action  for
         noncompliance  includes  fines,  penalties,   and  exclusion  from  the
         Medicare  and Medicaid  programs.  The Company  believes  that it is in
         compliance with all applicable laws and regulations.

         The Company's revenues from one customer accounted for 18%, 19% and 16%
         of the Company's net sales for the years ended March 31, 1998, 1997 and
         1996, respectively. At March 31, 1998, 1997 and 1996, 12%, 20% and 22%,
         respectively, of net accounts receivable was due from this customer.

         STOCK-BASED COMPENSATION

         In October 1995, the Financial Accounting Standards Board (FASB) issued
         Statement of Financial  Accounting  Standards No. 123,  "Accounting for
         Stock-Based  Compensation"  ("SFAS  123").  SFAS 123 is  effective  for
         fiscal  years   beginning   after  December  31,  1995  and  prescribes
         accounting  and reporting  standards for all  stock-based  compensation
         plans,  including  employee stock options,  restricted stock,  employee
         stock purchase plans and stock appreciation  rights.  SFAS 123 requires
         compensation expense to be recorded (i) using the new fair value method
         or (ii)  using  existing  accounting  rules  prescribed  by  Accounting
         Principles  Board  Opinion  No.  25,  "Accounting  for Stock  Issued to
         Employees"  ("APB  25") and  related  interpretations  with  pro  forma
         disclosure  of what net income and  earnings  per share would have been
         had the Company adopted the new fair value method.  The Company intends
         to  continue  to  account  for its stock  based  compensation  plans in
         accordance with the provisions of APB 25.

         EFFECT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In June 1997, the Financial  Accounting  Standards Board issued two new
         disclosure standards.

         Statement of Financial  Accounting  Standards No. 130 ("SFAS No. 130"),
         REPORTING COMPREHENSIVE INCOME, establishes standards for reporting and
         display  of  comprehensive   income,  its  components  and  accumulated
         balances.  Comprehensive  income is defined to include  all  changes in
         equity  except  those   resulting   from   investments  by  owners  and
         distributions to owners. Among other disclosures, SFAS No. 130 requires
         that all  items  that  are  required  to be  recognized  under  current
         accounting  standards as components of comprehensive income be reported
         in a financial  statement that is displayed with the same prominence as
         other financial statements.

                                      F-9

<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         Statement of Financial  Accounting  Standards No. 131 ("SFAS No. 131"),
         DISCLOSURES  ABOUT SEGMENTS OF AN ENTERPRISE  AND RELATED  INFORMATION,
         which  supersedes  SFAS No. 14,  FINANCIAL  REPORTING FOR SEGMENTS OF A
         BUSINESS  ENTERPRISE,  establishes  standards  for the way that  public
         enterprises  report  information  about  operating  segments  in annual
         financial  statements  and requires  reporting of selected  information
         about  operating  segments in interim  financial  statements  regarding
         products and services,  geographic areas and major customers.  SFAS No.
         131 defines  operating  segments as components  of an enterprise  about
         which  separate  financial  information  is available that is evaluated
         regularly  by the chief  operating  decision  maker in deciding  how to
         allocate resources and in assessing performance.

         Both of these new standards are effective for financial  statements for
         periods  beginning  after  December  15, 1997 and  require  comparative
         information for earlier years to be restated.  The Company's results of
         operations and financial  position will be unaffected by implementation
         of these new standards.

         In February  1998,  the  Financial  Accounting  Standards  Board issued
         statement of Financial  Accounting  Standards No. 132 ("SFAS No. 132"),
         EMPLOYERS'   DISCLOSURES   ABOUT  PENSIONS  AND  OTHER   POSTRETIREMENT
         BENEFITS,  which standardizes the disclosure  requirements for pensions
         and other postretirement benefits. The adoption of SFAS No. 132 in 1998
         is not expected to materially impact the Company's current disclosures.

2.       REVENUE PRODUCING EQUIPMENT, NET

         The following  summarizes the Company's investment in revenue producing
equipment:


<TABLE>
<CAPTION>
                                                                           
                                                                  March 31,
                                                        -------------------------------     Estimated
                                                           1998               1997         Useful Lives
                                                        -----------------------------------------------
<S>                                                     <C>                <C>               <C>      
Revenue producing
  Equipment primarily under capital lease.              $ 2,145,723        $1,957,661        3-5 years

Less accumulated depreciation                  
  and amortization........................                1,652,358         1,472,356
                                                        -----------        ----------
                                                        $   493,365        $  485,305
                                                        ===========        ==========
</TABLE>

                                      F-10
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

3.       FIXED ASSETS

<TABLE>
<CAPTION>

                                                                  March 31,
                                                        -------------------------------     Estimated
                                                           1998               1997         Useful Lives
                                                        -----------------------------------------------
<S>                                                     <C>                <C>               <C>      
Land under capital lease..................              $   136,277        $  136,277

Building under capital lease..............                1,226,498         1,226,498         40 years

Equipment, furniture and fixtures.........                1,008,357           816,078       5-10 years

Leasehold improvements....................                    3,838             3,838      10-15 years

Equipment, furniture and fixture
  under capital leases....................                  275,127           164,953       5-10 years

Building improvements.....................                  292,956           292,956         40 years
                                                        -----------        ----------
                                                          2,943,053         2,640,600

Less accumulated depreciation and              
  amortization, including $432,731 in 1998     
  and $399,740 in 1997 attributable to         
  assets under capital leases.............                1,154,777           981,544
                                                        -----------        ----------
                                                        $ 1,788,276        $1,659,056
                                                        ===========        ==========

</TABLE>

4.       NOTES PAYABLE AND LONG-TERM DEBT

NOTES PAYABLE - OTHER
The  Company's  other  notes  which  arose in  connection  with the  purchase of
inventories are as follows:

(A)      The Company  converted a portion of its  accounts  payable into a notes
         payable  to  trade  creditors  in  the  principal  amount   aggregating
         $785,094.   These  notes  are  payable  in  monthly   installments   of
         approximately $1,500 to $8,000 with interest rates ranging from 8.5% to
         14.5%.  The  outstanding  principal  balance  at  March  31,  1998  was
         $465,726.

(B)      In February 1997, the Company reached a settlement with the City of New
         York relating to an audit of General  Corporation  and Commercial  Rent
         taxes  for the  years  1990  through  1992.  In  accordance  with  this
         settlement  agreement,  the outstanding  principal balance at March 31,
         1998 of $56,196 is payable  in  monthly  installments  of $1,976  which
         includes  interest at 10% per annum. A final balloon payment of $18,146
         is due on March 1, 2000.

                                      F-11
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

The weighted average interest rate for notes payable-other was 11.7%, 12.51% and
10.94% for the years  ended March 31,  1998,  1997 and 1996,  respectively.  The
average amount of notes payable-other  outstanding for the years ended March 31,
1998 and 1997 was  approximately  $529,833  and  $210,000,  respectively.  Notes
payable - other are  principally  short-term  in  nature.  As such,  fair  value
approximates the carrying value.

NOTES PAYABLE - REVOLVING CREDIT FACILITY AND TERM LOAN

In April 1994,  the Company  entered  into a Loan and  Security  Agreement  (the
"Agreement") with Rosenthal and Rosenthal ("Rosenthal") to borrow, under certain
conditions and terms, up to $2,500,000 at an interest rate of prime plus 4-7/8%.
Borrowings  under the  Agreement  are  collateralized  by certain  assets of the
Company,  including accounts receivables,  inventories,  equipment and fixtures.
The Company's  ability to use this revolving  credit  facility is dependent upon
the level of its eligible receivables, as defined in the Agreement. In addition,
the  Company  granted  Rosenthal  warrants  to  purchase  70,000  shares  of the
Company's common stock (see Note 9).

Effective  February  1, 1996,  the Company  and  Rosenthal  amended the Loan and
Security  Agreement  ("Amendment No. 1"). Amendment No. 1 extended the Agreement
through  April 28,  1997 and  allowed  the  Company  to  borrow,  under  certain
conditions and terms up to $3,500,000 (based on eligible accounts receivable, as
defined) at an interest rate of prime plus 3-7/8%.  Effective  February 1, 1997,
the Company and Rosenthal  amended the Loan and Security  Agreement  ("Amendment
No. 2") to extend the  Agreement  through  April 1, 1998 and reduce the interest
rate to prime (8 1/2% at March 31, 1998) plus 2 7/8%.  In addition,  the Company
granted  Rosenthal  warrants  to  purchase an  additional  30,000  shares of the
Company's common stock (see Note 9).  Commencing April 28, 1996, the Company was
required  to pay a facility  fee of $35,000  per annum,  which  Amendment  No. 2
increased to $40,000 per annum.

Amendment  No. 2 also  provided a $500,000 term loan to the Company due on April
1, 1998 with interest payable monthly at a rate of prime plus 5% (Note 13).

Effective  April 3, 1998,  the Company  agreed to an  amendment  of the Loan and
Security  Agreement.  The amendment extended the agreement through April 1, 2000
and allows the Company to borrow,  under certain  conditions and terms, up to $9
million  under a revolving  loan  agreement at an interest  rate of prime plus 1
1/2%, as well as an overdraft line of $1,000,000 at prime plus 3%. The amendment
also increased the term loan available to the Company to $750,000.  In addition,
the  Company  granted  Rosenthal  warrants  to  purchase  50,000  shares  of the
Company's common stock.

The revolving credit facility and the term loan bear interest at variable market
rates and as such the carrying value approximates their fair value. The weighted
average interest rate, including the facility fee, for the years ended March 31,
1998,  1997 and 1996 was  13.1%,  13.14%  and  17.8%,  respectively.  The amount
outstanding  for the years ended at March 31, 1998 and 1997 was  $4,888,977  and
$3,287,677 respectively.


                                      F-12
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.       CAPITAL LEASE OBLIGATIONS

The Company  leases its  principal  offices and  warehouse  facility and certain
equipment,  furniture and fixtures,  rental equipment and leasehold improvements
under capital lease agreements which extend through April 2000.


CAPITAL LEASE-FACILITY

The Company  occupies a pharmacy  warehouse and office facility (the "Facility")
which was obtained under a ten-year lease (the "Lease  Agreement")  with the New
York City  Industrial  Development  Agency (the "Agency") as lessor.  The Agency
issued to National  Westminster Bank, U.S.A. (now "Fleet") $1,072,500  principal
amount  of  its  Industrial  Development  bonds  (the  "Bonds")  pursuant  to an
Indenture of Mortgage and Agreement dated April 1, 1989 (the "Indenture")  which
created a lien on the facility.  The Company also paid $227,500 in order for the
Agency to purchase the warehouse.  This amount and other  acquisition  costs are
capitalized as land and building under capital lease (see Note 3).

At the end of the term of the lease,  the Company may  purchase the Facility for
one dollar so long as all terms and  conditions  of the lease have been met. The
Lease Agreement and Guaranty  Agreement require the Company and its subsidiaries
to comply with certain covenants,  including but not limited to, maximum debt to
worth ratio,  maximum  allowable  losses and debt service  coverage  ratio.  The
Company's  non-compliance  with the debt to worth ratio  covenant  was waived by
Fleet through April 1, 1999.

In  lieu  of  rent  the  Company  pays  principal  on  the  Bonds  in  quarterly
installments of $17,875, plus interest at the rate of prime (8 1/2% at March 31,
1998) plus 1%. A final balloon payment of $232,375 plus interest  thereon is due
on April 1, 1999. Each of the Company's wholly owned subsidiaries has guaranteed
the  Company's  obligations  under the lease.  The Lease  Agreement and Guaranty
Agreement  also  restrict  the payment of cash  dividends  in any one year to an
aggregate  amount  not to  exceed  25% of  the  Company's  net  income  for  the
immediately preceding year.

The obligation  under capital  lease-facility  bears interest at variable market
rates and as such the carrying value approximates its fair value.

OTHER CAPITAL LEASES

The Company leases durable  medical  equipment and computers under capital lease
agreements  which extend through March 31, 2001 with interest rates ranging from
6.50% to 16.71%.

                                      F-13
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future  minimum cash  payments  under  capital  leases with initial or remaining
noncancellable lease terms in excess of one year are as follows:

                                                                        Other
                                                         Capital       Capital
           Fiscal Year                                Lease Facility   Leases
           -----------                                --------------   -------
              1999                                       $ 96,689     $213,139
              2000                                        234,215      134,479
              2001                                             --       79,230
                                                         --------     --------
                                                          330,904      426,848
              Less interest                                27,029       60,543
                                                         --------     --------
              Present value of net minimum obligations    303,875      366,305
              Less current portion                         71,500      175,890
                                                         --------     --------
              Long term obligations at March 31, 1998    $232,375     $190,415
                                                         ========     ========
6.       CONTINGENCIES

         The Company is not aware of any existing  contingencies that would have
         an adverse material effect on the ongoing operations of the Company.

7.       6% CONVERTIBLE PREFERRED STOCK

         On December 14, 1994 and January 30, 1995,  the Company  completed  the
         sale at $2.00 per share, of 1,325,000 shares of redeemable  convertible
         preferred  stock  (Preferred  Stock)  with  a 6% per  annum  cumulative
         dividend.  During the quarter ended December 31, 1995, the Company sold
         at $2.50 per share,  25,000  additional  shares of  Preferred  Stock to
         certain  officers and directors of the Company.  The Preferred Stock is
         convertible  at any  time  at the  option  of the  holder,  subject  to
         antidilution  adjustments,  into 1,350,000  shares of common stock. The
         Company  has  reserved  1,350,000  shares  of  common  stock  for  such
         conversion.  At any time on or after  December  31,  1995,  subject  to
         certain  conditions,  such as the registration of the underlying common
         stock under the  Securities Act of 1933,  compliance  with the terms of
         the  Preferred  Stock and any other  agreement  with the holders of the
         Preferred  Stock and the payment of all dividends  that are accrued and
         unpaid on the Preferred  Stock as of the  Redemption  Date, the Company
         may redeem all or any portion of the Preferred Stock then  outstanding.
         For each share that is called for  redemption,  the  Company  shall pay
         $3.00 per share from  December 31, 1995  through  December 31, 1997 and
         $4.00  per  share on or after  January  1,  1998.  The  holders  of the
         Preferred Stock are entitled to voting rights equivalent to that of the
         common stock.  The Preferred Stock is senior to the common stock in the
         event of a liquidation of the Company.  The  liquidation  preference is
         $2.00 per share plus accrued and unpaid dividends.


                                      F-14
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         The Preferred Stock was subject to mandatory redemption requirements of
         up to $4.00 per share plus accrued dividends.  As of June 16, 1995, the
         6%   Convertible   Preferred   shareholders   agreed  to  modify  their
         stockholder agreements to negate the mandatory redemption requirements.
         This  modification  eliminates  the need for  recognition  of accretion
         effective June 16, 1995,  and results in the 6%  Convertible  Preferred
         Shares being classified as equity rather than debt.

         The Company is obligated  to pay annual  dividends of $.12 per share on
         its 1,350,000  outstanding  shares of Preferred  Stock.  Such dividends
         accrue  daily,  are  payable  each June 1 and  December  1 and,  at the
         election of the  Company,  may be paid in shares of Common Stock valued
         in accordance with the terms of such stock.  Dividends on the Company's
         Preferred  Stock are payable in preference  and priority to any payment
         of any dividends on the common stock.

         The June 1, 1997 dividend was paid out in 45,556 shares of common stock
         on July 18, 1997.  The December 1, 1997 dividend was paid out in 35,354
         shares of common stock on January 15, 1998.

8.       COMMITMENTS

         OPERATING LEASES

         A vendor has a security  interest  in  certain  assets of the  Company,
         including  accounts  receivable,  inventories,  equipment and fixtures.
         This security interest is subordinate and junior in all respects to the
         Loan and Security Agreement.

         RELATED PARTY TRANSACTIONS

         A director has a  consulting  arrangement  with the Company  whereby he
         receives  $4,000  and an office  expense  reimbursement  of $1,000  per
         month.

         EMPLOYMENT AGREEMENT

         During the year, the Company modified its employment agreement with its
         President and Chief Executive  Officer  through May 2, 1998.  Under the
         employment  agreement,  the  Company's  President  and Chief  Executive
         Officer  is  entitled  to an annual  salary at a rate of  $250,000  and
         25,000 shares of the Company's common stock.

         At the  Company's  Board of  Directors  meeting on June 25,  1998,  the
         Company  renewed its employment  agreement with its President and Chief
         Executive Officer through May 2, 2001. Under the employment  agreement,
         the Company's  President and Chief Executive  Officer is entitled to an
         annual  salary at a rate of $275,000 and 62,500 shares of the Company's
         common stock.

                                      F-15
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

9.       STOCK OPTIONS AND WARRANTS

         In September 1988, the Company adopted,  and in September 1994 amended,
         the 1988 Stock Option Plan ("Stock Option  Plan"),  under which options
         to purchase an  aggregate  maximum of 300,000  shares of the  Company's
         common stock may be granted.  The Stock Option Plan is  administered by
         the  Board  of  Directors,  who are  responsible  for  determining  the
         individuals  who will be  granted  options,  the number of shares to be
         subject to each option,  the option  price per share,  and the exercise
         period of each  option.  The option price may not be less than the fair
         market value of the Company's  common  stock.  The fair market value is
         defined in the Stock Option Plan to be the mean between the closing bid
         and the closing asked prices for the common stock of the Company on the
         date of grant.  No option may have a term in excess of ten years. As to
         any stockholder who owns 10% or more of the Company's common stock, the
         option  price  per share  will be no less than 110% of the fair  market
         value of the  Company's  common  stock  on the  date of grant  and such
         options shall not have a term in excess of five years.

         Pursuant to the Stock Option Plan, in February 1992 the former Board of
         Directors  granted a total of 54,000 options to purchase  shares of the
         Company's  common stock to fifteen  employees with an exercise price of
         $4.75 per share.  During the years ended  March 31, 1996 and 1997,  the
         Board of  Directors  granted a total of 130,000  and  188,500  options,
         respectively,  to  purchase  shares of the  Company's  common  stock to
         employees with exercise  prices ranging from $1.625 to $2.75 per share.
         These options are exercisable in four equal annual increments.

                                                                   Weighted
                                                                   Average
                                                                 Exercise Price
                                                     Shares        Per Share
                                                    -------        ---------

                Outstanding March 31, 1996          117,500         $ 2.77
                Granted                             188,500           1.63
                Cancelled                           (36,500)         (2.31)
                                                    -------         ------
                Outstanding at March 31, 1997       269,500         $ 2.03

                Granted                             130,000           2.38
                Cancelled                            28,250           1.99
                                                    -------         ------
                Outstanding at March 31, 1998       371,250         $ 2.22
                                                    =======         ======

                Exercisable at March 31, 1996         1,000         $ 4.75
                                                    =======         ======
                Exercisable at March 31, 1997        32,500         $ 2.81
                                                    =======         ======
                Exercisable at March 31, 1998        66,450         $ 2.22
                                                    =======         ======


                                      F-16
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


         Separate from options issued under the Stock Option Plan, in June 1990,
         the Company  granted  options to purchase 60,500 shares of common stock
         at a price of $5.00 per share ("1990  Options").  The 1990 Options vest
         and  become  exercisable  ratably  after the  first,  second  and third
         anniversaries of the grant date and expire after the fifth  anniversary
         of the grant date. At March 31, 1998,  there were no  outstanding  1990
         options.

         Separate  from options  issued under the Stock Option Plan, in February
         1992, the Board of Directors  granted to three former  directors of the
         Company a total of 60,000  options to purchase  shares of the Company's
         common stock ("1992  Options").  The exercise price of the 1992 Options
         is the mean  between the closing bid and the closing  asked  prices for
         the common stock of the Company on the date of grant,  which was $4.75.
         These options may be exercised in 25% increments on the first,  second,
         third and fourth  anniversary of the date of issue,  and have a term of
         ten years. There were 16,000 options outstanding as of March 31, 1998.

         During fiscal 1995, separate from options issued under the Stock Option
         Plan, the Company granted options to purchase  352,500 of common shares
         to officers and directors ("1995 Options").  The exercise prices of the
         1995  Options  range from  $1.65 to $3.00,  with  options  to  purchase
         135,000  shares vesting  immediately  at $2.00 and the balance  vesting
         over five years  from the date of  issuance.  During  the fiscal  years
         ended March 31, 1998 and 1997,  options to purchase an additional 7,500
         shares and  24,167  shares,  respectively,  vested at $1.625 per share.
         During fiscal 1998,  50,000  options were cancelled at $2.00 per share.
         At March 31, 1998,  302,500 of these  options  remain  unexercised  and
         outstanding.

         In September 1995,  separate from options issued under the Stock Option
         Plan, the Company  granted  options to purchase 37,500 of the Company's
         common shares to directors ("1996 Options").  The exercise price of the
         1996  Options are $1.875 with the shares  vesting  over five years from
         the date of issuance.

         In June 1996, separate from options issued under the Stock Option Plan,
         the Company granted options to purchase 37,500 of the Company's  common
         shares to directors  ("1997  Options").  The exercise price of the 1997
         Options  are $1.625  with the shares  vesting  over five years from the
         date of issuance.

         In June 1996, separate from options issued under the Stock Option Plan,
         the Company granted options to purchase 50,000 of the Company's  common
         shares to a director ("June 1996  Options").  The exercise price of the
         June 1996  Options are $1.625 with the shares  vesting over three years
         from the date of issuance.

         In October 1996,  separate  from options  issued under the Stock Option
         Plan, the Company  granted  options to purchase 20,000 of the Company's
         common  shares to  employees  ("1997  Options").  The options  carry an
         exercise  price of $2.125  and vest over  five  years  from the date of
         issuance.

                                      F-17

<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         In October 1997,  separate  from options  issued under the Stock Option
         Plan, the Company  granted  options to purchase 40,000 of the Company's
         common shares to directors ("1998 Options").  The exercise price of the
         1998 options are $2.125,  with the shares  vesting over five years from
         the date of issuance.

         During fiscal 1998, separate from options issued under the Stock Option
         Plan, the Company  granted  options to purchase 20,000 of the Company's
         common  shares to employees  ("1998  Options"),  with  exercise  prices
         ranging  from $2.00 to $2.50.  Fifty  thousand  of these  options  vest
         ratably  over 24 months  from the date of  issuance,  with the  balance
         vesting  in four  equal  increments  beginning  one year  from  date of
         issuance.

         As of March 31, 1998,  an aggregate  1,058,750  shares of the Company's
         common stock are reserved for issuance under the Stock Option Plan, and
         the 1990, 1992, 1995, 1996, 1997 and 1998 Options. As of March 31, 1998
         options to purchase 477,450 of such shares are exercisable.

         Pro forma  information  regarding  net income and earnings per share is
         required  SFAS  123,  and has been  determined  as if the  Company  had
         accounted for its employee stock options under the fair value method of
         SFAS 123. The fair market value for these  options was estimated at the
         date of  grant  using a  Black-Scholes  option-pricing  model  with the
         following weighted-average assumptions for 1998 and 1997:

<TABLE>
<CAPTION>
                                                                        MARCH 31,
                                                                   ------------------
                           ASSUMPTION                              1998          1997
         -------------------------------------------------         ----          ----
         <S>                                                       <C>         <C>
         Risk-free rate                                            5.47%         6.2%
         Dividend yield                                               0%           0%
         Volatility factor of the expected market price of
           the Company's common stock                              0.949         1.7
         Average life                                              5 years       4.9 years
</TABLE>

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

                                      F-18
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

             For purposes of pro forma disclosures,  the estimated fair value of
             the options is amortized to expense over the vesting  period of the
             options. The Company's pro forma information follows:

                                                       YEARS ENDED MARCH 31,
                                                       1998             1997
                                                      ------------------------
               Pro forma net loss                     $(595,295)     $ (91,725)
               Pro forma net loss per share                (.34)         (0.18)

             The weighted average fair value of options granted during the years
             ended  March 31,  1998 and 1997 were $1.86 and $1.53  respectively,
             for shares granted with an exercise price equal to the market price
             on the date of grant.  The  weighted  average fair value of options
             granted during the year ended March 31, 1998 for which the exercise
             price  was less  than  the  market  price on the date of grant  was
             $1.92. The weighted-average  remaining  contractual life of options
             exercisable  at March 31, 1997 is 3.3 years.  The  exercise  prices
             range from $1.63 to $4.75 for options  outstanding  as of March 31,
             1998.

             In  April  1994,  pursuant  to the  terms  of a Loan  and  Security
             Agreement (see Note 5), the Company granted to a financing  company
             warrants to purchase  70,000  shares of common  stock at a price of
             $2.00 per share. On February 1, 1996, the Company granted  warrants
             to purchase an  additional  30,000  shares of common stock at $2.50
             per share  expiring on April 28,  1998.  On  February 1, 1997,  the
             expiration date of the 100,000 warrants was amended to be the later
             of April 1, 2001 or thirty-six months following the last day of any
             term to  which  the  Loan  Commitment  has  been  extended  and the
             exercise price for all warrants was restated to $2.00 per share. As
             of March 31, 1998, no warrants have been exercised and an aggregate
             of 100,000 of the Company's  common stock are reserved for issuance
             under warrants.

10.          EMPLOYEE SAVINGS AND PROFIT SHARING PLAN

             In December  1986,  the Company  established  a profit  sharing and
             thrift  plan  (the  "Plan")  covering  substantially  all  eligible
             employees.  The Plan qualifies under Section 401(k) of the Internal
             Revenue Code. The Company matches  contributions  equal to 50% (25%
             effective  July 1, 1996) of an eligible  employee's  pre-tax 401(k)
             contribution.  The matching contribution is limited for any part of
             an eligible  employee's  pre-tax 401(k)  contribution which exceeds
             10% of  their  compensation. 

             At the  discretion of the Board of Directors,  the Company may also
             make  additional  contributions  dependent on profits each year for
             the benefit of eligible  employees  under the Plan.  The  Company's
             contribution  to the Plan was  approximately  $25,638,  $35,000 and
             $47,000  for the  years  ended  March  31,  1998,  1997  and  1996,
             respectively.

             In August 1995, the Company  adopted a deferred  compensation  plan
             for the  Board of  Directors  (the  "Directors  Plan").  Under  the
             Directors  Plan, a director may elect to defer  receipt of all or a
             specified portion of his or her compensation. As of March 31, 1998,
             no  director  had  elected  to  defer  any  portion  of  his or her
             compensation.

                                      F-19
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11.          INCOME TAXES

             The Company had net deferred assets as follows:

<TABLE>
<CAPTION>
                                                                      March 31,
                                                             ----------------------------
                                                                1998              1997
                                                             -----------      -----------
<S>                                                          <C>              <C>        
               Federal, State and Local Net Operating        $ 1,864,000      $ 1,726,000
                 Loss Carry forwards

               Reserve for Doubtful Accounts                     163,000          143,000

               Business Credit Carry-forwards                     52,000           52,000

               Other                                             208,000          (16,000)
                                                             -----------      -----------

               Total                                           2,287,000        1,905,000

               Less:  Valuation Allowance                      2,287,000        1,905,000
                                                             -----------      -----------

               Net Deferred Assets                           $        -0-     $        -0-
                                                             ===========      ===========
</TABLE>

             The following is a  reconciliation  of the amount of the income tax
             expense  (benefit)  attributable  to  continuing  operations to the
             amount of income tax that would  result from  applying  the federal
             rate to pretax income from continuing operations:

<TABLE>
<CAPTION>
                                                  1998                   1997                 1996
                                                  ----                   ----                 ----

                                                     (Benefit)              (Benefit)              (Benefit)
                                           Percent   Liability    Percent   Liability   Percent    Liability
                                           -------   ---------    -------   ---------   -------    ---------
<S>                                           <C>    <C>             <C>     <C>          <C>      <C>      
     Income tax (benefit) at
     statutory rate                           34%    (240,000)       34%     $ 43,000     (34%)    (265,000)

     Permanent Differences                                          5.1%        6,500      --            --

     Other decrease in valuation
     allowances related to the 
     Federal portion of continuing
     operations                                                   (39.1%)     (49,500)    (34%)    (300,000)

     Loss producing no current benefit        34%     240,000        34%      265,000      --            --
                                          ------     --------     -----      --------     ---      --------
                                              --     $     --        --      $     --      --      $     --
                                          ======     ========     =====      ========     ===      ========
</TABLE>

         At March 31, 1998,  based upon tax returns  filed and to be filed,  the
         Company has net operating loss  carryforwards  for U.S. tax purposes of
         approximately  $3,829,000  which  will  begin to  expire  in 2009 and a
         general  business  tax credit  carryforward  of  approximately  $52,000
         available  to reduce  future  payments  of federal  income  taxes.  The
         Company also has net operating  loss  carryforwards  for New York State
         and City tax  purposes  of  approximately  $4,782,000  and  $4,779,000,
         respectively.

                                      F-20
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

         The valuation  allowances increased $382,000 in 1998, decreased $63,000
         in 1997 and increased  $265,000 in 1996. These amounts are equal to the
         changes  in  deferred  tax  assets to  reflect  the  uncertainty  as to
         realization of such assets.

         The  availability  of net  operating  loss  carryforwards  and  general
         business tax carryforwards is subject to various  limitations under the
         Internal  Revenue  Code of 1986 as  amended  (the  "Code").  Although a
         formal  study has not been  performed,  it appears that as of March 31,
         1995, the Company may have undergone an ownership  change as defined by
         Section 382 of the Code.  The effect of such an ownership  change is to
         limit the amount of taxable income and tax liability that can be offset
         in any tax year by the net operating loss and credit carryovers.

12.      MERGER AND ACQUISITION

         On July 1, 1997, the Company  entered into a merger  agreement  whereby
         the Company acquired  ProHealthCare  Infusion Services,  Inc. ("PHCIS")
         for  300,000   shares  of  Company  Common  Stock.   PHCIS,   based  in
         Springfield,  New Jersey,  specializes  in caring for complex  HIV/AIDS
         patients  and those  suffering  from  cancer.  PHCIS  also has a strong
         disease  management  capability  in treating  patients  suffering  from
         congestive heart failure and cardiomyopathy.

         On  July  1,  1997,  the  Company   consummated   its   acquisition  of
         ProHealthCare   Infusion  Services,   Inc.  ("PHCIS")  pursuant  to  an
         agreement and plan of merger,  dated as of March 14, 1997, by and among
         the  Company,  ACH  Acquiring  Corp.,  a New Jersey  corporation  and a
         subsidiary  of the  Company,  PHCIS,  ProHealthCare,  Inc.,  a Delaware
         corporation  and the parent of PHCIS,  Thomas  Laurita  and David Brian
         Cohen (the "PHCIS Merger Agreement").  The Company anticipates that the
         initial merger  consideration of 300,000 shares of Company Common Stock
         will be decreased by 59,386 shares of Company  Common Stock pursuant to
         certain merger consideration  adjustment provisions of the PHCIS Merger
         Agreement.  Pro forma  disclosure  information in connection  with this
         transaction is not included  because it is considered  immaterial as it
         relates  to  these   financial   statements  in  accordance   with  the
         regulations of the Securities and Exchange Commission.



                                      F-21
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

 13.     SUBSEQUENT EVENTS

         A.       MERGER WITH  HEALIX  HEALTHCARE,  INC.  On April 9, 1998,  the
                  Company  consummated  its  merger  with  Healix  in a tax free
                  exchange of common stock,  whereby the  stockholders of Healix
                  received 1,488,850 shares of Accuhealth in exchange for all of
                  the issued and outstanding common shares of Healix. The merger
                  resulted in Healix  Healthcare,  Inc.  becoming a wholly owned
                  subsidiary of Accuhealth,  Inc. and will be accounted for as a
                  pooling of interests.

         B.       RENEWAL OF NOTES PAYABLE - revolving  credit facility and term
                  loan.  Effective  April 3,  1998,  the  Company  agreed  to an
                  amendment of the Loan and Security  Agreement.  The  amendment
                  extended the  agreement  through  April 1, 2000 and allows the
                  Company to borrow,  under certain  conditions and terms, up to
                  $9 million  under a revolving  loan  agreement  at an interest
                  rate of prime  plus 1 1/2%,  as well as an  overdraft  line of
                  $1,000,000 at prime plus 3%. The amendment  also increased the
                  term loan  available to the Company to $750,000.  In addition,
                  the Company  granted  Rosenthal  warrants  to purchase  50,000
                  shares of the Company's common stock.

         C.       ISSUANCE OF 12% CONVERTIBLE SUBORDINATED NOTES. At its meeting
                  of the  Board of  Directors  on June  25,  1998,  the  Company
                  approved   the   issuance   of  12%   Cumulative   Convertible
                  Subordinated  Notes in the face  amount  of  $6,250,000.  As a
                  further component of this financing,  the Company's current 6%
                  Cumulative  Convertible  Preferred  Stock will be converted to
                  common stock in  Accuhealth  at a 15% discount to the original
                  conversion price of $2.00. Accordingly,  an additional 202,500
                  shares will be issued  upon the  conversion  of the  1,350,000
                  preferred shares currently outstanding.

         D.       ISSUANCE  OF TRADE NOTE AND  PURCHASE  AGREEMENT.  On April 1,
                  1998,  the Company  entered into a new  two-year  distribution
                  agreement  with a full-line  wholesale  distributor of branded
                  and generic  pharmaceuticals and over the counter medications.
                  The new  agreement  provides  the  Company  with  pricing  and
                  payment  terms that will  reduce its drug  purchase  costs and
                  improve  cash flow.  The  reduced  prices  being  offered  are
                  contingent  on the Company  buying 80% or more of its pharmacy
                  purchase  requirements through the wholesaler.  In addition to
                  the reduced  pricing and extended  payment terms,  the Company
                  entered into an agreement  whereby the initial $300,000 of the

                                      F-22
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

                  purchases  from  this  distributor  would  be in the form of a
                  promissory  note payable on demand or if no demand is made, in
                  installments  together with interest from the date of the note
                  at the rate of prime plus two. Principal and interest shall be
                  payable  in  twenty-seven   consecutive  monthly  installments
                  consisting of interest for the months one through  three,  and
                  thereafter,  payments of principal  and  interest,  month four
                  through  twenty-six with a final  installment of $13,912.88 on
                  July 1, 2000. The note is secured by a security  agreement and
                  financing  statement  which  includes  as  collateral  all the
                  equipment  and  fixtures,   inventory,   accounts  receivable,
                  chattel paper and general intangibles of the Company. The lien
                  is subordinate only to the Company's prime lender.

                  On March 13, 1998, in conjunction  with the merger with Healix
                  Healthcare,   Inc.,  the  distributor  converted  $300,000  in
                  accounts  payable from Healix into a note payable,  with terms
                  and security  equivalent to the terms of the  Accuhealth  note
                  outlined above. Accuhealth has assumed full responsibility and
                  liability  for any  unpaid  balance on the  Healix  note.  The
                  combined  outstanding  indebtedness  (principal  only)  to the
                  distributor as of June 23, 1998 was $600,000.

         E.       SETTLEMENT  OF LEGAL MATTER.  In June 1995, a former  employee
                  had commenced an action in Supreme Court, New York County, New
                  York against the Company and certain of its former and current
                  officers, directors and shareholders.  The action alleged that
                  the  Company  breached  plaintiff's  employment  agreement  by
                  withholding at least $750,000 in commissions allegedly owed to
                  him.  As of June 1998,  this matter has been  settled  through
                  court  recommended  mediation.  The  settlment  did not have a
                  material  adverse  effect on  results  of  operations  or cash
                  flows.

                                      F-23
<PAGE>


                             SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                    ACCUHEALTH, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>

      COLUMN A                             COLUMN B           COLUMN C        COLUMN D          COLUMN E
      --------                             --------           --------        --------          --------
                                                             Additions
                                          Balance at          Charged
      DESCRIPTION                         Beginning           to Cost
                                              of                and           Balance at         End of
                                            Period            Expenses       Deductions(1)       Period

<S>                                        <C>                <C>               <C>             <C>     
      Year Ended March 31, 1996            $310,000           $93,000           $111,000        $292,000
      Allowance for Doubtful
      Accounts

      Year Ended March 31, 1997            $292,000           $82,000           $ 57,000        $317,000
      Allowance for Doubtful
      Accounts

      Year Ended March 31, 1998
      Allowance for Doubtful               $317,000          $107,869           $ 61,517        $362,352
      Accounts
</TABLE>

-----------------------
(1) Uncollected accounts written off.

                                      F-24
<PAGE>


                                  EXHIBIT INDEX


  3.1    Registrant's Articles of Incorporation, as amended (incorporated herein
         by reference to Exhibit 3 (I) to the Registrant's Annual Report on Form
         10-K for the fiscal year ended March 31, 1994)

  3.2    Registrant's  By-laws, as amended  (incorporated herein by reference to
         Exhibit  3(ii) to the  Registrant's  Annual Report on Form 10-K for the
         fiscal year ended March 31, 1994)

10.01    Loan and Security  Agreement  dated April 28, 1994 between  Rosenthal &
         Rosenthal, Inc. and the Registrant, Midview Drug, Inc., Accuhealth Home
         Care,  Inc.  and  Citiview  Drug Co.,  Inc.  (the  "Loan  and  Security
         Agreement")  (incorporated herein by reference to Exhibit 10 (l) to the
         Registrant's Annual Report on Form 10-K for the fiscal year ended March
         31, 1994)

10.02    Amendment  No.  1 to the  Loan  and  Security  Agreement,  dated  as of
         February 1, 1996

10.03    Amendment  No.  2 to the  Loan  and  Security  Agreement,  dated  as of
         February 1, 1997.

10.04    Amendment No. 3 to the Loan and Security Agreement dated as of July 30,
         1997.

10.05    Amendment No. 4 to the Loan and Security Agreement dated as of April 9,
         1998.

10.06    Warrant dated April 28, 1994 for the  Registrant's  Common Stock issued
         by the Registrant to Rosenthal & Rosenthal,  Inc.  (incorporated herein
         by reference to Exhibit 10(m) to the Registrant's Annual Report on Form
         10-K for the fiscal year ended March 31, 1994)

<PAGE>

10.07    Employment  Agreement  dated May 2, 1994 between Glenn C. Davis and the
         Registrant  (incorporated  herein by reference to Exhibit  10.14 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.08    Consulting Agreement dated June 28, 1994 between Donald B. Louria, M.D.
         and  the   Registrant   (incorporated   herein  by   reference  to  the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.09    Consulting  Agreement dated June 28, 1994 between Stanley Goldstein and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.16 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.10    Amended and  Restated  1988 Stock Option Plan  (incorporated  herein by
         reference  to  Exhibit  B to the  Registrant's  1994  Notice  of Annual
         Meeting and Proxy Statement)

10.11    Option  Agreement dated September 20, 1994 between Corbett A. Price and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.19 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.12    Option  Agreement dated September 20, 1994 between E. Virgil Conway and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.21 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.13    Option    Agreement    dated   September   20,   1994   between   Sally
         Hernandez-Pinero  and the Registrant  (incorporated herein by reference
         to Exhibit 10.22 to the Registrant's Annual Report on Form 10-K for the
         year ended March 31, 1995)

10.14    Option  Agreement  dated June 28, 1994  between  Glenn C. Davis and the
         Registrant  (incorporated  herein by reference to Exhibit  10.24 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

10.15    Option Agreement dated June 28, 1994 between Stanley  Goldstein and the
         Registrant  (incorporated  herein by reference to Exhibit  10.25 to the
         Registrant's  Annual  Report on Form 10-K for the year ended  March 31,
         1995)

<PAGE>

10.16    Option Agreement dated June 28, 1994 between Donald B. Louria, M.D. and
         the  Registrant  (incorporated  herein by reference to Exhibit 10.27 to
         the  Registrant's  Annual  Report on Form 10-K for the year ended March
         31, 1995)

10.17    Agreement  and  Plan  of  Merger  dated  as of  March  14,  1997  among
         Accuhealth,   Inc.,   ACH   Acquiring   Corp.,   ProHealthCare,   Inc.,
         ProHealthCare  Infusion Services,  Inc., Thomas Laurita and David Brian
         Cohen.

10.18    Agreement  and  Plan of  Merger,  dated  as of  April  9,  1998,  among
         Accuhealth,  Inc., HHI Acquiring Corp., Healix HealthCare,  Inc., Linda
         Barkan,  Chaim  Charytan,  Mary  Comerford,  Jeffrey S.  Freed,  Donald
         Giaquinto, Robert Giaquinto, Robert Labra, Kathleen P. O'Brien McDonald
         and Arthur Schwacke,  Jr.  (incorporated by reference to Exhibit 2.1 to
         the Registrant's Current Report on Form 8-K, dated April 30, 1998).

10.19    Registration  Rights Agreement between  Accuhealth,  Inc. and Robert M.
         GiaQunito.

10.20    Registration Rights Agreement between  Accuhealth,  Inc. and Jeffrey S.
         Freed, M.D.

10.21    Registration  Rights  Agreement  between  Accuhealth,  Inc.  and  Linda
         Barkan.

11       Statement re Computation of Per-Share Earnings

15.1     Letter from Ernst & Young LLP, dated April 23, 1998,  regarding  change
         in certifying  accountant  (incorporated  by reference to Exhibit 16 to
         the Registrant's Current Report on Form 8-K/A, dated April 23, 1998).

21       Subsidiaries of the Registrant

27.      Article 5 - Financial Data Schedule