SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                              ---------------------

                                    FORM 10-Q

     (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, 1998

                                       OR

     [ ]       TRANSITIONAL REPORT PURSUANT TO SECTION 13 0R 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM _________ TO __________

                         COMMISSION FILE NUMBER 0-17292


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

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


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

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


     Indicate  by check mark [X] whether  the  registrant  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  CORPORATE  ISSUERS:  Indicate  the  number  of  shares
outstanding  of each of the issuer's  classes of common stock,  as of the latest
practicable date.


                  Class                         Outstanding at November 13, 1998
   Common stock, par value $.01 per share               3,644,498 Shares

<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES

                                      INDEX

PART I.   FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                            Page No.
                                                                            --------

<S>          <C>                                                                <C>
Item 1.      Condensed Consolidated Financial Statements.

             Condensed Consolidated Balance Sheets at
             September 30, 1998 and March 31, 1998............................... 3

             Condensed Consolidated Statements of Operations
             for the three and six months ended September 30, 1998 and 1997...... 4

             Condensed Consolidated Statements of Cash Flows
             for the six months ended September 30, 1998 and 1997................ 5

             Notes to Condensed Consolidated Financial
             Statements.......................................................... 6-12

Item 2.      Management's Discussion and Analysis of
             Financial Condition and Results of Operations.......................11

Item 3       Quantitative and Qualitative Disclosures About Market Risk.
             Not Applicable......................................................15

PART II.     OTHER INFORMATION...................................................15

SIGNATURES ......................................................................15
</TABLE>

                                          2

<PAGE>
<TABLE>
<CAPTION>

                                        ACCUHEALTH, INC. AND SUBSIDIARIES
                                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                                 (IN THOUSANDS)
                                                   (UNAUDITED)
ASSETS:
                                                                         September 30, 1998      March 31, 1998
                                                                         ------------------      --------------
Current Assets:
<S>                                                                         <C>                    <C>         
   Cash ............................................................        $         51           $        249
   Marketable Securities............................................               4,300                     --
   Accounts receivable, net.........................................              14,208                 10,299
   Inventories......................................................               1,849                  1,740
   Prepaid expenses and other current assets........................                 420                    295
                                                                            ------------           ------------
   Total Current Assets.............................................              20,828                 12,583

Revenue producing equipment, net....................................                 853                    493
Fixed assets, net...................................................               1,987                  2,060
Goodwill, net.......................................................               1,390                  1,401
Other assets........................................................                 100                    529
                                                                            ------------           ------------

   Total Assets.....................................................              25,158                 17,066
                                                                            ============           ============

LIABILITIES AND STOCKHOLDERS' EQUITY:

Current Liabilities:
   Notes payable - revolving credit facility .......................               7,888                  4,737
   Notes payable - other ...........................................                 699                    470
   Accounts payable.................................................               5,742                  6,122
   Accrued expenses and other current liabilities...................               2,272                  2,154
   Current portion of capital lease - Facility......................                 267                     71
   Current portion of other capital lease obligations...............                 266                    176
                                                                            ------------           ------------

   Total Current Liabilities........................................              17,134                 13,730

12% Subordinated Debentures.........................................               5,750                     --
Notes payable - term loan...........................................                 750                    500
Notes payable - other...............................................                 554                  1,070
Capital lease - Facility, less current portion......................                  --                    232
Other capital lease obligations, less current portion...............                 199                    315
                                                                            ------------           ------------

   Total Liabilities................................................              24,387                 15,847
                                                                            ------------           ------------

Stockholders' Equity:
   6% Redeemable cumulative convertible preferred stock $.01 par value;
     $2,713,500 liquidation preference, authorized issued and
     outstanding 1,350,000 shares...................................                  13                     13
   Common stock $0.1 par value; authorized 15,000,000 shares;
     3,644,498 and 3,598,000 shares, respectively...................                  36                     36
   Additional paid-in capital.......................................               7,460                  7,386
   (Deficit)........................................................              (6,114)                (5,592)
                                                                            -------------          ------------
                                                                                   1,395                  1,843
   Less treasury stock (308,004 shares) at cost.....................                 624                    624
                                                                            ------------           ------------
Total Stockholders' Equity..........................................                 771                  1,219
                                                                            ------------           ------------

Total Liabilities and Stockholders' Equity..........................        $     25,158           $     17,066
                                                                            ============           ============
</TABLE>

                                 See notes to consolidated financial statements.

                                                       3
<PAGE>
<TABLE>
<CAPTION>

                                              ACCUHEALTH, INC. AND SUBSIDIARIES
                                            CONSOLIDATED STATEMENTS OF OPERATIONS
                                                        (IN THOUSANDS)
                                                         (UNAUDITED)

                                                               Three Months Ended                   Six Months Ended
                                                                  September 30,                        September 30,
                                                        -------------------------------     --------------------------------
                                                             1998               1997              1998              1997
                                                        ------------       ------------     ------------        ------------

<S>                                                     <C>                <C>              <C>                 <C>         
   Net sales..........................................  $      8,941       $      8,462     $     17,564        $     16,044
   Cost of goods sold.................................         5,146              4,372           10,285               8,554
                                                        ------------       ------------     ------------        ------------
   Gross profit.......................................         3,795              4,090            7,279               7,490
   Selling, general and administrative expenses.......         4,299              3,832            7,280               7,033
                                                        ------------       ------------     ------------        ------------

   Operating income (loss) ...........................          (504)               258              (1)                 459
   Interest expense...................................           392                190              649                 372
                                                        ------------       ------------     ------------        ------------

   Income (loss) before income taxes..................          (896)                68             (650)                 85
   Provision for income taxes.........................            --                162               --                 162
                                                        ------------       ------------     ------------        ------------
   Net income (loss)..................................  $       (896)      $        (94)    $       (650)       $        (77)
                                                        ============       =============    ============        ============


   Income (loss) per common share, applicable to
   common shareholders:
   Basic..............................................  $       (.27)      $       (.06)    $       (.20)       $       (.05)
                                                        ============       ============     ============        ============

   Diluted............................................  $       (.27)      $       (.05)    $       (.20)       $       (.04)
                                                        ============       ============     ============        ============
   Weighted number of common shares and 
   equivalents outstanding:
    Basic.............................................     3,336,496          1,548,205        3,254,814           1,548,205
    Diluted...........................................     3,340,308          1,837,481        3,258,626           1,837,481

                                       See notes to consolidated financial statements.
</TABLE>

                                                              4
<PAGE>
<TABLE>
<CAPTION>

                            ACCUHEALTH, INC. AND SUBSIDIARIES
                          CONSOLIDATED STATEMENTS OF CASH FLOWS
                                       (IN THOUSANDS)
                                       (UNAUDITED)

                                                                      SIX MONTHS ENDED
                                                                        SEPTEMBER 30,
                                                                    --------------------
                                                                      1998        1997
                                                                    --------    --------
OPERATING ACTIVITIES:

<S>                                                                 <C>         <C>      
Net income (loss) ...............................................   $   (650)   $    (77)

Adjustments to reconcile net income (loss)
to net cash  provided by operating activities:
    Depreciation and amortization ...............................        308         280

CHANGES IN OPERATING ASSETS AND LIABILITIES:
    Accounts receivable .........................................     (3,909)     (2,428)
    Inventories .................................................       (109)       (150)
    Prepaid expenses and other current assets ...................       (125)        296
    Other assets ................................................        429        (920)
    Accounts payable ............................................       (380)        820
    Accrued expenses and other current liabilities ..............         37         243
                                                                    --------    --------
    Cash provided (used) by operating activities ................     (4,399)     (1,936)
                                                                    --------    --------


INVESTING ACTIVITIES:
    Purchase of fixed assets ....................................       (186)       (249)
    Purchase of marketable securities ...........................     (4,300)         --
    Net change in goodwill ......................................        (68)        (15)
                                                                    --------    --------
    Cash (used in) provided by investing activities .............      4,554        (264)
                                                                    --------    --------

FINANCING ACTIVITIES:
    Proceeds from note payable - revolving credit facility ......     15,990      10,650
    Proceeds from subordinated debentures .......................      5,750          --
    Proceeds from term loan .....................................        250          --
    Payments on notes payable - revolving credit facility .......    (12,839)     (9,739)
    Proceeds (Payments) on notes payable - other ................       (287)        615
    Principal payments on capital lease - Facility ..............        (36)        (36)
    Issuance of capital stock ...................................         74         996
    Payments on other capital lease obligations .................       (147)        235
                                                                    --------    --------
    Cash provided by (used in) financing activities .............      8,755       2,249
                                                                    --------    --------

    Net increase (decrease) in cash .............................       (198)         49
    Cash at beginning of period .................................        249         309
                                                                    --------    --------
    Cash at end of period .......................................   $     51    $    358
                                                                    ========    ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
    Interest paid ...............................................   $    415    $    350
                                                                    --------    --------

NONCASH INVESTING AND FINANCING ACTIVITIES:
    Additions to capital leases .................................   $    121    $    130
                                                                    --------    --------
    Accrued dividends and accretion on redeemable preferred stock   $     27    $     40
                                                                    --------    --------
</TABLE>

                See notes to condensed consolidated financial statements.

                                            5
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

NOTE 1 - BASIS OF PRESENTATION

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

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information  and principally  with the  instructions to Form 10-Q and
Article 10 of  Regulation  S-X. In the opinion of  management,  all  adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation of the periods reported have been included.  Operating  results for
the  six-month  period ended  September  30, 1998 may not be  indicative  of the
results for the full fiscal year.

These financial  statements  should be read in conjunction with the consolidated
financial  statements and notes thereto included in the Form 10-K for the fiscal
year ended March 31, 1998 filed with the Securities and Exchange Commission. The
balance  sheet at March 31, 1998 has been  derived  from the  audited  financial
statements at that date.

ACCOUNTS RECEIVABLE

Accounts  receivable  are  principally  due from third party  payors,  primarily
governmental  agencies  (Medicare and Medicaid),  managed care organizations and
private insurance companies.

INVENTORIES

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

EARNINGS PER SHARE

For the three months and six months  ended  September  30, 1998 and 1997,  basic
income  (loss) per share has been  calculated  by dividing the net income (loss)
applicable  to common stock by the  weighted  average of common stock and common
stock equivalents  outstanding during the period.  Dividends attributable to the
redeemable  preferred  stock were $0, and $40,500,  respectively,  for the three
months ended September 30, 1998 and 1997 and $27,000 and $81,000,  respectively,
for the six  months  ended  September  30,  1998 and  1997.  Net  income  (loss)
applicable to common  stockholders for the three months ended September 30, 1998
and 1997, respectively, were (896,000) and (94,000), and (677,000) and (158,000)
for the six months ended September 30, 1998 and 1997,  respectively.  On a fully
diluted basis, both the net income (loss) and shares outstanding, if applicable,
are adjusted to assume the  conversion of convertible  preferred  stock from the
date of issue and for the incremental  option shares for fully diluted  purposes
(See Note 4).

                                        6
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

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

INCOME TAXES

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

MAJOR CUSTOMER

The  Company's  revenues  from one customer  accounted  for 6.4% and 7.5% of the
Company's  net sales for the three  months  ended  September  30, 1998 and 1997,
respectively.  And 7.1% and 8.5% for the six months ended September 30, 1998 and
1997,   respectively.   At  September  30,  1998,   this  customer   represented
approximately 3.3% of the Company's gross receivables.

BUSINESS COMBINATION

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

The results of operations  for the separate  companies and the combined  amounts
presented in the  consolidated  financial  statements  for prior  periods are as
follows:

                                       7
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

                                                             Six Months Ended
                                                            September 30, 1997
                                                              (In Thousands)
                                                            ------------------
Net sales
   Accuhealth ......................................           $      8,883
   Healix ..........................................                  7,161
                                                               ------------
            Combined ...............................           $     16,044
                                                               ============

Net income (loss)
   Accuhealth ......................................           $        191
   Healix ..........................................                   (268)
                                                               ------------
            Combined ...............................           $        (77)
                                                               ============

NOTE 2 - NOTES  PAYABLE,  SUBORDINATED  DEBENTURES
PAYABLE AND CAPITAL LEASE OBLIGATIONS

Long-term  debt at September  30, 1998 consists of
the following:

12%  Subordinated  Debentures,   interest  payable
quarterly,   maturing   July  and   August   2003.                    $5,750,000

Notes payable to vendors bearing  interest ranging
from 10.5% to 12% with monthly  payments  totaling
$18,509 until July 2000.                                                 605,208

Notes payable bearing interest ranging from 10% to
14.5% with monthly payments totaling $40,714 until
February 2000.                                                           470,111

Notes payable to a Bank bearing  interest at rates
ranging from 2.9% to 10.25% with monthly  payments
totaling $3,418 due through August 1999.                                  32,461

Note payable to a stockholder  bearing interest at
9.75%. There are no scheduled  repayment terms and
payments  are  made  monthly  for  interest  only.                        53,500

Note payable bearing  interest at 10.95%,  monthly
payment  of $6,484,  from  March 1997 to  December
1998.                                                                     31,550

                                        8
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

Note payable bearing interest at 10.375%,  monthly
payment of $925,  from  February  1997 to December
2000.  The loan is  personally  guaranteed  by the
Company's stockholders.                                                   23,018

Note payable bearing interest at 10.375%,  monthly
payment of $1,491 from  February  1997 to December
2000.  The loan is  personally  guaranteed  by the
Company's stockholders.                                                   36,947
                                                                      ----------

         Total Long Term Debt                                          7,002,795

         Less:  current maturities                                       699,000
                                                                      ----------

         Long Term Debt, net of current maturities                    $6,303,795
                                                                      ----------

NOTES PAYABLE - REVOLVING CREDIT FACILITY AND TERM LOAN

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

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

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

Effective  April 3, 1998,  the Company  agreed to an  amendment  of the Loan and
Security  Agreement.  The amendment extended the agreement through April 1, 2000
and allows the Company to borrow,  under certain  conditions and terms, up to $9
million  under a revolving  loan  agreement at an interest  rate of prime plus 1
1/2%, as well as an overdraft line of $1,000,000 at prime plus 3%. The amendment

                                       9
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

also increased the term loan available to the Company to $750,000.  In addition,
the  Company  granted  Rosenthal  warrants  to  purchase  50,000  shares  of the
Company's common stock.

CAPITAL LEASE OBLIGATIONS

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

CAPITAL LEASE - FACILITY

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

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

In  lieu  of  rent  the  Company  pays  principal  on  the  Bonds  in  quarterly
installments of $17,875,  plus interest at the rate of prime (8 1/4% at June 30,
1998) plus 1%. On April 28, 1994, in  conjunction  with the Rosenthal  financing
the Company made an additional  principal  payment of $143,000.  A final balloon
payment of $232,375 plus interest  thereon is due on April 1, 1999.  Each of the
Company's  wholly owned  subsidiaries  has guaranteed the Company's  obligations
under the lease.  The Lease  Agreement and Guaranty  Agreement also restrict the
payment of cash  dividends in any one year to an aggregate  amount not to exceed
25% of the Company's net income for the immediately preceding year.

OTHER CAPITAL LEASES

The Company leases durable medical equipment under capital lease agreements that
extend through March 31, 2000.

NOTE 3 - CONTINGENCIES

The  Company  is not aware of any  existing  contingencies  that  would  have an
adverse  material  effect on its  consolidated  financial  position,  results of
operations or cash flows.

                                       10
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

NOTE 4 - 6% REDEEMABLE CUMULATIVE CONVERTIBLE PREFERRED STOCK

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

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

The June 1,  1998  dividend  was paid out in 46,526  shares  of common  stock on
November 11, 1998. Accrued and unpaid dividends are included in accrued expenses
and other current liabilities at September 30, 1998. The Company has offered and
the majority of preferred shareholders have opted to convert preferred shares to
common at a premium of 15%. This  conversion  should be completed by December 1,
1998.

NOTE 5 - 12% SUBORDINATED DEBENTURES

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

Terms and conditions relative to the debenture include the following:

Interest on the debentures is payable quarterly, in arrears. The Company may, at
its sole discretion,  accrue up to six quarterly interest payments,  which would
otherwise be due, until the maturity date.

                                       11
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                               SEPTEMBER 30, 1998

Such  accrued  interest  payments  shall bear  interest at the same rate and are
payable on the same terms as original interest on the debentures.

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

NOTE 6 - SUBSEQUENT EVENTS

NOTE 6 - PROVISION FOR UNCOLLECTIBLE AMOUNT DUE FROM MAJOR CUSTOMER

Since December 1996, the Company has been providing  services to HIP Health Plan
of New Jersey  ("HIP").  These  services  include such items as the provision of
infusion therapy,  skilled nursing, home health aides, durable medical equipment
and supplies. In addition, within our engagement with HIP, the Company "manages"
a local network of alternate site health care providers  ("subcontractors")  who
are used in certain  circumstances.  These circumstances include those instances
where the Company  determines  that the  provision of health care  services to a
particular  HIP patient may be more  effectively  or  efficiently  provided by a
locally based company. Typically, the arrangement calls for the subcontractor to
invoice the Company for these  services and then in turn,  the Company bills HIP
for the services it and the subcontractor together provide.

In October 1997, HIP entered into a contract with Pinnacle  Health  Enterprises,
("PHE"),  a subsidiary of PHP Health Care Corporation  (PHP),  wherein PHE would
manage the medical risk and provide all the health care services and supplies to
HIP members and pay claims and contracts with providers on behalf of HIP.

HIP  requested  that the  Company  coordinate  its HIP  network  management  and
provider services and forward its invoices to PHE for processing and payment. No
agreement  was ever  formally  entered into with PHE and our letter of agreement
has remained with HIP.

On October 27, 1998, the New Jersey State Commissioners of Banking and Insurance
and the  Commissioner  of the Department of Health and Senior  Services  jointly
brought an application  before Chancery  Division/Middlesex  County for an order
appointing  the  Commissioner  of the  Department  of Banking and  Insurance  as
Rehabilitator  of HIP of New Jersey,  Inc.  doing business as HIP Health Plan of
New Jersey.

As a  provision  of this order,  all  providers  of health care  services to HIP
members,  either  directly or through a network  relationship,  are  required to
continue to provide such health care services until further notice. Further, the
Commissioner of Health and Senior Services has written to all of HIP's providers
stating  that it is the State's  "intention  to work  vigorously  to ensure that
payments to providers are made timely and are a top priority".

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

Currently,  the  amount  owed by HIP/PHE to the  Company is  approximately  $1.5
million.  Although we have recently received several payments on our outstanding
invoices due from HIP/PHE,  management is unable to determine with any certainty
whether we will collect some or all of the remaining balance due.

Accordingly,  the Company has increased  its allowance for doubtful  accounts by
$1.0 million.

                                       12
<PAGE>

ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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

Results of Operations

The results for the three and six months  ended  September  30, 1998 reflect the
Company's merger with Healix Healthcare,  Inc. on April 9, 1998. As indicated in
Note 1 of this Form  10-Q,  the merger  has been  accounted  for as a pooling of
interests. Accordingly, the results for the three and six months ended September
30, 1997,  have been  restated to include the combined  results of operations of
Healix as though it had always been a part of the Company.

Three Months Ended September 30, 1998 and 1997

Net sales  increased  approximately  $479,000 or 9.5% from the  comparable  1997
quarter to $8.9  million for the three  months ended  September  30,  1998.  The
increase was the result of increases of approximately $1,057,000 and $200,000 in
the Company's oral medication and durable medical equipment revenues, partially,
offset,  by a decrease in the  Company's  Infusion  Services  and  Patient  Care
Services of approximately $780,000.

Gross  profit  for the  three  months  ended  September  30,  1998  and 1997 was
approximately $3.79 and $4.09 million, respectively.  Representing approximately
43% of net sales for the three  months ended  September  30, 1998 as compared to
48%, for the comparable prior year.  Gross profit  decreased  primarily due to a
decrease in higher  margin  infusion  sales and an increase in lower margin oral
medication and institutional pharmacy sales.

Selling,  general and administrative  expenses ("SG&A") were approximately $4.30
and $3.83  million or  approximately  48.0% and 45.3% of net sales for the three
months  ended  September  30,  1998 and 1997,  respectively.  The  increase  was
primarily a result of an increase in bad debt  expense of $1.0 million (See Note
6), offset by decreases of approximately $250,000.

Six Months Ended September 30, 1998 and 1997

Net sales for the six months ended  September 30, 1998  increased  approximately
$1,521,000 or 9% from the comparable  1997 period to 17.6 million.  The increase
was the result of  increases  of  approximately  $2,152,000  and $398,000 in the
Company's oral  medication and durable  medical  equipment  revenues,  partially
offset by a decrease in the Company's infusion and patient care service revenues
of approximately $434,000 and $545,000.

Gross  profit  for  the six  months  ended  September  30,  1998  and  1997  was
approximately $7.3 and $7.4 million,  respectively.  Representing  approximately
41% of net sales for the six months ended  September 30, 1998 as compared to 47%
for the six months ended September 30, 1997.  Gross profit  decreased  primarily
due to a decrease  in higher  margin  infusion  sales and an  increase  in lower
margin oral medication and institutional pharmacy sales.

Selling,  general and  administrative  expenses ("SG&A") were approximately $7.2
and  $7.03  million  or  approximately  41.0% and 43.0% of net sales for the six
months  ended  September  30,  1998 and 1997,  respectively.  The  increase  was
primarily a result of an increase in bad debt  expense of $1.0 million (See Note
6),  offset by  decreases  of  approximately  $385,000 in  customer  service and
marketing  salaries,  $210,000 of  professional  and other fees and  $158,000 in
delivery, rent and other expenses.

INTEREST EXPENSE.  Net interest increased by $202,000 and $277,000 for the three
and six months ended  September 30, 1998. This increase is primarily a result of
increased borrowing under the Company's lines of credit, which is in accord with
the growth in accounts receivable,  as well as the issuance of the Company's 12%
subordinated  debentures during the quarter.

                                       13
<PAGE>

PROVISION FOR INCOME TAXES.

No provision of income taxes has been reflected due to the Company's federal and
state net operating loss credits.

Financial Condition

As of September 30, 1998, the Company had working capital of approximately  $3.7
million.

The  Company's  cash  provided by financing  activities  of  approximately  $8.8
million was primarily  attributable  to the net proceeds of  approximately  $3.0
under the Company's  revolving  credit facility and term loan and  approximately
$5.8  million  from the  issuance  of 12%  subordinated  debentures,  offset  by
principal payments on capital leases and other notes payable.

Accounts  receivable  include  amounts  due from third party  payors,  primarily
governmental  agencies  (Medicare and  Medicaid).  At September 30, 1998,  gross
Medicare and Medicaid receivables aggregated $6.1 million.

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

At its meeting of the Board of Directors on June 25, 1998, the Company  approved
the issuance of 12% Cumulative Convertible Subordinated Notes in the face amount
of $6,250,000.  As a further component of this financing,  the Company's current
6% Cumulative  Convertible  Preferred Stock will be converted to common stock in
Accuhealth  at a 15%  discount  to  the  original  conversion  price  of  $2.00.
Accordingly,  an additional 202,500 shares will be issued upon the conversion of
the 1,350,000  preferred  shares  currently  outstanding.  On July 14, 1998, the
Company completed the Note Purchase  Agreement  relative to the 12% Subordinated
Debentures (See Note 5).

Disclosure Regarding Forward Looking Statements

The Private  Securities  Litigation  Reform Act of 1995 provides a "safe harbor"
for forward looking  statements.  Certain information in Items 1 and 2 of Part I
of this Form 10-Q  include  information  that is  forward  looking,  such as the
Company's  plans to obtain  additional  financing.  The  matters  referred to in
forward  looking  statements  could be affected  by the risks and  uncertainties
involved in the Company's business.  These risks and uncertainties  include, but
are not limited to, the effect of economic and market conditions,  the impact of
the cost containment  efforts of third-party payors and the Company's ability to
obtain and  maintain  required  licenses.  Subsequent  written and oral  forward
looking  statements  attributable to the Company or persons acting on its behalf
are expressly  qualified in their entirety by the cautionary  statements in this
paragraph and elsewhere in this Form 10-Q.


                                       14
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

                  None

Item 2.  Changes in Securities

                  None

Item 3.  Default Upon Senior Securities

                  None

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

                  None

Item 5.  Other Information

                  None

Item 6.  Exhibits and Reports on Form 8-K

                  (a) Exhibits
                      None

                  (b) Reports on Form 8-K
                      The Company's  current  report on Form 8-K, date of report
                      April 9, 1998 and  filed on June 24,  1998,  reporting  on
                      Item  1  Note  1  to  condensed   consolidated   financial
                      statements regarding the business combination.

                  (c) The Company's  current  report on Form 8-K, date of report
                      April 9, 1998 and filed on April 17, 1998,  reporting on a
                      change of auditors  for its fiscal  year ending  March 31,
                      1998.

                                   SIGNATURES

         In accordance with the requirements of the Exchange Act, the registrant
has duly  caused  this  report to be signed  on its  behalf by the  undersigned,
thereunto duly authorized.

                                   ACCUHEALTH, INC.

Date: November 13, 1998            By: /s/ Glenn C. Davis
                                       ---------------------------------------
                                           Glenn C. Davis, as
                                           President and Chief Executive Officer

Date: November 13, 1998            By: /s/ Prisco J. DeMercurio
                                         -------------------------------------
                                           Senior Vice President - Finance
                                           Chief Financial Officer


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