<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 September 30, 1997

                                       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 --- 21,138,253 shares as of November 4,
         1997
<PAGE>   2
               GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES

                                    I N D E X

Part I. Financial Information: 

                                                                            Page
                                                                            ----

         Item 1.  Financial Statements:

                  Condensed Consolidated Balance Sheets - September
                  30, 1997 (Unaudited) and December 31, 1996 (Audited)         3

                  Condensed Consolidated Statements of Operations for
                  the three and nine months ended September 30, 1997
                  and 1996 (Unaudited)                                         4

                  Condensed Consolidated Statements of Cash Flows for
                  the nine months ended September 30, 1997 and 1996
                  (Unaudited)                                                5-6

                  Notes to Condensed Consolidated Financial Statements
                  (Unaudited)                                               7-15

         Item 2. Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                      16-20

Part II. Other Information:

         Item 1.  Legal Proceedings                                           21

         Item 4.  Submission of Matters to a Vote of Security Holders         21

         Item 6.  Exhibits and Reports on Form 8-K                            21


                                Page 2
<PAGE>   3
                 CONDENSED CONSOLIDATED BALANCE SHEETS
          GRAHAM-FIELD HEALTH PRODUCTS, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                    September 30,         December 31,
         ASSETS                                         1997                  1996
                                                    -------------        -------------
                                                     (unaudited)           (audited)
<S>                                                 <C>                  <C>          
CURRENT ASSETS:
  Cash and cash equivalents                         $   5,682,000        $   1,241,000
  Marketable securities                                12,832,000                   --
  Accounts receivable - net                            74,770,000           45,703,000
  Inventories                                          60,314,000           48,245,000
  Other current assets                                  8,146,000            3,023,000
  Recoverable and prepaid income taxes                    256,000              256,000
                                                    -------------        -------------
         TOTAL CURRENT ASSETS                         162,000,000           98,468,000
PROPERTY, PLANT AND EQUIPMENT - net                    14,801,000           11,264,000
EXCESS OF COST OVER NET ASSETS ACQUIRED - net         103,232,000           91,412,000
OTHER ASSETS                                           13,015,000            5,112,000
DEFERRED TAX ASSET                                             --              938,000
                                                    -------------        -------------
         TOTAL ASSETS                               $ 293,048,000        $ 207,194,000
                                                    =============        =============

         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Notes payable                                     $          --        $  13,985,000
  Current maturities of long-term debt                  2,054,000            2,016,000
  Accounts payable                                     22,945,000           22,995,000
  Acceptances payable                                          --           19,800,000
  Accrued expenses                                     21,829,000           25,608,000
                                                    -------------        -------------
         TOTAL CURRENT LIABILITIES                     46,828,000           84,404,000
LONG-TERM DEBT                                          8,440,000            6,535,000
SENIOR SUBORDINATED NOTES                             100,000,000                   --
OTHER LONG TERM LIABILITIES                             1,522,000            1,752,000
                                                    -------------        -------------
         TOTAL LIABILITIES                            156,790,000           92,691,000
STOCKHOLDERS' EQUITY:
  Preferred Stock                                      31,600,000           31,600,000
  Common Stock                                            530,000              496,000
  Additional paid-in capital                          115,702,000          101,569,000
  (Deficit)                                           (11,548,000)         (18,995,000)
  Unrealized gain on marketable securities                 72,000                   --
  Cumulative translation adjustment                        61,000              (12,000)
                                                    -------------        -------------
  Sub-total                                           136,417,000          114,658,000
  Notes receivable from sale of shares                   (159,000)            (155,000)
                                                    -------------        -------------
         TOTAL STOCKHOLDERS' EQUITY                   136,258,000          114,503,000
         TOTAL LIABILITIES AND STOCKHOLDERS'
         EQUITY                                     $ 293,048,000        $ 207,194,000
                                                    =============        =============
</TABLE>

See notes to condensed consolidated financial statements.

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

                                   (Unaudited)

<TABLE>
<CAPTION>
                                              Three Months Ended                      Nine Months Ended
                                                 September 30                           September 30
                                        -------------------------------       -------------------------------
                                            1997               1996               1997               1996
                                        ------------       ------------       ------------       ------------
<S>                                     <C>                <C>                <C>                <C>         
REVENUES:
   Medical equipment and supplies       $ 70,745,000       $ 36,436,000       $189,515,000       $100,674,000
   Interest and other income                 363,000             31,000            759,000            537,000
                                        ------------       ------------       ------------       ------------
                                          71,108,000         36,467,000        190,274,000        101,211,000
COST AND EXPENSES:
   Cost of revenues                       47,159,000         24,942,000        128,100,000         69,203,000
   Selling, general and
      administrative                      16,018,000          9,021,000         43,976,000         25,678,000
   Interest expense                        2,394,000            672,000          4,557,000          1,962,000
                                        ------------       ------------       ------------       ------------
                                          65,571,000         34,635,000        176,633,000         96,843,000
INCOME BEFORE INCOME TAXES                 5,537,000          1,832,000         13,641,000          4,368,000
INCOME TAXES                               2,187,000            811,000          5,395,000          1,943,000
                                        ------------       ------------       ------------       ------------
NET INCOME                                 3,350,000          1,021,000          8,246,000          2,425,000
PREFERRED STOCK DIVIDENDS                    266,000                 --            799,000                 --
                                        ------------       ------------       ------------       ------------
NET INCOME AVAILABLE TO
  COMMON STOCKHOLDERS                   $  3,084,000       $  1,021,000       $  7,447,000       $  2,425,000
                                        ============       ============       ============       ============
PER SHARE DATA (NOTE 2):
NET INCOME PER COMMON AND
COMMON EQUIVALENT
SHARES                                  $        .13       $        .07       $        .32       $        .16
                                        ============       ============       ============       ============
WEIGHTED AVERAGE NUMBER OF
COMMON AND COMMON
EQUIVALENT SHARES
OUTSTANDING                               26,739,000         15,674,000         25,888,000         15,466,000
                                        ============       ============       ============       ============
</TABLE>

See notes to condensed consolidated financial statements.

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

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                           September 30
                                                    -------------------------
                                                      1997              1996
                                                    --------           ------
<S>                                                 <C>                <C>
OPERATING ACTIVITIES
Net income                                          $8,246,000         $2,425,000

Adjustments to reconcile net
   income to net cash (used in) provided by
   operating activities:
     Depreciation and amortization                   4,700,000          2,487,000   
     Provision for losses on accounts
        receivable                                     935,000            441,000   
     Deferred income taxes                           1,538,000          1,861,000  
     Gain on sale of product line                            -           (360,000)            
     Gain on sale of marketable securities             (41,000)                 -
     Changes in operating assets and
      liabilities:
      Accounts receivable                          (24,519,000)        (8,573,000)
      Inventories, other current assets and
         recoverable and prepaid income taxes      (11,404,000)        (6,601,000)    
      Accounts and acceptances payable,
         accrued expenses, and other                (8,468,000)         9,753,000   
                                                   -----------         ----------   
         NET CASH (USED IN) PROVIDED
         BY OPERATING ACTIVITIES                   (29,013,000)         1,433,000
                                                   -----------         ----------
INVESTING ACTIVITIES                               

Purchases of marketable securities                 (97,216,000)                 -
Purchases of property, plant and equipment          (3,637,000)          (762,000)    
Acquisitions, net of cash acquired                 (10,006,000)        (2,191,000)       
Notes receivable from officers                          (4,000)          (199,000)
Proceeds from sale of marketable securities         84,497,000                  -   
Proceeds from sale of product line                           -            500,000          
Proceeds from sale of assets under leveraged lease           -            487,000     
Net increase in other assets                        (1,653,000)          (158,000)       
                                                  ------------        ------------    
         NET CASH USED IN INVESTING               $(28,019,000)       $(2,323,000)    
         ACTIVITIES                               ------------        ------------

</TABLE>

See notes to condensed consolidated financial statements.

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

<TABLE>
<CAPTION>
                                                         Nine Months Ended
                                                           September 30
                                                    -------------------------
                                                      1997              1996
                                                    --------           ------
<S>                                                 <C>              <C>
FINANCING ACTIVITIES

Proceeds from issuance of senior subordinated notes $100,000,000     $    --
Proceeds from notes payable and long-term debt       147,138,000      6,590,000
Payments on notes payable and long-term debt        (162,352,000)    (6,112,000)
Payments on acceptances payable, net                 (19,800,000)         --
Proceeds on exercise of stock options                  1,052,000        479,000
Payments for note issue costs                         (4,565,000)         -- 
                                                     -----------      ---------

         NET CASH PROVIDED BY FINANCING 
                  ACTIVITIES                          61,473,000        957,000
                                                     -----------      ---------
         INCREASE IN CASH AND CASH EQUIVALENTS         4,441,000         67,000

         CASH AND CASH EQUIVALENTS AT
                  BEGINNING OF PERIOD                  1,241,000        284,000    

         CASH AND CASH EQUIVALENTS AT
                  END OF PERIOD                       $5,682,000       $351,000 
                                                     ===========      =========  
</TABLE>

See notes to condensed consolidated financial statements.

                                     Page 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 September 30, 1997 (unaudited), the results of operations for the three
and nine months ended September 30, 1997 and 1996 (unaudited) and the statements
of cash flows for the nine months ended September 30, 1997 and 1996 (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, 1996.

         Inventories at September 30, 1997 have been valued at average cost
based on perpetual records or the gross profit method.

         In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact is expected to
result in an increase in primary earnings per share for the quarter and nine
month period ended September 30, 1997 of $.02 and $.05 per share, respectively.
The impact of Statement 128 on the calculation of fully diluted earnings per 
share for the quarter and nine month period ended September 30, 1997 is not 
expected to be material.

         The results of operations for the three and nine months ended September
30, 1997 and 1996 are not necessarily indicative of results for the full year.

         Certain amounts in the 1996 financial statements have been reclassified
to conform to the 1997 presentation.

2.       NET INCOME PER SHARE

         Net income per common share was computed using the weighted average
number of common shares and dilutive common equivalent shares outstanding during
the period. For the 1997 period, net income per common share was calculated
assuming the conversion of the Company's Series B Cumulative Convertible
Preferred Stock (the "Series B Preferred Stock") and the Series C Cumulative
Convertible Preferred Stock (the "Series C Preferred Stock") into an aggregate
of 4,435,484 common shares and the

                                     Page 7
<PAGE>   8
elimination of a dividend of 1.5% on the Series B and Series C Preferred Stock
in the aggregate amount of $266,000 and $799,000, respectively for the three and
nine month periods ended September 30, 1997.

3.       INVENTORIES

         Inventories consist of the following:

<TABLE>
<CAPTION>
                                          September 30,              December 31,
                                              1997                       1996
                                          -----------                -----------
<S>                                       <C>                        <C>        
Raw materials                             $14,258,000                $ 8,423,000
Work-in-process                             4,558,000                  4,430,000
Finished goods                             41,498,000                 35,392,000
                                          -----------                -----------
                                          $60,314,000                $48,245,000
                                          ===========                ===========
</TABLE>

4.       INCOME TAXES

         As of September 30, 1997, the Company has recorded net deferred tax
assets primarily comprised of net operating loss carryforwards acquired in
connection with the Everest & Jennings acquisition, which expire at various
dates from 2008 to 2010. For financial reporting purposes, due to losses of
Everest & Jennings incurred prior to the Company's acquisition of Everest &
Jennings and SRLY limitations, a full valuation allowance has been recognized 
in connection with the net operating loss carryforwards of Everest & Jennings 
to offset the net deferred tax asset. If realized, the tax benefit for such 
items will be recorded as a reduction to the excess of cost over net assets 
acquired.

         The effective tax rate for the quarter and nine months ended September
30, 1997 is 39.5% primarily due to the percentage of income earned by foreign
entities which are taxed at lower rates. Deferred taxes have not been provided
on the undistributed earnings of the foreign entities since it is management's
intention to invest such earnings in the entities indefinitely.

5.       ACQUISITION OF BUSINESS

         On September 5, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement"), by and among Fuqua Enterprises, Inc., a
Delaware corporation ("Fuqua"), GFHP Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of the Company ("Sub"), and the Company providing
for the acquisition of Fuqua. Pursuant to the Merger Agreement, following the
satisfaction of the conditions contained therein, Sub will be merged with and
into Fuqua with Fuqua continuing as the surviving corporation wholly owned by
the Company (the "Merger"). The Company has received the written opinion of
Smith Barney Inc. to the effect that the consideration payable by the Company
pursuant to the Merger Agreement is fair from a financial point of view to the
Company.

         In the 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 Merger Agreement, will be converted into the right to
receive 2.1 (the "Conversion Number") shares of common stock, par value $.025
per share, of the Company (the "Company Common Stock"); provided that the
Conversion Number is subject to upward adjustment in the event the Company's
average stock price for the 10-day

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

period ending two days prior to the Merger falls below $13.57, and to downward
adjustment in the event that the average stock price exceeds $17.62.
Accordingly, Fuqua stockholders are assured of receiving Company Common Stock
valued at not less than $28.50 nor more than $37.00 in exchange for each share
of Fuqua Common Stock. There were 4,482,709 shares of Fuqua Common Stock
outstanding on September 5, 1997.

         The Merger Agreement contains customary representations and warranties
of the parties, which will not survive the effectiveness of the Merger. In
addition, pursuant to the Merger Agreement, the Company and Fuqua have agreed to
operate their businesses in the ordinary course pending consummation of the
Merger, and Fuqua has agreed not to solicit or enter into negotiations or
agreements relating to a competing business combination transaction. The Merger
is conditioned, among other things, upon the approval of the holders of at least
a majority of the outstanding shares of Fuqua capital stock entitled to vote
thereon, upon the approval of the holders of at least a majority of the shares
of Company Common Stock voting at a special meeting of the stockholders of the
Company, and upon the expiration of certain regulatory waiting periods. Either
party may terminate the Merger Agreement if the Merger is not consummated on or
prior to March 31, 1998.

         To induce the Company and Sub to enter into the Merger Agreement, the
Company entered into (1) a Stockholders Agreement, dated as of September 5,
1997 (the "Stockholders Agreement"), with BIL (Far East Holdings) Limited and
BIL Securities (Offshore) Ltd. (together, "BIL"), Irwin Selinger ("Mr.
Selinger"), the Chairman of the Board and Chief Executive Officer of the Company
and J.B. Fuqua, J. Rex Fuqua, Fuqua Holdings I, L.P., The Jennifer Calhoun Fuqua
Trust, The Lauren Brooks Fuqua Trust and The J.B. Fuqua Foundation, Inc.
(together, the "Fuqua Stockholders") and (2) a Voting Agreement (the "Voting
Agreement") with Gene J. Minotto ("Mr. Minotto"), pursuant to which, among other
things, the Fuqua Stockholders and Mr. Minotto (who, as of September 5, 1997,
own collectively 45.9% of the outstanding Fuqua Common Stock) have agreed to
vote their shares of Fuqua Common Stock in favor of approval of the Merger and
adoption of the Merger Agreement and all transactions contemplated thereby at a
special meeting of Fuqua stockholders. The Fuqua Stockholders and Mr. Minotto
also agreed, until the Effective Time, not to dispose of any of the Fuqua Common
Stock or any interest therein, exercise any right of conversion with respect to
such shares, deposit any of such shares into a voting trust or enter into a
voting agreement or arrangement or grant any proxy with respect thereto or enter
into any contract, option or other arrangement or undertaking with respect to
the direct or indirect disposition of such shares. In addition, the Fuqua
Stockholders and Mr. Minotto agreed pursuant to the Stockholders Agreement and
Voting Agreement not to initiate, solicit or encourage, directly or indirectly,
any inquiries with respect to any alternative business combination transaction
relating to Fuqua or engage in any negotiations concerning any such transaction.
The Fuqua Stockholders and Mr. Minotto also agreed to promptly notify the
Company of any inquiries or proposed negotiations with respect to any such
proposed transaction.

         Pursuant to the Stockholders Agreement, BIL and Mr. Selinger (who, as
of September 5, 1997, own collectively 37% of the voting power of the capital
stock of the Company), have agreed to vote their shares of Company Common Stock
in favor of approval of the Merger and adoption of the Merger Agreement and all
transactions contemplated thereby at a special meeting of Company stockholders.

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

         The Fuqua Stockholders have agreed in the Stockholders Agreement not 
to acquire additional shares of the Company Common Stock, seek to acquire 
ownership of the Company, engage in any solicitation of proxies with respect 
to the Company, or otherwise seek or propose to acquire control of the Company 
Board provided that the Fuqua Stockholders own securities representing at 
least 5% of the voting power of the outstanding capital stock of the Company. 
Pursuant to the Stockholders Agreement, so long as the Fuqua Stockholders 
beneficially own 5% or more of the voting power of the outstanding capital 
stock of the Company, the Fuqua Stockholders will have the right to designate 
one member of the Board of Directors of the Company (the "Company Board"). The 
Fuqua Stockholders also agreed to certain restrictions in their transfer of 
shares of Company Common Stock received in the Merger.

         The Stockholders Agreement and Voting Agreement will automatically
terminate upon a termination of the Merger Agreement in accordance with its
terms. In addition, the Stockholders Agreement will terminate following the
Merger, if the Fuqua Stockholders beneficially own less than 5% of the voting
power of the outstanding capital stock of the Company or upon a change of
control of the Company Board.

         In addition, on September 5, 1997, the Company entered into a
Registration Rights Agreement with the Fuqua Stockholders (the "Registration
Rights Agreement") providing certain demand and "piggyback" registration rights
to the Fuqua Stockholders with respect to the securities of the Company to be
acquired by the Fuqua Stockholders pursuant to the Merger Agreement. The Company
will be required to pay the expenses incurred by the Fuqua Stockholders in
connection with any such registrations. The Registration Rights Agreement will
automatically terminate upon a termination of the Merger Agreement in accordance
with its terms. The Company has also agreed to provide certain registration
rights to Mr. Minotto.

         The Company believes that it has obtained all material regulatory
approvals, other than clearance of the proxy materials by the Securities and
Exchange Commission. The Company expects to mail its proxy materials to
stockholders during November 1997 following approval by the Securities and
Exchange Commission. Stockholder meetings to approve the Merger and the closing
are anticipated to occur in late December 1997.

         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 (x) by the issuance of 23,156 shares of Company Common 
Stock and (y) in cash in the amount of $311,167, and (ii) the assumption of 
debt in the amount

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

of $477,664. In connection with the transaction, the Company also entered into a
registration rights agreement dated as of August 28, 1997, pursuant to which the
Company agreed to register for resale the shares of Company Common Stock issued
pursuant to the Reorganization Agreement and the Real Estate Sales Agreement.
Each of the Medapex Selling Stockholders entered into a two-year employment 
agreement and non-competition agreement with the Company.

         The acquisition of Medapex qualifies as a tax-free reorganization and
was accounted for as a "pooling of interests." Accordingly, the Company's
financial statements have been restated to include the results of Medapex for
all periods presented. Separate results of operations for the periods prior to
the share exchange with Medapex are as follows:

<TABLE>
<CAPTION>
                                  Three months                         Nine months
                               ended September 30                   ended September 30
                        -------------------------------       -------------------------------
                            1997               1996               1997              1996
<S>                     <C>                <C>                <C>                <C>         
Net Revenues:
     Graham-Field       $ 67,827,000       $ 32,384,000       $176,987,000       $ 89,360,000
     Medapex               3,281,000          4,083,000         13,287,000         11,851,000
                        ------------       ------------       ------------       ------------
     Combined           $ 71,108,000       $ 36,467,000       $190,274,000       $101,211,000
                        ============       ============       ============       ============
Net Income:
     Graham-Field       $  3,158,000       $    965,000       $  7,859,000       $  2,290,000
     Medapex                 192,000             56,000            387,000            135,000
                        ------------       ------------       ------------       ------------
     Combined           $  3,350,000       $  1,021,000       $  8,246,000       $  2,425,000
                        ============       ============       ============       ============
</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 $4,500,000 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 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 $3,428,000.

         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"). LaBac, a privately-owned Company, manufactures and distributes
custom power wheelchair seating systems and manual wheelchairs throughout North
America. 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. In addition, 77,255 of the shares of Company Common Stock were 
placed in escrow for a period of one (1) year following the Effective Date

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

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 $7.4 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 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 $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, of which
28,095 shares were delivered into escrow. All of the escrowed shares were held
in escrow until June 28, 1997, at which time 9,366 shares were released. The 
balance of the escrowed shares will be released on December 31, 1997, subject 
to any 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. The excess of cost over the net assets acquired
amounted to approximately $1.9 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, 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 $65.6 million, as adjusted.

         On September 4, 1996, the Company acquired substantially all of the
assets of V.C. Medical Distributors Inc. ("V.C. Medical"), a wholesale
distributor of medical products in Puerto Rico, for a purchase price consisting
of $1,703,829 in cash, and the issuance of 32,787 shares of Company Common

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

Stock, valued at $7.625 per share representing the closing market price of the
Company Common Stock on the last trading day immediately prior to the
closing. In addition, the Company assumed certain liabilities of V.C. Medical in
the amount of $296,721. Under the terms of the transaction, in the event the
pre-tax income of the acquired business equals or exceeds $1,000,000 during the
twelve (12) months following the closing date, an additional $500,000 will be
paid to V.C. Medical. The shares will be held in escrow until February 4, 1998,
subject to any claims for indemnification in favor of the Company. 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 the net assets acquired amounted to approximately $939,000.

         The following summary presents unaudited pro forma consolidated results
of operations for the nine months ended September 30, 1997 and 1996 as if the
acquisitions accounted for under the purchase method of accounting occurred at 
the beginning of each of 1997 and 1996. 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 1996 pro forma information does not include the write-off 
of certain purchased in-process research and development costs of $12,800,000, 
merger related expenses of $3,000,000 associated with the acquisition of 
Everest & Jennings, and an extraordinary item relating to the early retirement 
of indebtedness under the John Hancock Note and Warrant Agreement, as amended. 
The pro forma net loss per common share for 1996 has been calculated assuming 
the payment of a dividend of 1.5% on both the Series B Preferred Stock and 
Series C Preferred Stock in the aggregate amount of $799,000 for the nine 
months ended September 30, 1997. Conversion of the preferred stock was not 
assumed since the result would have been antidilutive.

<TABLE>
<CAPTION>
                                                          Pro forma
                                                          ---------
                                            Nine Months Ended   Nine Months Ended
                                            September 30, 1997  September 30, 1996
                                            ------------------  ------------------
<S>                                         <C>                 <C>          
Net Revenues                                  $ 201,532,000       $ 170,376,000
                                              =============       =============
Income (Loss) Before Income Taxes             $  14,163,000       $  (1,791,000)
Income Taxes                                      5,665,000             578,000
                                              -------------       -------------
Net Income (Loss)                             $   8,498,000       $  (2,369,000)
                                              =============       =============
Net Income (Loss) per Share                   $         .32       $        (.15)
                                              =============       =============
Weighted Average Number of Common
and Dilutive Common Equivalent Shares
Outstanding                                      26,454,000          21,024,000
                                              =============       =============
</TABLE>

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

6.       OTHER MATTERS

         On August 4, 1997, the Company issued $100 million of its 9.75% Senior
Subordinated Notes due 2007 (the "Notes") under Rule 144A of the Securities Act
of 1933, as amended (the "Securities Act"). The Notes are general unsecured 
obligations of the Company, subordinated in right of payment to all existing 
and future senior debt of the Company, including indebtedness under the  
Credit Facility (the "Credit Facility") arranged by IBJ Schroder Business
Credit Corp., as agent ("IBJ"). The Notes are guaranteed (the "Subsidiary 
Guarantees"), jointly and severally, on a senior subordinated basis by all 
existing and future restricted subsidiaries of the Company, other than foreign 
subsidiaries (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 the Company's obligations under the Credit Facility.

         The net proceeds from the offering of the 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 will be used for general
corporate purposes, including the funding for acquisitions, the opening of
additional Graham-Field Express facilities and strategic alliances.

         Under the terms of the indenture governing the Notes (the "Indenture"),
the Notes are not redeemable at the Company's option prior to August 15, 2002.
Thereafter, the Notes are redeemable, in whole or in part, at the option of the
Company, at certain redemption prices plus accrued and unpaid interest to the
date of redemption. In addition, prior to August 15, 2000, the Company may, at
its option, redeem up to 25% of the aggregate principal amount of Notes
originally issued with the net proceeds from one or more public offerings of
Company 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 Notes originally issued remain 
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 the Company as defined in the Indenture, each holder of the Notes will have
the right to require the Company to repurchase such holder's 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.

         The Company and the Guaranteeing Subsidiaries have agreed, pursuant to
a registration rights agreement (the "Registration Rights Agreement") with the
initial purchaser of the Notes, to file with the Securities and Exchange
Commission a registration statement (the "Exchange Offer Registration
Statement") registering an issue of notes identical in all material respects to
the Notes (the "Exchange Notes") and to offer to the holders of the Notes the
opportunity to exchange their Notes for Exchange Notes (the "Exchange Offer").
If the Company is not permitted to file the Exchange Offer Registration
Statement or if certain holders of the Notes are not permitted to participate
in, or would not receive freely tradeable Exchange Notes pursuant to, the
Exchange Offer, the Company has agreed to file a shelf

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

registration statement (the "Shelf Registration Statement") with respect to
resales of the Notes. The Notes are subject to the payment of liquidated damages
under certain circumstances if the Company and the Guaranteeing Subsidiaries are
not in compliance with their obligations under the Registration Rights
Agreement.

7.       LEGAL PROCEEDINGS

         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 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.

                                     Page 15
<PAGE>   16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations


Forward-Looking Statement

         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, including the expansion of the Graham-Field Express
program, (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,
opportunities for acquisitions and the Company's ability to effectively
integrate acquired companies, the termination of the Company's exclusive
homecare bed supply agreement, the termination of the Company's exclusive
wheelchair supply agreement, 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, 1996, and the section entitled "Risk Factors" in the Company's
Registration Statement on Form S-4 dated as of October 18, 1996.

         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.

                                     Page 16
<PAGE>   17
Operating Revenues

         Operating revenues for the quarter and nine month period ended
September 30, 1997 were $70,745,000 and $189,515,000, respectively, representing
an increase of 94% and 88%, respectively, from the same periods in the prior
year. Operating revenues for the quarter, without revenues of Everest &
Jennings, increased in excess of 50% from the same period in the prior year. The
increase in operating revenues, excluding the revenues attributable to Everest &
Jennings, was primarily attributable to the continued roll-out of the Company's
innovative "Graham-Field Express" program, the expansion of the Company's
Consolidation Advantage Program ("CAP"), the roll-out of the Company's seamless
distribution program, the acquisitions of LaBac Systems, Inc. on June 28, 1997
and Medi-Source, Inc. on August 21, 1997, and the incremental revenue growth of
Medapex over the 1996 period.

         In March 1996, the Company introduced its Graham-Field Express program
which offers "same-day" and "next-day" service to home healthcare dealers of
certain strategic home healthcare products, including Temco patient aids, adult
incontinence products, Everest & Jennings wheelchairs, Smith & Davis homecare
beds, nutritional supplements and other freight and time sensitive products. As
of September 30, 1997, the Company had opened five (5) Graham-Field Express
facilities operating in the Bronx, New York; Puerto Rico; Dallas, Texas;
Baltimore, Maryland and Cleveland, Ohio. Revenues attributable to Graham-Field
Express were approximately $35,510,000 and $9,679,000 for the nine months ended
September 30, 1997 and 1996, respectively. The Company is actively pursuing
additional sites for its Graham-Field Express program, which will serve all of
the major U.S. markets.

Interest and Other Income

         Interest and other income for the three and nine month periods ended
September 30, 1997 was $363,000 and $759,000 respectively, as compared to 
$31,000 and $537,000 respectively, for the same periods in the prior year. The 
increase is primarily due to interest earned on the unused proceeds from the 
Company's sale of its Notes on August 4, 1997 and interest earned on customer 
financing programs.

Cost of Revenues

         Cost of revenues as a percentage of operating revenues decreased to
66.7% from 68.5% for the three months ended September 30, 1997, as compared to 
the same period in the prior year.

         Cost of revenues as a percentage of operating revenues decreased to
67.6% for the nine months ended September 30, 1997, as compared to 68.7% for the
same period in the prior year. The decrease is primarily attributable to
improved operational efficiencies associated with the manufacture and
distribution of the Company's product lines and improved purchasing activities.

Selling, General and Administrative Expenses

         Selling, general and administrative expenses as a percentage of
operating revenues for the three and nine month periods ended September 30, 1997
was 22.6% and 23.2% respectively, as compared to 24.8% and 25.5% respectively, 
in the same periods in the prior year. The decrease is attributable to a 
number of factors, including the expansion of the Graham-Field Express program 
in 1997, which contributes revenue with a lower percentage of selling, general 
and administrative expenses, as well as continued efficiencies generated by 
the Company's distribution network.

                                     Page 17
<PAGE>   18
Interest Expense

         Interest expense for the three and nine month periods ended September
30, 1997 increased to $2,394,000 and $4,557,000 respectively, as compared to 
$672,000 and $1,962,000 respectively, for the same periods in the prior year. 
The increase is primarily due to increased borrowings attributable to the 
Company's growth and expansion of the Graham-Field Express program, and the 
sale of the Company's Notes on August 4, 1997.

Net Income

         Income before income taxes for the three months ended September 30,
1997 was $5,537,000, as compared to $1,832,000 for the same period in the prior
year, an increase of $3,705,000 or 202%.

         Income before income taxes for the nine months ended September 30, 1997
was $13,641,000, as compared to $4,368,000 for the same period in the prior
year, an increase of $9,273,000, or 212%. The increase is primarily due to the
increase in revenues, the increase in the gross profit margin, and the decrease
in selling, general and administrative expenses as a percentage of operating
revenue, offset by the increase in interest expense.

         Net income for the three months ended September 30, 1997 was
$3,350,000, as compared to $1,021,000 for the same period last year, an increase
of $2,329,000 or 228%.

         Net income for the nine months ended September 30, 1997 was $8,246,000,
as compared to $2,425,000 for the same period last year, an increase of
$5,821,000 or 240%. The Company recorded income tax expense of $5,395,000 for
the nine months ended September 30, 1997, as compared to $1,943,000 for the same
period last year. The effective tax rate for the nine months ended September 30,
1997 was 39.5% as compared to 44.5% for the same period last year. The decrease
is primarily attributable to the percentage of income earned by foreign entities
which are taxed at a lower rate and the relative decrease in permanent
differences in relation to 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 September
30, 1997, the Company had net deferred tax assets primarily comprised of net
operating loss carryforwards acquired in connection with an acquisition. A full
valuation allowance has been recognized to offset the net deferred asset related
to the acquired tax attributes. If realized, the tax benefit for those items
will be recorded as a reduction of goodwill.

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

Liquidity and Capital Resources

         The Company had working capital of $115,172,000 at September 30, 1997,
as compared to $14,064,000 at December 31, 1996. The increase in working capital
is primarily attributable to the cash provided by the Company's net income of
$8,246,000, which reflects $4,700,000 of depreciation and amortization expense,
the net current assets acquired in connection with the Company's acquisitions
during the nine months ended September 30, 1997 and the sale of the Company's
Notes on August 4, 1997.

         Cash used in operations for the nine months ended September 30, 1997
was $29,013,000, as compared to cash provided by operations of $1,433,000 in the
same period in the prior year. The principal reasons for the decrease in cash
provided by operations were the increase in accounts receivable and inventory
levels related to increased revenues and the reduction in accrued expenses,
partially offset by net income of $8,246,000 and depreciation and amortization
expense of $4,700,000 for the period.

                                     Page 18
<PAGE>   19
         The Company anticipates that its cash flow from operations, together
with its current cash balance, and the proceeds from its Credit Facility and
Notes will be sufficient to meet its working capital requirements.

Financing

         On August 4, 1997, the Company issued $100 million of its Notes under 
Rule 144A of the Securities Act. The Notes are general 
unsecured obligations of the Company, subordinated in right of payment to all 
existing and future senior debt of the Company, including indebtedness under 
the Credit Facility. The Notes are guaranteed jointly and severally, on a 
senior subordinated basis by all Guaranteeing Subsidiaries, other than foreign 
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 the Company's obligations 
under the Credit Facility.

         The net proceeds from the offering of the 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 will be used for general
corporate purposes, including the funding for acquisitions, the opening of
additional Graham-Field Express facilities and strategic alliances.

         Under the terms of the Indenture, the Notes are not redeemable at the 
Company's option prior to August 15, 2002. Thereafter, the Notes are 
redeemable, in whole or in part, at the option of the Company, at certain 
redemption prices, plus accrued and unpaid interest to the date of redemption. 
In addition, prior to August 15, 2000, the Company may, at its option, redeem 
up to 25% of the aggregate principal amount of Notes originally issued with the
net proceeds from one or more public offerings of common stock of the Company 
at a certain 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 Notes originally issued remain outstanding 
after giving effect to any such redemption.

         The Indenture contains 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 the Company
as defined in the Indenture, each holder of the Notes will have the right to
require the Company to repurchase such holder's 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.

         The Company and the Guaranteeing Subsidiaries have agreed, pursuant to
the Registration Rights Agreement with the initial purchaser of the Notes, to
file with the Securities and Exchange Commission the Exchange Offer Registration
Statement registering the Exchange Notes and to offer to the holders of the
Notes the opportunity to exchange their Notes for Exchange Notes in the Exchange
Offer. If the Company is not permitted to file the Exchange Offer Registration
Statement or if certain holders of the Notes are not permitted to participate
in, or would not receive freely tradeable Exchange Notes pursuant to, the
Exchange Offer, the Company has agreed to file the Shelf Registration Statement
with respect to resales of the Notes. The Notes are subject to the payment of
liquidated damages under certain circumstances if the Company and the

                                     Page 19
<PAGE>   20
Guaranteeing Subsidiaries are not in compliance with their obligations under the
Registration Rights Agreement.

         On December 10, 1996, the Company entered into the Credit Facility for
up to $55 million of borrowings, including letters of credit and banker's
acceptances. The proceeds from the Credit Facility were used to (i) refinance 
certain existing indebtedness of the Company, including the indebtedness (a) 
under the John Hancock Note and Warrant Agreement, as amended and (b) to The 
Chase Manhattan Bank and (ii) to provide for working capital needs of the 
Company. Under the terms of the Credit Facility, borrowings bear interest, at 
the option of the Company at the bank's prime rate (8.5% at June 30, 1997) or 
2.25% above LIBOR, or 1.5% above the bank's bankers' acceptance rate. The 
Credit Facility is secured by the Company's receivables, inventory and 
proceeds thereof.

         On June 25, 1997, the Company amended the Credit Facility to provide
the Company with a term loan of $2 million (the "IBJ Term Loan"), which was
subsequently repaid on July 9, 1997 through an increase in available borrowings
under the Credit Facility.

         On July 9, 1997, the Company entered into an amendment to the Credit
Facility increasing the amount available for borrowings to $75 million. In
connection with the amendment to the Credit Facility, the Company pledged to IBJ
all of the assets of the Company not previously pledged and repaid the IBJ Term
Loan.

         The Credit Facility contains certain customary terms and provisions,
including limitations with respect to the incurrence of additional debt, liens,
transactions with affiliates, consolidations, mergers and acquisitions, sales of
assets, dividends and other distributions (other than the payment of dividends
to BIL) in accordance with the terms of the Series B and Series C Preferred 
Stock. In addition, the Credit Facility contains certain financial covenants, 
which became effective as of the end of the fiscal quarter ending June 30, 
1997, including a cash flow coverage and leverage ratio, and an earnings before
interest and taxes covenant. The Company was in compliance with such covenants 
at September 30, 1997.

         Under the terms of the Credit Facility, the Company is prohibited from
declaring, paying or making any dividend or distribution on any shares of the
common stock or preferred stock of the Company (other than dividends or
distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of the Company.
Notwithstanding the foregoing restrictions, the Company 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 the
Company on a consolidated basis, provided that no event of default shall have
occurred and be continuing or would exist after giving effect to the payment of
the dividends.

         On July 18, 1996, an affiliate of BIL provided the Company with a loan
in the amount of $4 million, at an effective interest rate of 8.8%. The loan was
used to fund the acquisition of V.C. Medical and for general corporate purposes.
On December 10, 1996, the loan was converted into a note, which matures on
April 1, 2001, with interest payable quarterly at an effective rate of 7.7% per
year.

         On May 9, 1997, an affiliate of BIL loaned $5 million to the Company at
an interest rate of 8.5% per annum, which was repaid with the proceeds from its
offering of Notes completed on August 4, 1997.

                                     Page 20
<PAGE>   21
Part II. Other Information

Item 1. Legal Proceedings

         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 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.

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

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibits:

1.       International Distributorship Agreement dated as of September 30, 1997,
         by and between Graham- Field Health Products, Inc. and Thuasne.

2.       Asset Purchase Agreement dated as of August 21, 1997, by and among
         Graham-Field Health Products, Inc., Graham-Field, Inc., Medi-Source,
         Inc., Peter Galambos and Irene Galambos.

3.       Purchase Agreement dated as of October 7, 1997, by and among
         Graham-Field Health Products, Inc., VGM & Associates, Inc. and U.S.
         Rehab, Inc.

4.       Vendor Agreement dated as of September 12, 1997 by and among
         Graham-Field Health Products, Inc. and Equipnet, Inc.


Reports on Form 8-K:

1.       The Company's Current Report on Form 8-K dated as of July 17, 1997
         (Date of Event: July 17, 1997).

2.       The Company's Current Report on Form 8-K dated as of September 4, 1997
         (Date of Event: August 28, 1997).

3.       The Company's Current Report on Form 8-K dated as of September 11, 1997
         (Date of Event: September 5, 1997).

                                     Page 21
<PAGE>   22
                               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:    November 13, 1997                         /s/Irwin Selinger
                                            ________________________________
                                                     Irwin Selinger
                                                Chairman of the Board and
                                                 Chief Executive Officer



Date:    November 13, 1997                          /s/Gary M. Jacobs
                                            ________________________________
                                                      Gary M. Jacobs
                                                Vice President - Finance
                                        Chief Financial and Accounting Officer

                                     Page 22