<PAGE>   1
                                    FORM 10-Q
                       Securities and Exchange Commission
                             Washington, D.C. 20549

(MARK ONE)

[ x ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended March 31, 1998
          
                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period From ______________ to ________________

Commission file number 1-8801

                       GRAHAM-FIELD HEALTH PRODUCTS, INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

                      Delaware                            11-2578230
                      --------                            ----------
           (State or other jurisdiction of             (I.R.S. Employer
      incorporation or organization)                  Identification No.)

                 400 Rabro Drive East, Hauppauge, New York 11788
                -------------------------------------------------
                    (Address of principal executive offices)

                                 (516) 582-5900
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)

                                 Not applicable
--------------------------------------------------------------------------------
              (Former name, former address and former fiscal year,
                         if changed since last report)

    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 / /

                Applicable Only to Issuers Involved in Bankruptcy
                  Proceedings During the Preceding Five Years:

    Indicate by check mark whether the registrant has filed all documents and
    reports required to be filed by Sections 12, 13, or 15(d) of the Securities
    Exchange Act of 1934 subsequent to the distribution of securities under a
    plan confirmed by the court.

    Yes / /           No / /

                     Applicable Only to Corporate Issuers:

    Indicate the number of shares outstanding of each of the issuer's classes of
    common stock as of the latest practicable date.

    Common Stock, $.025 Par Value --- 31,181,140 shares as of May 13, 1998
<PAGE>   2
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES


                                    I N D E X


<TABLE>
<CAPTION>
Part I. Financial Information:                                                      Page
                                                                                    ----
<S>                                                                                <C>

      Item 1. Financial Statements:


                  Condensed Consolidated Balance Sheets -
                  March 31, 1998 (Unaudited) and December 31, 1997
                  (Audited)                                                          3


                  Condensed Consolidated Statements of Operations for
                  the three months ended March 31, 1998 and 1997
                  (Unaudited)                                                        4


                  Condensed Consolidated Statements of Cash Flows for the three
                  months ended March 31, 1998 and 1997 (Unaudited)                  5-6


                  Notes to Condensed Consolidated Financial Statements
                  (Unaudited)                                                       7-16


      Item 2. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                               17-20




Part II. Other Information:


      Item 1.  Legal Proceedings                                                    22

      Item 4.  Submission of Matters to a Vote of Security Holders                  22

      Item 5.  Other Matters                                                        22

      Item 6.  Exhibits and Reports on Form 8-K                                     22-23
</TABLE>


                                    - 2 -
<PAGE>   3
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

                      CONDENSED CONSOLIDATED BALANCE SHEETS
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                                   March 31,            December 31,
      ASSETS                                                         1998                  1997
                                                                -------------         -------------
                                                                  (unaudited)            (audited)
<S>                                                             <C>                   <C>
CURRENT ASSETS:
  Cash and cash equivalents                                     $   3,136,000         $   4,430,000
  Accounts receivable - less allowances for doubtful
   accounts of $13,642,000 and $13,199,000, respectively           99,747,000            91,451,000
  Inventories                                                      73,992,000            73,532,000
  Other current assets                                             12,014,000             8,103,000
  Recoverable and prepaid income taxes                              4,314,000             4,422,000
  Deferred tax assets                                              10,695,000            10,695,000
  Asset held for sale                                                      --            61,706,000
                                                                -------------         -------------
      TOTAL CURRENT ASSETS                                        203,898,000           254,339,000

PROPERTY, PLANT AND EQUIPMENT - net                                36,961,000            35,955,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net of
  accumulated amortization of $13,476,000 and
  $11,512,000, respectively                                      $238,608,000          $240,071,000
DEFERRED TAX ASSETS                                                 2,254,000             3,044,000
OTHER ASSETS                                                       14,716,000            13,709,000
                                                                -------------         -------------
      TOTAL ASSETS                                               $496,437,000          $547,118,000
                                                                =============         =============

      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Credit facility                                                $ 19,780,000          $ 65,883,000
  Current maturities of long-term debt                              2,230,000             2,619,000
  Accounts payable                                                 36,451,000            33,888,000
  Accrued expenses                                                 43,647,000            54,331,000
                                                                -------------         -------------
      TOTAL CURRENT LIABILITIES                                   102,108,000           156,721,000

Long-term debt and Senior Subordinated Notes                      107,544,000           107,733,000
Other long-term liabilities                                        14,284,000            13,816,000
                                                                -------------         -------------    

      TOTAL LIABILITIES                                           223,936,000           278,270,000

STOCKHOLDERS' EQUITY:
Series A preferred stock                                                   --                    --
Series B preferred stock                                           28,200,000            28,200,000
Series C preferred stock                                            3,400,000             3,400,000
Common stock                                                          798,000               764,000
Additional paid-in capital                                        283,946,000           279,341,000
(Deficit)                                                         (43,932,000)          (42,953,000)
Cumulative translation adjustment                                      89,000                96,000
                                                                -------------         -------------

      TOTAL STOCKHOLDERS' EQUITY                                  272,501,000           268,848,000

COMMITMENTS AND CONTINGENCIES
                                                                -------------         -------------
      TOTAL LIABILITIES AND STOCKHOLDERS'
       EQUITY                                                   $ 496,437,000         $ 547,118,000
                                                                =============         =============
</TABLE>

See notes to condensed consolidated financial statements.


                                     - 3 -
<PAGE>   4
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                     Three Months Ended
                                                         March 31
                                             --------------------------------
                                                 1998                1997
                                             ------------         -----------
<S>                                          <C>                  <C>
NET REVENUES:
 Medical equipment and supplies              $ 97,727,000         $56,191,000
 Interest and other income                        415,000             144,000
                                             ------------         -----------
                                               98,142,000          56,335,000
COSTS AND EXPENSES:
 Cost of revenues                              67,102,000          38,438,000
 Selling, general and administrative           28,210,000          13,193,000
 Interest expense                               2,743,000             994,000
                                             ------------         -----------

                                               98,055,000          52,625,000
                                               ----------          ----------

INCOME BEFORE INCOME TAXES                         87,000           3,710,000

INCOME TAXES                                      800,000           1,527,000
                                             ------------         -----------

NET  (LOSS) INCOME                               (713,000)          2,183,000

PREFERRED STOCK DIVIDENDS                         266,000                  --
                                             ------------         -----------

NET (LOSS) INCOME AVAILABLE TO COMMON
      SHAREHOLDERS                           $   (979,000)        $ 2,183,000
                                             ============         ===========


PER SHARE DATA:

Common shares outstanding - basic              30,839,000          19,763,000
                                             ------------         -----------
Convertible preferred stock                            --           4,435,000
Common equivalent shares outstanding                   --             966,000
                                             ------------         -----------

Common shares outstanding - diluted            30,839,000          25,164,000
                                             ============         ===========

Basic (loss) earnings per share              $       (.03)        $       .11
Diluted (loss) earnings per share            $       (.03)        $       .09
</TABLE>


See notes to condensed consolidated financial statements.


                                      - 4 -
<PAGE>   5
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                   March 31,
                                                                        ---------------------------------
                                                                            1998                 1997
                                                                        ------------         ------------
<S>                                                                     <C>                  <C>
OPERATING ACTIVITIES
 Net (loss) income                                                      $   (713,000)        $  2,183,000
 Adjustments to reconcile net  (loss) income
    to net cash used in operating activities:
     Depreciation and amortization                                         3,872,000            1,472,000
     Deferred income taxes                                                   790,000              833,000
     Provisions for losses on accounts receivable                            443,000              177,000
     Changes in operating assets and liabilities:
        Accounts receivable                                               (8,739,000)          (5,212,000)
        Inventories                                                         (460,000)          (2,323,000)
        Other current assets and
         recoverable and prepaid income taxes                             (3,803,000)            (573,000)
        Accounts payable, accrued expenses and other liabilities          (7,926,000)          (8,740,000)
                                                                        ------------         ------------
            NET CASH USED IN OPERATING
                  ACTIVITIES                                             (16,536,000)         (12,183,000)
                                                                        ------------         ------------


INVESTING ACTIVITIES
 Purchases of property, plant and equipment                               (2,551,000)            (900,000)
 Proceeds from sale of asset held for sale                                60,167,000                   --
 Acquisitions, net of cash acquired                                               --             (616,000)
 Increase in excess of cost over net assets acquired                        (501,000)                  --
 Proceeds from sale of property, plant & equipment                                --               24,000
 Net decrease in other assets                                                169,000               14,000
                                                                        ------------         ------------
            NET CASH PROVIDED BY (USED IN)
                   INVESTING ACTIVITIES                                 $ 57,284,000         $ (1,478,000)
                                                                        ------------         ------------
</TABLE>


See notes to condensed consolidated financial statements.


                                      - 5 -
<PAGE>   6
           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS--Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                       Three Months Ended
                                                                             March 31,
                                                                ----------------------------------
                                                                     1998                 1997
                                                                -------------         ------------
<S>                                                             <C>                   <C>
FINANCING ACTIVITIES:

Proceeds from credit facility and long-term debt                $  93,371,000         $ 61,929,000
Principal payments on credit facility and long-term debt         (140,052,000)         (42,798,000)
Proceeds from acceptances                                                  --            3,500,000
Payments on acceptances                                                    --           (8,500,000)
Proceeds on exercise of stock options                               4,639,000              203,000
                                                                -------------         ------------
   NET CASH (USED IN) PROVIDED BY
      FINANCING ACTIVITIES                                        (42,042,000)          14,334,000
                                                                -------------         ------------

   (DECREASE) INCREASE IN CASH AND
      CASH EQUIVALENTS                                             (1,294,000)             673,000
                                                   
   CASH AND CASH EQUIVALENTS AT
      BEGINNING OF PERIOD                                           4,430,000            1,241,000
                                                                -------------         ------------

   CASH AND CASH EQUIVALENTS AT
      END OF PERIOD                                             $   3,136,000         $  1,914,000
                                                                =============         ============

SUPPLEMENTARY CASH FLOW INFORMATION:

Interest paid                                                   $   5,426,000         $    895,000
                                                                =============         ============

Income taxes paid                                               $          --         $     31,000
                                                                =============         ============

SUPPLEMENTAL DISCLOSURE OF NON-CASH
      INVESTING AND FINANCING ACTIVITIES:

Investment in preferred stock received as
  partial proceeds from sale of asset                           $   1,539,000
                                                                =============
</TABLE>


See notes to condensed consolidated financial statements.


                                      - 6 -
<PAGE>   7
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

1.    GENERAL

      In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial position
as of March 31, 1998 (unaudited), the results of operations for the three months
ended March 31, 1998 and 1997 (unaudited) and the statements of cash flows for
the three months ended March 31, 1998 and 1997 (unaudited).

      Additionally, it should be noted that the accompanying financial
statements and notes thereto do not purport to be complete disclosures in
conformity with generally accepted accounting principles. While the Company
believes that the disclosures presented are adequate to make the information
contained herein not misleading, it is suggested that these financial statements
be read in conjunction with the financial statements and the notes included in
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.

      Inventories at March 31, 1998 have been valued at standard cost for
manufactured goods and at average cost for other inventories based primarily on
perpetual records or the gross profit method.

      As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes new rules for the reporting and display of comprehensive
income and its components, however, the adoption of this Statement had no impact
on the Company's net income or shareholders' equity. SFAS No. 130 requires
foreign translation adjustments, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income.

      During the first quarter of 1998 and 1997, total comprehensive (loss)
income amounted to $(720,000) and $2,195,000, respectively. Accumulated other
comprehensive (loss) income, primarily related to foreign currency translation
adjustments amounted to $89,000 at March 31, 1998.

      The results of operations for the three months ended March 31, 1998 and
1997 are not necessarily indicative of results for the full year.

      Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.

2.    EARNINGS PER SHARE

      Earnings per share amounts are calculated in accordance with SFAS No. 128
"Earnings per Share." Diluted earnings per share is calculated for the quarter
ended March 31, 1997 assuming the conversion of the Series B and Series C
Cumulative Convertible Preferred Stock and elimination of the related dividends
and conversion of dilutive common equivalent shares outstanding using the
treasury stock method. Conversion of the preferred stock and common stock
equivalent shares was not assumed for the quarter ended March 31, 1998 since the
result would have been antidilutive.


                                      - 7 -
<PAGE>   8
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

3.    INVENTORIES

      Inventories consist of the following:

<TABLE>
<CAPTION>
                                    March 31,         December 31,
                                      1998               1997
                                   -----------        -----------
<S>                                <C>                <C>
            Raw materials          $15,730,000        $16,553,000
            Work-in-process          7,182,000          6,735,000
            Finished goods          51,080,000         50,244,000
                                   -----------        -----------    

                                   $73,992,000        $73,532,000
                                   ===========        ===========
</TABLE>

4.    PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consist of the following:

<TABLE>
<CAPTION>
                                                 March 31,           December 31,
                                                    1998                 1997
                                                ------------         ------------
<S>                                             <C>                  <C>
            Land and buildings                  $ 17,530,000         $ 17,323,000
            Equipment                             28,496,000           26,845,000
            Furniture and fixtures                 2,650,000            2,619,000
            Leasehold improvements                 2,779,000            2,668,000
            Construction in progress               2,000,000            1,566,000
                                                ------------         ------------
                                                  53,455,000           51,021,000
            Accumulated depreciation and
              amortization                       (16,494,000)         (15,066,000)
                                                ------------         ------------
                                                $ 36,961,000         $ 35,955,000
                                                ============         ============
</TABLE>


5.    INCOME TAXES

      At March 31, 1998, the Company had aggregate net operating loss
carryforwards of approximately $25,600,000 for income tax purposes which expire
in 2011, which were acquired primarily in connection with the acquisition of
Everest & Jennings International Ltd. ("Everest & Jennings") and are limited as
to use in any particular year. In addition, the Company had approximately
$890,000 of investment, research and development, jobs tax and AMT credits, for
income tax purposes which expire primarily in 1999, and which include
alternative minimum tax credits of $500,000 which have no expiration date.

      For financial reporting purposes, due to losses of Everest & Jennings
prior to the Company's acquisition and SRLY limitations, a full valuation
allowance of approximately $13,338,000 has been recorded against the Everest &
Jennings net operating losses and other deferred tax assets. When realized, the
tax benefit for those items will be recorded as a reduction of the excess of
cost over net assets acquired. In addition, the Company has a valuation
allowance of approximately $1,167,000 against a portion of its remaining net
deferred tax assets as a result of recent acquisitions. The amount of the
remaining deferred tax asset considered realizable could be reduced in the near
term if estimates of future taxable income during the carryforward period are
reduced.


                                      - 8 -
<PAGE>   9
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)



      The effective tax rate for the three months ended March 31, 1998 is in
excess of 100% primarily due to non-deductible goodwill amortization expense.
Deferred taxes have not been provided on the undistributed earnings of foreign
entities since it is management's intention to invest such earnings in the
entities indefinitely.

      The effective tax rate for 1997 approximates the statutory rate after
adjustment for state taxes and non-deductible goodwill amortization expense.

6.    ACQUISITION OF BUSINESSES

      On December 30, 1997, the Company acquired Fuqua Enterprises, Inc.
(currently, Lumex/Basic American Holdings, Inc.) ("Fuqua") pursuant to an
Agreement and Plan of Merger (the "Fuqua Merger Agreement"), dated as of
September 5, 1997 and amended as of September 29, 1997, by and among Fuqua, GFHP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Company ("Sub"), and the Company. Under the terms of the Fuqua Merger Agreement,
Sub was merged with and into Fuqua with Fuqua continuing as the surviving
corporation wholly-owned by the Company (the "Fuqua Merger"). In the Fuqua
Merger, each share of Fuqua's common stock, par value $2.50 per share (the
"Fuqua Common Stock"), other than shares of Fuqua Common Stock canceled pursuant
to the Fuqua Merger Agreement, was converted into the right to receive 2.1
shares of common stock, par value $.025 per share of the Company (the "Company
Common Stock"). There were 4,482,709 shares of Fuqua Common Stock outstanding on
December 30, 1997, which converted into 9,413,689 shares of the Company Common
Stock.

      In accordance with the terms of the Fuqua Merger Agreement, each Fuqua
stock option was assumed by Graham-Field and was converted into the right to
purchase shares of the Company Common Stock. As of the effective date of the
Fuqua Merger, there were Fuqua stock options outstanding representing the right
to purchase 421,500 shares of Fuqua Common Stock. The equivalent number of
shares of the Company Common Stock to be issued, after giving effect to the
exercise price of the Fuqua stock options as adjusted for the exchange ratio of
2.1, is approximately 364,319 shares of the Company Common Stock. For purposes
of calculating the purchase price, the Company Common Stock was valued at $16.69
per share, which represents the average closing market price of the Company
Common Stock for the period three business days immediately prior to and three
business days immediately after the announcement on September 8, 1997 of the
execution of the Fuqua Merger Agreement.

      The acquisition of Fuqua has been accounted for under the purchase method
of accounting and, accordingly, the operating results of Fuqua have been
included in the Company's consolidated financial statements from the date of
acquisition. The Company allocated $3,300,000 of the purchase price to purchased
in-process research and development projects which have not reached
technological feasibility and have no probable alternative future uses. The
Company expensed the purchased in-process and research and development projects
at the date of acquisition. The excess of the aggregate purchase price over the
estimated fair market value of the net assets acquired was approximately
$134,900,000, which is being amortized on a straight line basis over 30 years.
The purchase price allocations have been made on a preliminary basis, subject to
adjustment.

      In connection with the Fuqua Merger, the Company acquired the leather
operations of Fuqua ("Leather Operations"). It was the Company's intention to
dispose of this Leather Operations as soon as reasonably practicable following
the consummation of the Fuqua Merger. Accordingly, the net assets of the Leather
Operations  


                                      - 9 -
<PAGE>   10
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

have been reflected as "Assets held for sale" in the
accompanying consolidated balance sheet as of December 31, 1997. The net asset
value of the Leather Operations includes the value of the proceeds that were
realized from the sale of the Leather Operations. The Company did not record any
earnings or losses for the Leather Operations for the period December 30, 1997
to January 27, 1998 (date of disposal).

      On January 27, 1998, Fuqua disposed of the Leather Operations (the
"Leather Sale Transaction") through the sale of all of the capital stock of
Irving Tanning Company ("ITC"), Hancock Ellsworth Tanners, Inc., Kroy Tanning
Company, Incorporated and Seagrave Leather Corporation (collectively, the
"Leather Companies"), to the management of ITC pursuant to a (i) Stock Purchase
Agreement dated as of January 27, 1998, by and among IT Acquisition Corporation
("ITAC"), the Company and Fuqua, and (ii) Stock Purchase Agreement dated as of
January 27, 1998, by and among HEKS Corporation, the Company and Fuqua. The
aggregate selling price for the Leather Companies consisted of (a) $60,167,400
in cash, (b) an aggregate of 5,000 shares of Series A Preferred Stock of ITAC
with a stated value of $4,250,000 (which has been valued at $1,539,000), and
(c) the assumption of debt of $2,341,250. In addition, as the holder of the
ITAC Preferred Stock, the Company is entitled to appoint one director to the
Board of Directors of ITAC.

      On August 28, 1997, the Company acquired all of the issued and outstanding
shares of the capital stock of Medical Supplies of America, Inc., a Florida
corporation ("Medapex"), pursuant to an Agreement and Plan of Reorganization
(the "Reorganization Agreement") dated August 28, 1997, by and among the
Company, S.E. (Gene) Davis and Vicki Ray (collectively the "Medapex Selling
Stockholders"). In accordance with the terms of the Reorganization Agreement,
Medapex became a wholly-owned subsidiary of the Company and the Medapex Selling
Stockholders received in the aggregate 960,000 shares of Company Common Stock in
exchange for all of the issued and outstanding shares of the capital stock of
Medapex. Pursuant to a Real Estate Sales Agreement dated as of August 28, 1997
(the "Real Estate Sales Agreement"), by and between the Company and BBD&M, a
Georgia Limited Partnership and an affiliate of Medapex, the Company acquired
Medapex's principal corporate headquarters and distribution facility in Atlanta,
Georgia for a purchase price consisting of (i) $622,335 payable (a) by the
issuance of 23,156 shares of the Company Common Stock and (b) in cash in the
amount of $311,167, and (ii) the assumption of debt in the amount of $477,664.
Each of the Medapex Selling Stockholders entered into a two-year employment
agreement and non-competition agreement with the Company. The Medapex
transaction was accounted for as a pooling of interests and the Company's
historical financial statements have been restated to reflect this transaction.

      The results of operations previously reported by the separate enterprises
and the combined amounts presented in the accompanying consolidated financial
statements are summarized below.

<TABLE>
<CAPTION>
                                  Three Months
                              Ended March 31, 1997
                              ---------------------
<S>                           <C>
            Net revenues:
              Graham-Field        $51,332,000
              Medapex               5,003,000
                                  -----------
              Combined            $56,335,000
                                  ===========
</TABLE>


                                     - 10 -
<PAGE>   11
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

<TABLE>
<S>                               <C>
            Net income:
              Graham-Field        $2,084,000
              Medapex                 99,000
                                  ----------
              Combined            $2,183,000
                                  ==========
</TABLE>

      On August 17, 1997, the Company acquired substantially all of the assets
and certain liabilities of Medi-Source, Inc. ("Medi-Source"), a privately-owned
distributor of medical supplies, for $4.5 million in cash. The Company also
entered into a five (5) year non-competition agreement with the previous owner
in the aggregate amount of $301,000 payable over the five (5) year period. The
acquisition was accounted for as a purchase, and accordingly, assets and
liabilities were recorded at fair value at the date of acquisition and the
results of operations are included subsequent to that date. The excess of the
purchase price over net assets acquired was approximately $3.7 million.

     On June 25, 1997, the Company acquired all of the capital stock of LaBac
Systems, Inc., a Colorado corporation ("LaBac"), in a merger transaction
pursuant to an Agreement and Plan of Merger dated June 25, 1997, by and among
the Company, LaBac Acquisition Corp., a wholly-owned subsidiary of the Company,
LaBac, Gregory A. Peek and Michael L. Peek (collectively, the "LaBac Selling
Stockholders"). In connection with the acquisition, LaBac became a wholly-owned
subsidiary of the Company, and the LaBac Selling Stockholders received in the
aggregate 772,557 shares of Company Common Stock valued at $11.77 per share in
exchange for all of the issued and outstanding shares of the capital stock of
LaBac. Of this amount, 77,255 shares of Company Common Stock were placed in
escrow for a period of one (1) year following the effective date of the merger
for payment of indemnity claims to the Company or purchase price adjustments in
favor of the Company. The Company also entered into a three (3) year consulting
agreement with the LaBac Selling Stockholders and an entity controlled by the
LaBac Selling Stockholders, and non-competition agreements with each of the
LaBac Selling Stockholders. The acquisition was accounted for as a purchase and
accordingly, assets and liabilities were recorded at fair value at the date of
acquisition and the results of operations are included subsequent to that date.
The excess of cost over net assets acquired amounted to approximately $7.3
million.

      On March 7, 1997, Everest & Jennings, a wholly-owned subsidiary of the
Company, acquired Kuschall of America, Inc. ("Kuschall"), a manufacturer of
pediatric wheelchairs, high-performance adult wheelchairs and other
rehabilitation products, for a purchase price of $1.51 million representing the
net book value of Kuschall. The purchase price was paid by the issuance of
116,154 shares of Company Common Stock valued at $13.00 per share, of which
23,230 shares were delivered into escrow. The escrow shares will be released on
March 7, 1999, subject to any purchase price adjustments in favor of the Company
and claims for indemnification. The acquisition was accounted for as a purchase
and accordingly, assets and liabilities were recorded at fair value at the date
of acquisition and the results of operations are included subsequent to that
date.

     On February 28, 1997, Everest & Jennings Canadian Limited ("Everest &
Jennings Canada"), a wholly-owned subsidiary of the Company, acquired
substantially all of the assets and certain liabilities of Motion 2000 Inc. and
its wholly-owned subsidiary, Motion 2000 Quebec Inc., for a purchase price equal
to Cdn. $2.9 million (Canadian Dollars) (approximately U.S.$2.15 million). The
purchase price was paid by the issuance of 187,733 shares of the Company Common
Stock valued at $11.437 per share. The acquisition was accounted for as a
purchase and accordingly, assets and liabilities were recorded at fair value


                                     - 11 -
<PAGE>   12
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

at the date of acquisition and the results of operations are included
subsequent to that date. The excess of cost over the net assets acquired
amounted to approximately $2.5 million.

      On November 27, 1996, the Company acquired Everest & Jennings pursuant to
the terms and provisions of the Amended and Restated Agreement and Plan of
Merger dated as of September 3, 1996 and amended as of October 1, 1996, by and
among the Company, Everest & Jennings, Everest & Jennings Acquisition Corp., a
wholly-owned subsidiary of the Company and BIL (Far East Holdings) Limited
("BIL"), the majority stockholder of Everest & Jennings. The acquisition of
Everest & Jennings has been accounted for under the purchase method of
accounting and, accordingly, assets and liabilities were recorded at fair value
at the date of acquisition and the operating results of Everest & Jennings have
been included in the Company's consolidated financial statements since the date
of acquisition. The excess of the aggregate purchase price over the estimated
fair market value of the net assets acquired is approximately $65.5 million, as
adjusted.

      The following summary presents unaudited pro forma consolidated results of
operations for the three months ended March 31, 1997 as if the acquisitions
described above occurred at the beginning of 1997. This information gives effect
to the adjustment of interest expense, income tax provisions, and to the assumed
amortization of fair value adjustments, including the excess of cost over net
assets acquired. The pro forma information does not include the write-off of
certain purchased in-process research and development costs of $3.3 million,
merger, restructuring and other related charges of $31,202,000 associated with
the Company's strategic restructuring initiatives recorded in the fourth quarter
ended December 31, 1997.

<TABLE>
<CAPTION>
                                                          Pro Forma
                                                          ---------
                                                       Three Months Ended
                                                         March 31, 1997
                                                         --------------
<S>                                                        <C>
            Net Revenues                                   $88,503,000
                                                           ===========

            Income Before Income Taxes                     $ 3,746,000

            Income Taxes                                     1,895,000
                                                           -----------

            Net Income                                     $ 1,851,000
                                                           ===========

            Net income per common share:

            Net income                                     $ 1,851,000

            Preferred stock dividends                            - (a)
                                                           -----------

            Net income available to common
              shareholders                                 $ 1,851,000
                                                           ===========

            Common shares outstanding - basic               30,160,000
                                                           -----------

            Convertible preferred stock                      4,435,000
            Incremental shares using treasury stock
              method                                         1,330,000
                                                           -----------

            Common shares outstanding - diluted             35,925,000
                                                           ===========
</TABLE>


                                     - 12 -
<PAGE>   13
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                     <C>
Basic earnings per share                $     .06
Diluted earnings per share              $     .05
</TABLE>

      (a)   Assumes conversion of the preferred stock and elimination of any
            dividends relating to such preferred stock.

7.    ACQUISITION INTEGRATION AND RESTRUCTURING PLAN

      In connection with the acquisition of Fuqua on December 30, 1997, the
Company adopted a plan to implement certain strategic restructuring initiatives
(the "Restructuring Plan") and recorded restructuring reserves of approximately
$23,470,000. The plan consists of a broad range of efforts, including the
consolidation of the Company's Temco manufacturing operations in New Jersey into
Fuqua's Lumex manufacturing facility in New York and relocation of the Company's
corporate headquarters to the Lumex facility. In addition, the Company plans to
consolidate distribution facilities and other operations in an effort to improve
manufacturing, distribution and operating efficiencies.

      Throughout 1998, the Company will continue to evaluate its Restructuring
Plan and additional restructuring charges may be necessary.

      The following summarizes the activity in the restructuring reserves for
the first quarter of 1998:

<TABLE>
<CAPTION>
                        Merger and
                       Restructuring                              Reserve                                             Reserve
                         charges          Write-offs and         Balances                                             Balances
                       recorded in        cash payments         December 31,                          Provision/      March 31,
                          1997               in 1997                1997             Utilized        Reallocation       1998
                          ----               -------                ----             --------        ------------       ----
<S>                    <C>                 <C>                  <C>                 <C>              <C>            <C>
Exit costs             $18,237,000         $(1,294,000)         $16,943,000         $  (366,000)           --       $16,577,000

Severance                  650,000                  --              650,000             (31,000)           --           619,000

Merger related           4,583,000          (1,788,000)           2,795,000          (1,896,000)           --           899,000
                       -----------         -----------          -----------         -----------          ----       -----------

Total reserves         $23,470,000         $(3,082,000)         $20,388,000         $(2,293,000)           --       $18,095,000
                       ===========         ===========          ===========         ===========          ====       ===========
</TABLE>

8.    LEGAL PROCEEDINGS

      Following the Company's public announcement on March 23, 1998 of its
financial results for the fourth quarter and year ended December 31, 1997, the
Company and certain of its directors and officers were named as defendants in at
least thirteen putative class action lawsuits filed primarily in the United
States District Court for the Eastern District of New York on behalf of all
purchasers of common stock of the Company (including former Fuqua shareholders
who received shares of the Company Common Stock when the Company acquired Fuqua
in December 1997) during various periods within the time period May 1997 to
March 1998. The complaints assert claims against the Company and the other
defendants for violations of Sections 11, 12(2) and 15 of the Securities Act of
1933, as amended, and Sections 10(b) and 20(a)


                                     - 13 -
<PAGE>   14
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated
thereunder with respect to alleged material misrepresentations and omissions in
public filings made with the Securities and Exchange Commission and certain
press releases and other public statements made by the Company and certain of
its officers relating to the Company's business, results of operations,
financial condition and future prospects, as a result of which, it is alleged,
the market price of the Company Common Stock was artificially inflated during
the putative class periods. Several of the complaints focus on statements made
concerning the Company's integration of its various recent acquisitions. The
plaintiffs seek unspecified compensatory damages and costs (including attorneys
and expert fees), expenses and other unspecified relief on behalf of the
putative classes. The Company believes that it has complied with all of its
obligations under the Federal securities laws, considers the plaintiffs'
allegations to be without merit and intends to defend these suits vigorously.

      On March 27, 1998, agents of the U.S. Customs Service and the Food and
Drug Administration arrived at the Company's principal headquarters and one
other Company location and retrieved several documents pursuant to search
warrants. The Company has subsequently been advised by an Assistant United
States Attorney for the Southern District of Florida that the Company is a
target of an ongoing grand jury investigation involving alleged fraud by one or
more of the Company's suppliers relating to the unauthorized diversion of
medical products intended for sale outside of the United States into United
States markets. The Company has also been advised that similar search warrants
were obtained with respect to approximately 14 other participants in the
distribution of medical products. The Company is presently investigating these
matters. The Company does not know when the grand jury investigation will
conclude or what action, if any, may be taken by the government against the
Company or any of its employees, so it cannot yet assess the impact of this
investigation on the Company. The Company intends to cooperate fully with the
government in its investigation.

      ENVIRONMENTAL CONTINGENCY: In March 1994, the Suffolk County Authorities
initiated an investigation to determine whether regulated substances had been
discharged in excess of permitted levels from Fuqua's Lumex division (the "Lumex
Division") located in Bayshore, New York. An environmental consulting firm was
engaged by the Lumex Division to conduct a more comprehensive site
investigation, develop a remediation work plan and provide a remediation cost
estimate. These activities were performed to determine the nature and extent of
contaminants present on the site and to evaluate their potential off-site
extent.

      In connection with Fuqua's April 1996 acquisition of the Lumex Division,
Fuqua assumed the obligations associated with this environmental matter. In late
1996, Fuqua conducted surficial soil remediation at the Bayshore facilities and
reported the results to the Suffolk County Authorities in March 1997. A ground
water work plan was submitted concurrently with the soil remediation report and
Fuqua is waiting for the necessary approvals from the Suffolk County Authorities
before proceeding with execution of the ground water work plan. Management is
not currently able to determine when any required remediation and monitoring
efforts with respect to the ground water contamination will be completed. In May
1997, the Suffolk County Authorities approved the soil remediation conducted by
Fuqua and provided comments on the ground water work plan.

      In November 1997, the Lumex Division received the results of additional
ground water testing that had been performed in August and September 1997. The
results revealed significantly lower concentrations of contaminants than were
known at the time the "Ground Water Work Plan" was prepared in March 1997. In
January 1998, additional confirmatory samples were taken, including two
additional wells, but the results of this sampling have not yet been received
from the laboratory. Management is not currently able to determine whether or
when additional remediation or monitoring efforts will be required.



                                     - 14 -
<PAGE>   15
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)


      At March 31, 1998, the Lumex Division had reserves for remediation costs
and additional investigation costs which will be required. Reserves are
established when it is probable that a liability has been incurred and such
costs can be reasonably estimated. The Lumex Division's estimates of these costs
were based upon currently enacted laws and regulations and the professional
judgment of independent consultants and counsel. Where available information was
sufficient to estimate the amount of liability, that estimate has been used.
Where information was only sufficient to establish a range of probable liability
and no point within the range is more likely than another, the lower end of the
range has been used. The Lumex Division has not assumed that any such costs
would be recoverable from third parties nor has the Lumex Division discounted
any of its estimated costs, although a portion of the remediation work plan will
be performed over a period of years.

      The amount of environmental liabilities are difficult to estimate due to
such factors as the extent to which remedial actions may be required, laws and
regulations change or the actual costs of remediation differ when the final work
plan is performed.

      DISPUTE WITH CYBEX: On April 3, 1996, Fuqua acquired the Lumex Division
from Cybex International, Inc. (formerly, Lumex, Inc.). The purchase price for
the Lumex Division was $40.7 million, subject to a final purchase price
adjustment in the asset sale agreement. The final purchase price adjustment was
disputed and, pursuant to the asset sale agreement, was to be resolved through
arbitration. On April 18, 1997, the seller obtained an interim stay of the
arbitration proceedings pending a hearing on May 9, 1997. On May 9, 1997, the
New York County Supreme Court vacated its stay of the arbitration proceedings
and directed Fuqua and the seller to proceed to arbitration. On June 10, 1997,
the seller filed a motion for a stay of arbitration pending the hearing and
determination of the seller's appeal with the Appellate Division of the New York
County Supreme Court. On June 24, 1997, the Appellate Division denied the
seller's motion to stay the arbitration proceedings pending appeal. Accordingly,
Fuqua and the seller continued the arbitration proceedings. The Appellate
Division subsequently affirmed the Supreme Court's denial of the stay, and
seller's motion for reconsideration has been denied. On February 13, 1998, the
arbitrator accepted $3,179,685 in claims by Fuqua, with interest of $350,690,
yielding a net award to Fuqua of $2,384,606.

      In March 1997, Fuqua gave notice to the seller to preserve Fuqua's
indemnification rights provided in the asset sale agreement.

      In February 1998, Fuqua filed in the State Court of Fulton County a
lawsuit against the seller and certain former officers and it states claims for
fraud, breach of warranty, negligent misrepresentation, Georgia RICO, and
attorney's fees. Defendants filed an answer and counterclaim on April 7, 1998,
denying liability and asserting fifteen defenses. Defendant Cybex has asserted
four counterclaims, seeking $1,284,288 in damages, plus attorneys' fees and
costs. Fuqua believes that the counterclaims lack merit for several reasons,
including, among others, that the punitive claim for $1,284,288, was decided
adversely to Cybex in the arbitration.

GENERAL

      The Company and its subsidiaries are parties to lawsuits and other
proceedings arising out of the conduct of its ordinary course of business,
including those relating to product liability and the sale and


                                     - 15 -
<PAGE>   16
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS --Continued
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES
                                   (Unaudited)

distribution of its products. While the results of such lawsuits and other
proceedings cannot be predicted with certainty, management does not expect that
the ultimate liabilities, if any, will have a material adverse effect on the
consolidated financial position or results of operations of the Company.


                                     - 16 -
<PAGE>   17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Forward-Looking Statements

      This report on Form 10-Q contains forward-looking statements as defined by
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
include plans and objectives of management for future operations, including
plans and objectives relating to the future economic performance and financial
results of the Company. The forward-looking statements relate to (i) the
expansion of the Company's market share, (ii) the Company's growth into new
markets, (iii) the development of new products and product lines to appeal to
the needs of the Company's customers, (iv) the opening of new distribution and
warehouse facilities, (v) obtaining regulatory and governmental approvals, (vi)
the upgrading of the Company's technological resources and systems and (vii) the
retention of the Company's earnings for use in the operation and expansion of
the Company's business.

      Important factors and risks that could cause actual results to differ
materially from those referred to in the forward-looking statements include, but
are not limited to, the effect of economic and market conditions, the impact of
the consolidation of healthcare practitioners, the impact of healthcare reform,
the Company's ability to effectively integrate acquired companies, the
termination of the Company's Exclusive Wheelchair Supply Agreement with P.T.
Dharma Polimetal ("P.T. Dharma"), an Indonesian company, the ability of the
Company to maintain its gross profit margins, the ability to obtain additional
financing to expand the Company's business, the failure of the Company to
successfully compete with the Company's competitors that have greater financial
resources, the loss of key management personnel or the inability of the Company
to attract and retain qualified personnel, adverse litigation results, the
acceptance and quality of new software and hardware products which will enable
the Company to expand its business, the acceptance and ability to manage the
Company's operations in foreign markets, possible disruptions in the Company's
computer systems or distribution technology systems, possible increases in
shipping rates or interruptions in shipping service, the level and volatility of
interest rates and currency values, the impact of current or pending legislation
and regulation, as well as the risks described from time to time in the
Company's filings with the Securities and Exchange Commission, which include
this report on Form 10-Q, the Company's annual report on Form 10-K for the year
ended December 31, 1997, and the section entitled "Risk Factors" in the
Company's Registration Statement on Form S-4 dated as of December 19, 1997.

      The forward-looking statements are based on current expectations and
involve a number of known and unknown risks and uncertainties that could cause
the actual results, performance and/or achievements of the Company to differ
materially from any future results, performance or achievements, express or
implied, by the forward-looking statements. Readers are cautioned not to place
undue reliance on these forward-looking statements, and that in light of the
significant uncertainties inherent in forward-looking statements, the inclusion
of such statements should not be regarded as a representation by the Company or
any other person that the objectives or plans of the Company will be achieved.

Operating Revenues

      Operating revenues for the quarter ended March 31, 1998 were $97,727,000
representing an increase of approximately 74% over the same period in the prior
year. Revenues for the first quarter of 1998 included revenues of approximately
$24.6 million attributable to the first full quarter of results for the Fuqua
entities acquired on December 30, 1997, as well as the revenues of five
additional companies acquired in 1997 (see Note 6 to the Condensed Consolidated
Financial Statements). The Company's revenues on a pro forma basis (as if all
acquisitions completed in 1997 were recorded as of January 1, 1997) increased
approximately 11%, as compared to the same period in the prior year. The
increase in operating revenues was primarily attributable to the six
acquisitions completed in 1997, the growth of the Company's "Graham-Field
Express" program and expansion of the Company's Consolidation Advantage


                                     - 17 -
<PAGE>   18
Program ("CAP"). Management believes that intense competition within the
healthcare industry will continue in 1998.

      In March 1996, Graham-Field Express was introduced to offer "same-day" and
"next-day" service to home healthcare dealers of certain strategic home
healthcare products, including Lumex and Temco patient aids, adult incontinence
products, Everest & Jennings wheelchairs, Smith & Davis homecare beds,
nutritional supplements and other freight and time sensitive products. As of
March 31, 1998, the Company had opened six (6) Graham-Field Express facilities
operating in the Bronx, New York; San Juan, Puerto Rico; Dallas, Texas;
Baltimore, Maryland; Cleveland, Ohio; and Bowling Green, Kentucky. The
Graham-Field Express facilities in Baltimore, Maryland; Cleveland, Ohio; and
Bowling Green, Kentucky were opened subsequent to March 31, 1997. Management
intends to moderate the growth of the Graham-Field Express program in 1998.

Interest and Other Income

      Interest and other income for the three month period ended March 31, 1998
was $415,000, as compared to $144,000 for the same period in the prior year. The
increase is primarily due to interest of approximately $40,000 earned on an
advance to P.T. Dharma (see Liquidity and Capital Resources), dividends of
$44,000 earned on preferred stock acquired in connection with the sale of the
Leather Operations, and net sublease income of approximately $98,000 
attributable to certain Fuqua properties.

Cost of Revenues

      Cost of revenues as a percentage of operating revenues was 68.7% for the
three months ended March 31, 1998, as compared to 68.4% recorded in the prior
year. The Fuqua entities and LaBac contributed higher gross profit margins,
partially offset by operating inefficiencies incurred at the Company's Temco
manufacturing facility due to the close-down of that facility which is expected
to be completed by the end of 1998.

Selling, General and Administrative Expenses

      Selling, general and administrative expenses as a percentage of operating
revenues for the three month period ended March 31, 1998 was 28.9% as compared
to 23.5% recorded in the same period in the prior year. The increase is
primarily attributable to higher corporate office and administrative overhead to
absorb and integrate the acquisitions completed in 1997, and the contribution of
revenue by the Fuqua entities and LaBac at a higher percentage of selling,
general and administrative expenses.

Interest Expense

      Interest expense for the three month period ended March 31, 1998 increased
to $2,743,000, as compared to $994,000 for the same period in the prior year.
The increase is primarily due to increased borrowings attributable to the
Company's growth, expansion of the Graham-Field Express Program, and the sale of
the Company's $100 million Senior Subordinated Notes (the "Senior Subordinated
Notes") in August 1997.

Net Income

      Income before income taxes for the three months ended March 31, 1998 was
$87,000, as compared to $3,710,000 for the same period in the prior year.

      The decrease is primarily due to increased selling, general and
administrative expenses as a percentage of operating revenue, and the increase
in interest expense.


                                     - 18 -
<PAGE>   19
      The Company had a net loss for the period ended March 31, 1998 of $713,000
as compared to net income of $2,183,000 for the same period last year. The
Company recorded income tax expense of $800,000 for the three months ended March
31, 1998, as compared to $1,527,000 for the same period last year. The increase
in the effective tax rate for the three month period ended March 31, 1998 is
attributable to the non-deductible goodwill associated with acquisitions in
relation to the level of pre-tax income. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities as it is management's
intention to invest such earnings in the entities indefinitely. As of March 31,
1998, the Company had net deferred tax assets, a portion of which was acquired
in connection with acquisitions. A full valuation allowance has been recognized
to offset the net deferred asset related to certain of the acquired tax
attributes. When realized, the tax benefit for those items will be recorded as a
reduction of the excess of cost over net assets acquired.

      The Company's business has not been materially affected by inflation.

Liquidity and Capital Resources

      The Company had net working capital of $101,790,000 at March 31, 1998, as
compared to $97,618,000 at December 31, 1997. The increase in working capital is
primarily attributable to working capital generated from operations of 
$3,949,000, comprised of the net loss of $713,000, adjusted for $3,872,000 of
depreciation and amortization expense and $790,000 of deferred tax provisions;
plus proceeds of $4,639,000 from the exercise of stock options, offset by
payments of $2,551,000 for the purchase of property, plant and equipment and by
the receipt of preferred stock (a long-term asset) valued at $1,539,000 as a
component of the proceeds from the sale of the Leather Operations.

      Cash used in operations for the three months ended March 31, 1998 was
$16,536,000, as compared to $12,183,000 in the same period in the prior year.
The principal reason for the increase in cash used in operations was an increase
in accounts receivable of $8,739,000, other assets of $3,803,000, and inventory
of $460,000. The increase in accounts receivable is due to changes in
reimbursement patterns and slowing payments resulting in an increased number of
days outstanding for accounts receivable.

      The increase in other assets is due to the advance in February 1998 of
$3.5 million to P.T. Dharma, the Company's supplier of commodity wheelchairs, in
consideration of the grant of a six month option to purchase the wheelchair
assets of P.T. Dharma for a price to be determined. During the option period,
the Company is paid interest on the advance at an annual interest rate of 10.3
percent. The advance is collateralized by shares of the capital stock of P.T.
Dharma, and is to be applied against the purchase price if a purchase
transaction is ultimately consummated. In the event the Company and P.T. Dharma
are unable to agree upon the terms of the transaction, the advance is to be
returned to the Company.

      The Company periodically evaluates recoverability of its tangible and
intangible assets in accordance with SFAS No. 121. In addition, based on
projected results for the remainder of 1998, the Company believes that it will
be in compliance with the financial covenants contained in its Senior Secured
Revolving Credit Facility, as amended (the "Credit Facility"), arranged by IBJ
Schroder Business Credit Corporation ("IBJ Schroder"). The Company anticipates
that its cash flow from operations, together with its current cash balance, and
the proceeds from its Credit Facility will be sufficient to meet its working
capital requirements. However, actual results and performance could differ.

      The Credit Facility. The Credit Facility provides for up to $100 million
of borrowings on a revolving credit basis, including letters of credit and
banker's acceptances, arranged by IBJ Schroder, as agent. The Credit Facility
terminates on December 10, 1999. Under the terms of the Credit Facility,
borrowings bear interest, at Graham-Field's option, at IBJ Schroder's prime rate
(8.50% at March 31, 1998) or 2.25% above LIBOR, or 1.5% above IBJ Schroder's
bankers' acceptance rate. The Credit Facility is secured by all of
Graham-Field's assets.

      The Credit Facility contains certain customary terms and provisions,
including limitations with


                                     - 19 -
<PAGE>   20
respect to the repayment or prepayment of principal on subordinated debt,
including the Senior Subordinated Notes, the incurrence of additional debt,
liens, transactions with affiliates and certain consolidations, mergers and
acquisitions and sales of assets. In addition, Graham-Field is prohibited from
declaring or paying any dividend or making any distribution on any shares of
common stock or preferred stock of Graham-Field (other than dividends or
distributions payable in its stock, or split-ups or reclassifications of its
stock) or applying any of its funds, property or assets to the purchase,
redemption or other retirement of any such shares, or of any options to purchase
or acquire any such shares. Notwithstanding the foregoing restrictions,
Graham-Field is permitted to pay cash dividends in any fiscal year in an amount
not to exceed the greater of (i) the amount of dividends due BIL under the terms
of the Series B and Series C Preferred Stock in any fiscal year, or (ii) 12.5%
of the net income of Graham-Field on a consolidated basis, provided that no
event of default under the Credit Facility shall have occurred and be continuing
or would exist after giving effect to the payment of the dividends. The Credit
Facility contains certain financial covenants, including a cash flow coverage
and leverage ratio, and an earnings before interest, taxes, depreciation and
amortization covenant, as well as the requirement that Graham-Field reduce
outstanding borrowings with the net cash proceeds of certain asset sales.

      The Company was not in compliance with certain financial covenants
contained in the Credit Facility as of December 31, 1997. On April 13, 1998,
these covenants were waived effective as of December 31, 1997 by IBJ Schroder
and amended for the balance of the term of the Credit Facility. At March 31,
1998, the Company was in compliance with the financial covenants contained in
the Credit Facility.

      The Senior Subordinated Notes. On August 4, 1997, Graham-Field issued the
Senior Subordinated Notes under Rule 144A of the Securities Act of 1933, as
amended (the "Securities Act"). On February 9, 1998, Graham-Field completed its
exchange offer to exchange the outstanding Senior Subordinated Notes for an
equal amount of the new Senior Subordinated Notes, which have been registered
under the Securities Act. The new Senior Subordinated Notes are identical in all
material respects to the previously outstanding Senior Subordinated Notes. The
Senior Subordinated Notes bear interest at the rate of 9.75% per annum and
mature on August 15, 2007. The Senior Subordinated Notes are general unsecured
obligations of Graham-Field, subordinated in right of payment to all existing
and future senior debt of Graham-Field, including indebtedness under the Credit
Facility. The Senior Subordinated Notes are guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a senior subordinated basis by all
existing and future restricted subsidiaries of Graham-Field (the "Guaranteeing
Subsidiaries"). The Subsidiary Guarantees are subordinated in right of payment
to all existing and future senior debt of the Guaranteeing Subsidiaries,
including any guarantees by the Guaranteeing Subsidiaries of Graham-Field's
obligations under the Credit Facility.

      The net proceeds from the offering of the Senior Subordinated Notes were
used to repay $60.3 million of indebtedness under the Credit Facility and $5
million of indebtedness due to BIL. The balance of the proceeds were used for
general corporate purposes.

      Under the terms of the Indenture, the Senior Subordinated Notes are not
redeemable at Graham-Field's option prior to August 15, 2002. Thereafter, the
Senior Subordinated Notes are redeemable, in whole or in part, at the option of
Graham-Field, at certain redemption prices plus accrued and unpaid interest to
the date of redemption. In addition, prior to August 15, 2000, Graham-Field may,
at its option, redeem up to 25% of the aggregate principal amount of Senior
Subordinated Notes originally issued with the net proceeds from one or more
public offerings of common stock at a redemption price of 109.75% of the
principal amount, plus accrued and unpaid interest to the date of redemption;
provided that at least 75% of the aggregate principal amount of Senior
Subordinated Notes originally issued remain


                                     - 20 -
<PAGE>   21
outstanding after giving effect to any such redemption.

      The Indenture contains customary covenants including, but not limited to,
covenants relating to limitations on the incurrence of additional indebtedness,
the creation of liens, restricted payments, the sales of assets, mergers and
consolidations, payment restrictions affecting subsidiaries and transactions
with affiliates. In addition, in the event of a change of control of
Graham-Field as defined in the Indenture, each holder of the Senior Subordinated
Notes will have the right to require Graham-Field to repurchase such holder's
Senior Subordinated Notes, in whole or in part, at a purchase price of 101% of
the principal amount thereof plus accrued and unpaid interest to the date of
repurchase. In addition, Graham-Field will be required in certain circumstances
to make an offer to purchase Senior Subordinated Notes at a purchase price equal
to 100% of the principal amount thereof plus accrued and unpaid interest to the
date of purchase, with the net cash proceeds of certain asset sales. The Credit
Facility, however, prohibits Graham-Field from purchasing the Senior
Subordinated Notes without the consent of the lenders thereunder.

      In addition, the Indenture prohibits the Company from declaring or paying
any dividend or making any distribution or restricted payment as defined in the
Indenture (collectively, the "Restricted Payments") (other than dividends or
distributions payable in capital stock of the Company), unless, at the time of
such payment (i) no default or event of default shall have occurred and be
continuing or would occur as a consequence thereof; (ii) the Company would be
able to incur at least $1.00 of additional indebtedness under the fixed charge
coverage ratio contained in the Indenture; and (iii) such Restricted Payment,
together with the aggregate of all Restricted Payments made by the Company after
the date of the Indenture is less than the sum of (a) 50% of the consolidated
net income of the Company for the period (taken as one accounting period)
beginning on April 1, 1997 to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such consolidated net income for such period
is a deficit, minus 100% of such deficit), plus (b) 100% of the aggregate net
cash proceeds received by the Company from contributions of capital or the issue
or sale since the date of the Indenture of capital stock of the Company or of
debt securities of the Company that have been converted into capital stock of
the Company.


                                     - 21 -
<PAGE>   22
Part II.  Other Information

Item 1. Legal Proceedings

      See Note 8 to the Condensed Consolidated Financial Statements.


Item 4.  Submission of Matters to a Vote of Security Holders

      None.


Item 5.  Other Matters

      On April 17, 1998, the Company, J.B. Fuqua, J. Rex Fuqua and certain
members of the Fuqua family and other entities controlled by the Fuqua family
(collectively, the "Fuqua Family Stockholders") terminated that certain
Stockholders Agreement dated as of September 5, 1997 (the "Fuqua Stockholder
Agreement"), by and among the Company, BIL, BIL Securities (Offshore) Ltd. and
the Fuqua Family Stockholders, and entered into a new agreement dated as of
April 17, 1998 (the "New Fuqua Agreement"), which incorporates certain of the
provisions of the Fuqua Stockholder Agreement. Simultaneously with the execution
of the New Fuqua Agreement, J. Rex Fuqua resigned from the Board of Directors to
pursue his many other interests. Under the terms of the New Fuqua Agreement, the
Fuqua Family Stockholders were permitted within a two week period following
April 17, 1998 to purchase a number of shares of the Company Common Stock in the
open market (the "Permitted Purchases") equal to the greater of (i) 370,000
shares and (ii) a number of shares which, when added to the Fuqua Family
Stockholders' current holdings, will not exceed 10% of the outstanding voting
power of the capital stock of the Company. The New Fuqua Agreement provides, for
among other things, that the Fuqua Family Stockholders will not purchase or
acquire any additional shares of the Company Common Stock (other than the
Permitted Purchases, and in connection with stock splits, stock dividends and
similar transactions applicable to all stockholders of the Company generally).
In addition, the New Fuqua Agreement provides that the Fuqua Family Stockholders
will not engage in proxy contests, hostile tender offers or other similar
transactions currently prohibited by the Existing Fuqua Stockholders Agreement;
provided that the Fuqua Family Stockholders shall be free to tender their shares
in connection with a third party tender offer for the Company regardless of
whether such tender offer is recommended by the Board of Directors of the
Company. The New Fuqua Agreement also provides that the Fuqua Family
Stockholders will continue to vote their shares of the Company Common Stock
consistent with the requirements contained in the Existing Fuqua Stockholders
Agreement through and including the 1998 Annual Meeting of stockholders of the
Company, after which time they shall be free to vote their shares in their
absolute discretion.


Item 6.  Exhibits and Reports on Form 8-K

      Exhibits:

      1.    Employment Agreement dated as of April 17, 1998, by and between
            Graham-Field Health Products, Inc. and Andrew A. Giordano.

      2.    Employment Agreement dated as of April 17, 1998, by and between
            Graham-Field Health Products, Inc. and Richard S. Kolodny.

      3.    Employment Agreement dated as of April 17, 1998, by and between
            Graham-Field Health Products, Inc. and Ralph Liguori.

      4.    Employment Agreement dated as of April 17, 1998, by and between
            Graham-Field Health


                                     - 22 -
<PAGE>   23
            Products, Inc. and Peter Winocur.

      5.    Stockholders Agreement dated as of April 17, 1998, by and between
            Graham-Field Health Products, Inc., certain entities of the Fuqua
            family, Irwin Selinger, BIL (Far East Holdings) Limited and BIL
            Securities (Offshore) Ltd.


      Reports on Form 8-K:

      The Company's Current Report on Form 8-K dated as of February 11, 1998
      (Date of Event: January 27, 1998).


                                     - 23 -
<PAGE>   24
                               S I G N A T U R E S



Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.





                                         GRAHAM-FIELD HEALTH PRODUCTS, INC.
                                         (Registrant)



Date:    May 14, 1998                            /s/Irwin Selinger
                                         --------------------------------------
                                                   Irwin Selinger
                                              Chairman of the Board and
                                               Chief Executive Officer



Date:    May 14, 1998                            /s/Paul Bellamy
                                         --------------------------------------
                                                    Paul Bellamy
                                               Vice President - Finance
                                             Principal Financial Officer


                                     - 24 -