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                                 UNITED STATES
                       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

     For the fiscal year ended March 31, 1999

|_|  Transition report under Section 13 or 15(d) of the Securities  Exchange Act
     of 1934

     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 29,  1999,  the  aggregate  market value of the Common Stock
held by non-affiliates of the registrant was approximately $1,880,808.

         As of June 29, 1999,  there were  4,819,589  shares of the Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      NONE
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                                     PART I

ITEM 1.           DESCRIPTION OF BUSINESS

         Accuhealth,  Inc.  (the  "Company")  is one of the  largest  integrated
providers of comprehensive home health care services 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 three  offices in two states at June 30,
1999. 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
has  determined  that the  initial  merger  consideration  of 300,000  shares of
Company's  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.  The acquisition has been accounted for by the purchase
method of accounting.  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.

         During the fiscal year ended March 31, 1999, management determined that
the goodwill resulting from the PHCIS acquisition and Americare (a subsidiary of
Healix) was impaired  and  warranted  write off of the  remaining  balance.  The
impairment  resulted from a severe decline in revenue,  primarily  caused by the
filing for liquidation of HIP of New Jersey in February 1999.

         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 was 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
("JCAHO") 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 40% for the year ended March 31, 1999.
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.

         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

                                       2
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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.

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
integrated  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.

         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.

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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.

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.

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RESPIRATORY  THERAPY/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  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  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.

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         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 both 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.

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, 1999, the Company employs 180  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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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  objectives.
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."

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.

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The Company  believes that the insurance that it maintains,  in  relationship to
the size of its business, is customary in the home healthcare 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,  1999,  1998 and 1997,  services  provided to
Rivington House accounted for 14%, 15% and 19%,  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.  During Fiscal
1999,  the Company  was unable to service  certain  patients  due to the limited
supply of a particular drug.  Sources for the drug continue to be limited,  and,
accordingly, our ability to service these patients is indeterminable.

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. The 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  are
defined  as 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 healthcare
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.

                                       8
<PAGE>


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  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 these  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.

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,  1999,  gross  Medicare  and  Medicaid
receivables aggregated $5,150,643.

EMPLOYEES

         As at March 31, 1999,  the Company  employed  180 persons,  of whom 168
were  full-time  employees  and 12  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.

                                       9
<PAGE>


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
communicated  to IDA that it intends to  exercise  its  option to  purchase  the
Facility  for one  dollar  plus any fees and  expenses  in  connection  with the
redemption  of the Bond.  The Company is in the process of obtaining  short term
financing to pay off the  outstanding  principal  and interest of  approximately
$235,000.

         The Company  believes the Facility is in good condition and is adequate
to meet its needs in Fiscal 1999. However,  to enhance  productivity and provide
technological enhancements, the Company has signed a lease to rent 37,000 square
feet in Yonkers,  New York,  where it plans to consolidate its major offices and
warehouses at an average cost of  approximately  $26,000 per month over the life
of the lease.  The  initial  term is for a period of sixty five  months with two
renewals, each for a sixty month period.

         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 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.
In connection with our new lease in Yonkers,  the space  previously  occupied by
Healix in Valhalla is currently  being  offered for sublease and the Facility in
the Bronx is currently offered for sale.

ITEM 3.           LEGAL PROCEEDINGS


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 had thought to
have been settled through court recommended  mediation.  In May 1999, the former
employee  petitioned the court to reopen the matter. The matter is still pending
with the court;  however,  management believes there will be no material adverse
effect on the Company's consolidated  financial position,  results of operations
or cash flows.

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


         None.

                                       10
<PAGE>


                                     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.

                                         Fiscal 1999            Fiscal 1998
                                         -----------            -----------
                                      High          Low       High         Low
                                      ----          ---       ----         ---
Quarter ended June 30............     1-3/4         1-3/4     3-3/8       1-5/8
Quarter ended September 30.......   1-13/16         1-5/8     3-1/4       1-1/2
Quarter ended December 31........     1-1/8        1-3/16     2-3/8         3/4
Quarter ended March 31...........       7/8           5/8   2-11/16       1-1/4

         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 30,  1999.  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.  On October 10, 1998,  1,245,000  shares were  converted  into
1,431,750  shares of common  stock  leaving a balance of  105,000 6%  Redeemable
Cumulative Convertible Preferred Stock outstanding. 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 of June 1, 1998 by the
issuance  of 46,526,  on  December  17,  1998 and  accrued  4,388  shares of the
Company's Common Stock to be issued for the December 1, 1998 dividend.

         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.

                                       11
<PAGE>


ITEM 6.           SELECTED FINANCIAL DATA

         The  following  selected  financial  data  have been  derived  from the
consolidated  financial  statements of the Company,  its subsidiaries and Healix
for the years ended March 31, 1999,  1998,  1997, 1996 and 1995. The years ended
March 31, 1999 and 1998 were audited and reported upon by Marcum & Kliegman LLP.
For the years ended March 31,  1997,  1996 and 1995 of  Accuheath,  Inc. and its
subsidiaries,  prior to their restatement for the fiscal 1999 of interests, 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.

         On  April  9,  1998,  the  Company   completed  a  merger  with  Healix
Healthcare,  Inc.  ("Healix")  whereby  1,488,850 shares of the company's common
stock were  exchanged  for all of the  outstanding  common stock of Healix.  The
merger  constituted  a tax-free  organization  and has been  accounted  for as a
pooling of  interests.  Accordingly,  all prior  period  consolidated  financial
statements  presented  have been  restated  to include the  combined  results of
operations,  financial position and cash flows of Healix as though it had always
been a part of the Company.

         Prior to the merger,  Healix had a fiscal year end of September 30. The
following  consolidated financial statements for the years ended March 31, 1998,
1997 and 1996 reflect  restated numbers which combine  financial  statements for
the twelve months ended March 31, 1998,  1997 and 1996 of  Accuhealth,  Inc. and
its subsidiaries and September 30, 1997, 1996, and 1995 of Healix, respectively.


STATEMENT OF OPERATIONS DATA:
(In Thousands, except shares and per share data)
<TABLE>
<CAPTION>
                                                                          Fiscal Year ended March 31,
                                              -------------------------------------------------------------------------------------
                                                   1999            1998              1997             1996              1995
                                                   ----            ----              ----             ----              ----
<S>                                             <C>             <C>              <C>               <C>              <C>
Net sales.....................................  $   38,127      $   31,673       $   24,694        $   22,381       $   20,534
Gross profit..................................      14,062          14,749           11,129            10,871            9,826
Selling, general and administrative expenses..      17,913          14,105           10,724            11,075            9,326

Interest expense, net.........................      (1,627)           (814)            (631)             (651)            (695)
Miscellaneous Income (Expense)                          12              93               53              (137)              81
Recovery related to pre-investigation of
   management off book cash practices.........          --              --               --                --              525
Debt surrendered in settlement of claims......          --              --               --                --              488
Write off of merger related costs.............          --            (295)              --                --               --
Income (loss) from continuing operations
   before income taxes........................      (5,466)           (372)            (173)             (992)             899
Income Tax (Expense) Benefits.................          90            (104)             112                97              (97)
Equity and loss from unconsolidated subsidiary          --              --             (100)               --               --
Discontinued operations.......................          --              --               --                --             (278)
Income (loss) before extraordinary item.......      (5,376)           (476)            (161)             (895)             524
Extraordinary items...........................          --              --              136                --               60
Net income (loss) ............................      (5,376)           (476)             (25)             (895)             584
Net income (loss) applicable to common
   stockholders...............................  $   (5,463)     $     (638)      $     (187)       $   (1,099)      $      476

Weighted average common stock outstanding
   Basic......................................   4,357,239       3,243,192        2,889,273         2,762,124        2,899,003
   Diluted....................................   4,357,239       3,243,192        2,889,273         2,762,124        2,995,416

Earning (loss) per share data
   Basic......................................      ($1.25)          ($.20)           ($.06)           ($0.40)      $     0.16
   Diluted....................................      ($1.25)          ($.20)           ($.06)           ($0.40)      $     0.16

Balance Sheet Data

Total assets..................................  $   21,970      $   17,232       $   12,449        $    9,689       $    8,909
Long-term liabilities.........................       7,497           1,487            1,527               720            1,182
Total liabilities.............................      25,824          14,852           10,143             7,216            5,990
Redeemable Preferred Stock....................          --              --               --                --            2,710
Stockholders' equity (deficiency).............      (3,854)          2,380            2,306             2,473             (209)
</TABLE>

                                                         12
<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, 1999 as Compared to Fiscal Year ended March 31, 1998
--------------------------------------------------------------------------------

         Net  sales  for  Fiscal  1999  increased  approximately  $6,454,000  to
$38,127,000  from the $31,673,000  reported in Fiscal 1998. The increase was the
result of increases in the Company's oral medication and institutional  pharmacy
revenues and durable medical equipment revenues offset by a decrease in infusion
revenues.

         Gross profits for Fiscal 1999 were approximately $14.1 million and were
37% of total net sales as compared  to  approximately  $14.7  million or 47% for
Fiscal 1998.  The decrease in the gross profit  percentage  was due primarily to
the loss of a highly  profitable  infusion  product  revenues due to the lack of
availability  of the drug  needed to service  this  product  line and due to the
increase in sales from  institutional  and oral medication which generated lower
gross margins.

         Selling,  general and administrative  expenses increased  approximately
$3.8 million to $17.9 million or 47% of sales for 1999 from $14.1 million or 45%
for sales for fiscal 1998.  The increase  was  primarily  due to increase in bad
debt  expenses  ($3,175,000),   goodwill  write-offs  ($1,300,000),   consulting
expenses ($160,000),  insurance expense ($200,000), data processing  maintenance
($160,000),  auto leasing  expense  ($150,000),  dispatch  and delivery  expense
($125,000), offset by a decrease in salaries ($500,000).

         Net  Interest  expense in Fiscal  1999 was  $1,615,000  as  compared to
$814,000 in Fiscal 1998 due to increased net borrowings under our revolving line
of credit and issuance of $6,250,000 in 12% Subordinated Debentures.

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

         Net sales  from  Fiscal  1998  increased  approximately  $6,979,000  to
$31,673,000  from the $24,694,000  reported in Fiscal 1997. The increase was the
result of an increase in all lines of  businesses,  primarily the Company's oral
medication  revenues with more moderate increases from  institutional  pharmacy,
infusion services and durable medical equipment revenues.

         Gross  profits from Fiscal 1998 were  approximately  $14.7  million and
were 47 % of total net sales as compared to  approximately  $11.1 million or 45%
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 with carry  margins  that are
greater than the Company's institutional pharmacy sales.

         Selling,  general and administrative  expenses increased  approximately
$3.4 million to $14.1 million or 45% of sales for 1998 from  $10.7million or 43%
for sales from Fiscal  1997.  The  increase  was  primarily  due to increases in
salaries ($500,000), consulting ($100,000), expenses relating to ProHealth Care,
Infusion  Services,  Inc. which was acquired on July 1, 1997 ($720,000),  merger
expenses  in  connection  with  Healix  Healthcare,   Inc.   ($295,000),   legal
settlements   ($108,000),   rent   ($186,000),   depreciation  and  amortization
($225,000).

         Net  interest  expense  in Fiscal  1998 was  $814,000  as  compared  to
$631,000 in Fiscal 1997.

LIQUIDITY AND FINANCIAL CONDITION

         As of March 31, 1999, the Company had working capital of  approximately
$550,000.

                                       13
<PAGE>

         The Company's  cash provided by financing  activities of  approximately
$7,386,000  was  primarily  attributable  to the net  proceeds of  approximately
$6,250,000  from  the 12%  Cumulative  Convertible  Notes  and net  proceeds  of
$3,028,000 under the Company's revolving credit facility and term loan offset by
principal payments on capital leases.  The cash used in operating  activities of
approximately   $6,796,000  was  primarily  attributable  to  the  net  loss  of
approximately  $5,376,000 and increases in accounts  receivable of approximately
$3,900,000 partially offset by goodwill write-offs.

         Accounts  receivable  include  amounts  due  from  third-party  payors,
primarily  governmental  agencies  (Medicare and  Medicaid).  At March 31, 1999,
gross Medicare and Medicaid receivables aggregated $5,150,643.

         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.

         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 was be converted to
common stock in Accuhealth at a 15% premium per an agreement  with the preferred
stockholders.  In December 1998  1,245,000  shares of 6% Cumulative  convertible
Preferred  Stock was converted  into  1,432,000  shares of the Company's  common
stock.

         The  Company  operates  under  cash  flow  pressure  primarily  due  to
difficulty in collecting its accounts  receivable on a timely basis.  Management
has taken actions and is  formulating  additional  plans to generate  sufficient
cash to meet its operating  needs  through March 31, 2000 and beyond.  Among the
actions  taken are the  restructuring  of the  reimbursement  (collections)  and
customer service  departments to enhance  productivity  and collection  efforts,
redirecting  the sales  initiatives to focus on the  qualitative  aspects of new
business  such as account  profitability  and  collectibility  of the  Company's
billings,  obtaining  better  terms and  financing  from  vendors  and  reducing
corporate expenses, primarily compensation and bad debt expense. The Company has
commenced  discussions  to increase the borrowing  capacity  under its revolving
credit facility.

         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.  For the years ended
March 31, 1999 and 1998,  weighted  average number of common shares  outstanding
throughout the periods  includes  shares issued by Accuhealth as a result of the
Healix   merger.   Common  stock   equivalents   have  been  excluded  from  the
weighted-average shares for 1999, 1998, and 1997, as inclusion is anti-dilutive.
Potentially diluted securities, which consist of stock options and warrants, may
be  potentially  diluted  in the  future.  All  prior  period  EPS data has been
restated to conform to the new pronouncement.

Year 2000 Readiness

         The Company has  completed its  assessment of its computer  systems and
facilities that could be affected by the "Year 2000 problem" and has developed a
plant to resolve the issue.  The Year 2000 problem  arose  because many existing
computer  programs  use only the last two digits to refer to a year.  Therefore,
these computer  programs do not properly  recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications could
fail or create erroneous results.

         The Company is implementing its Year 2000 compliance program as part of
a plan to replace and upgrade its information  technology  systems (the "Upgrade
Program").  The Upgrade Program was initiated to replace  information systems of
certain  substances of the Company acquired by merger,  to fully integrate those
systems with the Company's  information  technology  systems,  and to update the
Company's  information  technology systems.  The Company has divided the Upgrade
Program  into  the  following  phases:  assessment,  planning,  remediation  and

                                       14
<PAGE>

testing.  The Company is currently  approximately  30% complete with the Upgrade
Program and anticipates  being complete with all phases of the Upgrade  Program,
including  year 2000  compliance  by the fourth  quarter of 1999.  Although  the
Company believes that it will complete the Upgrade Program by the fourth quarter
of 1999,  there can be no assurance that such  remediation  will be completed or
that the Company's operations will not be disrupted to some degree.

         The Company  currently expects the Upgrade Program to be completed in a
time frame to avoid any material  adverse effect on operations.  As of March 31,
1999, the Company had incurred  approximately $285,000 of expenses in connection
with the Upgrade Program.  The Company expects to incur  additional  expenses of
approximately  $300,000 to complete the  implementation  of the Upgrade Program.
The Company would have implemented the Upgrade Program  irrespective of the Year
2000 problem,  and although the Company expects that the  implementation  of the
Upgrade Program will achieve Year 2000 compliance, the Company cannot separately
assess  the  expenses  relating  to the  Year  2000  compliance.  The  Company's
inability to complete Year 2000 compliance on a timely basis or the inability of
other companies with which the Company does business to complete their Year 2000
modifications on a timely basis could adversely affect the Company's operations.

         The  Company has  initiated  communications  with its major  vendors to
identify and, to the extent possible,  to resolve issues involving the Year 2000
Problem.  The Company is  attempting  to mitigate  its risk with  respect to the
failure of such  vendors  to be Year 2000  compliant  by,  among  other  things,
obtaining Year 2000  compliance  certifications  or written  assurances from its
material  vendors.  However,  the  Company  has  limited or no control  over the
actions of these suppliers. Thus, while the Company expects that it will be able
to resolve any significant  Year 2000 Problems with these systems,  there can be
no assurance  that these  suppliers  will resolve any or all Year 2000  Problems
with  these  systems  before the  occurrence  of a  material  disruption  to the
business of the Company or any of its customers.  Any failure of these suppliers
to resolve Year 2000 Problems with their systems in a timely manner could have a
material  adverse effect on the Company's  business,  financial  condition,  and
results of operation.

         Management  believes that the most significant risk to the Company from
the Year 2000 Problem is the effect such issues may have on third party  payors,
such as  Medicare.  News  reports have  indicated  that various  agencies of the
federal  government may have difficulty  becoming year 2000 compliant before the
Year 2000.  The Company has not yet  undertaken  to quantify the effects of such
noncompliance or to determine whether such quantification is even possible.  The
Company has  initiated  communications  with its third party  payors to identify
and, to the extent possible,  to resolve issues involving the Year 2000 problem.
However,  the Company has limited or no control  over the actions of these third
party payors.  Thus,  while the Company  expects that it will be able to resolve
any significant Year 2000 problems with these payors,  there can be no assurance
that these payors will resolve any or all Year 2000  problems with their systems
before the  occurrence of a material  disruption to the business of the Company.
Any failure of these third party payors to resolve Year 2000 problems with their
systems in a timely manner could have a material adverse effect on the Company's
business, financial condition, and results of operation.

         The Company is in the  process of  generating  a Year 2000  contingency
plan in the event  compliance is not  achieved.  In  connection  therewith,  the
Company expects to identify reasonably likely scenarios which could arise in the
event of the Company's Year 2000  noncompliance.  Once these scenarios have been
identified, the Company will develop plans in an attempt to reduce the impact of
these noncompliance scenarios on the Company and its core functions. The Company
expects to be  substantially  complete with this  contingency  plan by the third
quarter of 1999.  However,  there can be no assurance that this contingency plan
will be completed on a timely basis or that such a plan will protect the Company
from  experiencing  a material  adverse  effect on its  financial  condition  or
results of operations.

         Potential  consequences  of the  Company's  failure to resolve its Year
2000 issues could  include,  among others,  (i) the inability to accurately  and
timely  process  claims,  respond to third party payor  inquiries  about claims,
enroll customers,  bill third party payors,  collect  receivables,  pay vendors,
record  and  disclose  accurate  data and  perform  other  core  functions  (ii)
increased  scrutiny be regulators  and breach of  contractual  obligations,  and
(iii) litigations in connection therewith.

                                       15
<PAGE>


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-21,  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 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.

                                       16
<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 29, 1999:

<TABLE>
<CAPTION>
                                                                                            Annual Meeting
                                     Officer or                                              at Which Term
           Name                    Director Since     Age           Position                  will Expire
           ----                    --------------     ---           --------                  -----------
<S>                                     <C>            <C>     <C>                                <C>
E. Virgil Conway.................       1994           69      Director                           1999

Glenn C. Davis...................       1994           50      President, Chief Executive         2000
                                                               Officer and Director

Stanley Goldstein................       1994           63      Chairman and Director              2001

Howard C. Landis.................       1998           45      Director                           2001

Donald B. Louria, M.D............       1994           70      Director                           2000

Sally Hernandez-Pinero...........       1994           46      Director                           2000

Corbett A. Price.................       1994           49      Director                           1999

Jeffrey S. Freed, M.D............       1998           54      Director and Executive Vice        2001
                                                               President--Strategy
</TABLE>

         Set forth below are brief  summaries of the business  experience of the
persons who were directors as of June 29, 1999:

         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
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  corporation,  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 a director, Chief Executive Officer and President
of the Company on February 3, 1994 and since April 15, 1999 is serving as acting
Chief Financial Officer. Mr. Davis is a member of the Executive Committee.  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.

                                       17
<PAGE>

         JEFFREY S.  FREED,  M.D.,  was  elected a director  on June 25, 1998 in
connection with the Healix Healthcare, Inc. merger. Dr. Freed is a member of the
Professional  Conduct  Committee.  Since  April  1998,  Dr.  Freed has served as
Executive  Vice  President --  Strategic  Development  and Medical  Director for
Accuhealth.  From March 1995 to March 1998,  Dr. Freed was President and Medical
Director of Healix Healthcare, Inc. He also is a Clinical Associate Professor of
Surgery at the Mount Sinai School of Medicine and a practicing general surgeon.

         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.

         HOWARD C. LANDIS was  elected a director  on June 25, 1998  pursuant to
agreements  executed in connection with the purchase by RFE Investment  Partners
V.L.P.  of  convertible  subordinate  debt.  Mr. Landis is a member of the Audit
Committee.  Since 1980, Mr. Landis has been employed by RFE Management Corp., an
investment manager of private equity investment funds. Since 1983 Mr. Landis has
been a general  partner of these  private  equity  funds.  Mr.  Landis is also a
director of a number of privately owned companies.

         DONALD B. LOURIA,  M.D.,  M.A.C.P.  was elected a director on April 29,
1994. Dr. Louria chairs 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.
On May 1, 1999 Ms. Hernandez-Pinero became a Senior Vice President for Corporate
Affairs  for  Related  Companies  LLP, a real  estate  development,  management,
syndication  and  financing  company.  Since June 1998 to April 1999 she was the
Managing   Director  of  Fannie  Mae  where  she  identified  equity  investment
opportunities  for the capital fund. She was previously a member of the law firm
of Kalkines Arky Zall & Bernstein.  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  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 chairs the  Compensation  and Nomination  Committee and is a member of the
Stock  Option  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.

                                       18
<PAGE>

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

         Effective  April 1, 1999 the  consulting  agreement was amended to have
the monthly consulting fee and expense reimbursement reduced to $3,000 monthly.

         The following table sets forth all compensation earned, awarded or paid
by the Company to its Chief  Executive  Officer,  Executive  Vice  President and
Chief Operating Officer and Senior Vice President -- Finance and Chief Financial
Officer  for the fiscal  year ended March 31,  1999.  No other  person who was a
director, executive officer or employee at any time during the fiscal year ended
March 31,  1999,  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
                                                 ------------                  ------------
                                                                                All Other
     Name and Principal Position       Year         Salary         Bonus       Compensation
     ---------------------------       ----         ------         -----       ------------
<S>                                     <C>        <C>           <C>           <C>
Glenn C. Davis...................     FY1999       $275,000            --            --
  President and Chief Executive..     FY1998       $250,000      $ 25,000            --
  Officer........................     FY1997       $200,000            --            --
Mary Comerford...................     FY1999       $175,000            --            --
  Executive Vice President and
  Chief Operating Officer
Prisco DeMercurio................     FY1999       $125,000      $ 25,000
  Senior Vice President and Chief
  Financial Officer
Dr. Jeffrey S. Freed.............     FY1999       $ 65,000            --      $ 41,000(1)
  Executive Vice President
</TABLE>

-----------------
(1)      Comprised  of  life   insurance   premiums  of  $29,000  per  year  and
         an auto allowance of $12,000 per year.

EMPLOYMENT AGREEMENT

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.  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.  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.

                                       19
<PAGE>

In  connection  with the Healix  merger,  Dr.  Jeffrey S. Freed  entered into an
employment agreement with the Company.  Under the employment agreement Dr. Freed
shall serve a Executive  Vice-President and be entitled to an annual salary at a
rate of $65,000 and options to purchase  60,000 shares of the  Company's  common
stock.  The agreement  also  provides for  reimbursement  for business  expenses
incurred in the  performance of the employment  duties,  a $1,000 per month auto
allowance and payment of $28,245 per year of life insurance premiums pursuant to
a Split-Dollar Agreement whereby the cash values of the policies are assigned to
the employer as  collateral  for the ultimate  repayment to the Employer for the
premium outlay. The term of this agreement expires on December 31, 2001 (initial
term) with a two year  renewal,  provision  ending  December  31, 2003  (renewal
period). The agreement also provides for certain payments for termination due to
death or disability  equal to the  Executives  Base Salary,  for  termination to
Employer's  Breach equal to the later of (A) the remaining term of the agreement
or (B) six months and if termination results from a change in control any unpaid
Base  Salary  and a  severance  payment  in the  amount  equal to 2.9  times the
Executive's  Base Salary.  Further,  the  agreement  contains  Non-Solicitation;
Non-Competition;  and Confidentiality provisions ranging from one to three years
as the circumstances as defined so warrant.

In  connection  with  the  Healix  merger,  Mary B.  Comerford  entered  into an
employment  agreement  with the Company.  Under the  employment  agreement,  Ms.
Comerford  shall serve as Executive  Vice President and be entitled to an annual
salary at a rate of $175,000 a hire-on  bonus of 50,000  shares of the Company's
common stock issued in three  annual  installments  (none issued as of March 31,
1999),  an annual bonus based on certain  performance  criteria up to 50% of the
base salary,  and options to purchase 50,000 shares of the Employer Common Stock
pursuant to the terms of an option agreement. The term of this agreement expires
on December 31, 2001 (initial  term) with a two year renewal  provisions  ending
December 31, 2003  (renewal  period).  The  agreement  also provides for certain
payments for termination due to death or disability  equal to the Executive Base
Salary,  for termination due to Employer's  Breach equal to the later of (A) the
remaining  term of the  agreement or (B) six months and if  termination  results
from a change in control any unpaid  Base Salary and a severance  payment in the
amount equal to 2.9 times the Executive's Base Salary.  Further,  this agreement
contains  Non-Solicitation;   Non-Competition;  and  Confidentiality  provisions
ranging from one to three years as the circumstances as defined so warrant.

STOCK OPTIONS

The following tables set forth information concerning exercisable options during
the fiscal year ended March 31, 1999,  with respect to the Common  Stock.  Stock
options  totalling  110,000 shares were granted in April,  1998 to two executive
officers. No stock appreciation rights were granted to executive officers and no
stock options or stock appreciation  rights were exercised by executive officers
during such year.
<TABLE>
<CAPTION>
                                      FISCAL YEAR-END OPTION VALUES

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

             Name               Exercisable    Unexercisable    Exercisable    Unexercisable
             ----               -----------    -------------    -----------    -------------
<S>                               <C>             <C>                <C>             <C>
         Glenn C. Davis           140,000         60,000(1)          --              --
         Jeffrey S. Freed               0         60,000(2)          --              --
         Mary Comerford                 0         50,000(2)          --              --
         Prisco DeMercurio         25,000         25,000(1)          --              --
</TABLE>

(1)      The option exercise price of such shares is $2.00 per share.
(2)      The option exercise price of such shares is $2.875 per share.

                                       20
<PAGE>


ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth existing stock ownership as of June 29,
1999, 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.

                                       Amount of Nature of
                                           Beneficial
Name of Beneficial Owner(1)               Ownership (1)     Percent of Class (2)
---------------------------               -------------     --------------------
Glenn C. Davis                           260,760(3)(4)(5)           5.31
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460

Stanley Goldstein                        333,842(3)(4)(6)           6.91
c/o Accuhealth, Inc.
1575 Bronx River Ave.
Bronx, New York, 10460

E. Virgil Conway                          34,229(11)(12)            *

Howard C. Landis                               0                    *

Donald B. Louria, M.D.                    31,500(7)                 *

Sally Hernandez-Pinero                    15,500(12)                *

Corbett A. Price                          29,204(16)                *

Mary Comerford                           124,072(17)                2.55%

Prisco DeMercurio                              0                    *

Special Situation Fund III, L.P.         706,928(8)                14.67
153 East 53rd Street
New York, New York 10022

Penfield Partners, L.P.                  324,027(9)                 6.72
153 East 53rd Street
New York, New York 10022

Special Situations Cayman Fund, L.P.     244,251(10)                5.07
153 East 53rd Street
New York, New York 10022

CMNY Capital II, L.P.                    355,368(13)                7.37
c/o Carl Marks & Company, Inc.
135 East 57th Street
27th Floor
New York, New York 10022

Jeffrey S. Freed, M.D.                   521,883(15)               10.69

All Directors and Executive            1,376,940(14)               26.80
Officers as a Group (10 persons)

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

                                       21
<PAGE>

(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
         (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  40,000 and  20,000  shares  issuable  pursuant  to  currently
         exercisable stock options for Davis and Goldstein, respectively.

(4)      Includes  220,760 and 314,842  shares owned of record and  beneficially
         for Davis and Goldstein, respectively.

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

(6)      Includes  3,000 shares  issuable upon  conversion of 3,000 shares of 6%
         Preferred Stock.

(7)      Includes 24,500 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 706,928 shares owned of record and beneficially.

(9)      Includes 324,027 shares owned of record and beneficially.

(10)     Includes 244,251 shares owned of record and beneficially.

(11)     Includes 18,729 shares owned of record and beneficially.

(12)     Includes 15,500 shares issuable pursuant to currently exercisable stock
         options.

(13)     Includes 355,368 shares owned of record and beneficially.

(14)     Includes  1,057,940  shares owned of record and  beneficially,  266,000
         shares  issuable  pursuant to currently  exercisable  stock options and
         53,000 shares issuable upon conversion of 53,000 shares of 6% Preferred
         Stock.

(15)     Includes  461,883 shares issued  pursuant to the Healix  acquisition to
         Jeffrey  S.  Freed,  M.D.,  and  60,000  shares  issuable  pursuant  to
         currently exercisable stock options.

(16)     Includes  13,704  shares  owned of record and  beneficially  and 15,500
         shares issuable pursuant to currently exercisable stock options.

(17)     Includes  74,072  shares  owned of record and  beneficially  and 50,000
         shares issuable pursuant to currently exercisable stock options.

(17a)    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 the following persons reported changes
         in their beneficial  ownership of the Company's securities with respect
         to the following transactions in year-end filings on Form 5 rather than
         earlier in the year: the conversion of the Company's preferred stock to
         Common Stock on December 1, 1998 (Messrs.  Conway and  Goldstein);  and
         the  issuance  of shares of the  Company's  common  stock in the Healix
         merger  on  October  9, 1998 (Dr.  Freed  and Ms.  Comerford);  and the
         issuance  of stock  options on October  23,  1997  (Messrs,  Conway and
         Price, Ms. Hernandez-Pinero and Dr. Louria).

                                       22
<PAGE>

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.  During the fiscal year ended March 31, 1999 the Company issued
46,957 of its common stock in consideration of forgiveness of accrued consulting
fees of $135,000 owed Mr. Goldstein.

During the Fiscal year 1999,  the Company  granted a loan to Mr. Glenn C. Davis,
President and CEO, in the amount of $100,000 due on demand,  bearing interest of
8%. Such loan is  collateralized by 50,000 shares of the Company's 6% cumulative
convertible and Preferred Stock.

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, 1999.

(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.

                                       23
<PAGE>


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)

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)

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).

                                       24
<PAGE>


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.

10.22    Employment  Agreement  dated April 1, 1998 between Dr. Jeffrey S. Freed
         and the Registrant

10.23    Employment Agreement dated April 1, 1998 between Mary Comerford and the
         Registrant

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

                                       25
<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:  July 14, 1999             By:  /s/ Glenn C. Davis
                                      -----------------------------------------
                                          Glenn C. Davis
                                          President and Chief Executive 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:  July 14, 1999             By:  /s/ Stanley Goldstein
                                      -----------------------------------------
                                          Stanley Goldstein
                                          Chairman of the Board of Directors

Date:  July 14, 1999             By:  /s/ Glenn C. Davis
                                      -----------------------------------------
                                          Glenn C. Davis
                                          Chief Executive Officer,
                                          President and Director

Date:  July 14, 1999             By:  /s/ E. Virgil Conway
                                      -----------------------------------------
                                          E. Virgil Conway,
                                          Director

Date:  July 14, 1999             By:  /s/ Jeffrey S. Freed, M.D.
                                      -----------------------------------------
                                          Jeffrey S. Freed, M.D.
                                          Director

Date:  July 14, 1999             By:  /s/ Howard C. Landis
                                      -----------------------------------------
                                          Howard C. Landis
                                          Director

Date:  July 14, 1999             By:  /s/ Donald B. Louria, M.D.
                                      -----------------------------------------
                                          Donald B. Louria, M.D.
                                          Director

Date:  July 14, 1999             By:  /s/ Sally Hernandez-Pinero
                                      -----------------------------------------
                                          Sally Hernandez-Pinero, Director

Date:  July 14, 1999             By:  /s/ Corbett A. Price
                                      -----------------------------------------
                                          Corbett A. Price, Director

                                       26

<PAGE>

<TABLE>
<CAPTION>
                                 ACCUHEALTH, INC. AND SUBSIDIARIES
                           INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
                                   FINANCIAL STATEMENT SCHEDULES

                                                                                              Page
                                                                                              ----
<S>                                                                                           <C>
Reports of Independent Auditors............................................................   F-2,3

Consolidated Balance Sheets at March 31, 1999 and March 31, 1998...........................     F-4

Consolidated Statements of Operations and comprehensive income (loss) for the Years
    Ended March 31, 1999, 1998 and 1997....................................................     F-5

Consolidated Statements of Stockholders' Equity (Deficiency) for the Years
    Ended March 31, 1999, 1998 and 1997....................................................     F-6

Consolidated Statements of Cash Flows for the Years
    Ended March 31, 1999, 1998 and 1997....................................................   F-7-8

Notes to Consolidated Financial Statements.................................................  F-9-23

Financial Statement Schedules

II.  Valuation and Qualifying Accounts.....................................................    F-24
</TABLE>


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>


                         REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Accuhealth, Inc.
and  subsidiaries  as of March 31, 1999 and 1998,  and the related  consolidated
statements of operations  and  comprehensive  loss,  stockholders'  (deficiency)
equity and cash  flows for the years then  ended.  Our audit also  included  the
financial  statement  schedule  listed in 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 audits.

We  conducted  our  audits  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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Accuhealth, Inc. and
subsidiaries as of March 31, 1999 and 1998, and the results of their  operations
and their  cash  flows for the years 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.

We previously audited and reported on the consolidated  statements of operations
and cash flows of Healix  Healthcare,  Inc., and subsidiaries for the year ended
September 30, 1996,  prior to their  restatement  for the fiscal 1999 pooling of
interests. The contribution of Healix Healthcare, Inc. and subsidiaries to total
assets, revenues and net loss represented 32 percent, 608 percent, of the fiscal
1997 respective restated totals.  Separate consolidated  financial statements of
Accuhealth,   Inc.  and  subsidiaries  included  in  the  fiscal  1997  restated
consolidated  statements of operations  and cash flows were audited and reported
on separately by other  auditors.  We also have audited the  combination  of the
accompanying  consolidated  statements of operations and cash flows for the year
ended  March  31,  1997,  after  restatement  for the  fiscal  1999  pooling  of
interests;  in our opinion,  such  consolidated  statements  have been  properly
combined on the basis  described  in Note 1 of notes to  consolidated  financial
statements.

July 9, 1999


MARCUM & KLIEGMAN LLP
New York, New York

                                      F-2
<PAGE>


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Accuhealth, Inc.

We have audited the accompanying consolidated balance sheet of Accuhealth,  Inc.
and subsidiaries as of March 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in the
period ended March 31, 1997.  Our audits also included the  financial  statement
schedule  listed in the Index at Item  14(a).  These  financial  statements  and
schedule are the responsibility of the Company's management.  Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We  conducted  our  audits  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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  consolidated  financial  position  of
Accuhealth, Inc. and subsidiaries at March 31, 1997 and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended  March  31,  1997  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.


ERNST & YOUNG LLP

New York, New York
June 16, 1997

                                      F-3
<PAGE>
<TABLE>
<CAPTION>
                                   ACCUHEALTH, INC. AND SUBSIDIARIES
                                      CONSOLIDATED BALANCE SHEETS
                       (Amounts in thousands, except shares and per share data)

                                                                                         March 31,
                                                                                    --------------------
                                                                                      1999        1998
                                                                                    --------    --------
<S>                                                                                 <C>         <C>
ASSETS
Current Assets:
   Cash .........................................................................   $     85    $    382
   Marketable securities ........................................................      2,372          --

   Accounts receivable, less allowance for doubtful accounts of
     $1,615 in 1999 and $516 in 1998 ............................................     14,499      10,221
   Inventories ..................................................................      1,653       1,770
   Prepaid expenses and other current assets ....................................        267         374
                                                                                    --------    --------

   Total Current Assets .........................................................     18,876      12,747
Revenue producing equipment, net ................................................        901         493
Fixed assets, net ...............................................................      2,100       2,051
Goodwill, net ...................................................................         --       1,387
Other ...........................................................................         93         554
                                                                                    --------    --------

   Total Assets .................................................................     21,970      17,232
                                                                                    ========    ========

LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY

Current Liabilities:
   Notes payable - revolving credit facility ....................................      7,765       5,354
   Current portion of notes payable - other .....................................        857         925
   Margin payable ...............................................................      1,281          --
   Accounts payable .............................................................      5,517       5,052
   Accrued expenses and other current liabilities ...............................      2,245       1,660
   Current portion of capital lease - Facility ..................................        232         107
   Current portion of other capital lease obligations ...........................        430         177
   Deferred Income Taxes ........................................................         --          90
                                                                                    --------    --------

       Total Current Liabilities ................................................     18,327      13,365

12% Subordinated Debentures .....................................................      6,250          --
Notes payable - term loan .......................................................        750         500
Notes payable - other, less current portion .....................................        109         510
Capital lease - Facility, less current portion ..................................         --         232
Other capital lease obligations, less current portion ...........................        388         245
                                                                                    --------    --------

       Total Liabilities ........................................................     25,824      14,852

Commitments and Contingencies (See Notes 9 and 11)
Stockholders' (Deficiency) Equity:
   Preferred Stock, $.01 par value: authorized 3,650,000 shares; no
     shares issued and outstanding
   Preferred stock, $.01 par value; 6% cumulative convertible, $213
     and $2,754 liquidation preference in 1999 and 1998, respectively,
     authorized 1,350,000 shares; issued and outstanding 105,000 shares
     (1999) and 1,350,000 shares (1998) .........................................          1          14
   Common stock $0.1 par value; authorized 15,000,000 shares;
     5,127,593 (1999) and 3,597,972 (1998) shares issued and
     outstanding ................................................................         51          36
   Additional paid-in capital ...................................................      7,606       7,385
   Accumulated other comprehensive loss .........................................        (42)         --
   Accumulated deficit ..........................................................    (10,846)     (4,431)
                                                                                    --------    --------
                                                                                      (3,230)      3,004
   Less treasury stock (308,004 shares) at cost .................................       (624)       (624)
                                                                                    --------    --------
Total Stockholders' (Deficiency) Equity .........................................     (3,854)      2,380
                                                                                    --------    --------

Total Liabilities and Stockholders' (Deficiency) Equity .........................   $ 21,970    $ 17,232
                                                                                    ========    ========

                            See notes to consolidated financial statements.

                                                 F-4
</TABLE>
<PAGE>

<TABLE>
<CAPTION>

                            CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
                              (Amounts in thousands, except shares and per share data)

                                                                          -----------------------------------------
                                                                                          YEARS ENDED MARCH 31,
                                                                          -----------------------------------------
                                                                              1999          1998            1997
                                                                          -----------    -----------    -----------
<S>                                                                       <C>            <C>            <C>
Net sales .............................................................   $    38,127    $    31,673    $    24,694
Cost of goods sold ....................................................        24,065         16,924         13,565
                                                                          -----------    -----------    -----------
    Gross profit ......................................................        14,062         14,749         11,129
Selling, general and administrative expenses ..........................        17,913         14,105         10,724
Merger related costs ..................................................            --            295             --
                                                                          -----------    -----------    -----------
Operating income (loss) ...............................................        (3,851)           349            405
Other Income Expense:
    Net interest expense ..............................................        (1,627)          (814)          (631)
    Miscellaneous income ..............................................            12             93             53
    Equity in Loss from unconsolidated subsidiary .....................            --             --           (100)
                                                                          -----------    -----------    -----------
Income (Loss) Before Income Taxes .....................................        (5,466)          (372)          (273)
Income Tax (Expense) Benefit ..........................................            90           (104)           112
                                                                          -----------    -----------    -----------
Loss before Extraordinary Item ........................................        (5,376)          (476)          (161)
Extraordinary Item -- forgiveness of debt net of
    applicable income tax of $13 ......................................            --             --            136

Net loss ..............................................................        (5,376)          (476)           (25)
Redeemable preferred stock dividends and accretion ....................           (87)          (162)          (162)
                                                                          -----------    -----------    -----------
Net loss applicable to common stockholders ............................   $    (5,463)   $      (638)   $      (187)
                                                                          ===========    ===========    ===========
Weighted average common stock outstanding:
    Basic .............................................................     4,417,711      3,243,192      2,889,273
    Diluted ...........................................................     4,417,711      3,243,192      2,889,273

Earning (loss) per share data:
    Basic .............................................................        ($1.22)        ($0.20)        ($0.06)
    Diluted ...........................................................        ($1.22)        ($0.20)        ($0.06)



    Net loss ..........................................................   $    (5,376)   $      (476)   $       (25)
Other Comprehensive loss, net of tax:
    Unrealized loss on marketable securities, net of tax benefits of $1   $       (42)   $         0    $         0
                                                                          -----------    -----------    -----------

       Total comprehensive loss .......................................   $    (5,418)   $      (476)   $       (25)
                                                                          ===========    ===========    ===========

                                  See notes to consolidated financial statements.
</TABLE>

                                                         F-5

<PAGE>
<TABLE>
<CAPTION>

                                                  ACCUHEALTH, INC. AND SUBSIDIARIES
                                     CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIENCY) EQUITY
                                               YEARS ENDED MARCH 31, 1999, 1998, 1997
                                      (Amounts in thousands, except shares and per share data)

                                        Preferred Stock   Common Stock                           Treasury Stock
                                      ---------------------------------------------------------------------------
                                                                                                                   Other
                                                  $.01              $.01  Additional                               Compre-
                                      Number of    Par   Number of   Par   Paid-In   Retained    Number            hensive
                                        Shares    Value   Shares    Value  Capital   Earnings   of Shares   Cost   (loss)     Total
                                      ---------------------------------------------------------------------------------------------
<S>                                    <C>          <C>  <C>         <C>     <C>      <C>       <C>        <C>     <C>       <C>
Balance, March 31, 1996,
   as previously reported............  1,350,000  $  14  1,630,233  $ 16  $   6,008  $ (4,119)  (308,004)  $(624)  $         $1,294
Shares issued to Healix in
   connection with pooling
   of interests......................                    1,488,850    14        509       655                                 1,179
                                      ---------------------------------------------------------------------------------------------
Balance, March 31, 1998, as restated.  1,350,000     14  3,119,083    30      6,517    (3,464)  (308,004)   (624)             2,473
Preferred stock dividends paid with
   common stock - July 8, 1996.......                       52,856     1         80       (81)                                   -0-
Preferred stock dividends paid with
   common stock - April 11, 1997.....                      104,509     1         80       (81)                                   -0-
Distributions to Healix stockholders.                                                    (142)                                 (142)
Net loss.............................                                                     (25)                                  (25)
                                      ---------------------------------------------------------------------------------------------
Balance, March 31, 1997..............  1,350,000     14  3,276,448    32      6,677    (3,793)  (308,004)   (624)             2,306
Healix equity adjustments before the
   acquisition.......................                                           110                                             110
Issuance of common stock in connection
   with the merger...................                      300,000     3        555                                             558
Preferred stock dividends paid with
   common stock - July 25, 1997......                       45,556     1         80       (81)                                   -0-
Preferred stock dividends paid with
   common stock - January, 1998......                       35,354               81       (81)                                   -0-
Redemption of shares.................                      (59,386)            (118)                                           (118)
Net loss.............................                                                    (476)                                 (476)
                                      ---------------------------------------------------------------------------------------------
Balance - March 31, 1998.............  1,350,000     14  3,597,972    36      7,385    (4,431)  (308,004)   (624)             2,380
Healix loss for six months ended
   March 31, 1998 (unaudited)........                                                    (952)                                 (952)
Preferred stock dividends paid with
   common stock - June 1, 1998.......                       46,526     1         80       (81)
   Preferred stock conversion
   into common stock ................ (1,245,000)   (13) 1,431,750    14         (1)
Conversion of debt to common stock...                       46,957              136                                             136
Preferred stock dividends paid with
   common stock - December 1998......                        4,388                6        (6)                                    0
Unrealized loss on
   marketable securities.............                                                                                   (42)    (42)
Net Loss.............................                                                  (5,376)                               (5,376)
Balance, March 31, 1999..............    105,000  $   1  5,127,593  $ 51  $   7,606  $(10,846)  (308,004)  $(624)  $    (42)$(3,854)
                                      =============================================================================================
</TABLE>

                                                                 F-6
<PAGE>
<TABLE>
<CAPTION>


                                         ACCUHEALTH, INC. AND SUBSIDIARIES

                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)


                                                                                       YEARS ENDED MARCH 31,
                                                                                   -----------------------------
                                                                                     1999      1998       1997
                                                                                   -------    -------    -------
<S>                                                                                <C>        <C>        <C>
OPERATING ACTIVITIES
Net loss .......................................................................   $(5,376)   $  (476)   $   (25)

Adjustments to reconcile net loss to net cash used in operating activities:
    Deferred income taxes ......................................................       (90)       106          3
    Amortization of financing costs ............................................        12          8
    Realized gain on sales of marketable securities.............................       (12)        --         --
    Depreciation and amortization ..............................................       775        692        416
    Write off of goodwill ......................................................     1,305         --         --
    Changes in operating assets and liabilities:
       Accounts receivable .....................................................    (3,901)    (2,134)    (1,777)
       Inventories .............................................................      (184)      (167)      (274)
       Prepaid expenses and other current assets ...............................        29         19       (239)
       Other assets ............................................................       436       (222)      (147)
       Deferred costs ..........................................................        --       (121)       (90)
       Accounts payable ........................................................       131      1,049      1,134
       Accrued expenses and other current liabilities ..........................        91        275       (250)
                                                                                   -------    -------    -------

       Cash used in operating activities .......................................    (6,796)      (967)    (1,241)
                                                                                   -------    -------    -------

INVESTING ACTIVITIES
    Acquisition of goodwill ....................................................        --        (32)      (213)
    Purchases of marketable securities .........................................    (4,382)        --         --
    Proceeds from sales of marketable securities ...............................     1,980         --         --
    Purchases of fixed assets and revenue producing equipment ..................       (83)      (204)      (238)
    Cash acquired in connection with acquisition ...............................        --         22         --
    Proceeds from margin payable ...............................................     1,281         --         --
                                                                                   -------    -------    -------
    Cash used in investing activities ..........................................    (1,204)      (214)      (451)
                                                                                   -------    -------    -------

FINANCING ACTIVITIES
    Proceeds from issuance of capital stock ....................................        --         33         55
    Proceeds from sale of subordinated debentures ..............................     6,250         --         --
    Proceeds from note payable - revolving credit facility, net of payments ....     3,028      2,208        928
    Proceed from notes payable - term loan .....................................        --         --        500
    Proceeds from (repayment of) notes payable, other, net .....................      (497)      (246)       827
    Principal payments on capital lease - facility .............................       (71)       (54)       (89)
    Payments on other capital lease obligations ................................      (874)      (461)      (347)
    Distribution to stockholders ...............................................        --         --       (142)
    Repayment of stockholders loan .............................................        --         --       (149)
                                                                                   -------    -------    -------

    Cash provided by financing activities ......................................     7,836      1,480      1,583
                                                                                   -------    -------    -------

    Net increase (decrease) in cash ............................................      (164)       299       (109)
    Net changes in cash from October 1, 1997 to
      March 31, 1998 of Healix (unaudited) .....................................      (133)        --         --

    Cash at beginning of period ................................................       382         83        192
                                                                                   -------    -------    -------

    Cash at end of period ......................................................   $    85    $   382    $    83
                                                                                   =======    =======    =======
</TABLE>

                                                       F-7
<PAGE>
<TABLE>
<CAPTION>

                                         ACCUHEALTH, INC. AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                             (AMOUNTS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)


                                                                                       YEARS ENDED MARCH 31,
                                                                                   -----------------------------
                                                                                     1999      1998       1997
                                                                                   -------    -------    -------
<S>                                                                                <C>        <C>        <C>
Supplemental disclosure of cash flow information:
    Interest paid ..............................................................   $ 1,137    $   803    $   616
                                                                                   =======    =======    =======
    Income taxes paid ..........................................................   $    37    $    41    $    80
                                                                                   =======    =======    =======

Noncash investing and financing activities:
    Additions to capital leases and notes payable ..............................   $   774    $   820    $   363
    Goodwill recorded pursuant to acquisition ..................................        --      1,208         --
    Redemption of common shares ................................................        --       (119)        --
    Conversion of liabilities to common stock ..................................       135         78         --
    Conversion of accounts payable to notes payable ............................       600        350         --
    Write-off of property and equipment ........................................        --         12         --
    Issuance of common stock in exchange for assets acquired ...................        --         --         55
    Conversion of Preferred Stock to Common Stock ..............................        13         --         --
    Unrealized Losses on Marketable Securities .................................        42         --         --

The Company acquired the following  noncash assets and
liabilities in connection with its acquisition of ProHealthCare
Infusion Services Inc. during fiscal year ended March 31, 1998:

    Accounts Receivable.........................................................              $   658
    Inventory...................................................................                   63
    Property and Equipment......................................................                   65
    Accounts Payable............................................................                 (902)
                                                                                              -------

           Total................................................................              $  (116)
                                                                                              =======
</TABLE>

                                 See notes to consolidated financial statements.

                                                       F-8
<PAGE>


                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)


1.      ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         DESCRIPTION OF BUSINESS

         Accuhealth   Inc.,   ("Accuhealth")   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 PRESENTATION

         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.

         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 has determined 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.   The  aggregate   purchase  price  for  the
         acquisition of ProHealthCare,  Inc. stock was $1,208 which includes the
         cost  of the  acquisition,  direct  costs  and  assumption  of  certain
         liabilities  of PHCIS.  The  acquisition  has been accounted for by the
         purchase  method of  accounting.  Pro forma  disclosure  information in
         connection  with  this  transaction  is  not  included  because  it  is
         considered   immaterial  as  it  relates  to  the  Company's  financial
         statements in accordance  with the  regulations  of the  Securities and
         Exchange Commission.

         During the fiscal year ended March 31, 1999, management determined that
         the  goodwill  resulting  from the PHCIS  Acquisition  was impaired and
         warranted write off of the remaining balance.  The impairment  resulted
         from a severe  decline in revenue,  primarily  caused by the filing for
         liquidation of HIP of New Jersey in February 1999.

         On April 9, 1998,  Accuhealth completed a merger with Helix Healthcare,
         Inc.  ("Healix") whereby 1,488,850 shares of Accuhealth's  common stock
         were exchanged for all of the outstanding common stock of Healix.  Each
         share of  Healix  common  stock was  exchanged  for  .740721  shares of
         Accuhealth's   common   stock.   The  merger   constituted  a  tax-free
         organization  and has been  accounted  for as a pooling  of  interests.
         Accordingly,   all  prior  period  consolidated   financial  statements
         presented  have been  restated  to  include  the  combined  results  of
         operations,  financial  position  and cash flows of Healix as though it
         had always been a part of the Company.

         Prior to the merger,  Healix had a fiscal year end of September 30. The
         accompanying  consolidated  financial  statements  for the years  ended
         March  31,  1998  and  1997  reflect  restated  numbers  which  combine
         financial  statements  for the twelve  months  ended March 31, 1998 and
         1997  of  Accuhealth  and  September  30,  1997  and  1996  of  Healix,
         respectively.

         Amounts shown in the consolidated  statements of operations differ from
         those   previously   reported  to  stockholders  due  to  a  subsequent
         pooling-of-interests  transaction.  A  reconciliation  of sales and net
         income is as follows:

                                       F-9
<PAGE>
<TABLE>
<CAPTION>
                              ACCUHEALTH, INC. AND SUBSIDIARIES
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                   (Amounts in thousands, except shares and per share data)

                                                                       Years ended March 31
                                                                     ------------------------
                                                                       1998           1997
                                                                     ---------      ---------
<S>                                                                  <C>            <C>
            Net Sales:
               The Company, as previously reported................   $  18,603      $  16,369
               Healix (pooled company) for twelve months ended
                 September 30, 1997 and 1996......................   $  13,070      $   8,325
                                                                     ---------      ---------
                                                                     $  31,673      $  24,694
                                                                     =========      =========

            Net income (loss):
               The Company as previously reported.................   $    (206)     $     127
               Healix (pooled company) for twelve months ended
                 September 30, 1997 and 1996......................   $    (271)     $    (152)
                                                                     ---------      ---------
                                                                     $    (477)     $     (25)
                                                                     =========      =========
</TABLE>

         MANAGEMENT PLANS

         Management  has taken  action and is  formulating  additional  plans to
         strengthen  the  Company's   working  capital   position  and  generate
         sufficient  cash to meet its operating needs through March 31, 2000 and
         beyond.  Among the actions taken are restructuring of the reimbursement
         and customer service departments to enhance productivity and collection
         efforts, 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.

         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  acquisitions  is being amortized on a
         straight-line  basis  over  a  fifteen-year  period.   Amortization  of
         goodwill  charged to operations  for the years ended March 31, 1999 and
         March 31,  1998  amounted  to $96 and $56, respectively.  In  addition,
         $1,305 of  unamortized  goodwill  has been  written off during the last
         quarter ended March 31, 1999 as management determined such goodwill was
         impaired in accordance with Statement of Financial Accounting Standards
         No. 121,  "Accounting  for the  Impairment of Long lived Assets and for
         long lived Assets to be disposed of." The amount of goodwill impairment
         was measured based on the projected  discounted  future  operating cash
         flows compared to the carrying value of goodwill.

         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-10
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         MERGER RELATED COSTS

         Merger  transaction costs related to the Healix merger consists of fees
         for  attorneys,  accountants,  financial  printing  and other  expenses
         directly related to the merger.  The Company recorded expenses incurred
         of $295 related to this merger in the period ended March 31, 1998.

         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

         The  Company  calculated  earnings  per  share in  accordance  with 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 year.
         Diluted  EPS is computed by dividing  the  weighted  average  number of
         common shares and common stock equivalents outstanding during the year.
         For the years ended March 31, 1998 and 1997, weighted average number of
         common shares outstanding throughout the periods includes shares issued
         by  Accuhealth  as  a  result  of  the  Healix  merger.   Common  stock
         equivalents  have been  excluded from the  weighted-average  shares for
         1999, 1998 and 1997, as inclusion is anti-dilutive. Potentially diluted
         securities,  which consist of convertible debentures, stock options and
         warrants,  may be potentially  diluted in the future.  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
         Statements  of  Accounting  Standards  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 AND 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, 1999 and 1998, the Company had no cash equivalents.

         The Company has cash balances in banks and  investments  in a financial
         institution  in excess of the  maximum  amount  insured by the FDIC and
         SIPC as of March 31, 1999.

         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.

                                      F-11
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         LONG-LIVED ASSETS

         In  1998,  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.

         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, 1999 and 1998,  gross
         Medicare  and  Medicaid  receivables   aggregated  $5,151  and  $3,601,
         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 14%, 15% and 19%
         of the Company's net sales for the years ended March 31, 1999, 1998 and
         1997,  respectively.  At March 31, 1999, 1998 and 1997, 5%, 6% and 13%,
         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 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.

         COMPREHENSIVE INCOME

         In  1998,  the  Company  adopted  Statement  of  Financial   Accounting
         Standards No. 130 ("SFAS No. 130"),  "Reporting  Comprehensive Income."
         SFAS No.  130  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-12
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         BUSINESS SEGMENT

         In  1998,  the  Company  adopted  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." SFAS No.
         131 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.  The company has determined that under SFAS No.
         131, it operates  in one  segment of home  health  care  services.  The
         Company's customers and operations are within the United States.

         NEW ACCOUNTING PRONOUNCEMENTS

         In April 1998,  Statement of Position  ("SOP") 98-5,  "Reporting on the
         Costs of Start-Up Activities" was issued. This SOP provides guidance on
         the financial  reporting of start-up costs and  organization  costs. It
         requires the costs of start-up  activities and organization costs to be
         expensed as incurred. The SOP is effective for financial statements for
         fiscal years  beginning  after  December 15, 1998. The Company does not
         expect that the adoption of SOP No. 98-5 will have a material impact on
         its financial statements.

         In June 1998, the Financial Accounting Standards Board issued statement
         No.  133,   "Accounting   for   Derivative   Instruments   and  Hedging
         Activities,"  which is required to be adopted in years  beginning after
         June 15, 1999.  Management does not anticipate that the adoption of the
         new statement  will have a significant  effect on results of operations
         or the financial position of the Company.

                                      F-13
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

2.       MARKETABLE SECURITIES/MARGIN PAYABLE

         Companies are required to classify each of their  investments  into one
         of three categories,  with different  accounting for each category.  At
         March 31, 1999,  management has classified all their equity  securities
         as  available-for-sale  securities,  which are  reported at fair market
         value, with unrealized gains and losses reported as other comprehensive
         income.  Gains or losses on the sale of securities  are recognized on a
         specific  identification  basis. The Company's investment in marketable
         securities for the year ended March 31, 1999 is summarized as follows:

                                   Amortized    Unrealized Gain     Fair Market
                                     Cost            (loss)           Value
                                   ---------        --------        ----------
Balance - March 31, 1998.......    $       0        $      0        $        0

Purchases......................    $   4,382              --        $    4,382
Sales..........................       (1,980)             --            (1,980)
Realized gain..................           12              --                12
Unrealized loss................           --             (42)              (42)
                                   ---------        --------        ----------

Balance - March 31, 1999.......    $   2,414        $    (42)       $    2,372
                                   =========        ========        ==========

         The  Company  may  purchase  up to  50% of its  investments  on  margin
         advances  by its broker.  Interest,  which is payable at 7% amounted to
         $31 during the year ended March 31, 1999.

3.       REVENUE PRODUCING EQUIPMENT, NET

         The following  summarizes the Company's investment in revenue producing
         equipment:
<TABLE>
<CAPTION>
                                                                 March 31,
                                                          -----------------------        Estimated
                                                            1999            1998        Useful Lives
                                                          ------------------------------------------
                                                                     (In Thousands)
<S>                                                       <C>            <C>              <C>
           Revenue producing
              Equipment primarily under capital lease...  $  3,154       $  2,145         3-5 years

            Less accumulated depreciation and
              amortization..............................     2,253          1,652
                                                          --------       --------

                                                          $    901       $    493
                                                          ========       ========

4.       FIXED ASSETS

                                                                 March 31,
                                                          -----------------------        Estimated
                                                            1999            1998        Useful Lives
                                                          ------------------------------------------
                                                                       (In Thousands)
<S>                                                       <C>            <C>              <C>
           Land under capital lease...................    $    136       $    136
           Building under capital lease...............       1,226          1,226         40 years
           Equipment, furniture and fixtures..........       1,265          1,219        5-10 years
           Leasehold improvements.....................           4              4       10-15 years
           Equipment, furniture and fixture under
             capital leases...........................         804            681        5-10 years
           Building improvements......................         337            328         40 years
                                                          --------       --------
                                                             3,772          3,594
           Less accumulated depreciation and
             amortization, including $651 in 1999
             and $578 in 1998 attributable to assets
             under capital leases.....................       1,672          1,543
                                                          --------       --------
                                                          $  2,100       $  2,051
                                                          ========       ========
</TABLE>
                                      F-14
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

5.       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 $600 and
         $1,699  during the years ended March 31, 1999 and 1998,  respectively..
         These notes are payable in monthly  installments of approximately $2 to
         $8 with  interest  rates  ranging from 8.5% to 14.5%.  The  outstanding
         principal  balance  at March 31,  1999 and 1998  were $916 and  $1,379,
         respectively.

(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,
         1999 and March 31,  1998 of $50 and $56,  respectively,  is  payable in
         monthly  installments of $2 which includes interest at 10% per annum. A
         final balloon payment of $18 is due on March 1, 2000.

         The weighted average interest rate for notes  payable-other  was 11.3%,
         11.7%,  and 12.51% for the years ended March 31,  1999,  1998 and 1997,
         respectively. The average amount of notes payable-other outstanding for
         the years ended March 31,  1999 and 1998 was  approximately  $1,159 and
         $529  respectively.  Notes payable other are principally  short-term in
         nature. As such, fair value approximates the carrying value.

         Future  minimum cash  payments  under notes  payable - other and in the
         aggregate are as follows:

                 Fiscal Year                    Amount
                 -----------                   --------

                    2000                       $    857
                    2001                            109
                                               --------
                                               $    966
                                               ========

         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 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 12).

                                      F-15
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         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  (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 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
         12).  Commencing  April 28,  1996,  the Company  was  required to pay a
         facility fee of $35 per annum,  which  Amendment No. 2 increased to $40
         per annum.

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

         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 $9,000 under a revolving loan agreement at
         an  interest  rate of prime  (prime at March 31, 1999 was 7.75%) plus 1
         1/2%,  as well as an  overdraft  line of $1,000 at prime  plus 3%.  The
         amendment  also  increased  the term loan  available  to the Company to
         $750. In addition,  the Company granted Rosenthal  warrants to purchase
         50,000 shares of the Company's common stock (see Note 12).

         In connection with the RFE Investment  Partners L.P. financing approval
         in July 1998 (see Note 6), the Company  granted  Rosenthal  warrants to
         purchase 10,000 shares of the Company's common stock (See Note 12).

         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, 1999, 1998 and 1997 was 10.8%, 13.1%
         and 13.14%, respectively.  The amount outstanding at March 31, 1999 and
         1998 was $8,515, and $5,854 respectively.

6.       12% SUBORDINATED DEBENTURES

         On July 14, 1998 the Company  entered  into a Note  Purchase  Agreement
         with RFE Investment Partners L.P., ("RFE") whereby RFE purchased $5,000
         of the  Company's  12%  Subordinated  Debentures.  On August 21,  1998,
         Amendment  No. 1 to the Note Purchase  Agreement was executed,  whereby
         Sterling/Carl   Marks  Capital,   Inc.  was  added  as  an  "Additional
         Purchaser".  Sterling/Carl Marks Capital,  Inc. purchased an additional
         $750 of 12% Subordinated Debentures. On October 26, 1998, Amendment No.
         2 to the Note Purchase Agreement was executed, whereby Austin Marxe was
         added as an "Additional Purchaser". Austin Marxe purchase an additional
         $500 of 12% Subordinated Debentures.

         Interest  on the  debentures  is payable  quarterly,  in  arrears.  The
         Company  may,  at its  sole  discretion,  accrue  up to  six  quarterly
         interest  payments,  which would  otherwise be due,  until the maturity
         date.  Such accrued  interest  payments shall bear interest at the same
         rate and are  payable on the same  terms as  original  interest  on the
         debentures.

         Maturity  dates on the above  debentures  are July 14,  August  26, and
         October 26, 2003 for RFE,  Sterling/Carl Marks Capital, Inc. and Austin
         Marxe, respectively.

         At the  option of the note  holders,  the notes can be  converted  into
         shares of common stock equal to the  quotient  obtained by dividing the
         aggregate  principal  amount by the Conversion  Price, as defined.  The
         initial  Conversion Price is $2.875 and the Conversion Price is subject
         to adjustment as set forth in the agreement.  If a Conversion Event, as
         defined,  occurs, the notes will be mandatory converted into the shares
         of common stock.

                                      F-16
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         In addition, on the maturity date, the Company is required to deliver a
         Common  Stock  Warrant,  as  defined,  to each of the  holders  with an
         exercise price per share equal to $0.01, to purchase  certain shares of
         the Company's  common stock. The number of shares of Common Stock to be
         purchased  will be  computed  based  upon a  pre-determined  formula as
         prescribed in the agreement.

7.       PROVISION FOR UNCOLLECTIBLE AMOUNT DUE FROM MAJOR CUSTOMER

         Since December  1996,  the Company has been  providing  services to HIP
         Health Plan of New Jersey ("HIP").  In October 1997, HIP entered into a
         contract with Pinnacle Health Enterprises  ("PHE"), a subsidiary of PHP
         Health Care  Corporation  (PHP),  wherein PHE would  manage the medical
         risk and  provide  all the health  care  services  and  supplies to HIP
         members and pay claims and contracts  with  providers on behalf of HIP.
         HIP requested that the Company  coordinate  its HIP network  management
         and provider  services  and forward its invoices to PHE for  processing
         and payment.

         On November 19, 1998,  PHP,  including PHE, filed for protection  under
         Chapter 11 of the U.S.  Bankruptcy  Code.  This action  followed  HIP's
         announced  intention to terminate its Health  Services  Agreement  with
         PHE.

         In December 1998, the Company  received $795,  representing 30% of open
         claims  through  November  20, 1998 and  increased  its  allowance  for
         doubtful accounts for the remaining  balance of $1.1 million.  This was
         in concert with the HIP Rehabilitation Plan implemented by the State of
         New Jersey.

8.       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 expire
         through March 31, 2004.

         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  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  $228 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 has  communicated its
         intention to purchase the Facility for one dollar pursuant to the terms
         of the  capital  lease.  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.

         In lieu of rent the Company  pays  principal  on the Bonds in quarterly
         installments  of $18, plus interest at the rate of prime (prime rate at
         March 31, 1999 was 7.75%) plus 1%. A final balloon payment of $232 plus
         interest thereon was 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 Company is currently in default of this balloon payment.

         The  balloon  payment of $232 is  presently  to be paid  pursuant  to a
         financing  arrangement with Rosenthal,  whereby Rosenthal will lend the
         Company $250 to be paid in six equal installments, plus interest at the
         rate of  prime,  plus 4%,  commencing  on  November  30,  1999.  If the
         Facility  is sold  prior to  October  30,  1999,  then the  outstanding
         principal, plus interest, is due at closing.

                                      F-17
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         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, 2004 with
         interest rates ranging from 6.50% to 16.71%.

         Future  minimum  cash  payments  under  capital  leases with initial or
         remaining noncancellable lease terms in excess of one year at March 31,
         1999 are as follows:

                                                    Capital Lease Other Capital
                           Fiscal Year                Facility        Leases
                           -----------               ------------  ------------
         2000....................................... $        232  $        509
         2001.......................................           --           315
         2002.......................................           --            77
         2003.......................................           --            30
         2004.......................................           --            15
                                                     ------------  ------------
                                                              232           946

         Less interest..............................           --           128
                                                     ------------  ------------
         Present value of net minimum obligations...          232           818
         Less current portion.......................          232           430
                                                     ------------  ------------
         Long term obligations at March 31, 1999.... $          0  $        388
                                                     ============  ============

9.       CONTINGENCIES

         The  Company is  involved in  litigation  through the normal  course of
         business.  The Company  believes  that the  resolution of these matters
         will not have a material  adverse  effect on the financial  position of
         the Company.

10.      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 (the "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.  On
         October 10, 1998, 1,245,000 shares were converted in common shares at a
         15%  premium  per  an  agreement  with  the  Preferred  stock  holders.
         Accordingly,  1,431,750  shares of common  stock were  issued,  leaving
         105,000  shares of  Preferred  Stock  outstanding.  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.

         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 105,000  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.

                                      F-18
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         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.  The June 1, 1998  dividend
         was paid out in 46,526 shares of common stock on December 17, 1998. The
         December 1, 1998  dividend  will be paid out in 4,388  shares of common
         stock in 1999.

11.      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  a  consulting  fee of $4 per  month  and  an  office  expense
         reimbursement of $1 per month.

         The Company's  president/chief  executive officer has a loan payable to
         the Company in the amount of $100 due on demand bearing  interest at 8%
         per  year and is  collateralized  by  50,000  shares  of the  Company's
         preferred stock.

         EMPLOYMENT AGREEMENT

         The Company's  President and Chief Executive  Officer is entitled to an
         annual  salary at a rate of $250 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 and 62,500  restricted
         shares of the Company's common stock.

         In  connection  with  the  Healix  merger,  the  Company  entered  into
         employment  agreements with two officers.  Under these agreements,  the
         officers are entitled to an aggregate annual salary of $240 and 110,000
         restricted shares of common stock.


                                      F-19
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)


12.      STOCK OPTIONS AND WARRANTS

         In September 1988, the Company adopted,  and in September 1994 amended,
         the 1988 Stock Option Plan ("Stock Option Plan").  In 1999, the Company
         adopted a 1998 stock option plan, whereby all options granted under the
         1988  Option Plan will be rolled  over to the 1998 stock  option  plan.
         Under  the  plan,  an  aggregate  maximum  of  2,000,000  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.

         During the years ended March 31, 1999 and 1998,  the Board of Directors
         granted  a total of  152,500  and  130,000  options,  respectively,  to
         purchase  shares  of the  Company's  common  stock  to  employees  with
         exercise  prices ranging from $1.75 to $2.875 per share.  These options
         are exercisable in four equal annual increments.

                                                                   Weighted
                                                                   Average
                                                                Exercise Price
                                                    Shares         Per Share
                                                    ------         ---------
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
Granted.....................................         152,500         $2.88
Cancelled...................................          (4,500)        (1.95)
                                                  ----------         -----
Outstanding at March 31, 1999...............         519,250         $2.37
                                                  ==========         =====
Exercisable at March 31, 1997...............          32,500         $2.81
                                                  ==========         =====
Exercisable at March 31, 1998...............          66,450         $2.22
                                                  ==========         =====
Exercisable at March 31, 1999...............         184,800         $2.29
                                                  ==========         =====

                                      F-20
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         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, 1999.

         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 $2.00 to $3.00.  At March 31,  1999 and 1998,
         295,000  and  287,500  shares of option  are  vested,  and 0 and 50,000
         shares of options  were  cancelled,  respectively.  There were  302,500
         options outstanding as of March 31, 1999.

         In September 1995,  separate from options issued under the Stock Option
         Plan, the Company  granted  options to purchase 45,000 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 45,000 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 five 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.

         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 70,000 of the Company's
         common  shares to employees  ("1998  Options"),  with  exercise  prices
         ranging  from $2.00 to $2.125.  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.

                                      F-21
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)


         During fiscal 1999, 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 ("1999 Options").  The exercise price of the
         1999 options are $2.875,  with the shares  vesting over five years from
         the date of issuance.

         As of March 31, 1999 and 1998,  an aggregate  1,147,750  and  1,068,750
         shares,  respectively,  of the Company's  common stock are reserved for
         issuance under the Stock Option Plan, and the 1990,  1992,  1995, 1996,
         1997,  1998 and 1999 options.  As of March 31, 1999,  620,733 shares of
         such options are exercisable.

         Pro forma  information  regarding  net income and earnings per share is
         required  by 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 1999, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                             MARCH 31,
                                                                ---------------------------------
                             ASSUMPTION                            1999        1998         1997
                             ----------                            ----        ----         ----
<S>                                                             <C>         <C>           <C>
         Risk-free rate......................................      5.34%       5.47%         6.2%
         Dividend yield......................................         0%          0%           0%
         Volatility factor of the expected market price of
           the Company's common stock........................     1.085       0.949          1.7
         Average life........................................   5 years     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.

         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,
                                                  ------------------------------
                                                    1999      1998        1997
                                                    ----      ----        ----
         Pro forma net loss..................     ($5,692)    ($704)      ($244)
         Pro forma net loss per share........      ($1.29)    ($.22)     ($0.85)

         The  weighted  average fair value of options  granted  during the years
         ended  March 31,  1999,  1998 and 1997  were  $0.86,  $1.86 and  $1.53,
         respectively,   for  shares  granted.  The  weighted-average  remaining
         contractual  life of options  exercisable at March 31, 1999 is 3 years.
         The exercise prices range from $1.625 to $4.75 for options  outstanding
         as of March 31, 1999.

                                      F-22
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

         In April 1994,  pursuant to the terms of a Loan and Security  Agreement
         (see Note 4), 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.  During the year ended March 31, 1999,  the Company
         granted to this financing  company two warrants to purchase  50,000 and
         10,000 shares of the Company's common stock at a price of $2 and $2.875
         per share, respectively,  expiring on July 1, 2003. These 60,000 shares
         of warrants  have been  valued at $0.88 per share in records  with SFAS
         123. As of March 31,  1999,  no  warrants  have been  exercised  and an
         aggregate  of 160,000 of the  Company's  common  stock are reserved for
         issuance under these warrants.

13.      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 25% 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  $71, $33, and $43 for the years ended March 31,
         1999, 1998 and 1997, 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, 1999, no director
         had elected to defer any portion of his or her compensation.

14.      INCOME TAXES

         The Company had net deferred assets and liabilities as follows:

                                                           March 31,
                                                    ------------------------
                                                       1999          1998
                                                    ----------     ---------
         Federal, State and Local Net Operating
         Loss Carry forwards...................     $    3,075     $   1,881

         Allowance for Doubtful Accounts.......            727           197

         Business Credit Carry-forwards........             52            52

         Other.................................            667            67
                                                    ----------     ---------

         Total.................................          4,521         2,197

         Less:  Valuation Allowance............         (4,521)       (2,287)
                                                    ----------     ---------

         Net Deferred Liabilities..............     $        0     $     (90)
                                                    ==========     =========

         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:

                                      F-23
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)

<TABLE>
<CAPTION>
                                                         For the years ended
                                                               March 31,
                                                 --------------------------------------
                                                   1999          1998           1997
                                                 (Benefit)     (Benefit)      (Benefit)
                                                 Liability     Liability      Liability
                                                 ---------      --------      ---------
<S>                                              <C>            <C>           <C>
          Income tax (benefit) at statutory
            rate at 34%.......................   $  (1,216)     $   (162)     $      (9)
            Permanent Differences                                     --              6
            Other decrease in valuation
              allowances related to the
              federal portion of continuing
              operations......................         (90)           --            (49)
            Amount attributable and
              pooling of interests............         (26)           --            (60)
            Loss producing no current
              benefit.........................       1,216           240             --
                                                 ---------      --------      ---------
                                                 $     (90)     $    104      $    (112)
                                                 =========      ========      =========
</TABLE>

         At March 31, 1999,  based upon tax returns  filed and to be filed,  the
         Company has net operating loss  carryforwards  for U.S. tax purposes of
         approximately  $6,540  which will begin to expire in 2009 and a general
         business tax credit  carryforward  of  approximately  $52  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 $7,507 and $7,504, respectively.

         The valuation  allowances  increased $2,234 in 1999,  decreased $382 in
         1998 and increased $265 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.

15.      SUBSEQUENT EVENTS

         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 had  thought to have been  settled  through
         court recommended mediation. In May 1999 the former employee petitioned
         the court to reopen the matter.  The matter is still  pending  with the
         court;  however,  management believes there will be no material adverse
         effect on the Company's  consolidated  financial  position,  results of
         operations or cash flows.

         To enhance  productivity and provide  technological  enhancements,  the
         Company  signed a lease in June,  1999 to rent  37,000  square  feet in
         Yonkers,  New York, where it plans to consolidate its major offices and
         warehouses at an average cost of  approximately  $26,000 per month over
         the life of the lease.  The initial term is for a period of  sixty-five
         months with two renewals each for a sixty month period.

                                      F-24
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (Amounts in thousands, except shares and per share data)
<TABLE>
<CAPTION>
                                  SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

           Column A                        Column B          Column C        Column D         Column E
           --------                        --------          --------        --------         --------

                                                             Additions
                                           Balance at       Charged to
                                          Beginning of       Cost and                        Balance at End
                                             Period          Expenses        Deductions         of Period
                                          -----------       -----------      -----------       -----------
<S>                                       <C>               <C>              <C>               <C>
Year Ended March 31, 1997 Allowance
for Doubtful Accounts                     $       320       $       279      $       238       $       361

Year Ended March 31, 1998 Allowance
for Doubtful Accounts                     $       361       $       336      $       181       $       516

Year Ended March 31, 1999 Allowance
for Doubtful Accounts                     $       516       $     3,175      $     2,076       $     1,615
</TABLE>

                                                   F-25