SECURITIES AND EXCHANGE COMMISSION

                                              Washington, D.C. 20549





                                                   FORM  10-QSB

                                    Quarterly Report Under Section 13 or 15(d)
                                      of the Securities Exchange Act of 1934




                                          Quarter Ended November 30, 1998

                                        Commission File Number 33-24483-NY





                                            HEALTH-PAK, INC.
                        (Exact name of Registrant as specified in its Charter)



      Delaware                              11-2914841
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)             Identification Number)

1208 Broad Street, Utica, NY               13501
(Address of principal executive offices)   (Zip Code)

Same
(Former Address)                           (Zip Code

                                        (315) 724-8370
                          (Registrant's telephone number, including area code)



Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes X No


Indicate 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 30, 1998

Common stock, $0.002 par value                            15,490,009



<PAGE>
























                                                       INDEX



Part  I.       Financial information


               Item 1.      Condensed consolidated financial statements:

                            Balance sheet as of November 30, 1998 and
                            May 31, 1998                                F-2

                            Statement of income for six and three months
                            ended November 30, 1998 and 1997            F-3

                            Statement of cash flows for six months
                            ended November 30, 1998 and 1997            F-4

                            Notes to condensed consolidated financial
                            statements                               F-5 - F-13



               Item 2.      Management's discussion and analysis of
                            financial condition



Part II.       Other information



Signatures



<PAGE>



                               HEALTH-PAK, INC. AND SUBSIDIARY

      CONDENSED CONSOLIDATED BALANCE SHEET - NOVEMBER 30, 1998 AND MAY 31, 1998


<TABLE>
<CAPTION>
<S>                                  <C>              <C>               <C>                           <C>                <C>    


                                       ASSETS                                                           LIABILITIES


                                          November 30,        May 31,                                        November 30,    May 31,
                                              1998             1998                                            1998           1998
Current assets:                                                          Current liabilities
  Cash                                 $     52,982     $    31,905        Current portion of long-term debt  $ 96,907    $  30,515
  Receivables, trade, net of                                               Notes payable, bank                 734,620      718,291
   allowance of $13,500                     679,357         641,152        Accounts payable                    649,892      811,730
  Inventory                               1,488,888       1,572,320        Payroll and sales tax payable and
  Note receivable                            89,039          89,039         accrued expenses                    55,047       98,508
  Prepaid expenses                           53,002          83,870        Note payable, officer                55,000              
                                         ----------      ----------                                         ----------    ----------


    Total current assets                  2,363,268       2,418,286          Total current liabilities       1,591,466    1,659,044
                                         ----------      ----------                                         ----------    ----------

Property and equipment:
  Land120,000
  Building                                  483,662
  Machinery and equipment                   401,351         315,978       Long-term debt, net of current
  Leasehold improvements                    133,593         133,598         portion                            680,249       44,004
                                                                                                            ----------    ----------
  Office equipment                          110,130         110,130
  Automotive equipment                       21,021          21,021
                                          ----------      ----------
                                          1,269,757         580,727
  Less accumulated depreciation             277,822         248,417       Commitments
                                          ----------      ----------

                                            991,935         332,310
                                            -------         -------
                                                                           Minority interest in consolidated
                                                                               subsidiary                                    11,279
                                                                                                                             ------
 
Other assets:                                                              Shareholders' equity:
  Investments in affiliated Company         135,027         135,027         Common stock subscriptions           56,781
  Deposits                                   25,841          32,888         Common stock, .001 par value
  Loan acquisition fees                                                       2,000,000 share authorized
   and costs, net                            45,507           3,240      
  Deferred offering expenses                 49,765          99,530         Common stock,.002 par value
  Deferred income taxes                      83,115          83,115           20,000,000 shares authorized       30,980      30,980
  Cash surrender value, officers'                                           Common stock purchase warrants:
   life insurance                            33,942          33,942          Class A
  Officer's loan                              1,200           1,200          Class B
                                          ----------      ----------         Class C
                                                                             Additional paid in capital      2,304,334   2,304,334
                                            374,397         388,942          Defcit                           (934,210)   (910,103)
                                          ----------      ----------
                                                                                                             ----------  ----------
                                                                                                              1,457,885   1,425,211
                                                                                                              ---------   ---------

                                         $3,729,600      $3,139,538                                          $3,729,600  $3,139,538
                                         ==========      ==========                                          ==========  ==========

</TABLE>


     See notes to condensed consolidated financial statements.
                                                                            F-2


<PAGE>



                                       HEALTH-PAK, INC. AND SUBSIDIARY

                            CONDENSED CONSOLIDATED STATEMENT OF INCOME (LOSS)

                         SIX AND THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997





<TABLE>
<CAPTION>
<S>                                          <C>                                  <C>       <C>  



                                                         Six months ended                     Three months ended
                                                           November 30,                           November 30,
                                                  1998              1997               1998                1997
                                                  ----              ----               ----                ----

Net sales                                     $1,511,569         $1,687,907         $  706,716         $  820,150

Cost of sales                                  1,007,102          1,159,318            510,979            567,755
                                              ----------         ----------         ----------         ----------

Gross profit                                     504,467            528,589            195,737            252,395

Selling, general and
administrative expenses                          402,488            504,582            166,151            254,219
                                              ----------         ----------         ----------         ----------

Income from operations                           101,979             24,007             29,586       (     1,824)
                                              ----------         ----------         ----------        ----------

Other income (expense):
  Gain on investments in
   affiliated company                                                 4,390
  Interest expense                          (    81,178)       (    61,770)       (    30,443)       (    28,703)
  Amortization                              (    56,184)       (     3,333)       (    28,092)       (     1,666)
                                             ----------         ----------         ----------         ----------

                                            (   137,362)       (    60,713)       (    58,535)       (    30,369)
                                             ----------         ----------         ----------         ----------

Loss before minority
 interest                                   (    35,383)       (    36,706)       (    28,949)       (    32,193)

Minority interest in
 income (loss) of
 consolidated subsidiary                          11,278             34,513              2,595             40,143
                                              ----------         ----------         ----------         ----------

Net income (loss)                            ($   24,105)       ($    2,193)       ($   26,354)        $    7,950
                                               ==========          ==========       ==========          ==========

Earnings per common and dilutive common equivalent share:

  Primary                                     $     0.00             $    0.00      $     0.00         $     0.00
                                              =============          ==========     ===========             ======

  Fully diluted                               $     0.00            $     0.00      $     0.00          $    0.00
                                              =============          ==========      ===========            ======

Weighted average number of 
common shares and
 dilutive outstanding:

  Primary                                     17,490,009            17,090,159       17,490,009         17,090,159
                                              ==========            ==========       ==========         ==========

  Fully diluted                               17,490,009            17,090,159       17,490,007         17,090,159
                                              ==========            ==========       ==========         ==========



</TABLE>




     See notes to condensed consolidated financial statements.
                                                                            F-3


<PAGE>



                                          HEALTH-PAK, INC. AND SUBSIDIARY

                                  CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

                                    SIX MONTHS ENDED NOVEMBER 30, 1998 AND 1997












<TABLE>
<CAPTION>
<S>                                                                                <C>                <C>    

                                                                                        1998               1997
                                                                                        ----               ----
Operating activities:
  Net loss                                                                         ($  24,105)         ($  2,193)
  Adjustments to reconcile net income to cash provided by
   operating activities:
     Depreciation                                                                       29,405             24,590
     Amortization                                                                       56,184              3,334
     Gain on investments in subsidiaries                                                               (   4,390)
     Gain (loss) on minority interest in consolidated
      subsidiary                                                                    (  11,278)         (  34,513)
     Changes in other operating assets and liabilities:
       Accounts receivable                                                          (  38,205)         (  34,414)
       Inventory                                                                        83,432         ( 111,873)
       Prepaid expenses                                                                 29,914         (  26,281)
       Accounts payable                                                             ( 161,838)            160,588
       Accrued expenses                                                             (  43,463)         (  37,979)
       Deposits                                                                          5,244
       Loan fees                                                                    (  45,930)              5,777
                                                                                     --------            --------

       Net cash used in operating activities                                        ( 120,640)         (  57,354)
                                                                                     --------           --------

Investing activities:
  Purchase of property and equipment                                                ( 689,030)         (  10,727)
                                                                                     --------           --------

       Net cash used in investing activities                                        ( 689,030)         (  10,727)
                                                                                     --------           --------

Financing activities:
  Proceeds from common stock subscriptions                                              56,781
  Proceeds from long-term debt                                                         731,351
  Proceeds from notes payable, bank                                                     16,329             46,790
  Proceeds form officers' loan                                                          55,000
  Payment of long-term debt                                                         (  28,714)         (   8,832)
                                                                                     --------           --------

       Net cash provided from financing activities                                     830,747             37,958
                                                                                      --------           --------

Net increase (decrease) in cash                                                         21,077         (  30,123)

Cash, beginning of period                                                               31,905            233,330
                                                                                      --------           --------

Cash, end of period                                                                   $ 52,982           $203,207
                                                                                      ========           ========

Supplemental  disclosures and cash flow  information: 
 Cash paid during the year for:

    Interest                                                                          $ 81,178           $ 61,770
                                                                                      ========           ========
    Income taxes                                                                      $      0           $      0
                                                                                      ========           ========

</TABLE>

     See notes to condensed consolidated financial statements.
                                                                          F-4

<PAGE>



                                 
   HEALTH-PAK, INC. AND SUBSIDIARY

                          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS






1.  Organization of the company:

     The Company  originally "Morgan Windsor Ltd," was incorporated in the State
of Delaware on December 28, 1987 as a "blind pool".  The only  operations of the
Company at that time were to  structure  a public  offering  of its  securities.
Thereafter the company began to search for a viable business opportunity.

     On May 15,  1989,  the  Registration  Statement  containing  the  Company's
original   prospectus  was  declared   effective  by  the  Securities   Exchange
Commission.  Pursuant to the original  prospectus the Company was offering up to
4,000,000 units, at $.10 per unit, each consisting of one share of common stock,
one Class A warrant and one Class B warrant. No securities were sold pursuant to
original prospectus.


     The  Company  subsequently  amended  its  public  offering  to consist of a
minimum  of 15,000  units to a maximum  50,000  units to be offered at $6.00 per
unit.  Each unit  consists  of six shares of common  stock  (.002 par value) and
eighteen  Class A  redeemable  common  stock  purchase  warrants  and  twelve  B
redeemable  common stock  purchase  warrants.  On September 7, 1990, the Company
sold  16,358  units  receiving  gross  proceeds of 98,148.  Between  October and
November of 1989 the Company  repurchased  an aggregate of 178,583 shares of the
Company from nineteen stockholders for an aggregate price paid for these shares.
As a  result  of the  above  transactions  as of  April  30,  1991,  the date of
acquisition of Health-Pak, Inc, the Company had outstanding shares of 387,648 to
the public.


     On April 30, 1991, the Company  acquired 100% of the issued and outstanding
capital  stock of  Health-Pak,  Inc, a New York  corporation,  in  exchange  for
4,996,352  shares of which  4,756,077  shares were  exchanged  for 97.54% of the
outstanding  shares of  Health-Pak,  Inc.  and 240,275  shares were  retained to
acquire the remaining outstanding shares of Health-Pak, Inc.


     Thereafter,  the  Company,  "Morgan  Windsor,  Inc."  changed  its  name to
"Health-Pak,  Inc" and increased  its  authorized  capitalization  to 20,000,000
shares.



2. Nature of business:

     Health-Pak,  Inc. is a manufacturer  and  distributor  of disposable  paper
products  for use in  serviced-related  industries,  primarily  the  medical and
hospital industry. The industry is highly competitive and is serviced by several
large national and multi-national  companies with greater financial resources in
comparison  to the  financial  resources  available to the Company.  There is no
guarantee that this market will continue to develop since the  incorporation  of
government intervention, economic conditions and other unforeseen situations may
occur.



     The Company maintains manufacturing  facilities in upstate New York, Mexico
and to a lesser  extent  Haiti.  In addition to paper  goods,  the Company  also
manufactures a sporting goods  accessory  item,  sales of which were minimal for
the six  months  ended  November  30,  1998.  The  Company's  sales  are  spread
throughout the United States.


                                                                         F-5


<PAGE>



                                       HEALTH-PAK, INC. AND SUBSIDIARY

                           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








3. Summary of significant accounting policies:

    Principles of organization:
     The  acquisition  of the  Company's  subsidiary  on April 22, 1991 has been
accounted for as a reverse purchase of the assets and liabilities of the Company
by Morgan  Windsor  Ltd.  Accordingly,  the  consolidated  financial  statements
represent assets, liabilities and operations of Health-Pak,  Inc. prior to April
30, 1991 and the combined  assets,  liabilities,  and operations for the ensuing
period.  The  financial  statements  reflect the purchase of the stock of Morgan
Windsor Ltd. by Health-Pak,  Inc.,  the value being the  historical  cost of the
assets  acquired.   All  significant   intercompany   profits  and  losses  from
transactions  have been  eliminated.  Pursuant  to the  purchase  the  Company's
387,648 shares were issued to the public for $60,000.




    Revenue recognition:
     The  Company  maintains  its  books and  records  on the  accrual  basis of
accounting,  recognizing  revenue when goods are shipped and expenses  when they
are incurred.



    Inventories:
     Inventories  are stated at the lower of cost or market.  Cost is determined
by the first-in, first-out method (FIFO).



    Property and equipment:
     Property and  equipment  are stated at cost.  Depreciation  of property and
equipment is provided  using the straight line method over the following  useful
lives:


                                                Years

            Machinery and equipment              10
        Leasehold improvements              19, 31-1/2 and 39
        Automotive equipment                      5
        Office equipment                         10


     Expenditures  for major  renewals  and  betterments  that extend the useful
lives  of  the  property  and  equipment  are   capitalized.   Expenditures  for
maintenance and repairs are charged to expense as incurred.


    Per share amounts:
     Net  earnings  per share are  computed  by  dividing  net  earnings  by the
weighted average number of shares of common stock outstanding during the period.
Fully diluted and primary earnings per common share are the same amounts for the
period presented.


    Cash and cash equivalents:
     For purposes of the statement of cash flows, cash equivalents  include time
deposits,  certificates of deposit,  and all highly liquid debt instruments with
original maturities of three months or less.




                                                                          F-6


<PAGE>



                                   HEALTH-PAK, INC. AND SUBSIDIARY

                         NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





3. Summary of significant accounting policies (continued):

      Principles of consolidation:
     The  accompanying   consolidated  financial  statements  also  include  the
accounts  of the  Company  and its 65%  owned  subsidiary,  Protective  Disposal
Apparel,  LLC.  Inter-company  transactions and balances have been eliminated in
consolidation (see Note 5).


      Use of estimates:
     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  effect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results differ from these estimates.



      Effect of recently issued accounting standards:
     The  Financial  Accounting  Standards  Board issued  Statement of Financial
Accounting   Standards  ("SFAS")  No.  121,  "Accounting  for  the  Impaired  of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of. "SFAS" No. 121
requires that Long-Lived Assets and certain identifiable  intangibles to be held
and used by the Company be reviewed for  impairment  whenever  events  indicated
that the carrying amount of an asset may not be recoverable.  The Company has no
impaired assets at November 30, 1998.



     The Accounting  Standards  Board issued  Statement of Financial  Accounting
Standards  ("SFAS")  No. 123,  "Accounting  for Stock Based  Compensation".  The
effective date of SFAS No. 123 is for fiscal years  beginning after December 15,
1995, and established a method of accounting for stock  compensation plans based
on fair  value.  The  Company  does not  believe  that SFAS No. 123 will have an
impact on its financial statements.  The Company has not adopted SFAS No. 123 at
November  30,  1998  and  continues  to use  APB 25  which  accounts  for  stock
compensation at the intrinsic value.



    Investments:
     Investments  in certain less than 20% owned  companies  are carried at cost
and are accounted for on the equity method.  The investment  account is adjusted
for the Company's proportionate share of their undistributed earnings or losses.
Because  the  Company  exercises   significant  influence  over  the  investees'
operating and financial activities,  management has considered the equity method
of accounting as proper.




4.  Inventories:

    Inventories consist of:
                                           November 30            May 31
                                              1998                 1998
                                              ----                 ----

        Raw materials                     $  446,666          $  483,696
        Finished goods                     1,042,222           1,088,624
                                          ----------          ----------

                                          $1,488,888          $1,572,320
                                          ==========          ==========





                                                                           F-7


<PAGE>



                                 HEALTH-PAK, INC. AND SUBSIDIARY

                       NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










5.  Investment:

        A)    The  Company  purchased  a 10%  equity  interest  in  Silver  Lake
              Corporation  in exchange  for its own common stock valued at $.682
              per  share.  This  investment  is  accounted  for under the equity
              method of accounting with a fair value of the stock contributed of
              $136,400. Health Pak, Inc., being a significant influence over the
              operations  and  finance  of the joint  ventures  activities  with
              Silver Lake  Corporation,  has elected to use the equity method of
              accounting for the investment.

        B)    In October  1996,  the Company  formed and  purchased a 65% equity
              interest in  Protective  Disposable  Apparel  Co.,  LLC, a company
              operating in the disposable apparel business.  Protective Disposal
              Apparel Co., LLC in turn purchased a continuing business,  Scherer
              Healthcare,  Ltd, d/b/a Protective Disposal Apparel. As of October
              28, 1996 the balance sheet of the entity to be acquired just prior
              to the purchase was as follows:



                                                      ASSETS

              Current assets:
                 Accounts receivable                                $263,371
                 Inventory                                           308,469
                                                                     -------
                    Total current assets                             571,840
                                                                     -------

              Security deposits                                        1,500
                                                                       -----

                    Total assets                                    $573,340
                                                                    ========




                                          LIABILITIES AND MEMBERS' EQUITY

              Current liabilities:
                 Accounts payable                                  $318,943
                                                                   --------
                    Total current liabilities                       318,943
                                                                    -------
                                                              

              Members' capital                                      254,397
                                                                    -------

                    Total liabilities and members' equity          $573,340
                                                                   ========












                                                                            F-8


<PAGE>



                                      HEALTH-PAK, INC. AND SUBSIDIARY

                           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








7.  Note receivable:

     The  Company  is due  $89,039  from  the  minority  interest  owner  of its
subsidiary,  Protective  Disposable Apparel Co., LLC. This amount represents the
subsidiary  portion of the purchase cost of the business  which the Company paid
on behalf of the  minority  shareholder.  The note  receivable  is  non-interest
bearing, unsecured and indefinite in maturity.


8. Line of credit:

     The Company  opened a line of credit with Foothill  Capital  Corporation in
September  1996.  The loan ceiling  amount is based on a  percentage  formula of
eligible accounts receivable and inventory. The balance due at November 30, 1998
was $734,620.



9. Long-term debt:


                                                 Rate   Amount   Maturity

    Note payable, Manifest Group         (a)      10%  $ 9,840      July, 1999
    Note payable, Waste Mgmt. of N.Y.    (b)      10%    1,445      June, 1999
    Note payable, Resource Capital Corp. (c)      10%    2,528      March, 2000
    Note payable, Resource Capital Corp. (d)      10%    1,408  September, 1999
    Note payable, Resource Capital Corp. (e)      10%    2,440       July, 1999
    Note payable, City of Utica          (f)       3%  145,167       June, 2005
    Note payable, bank                   (g)Prime +2%  247,222   November, 2013
    Note payable, bank line of credit    (h)    11.5%   41,760        May, 2001
    Note payable, U.S. SBA               (i)    5.85%  247,000   December, 2018
    Note payable, Acclaim Leasing        (j)      10%   78,346   November, 2001
                                                      --------
                                                       777,156
        Less current portion                            96,907
                                                        ------

                                                      $680,249
                                                      ========



        (a)    Note  payable  is  collateralized  by  equipment  with a cost  of
               $20,064.  The note is payable in  installments  of $492 per month
               including interest.



        (b)    Note  payable  is  collateralized  by  equipment  with a cost  of
               $11,923.  The note is payable in  installments  of $240 per month
               including interest.



      (c)      Note  payable  is  collateralized  by  equipment  with a cost  of
               $6,796.  The note is  payable in  installments  of $170 per month
               including interest.







                                                                           F-9


<PAGE>



                                          HEALTH-PAK, INC. AND SUBSIDIARY

                           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS










9.  Long-term debt (continued):



      (d)      Note  payable  is  collateralized  by  equipment  with a cost  of
               $5,296.  The note is  payable in  installments  of $155 per month
               including interest.

      (e)      Note  payable  is  collateralized  by  equipment  with a cost  of
               $9,053.  The note is  payable in  installments  of $251 per month
               including interest.

      (f)      Note payable is collateralized by machinery, equipment, furniture
               and  fixtures,  inventory  and accounts  receivable.  The note is
               payable in installments of $1,982 per month including interest.

      (g)      Note  payable  is  collateralized  by real  estate.  The  note is
               payable  in  principal  installments  of $1,389  per  month  plus
               interest.

      (h)      Note payable is collateralized by accounts receivable, machinery,
               equipment, inventory,  intangibles and chattel paper. The note is
               payable  in  principal  installments  of $1,347  per  month  plus
               interest.

      (i)      Note  payable  is  collateralized  by real  estate.  The  note is
               payable in monthly  installments of $2,078 including interest and
               loan fees.

      (j)      Note  payable  is  collateralized  by  equipment  with a cost  of
               $84,351.  The note is payable in installments of $2,599 including
               interest.



      Maturities of long-term debt as of November 30, 1998 are as follows:



                                 Year                             Amount

                        November 30, 1999                       $ 96,907
                        November 30, 2000                         92,182
                        November 30, 2001                         84,172
                        November 30, 2002                         46,708
                        November 30, 2003                         47,449
                        Thereafter                               409,738
                                                                --------
                                                                $777,156
                                                                ========











                                                                          F-10


<PAGE>



                                   HEALTH-PAK, INC. AND SUBSIDIARY

                          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS








10. Commitments:

      Consultant contracts:
     The  Company  entered  into a  three  year  investment  banking  consulting
agreement on December 31, 1994. The Company issued 1,000,000 shares of $.002 par
common shares and used a discount  valuation of $.002 per share.  The consultant
is to act as a placement agent for Health-Pak, Inc. on all private placements or
secondary  offerings.  Services  commenced as of April 1, 1995. The agreement is
being amortized over thirty six months.


     In addition,  the Company also issued  4,500,000  stock  options at various
exercised prices. As of November 30, 1998, 2,748,047 options have been exercised
as follows:


                 Number of options                    Exercise price

                     600,000                              .10
                     233,333                              .15
                   1,914,714                              .26


     The Company entered into a public relations  consulting  agreement on March
10, 1995.  The agreement has a thirty month term and services  commenced on June
11, 1995.  The Company  issued  1,750,000  shares of $.002 par per common shares
plus an additional  17,242 shares of the original  agreement that in addition to
the 1,750,000 shares,  250,000 shares are to be issued at a rate of 8,621 shares
per month over the next twenty nine  months.  A valuation  of $.02 per share was
used. The Company withdrew from the consulting  agreement in August and no other
shares were issued.  In addition,  advances made to the Company and on the books
as a notes payable, other, were reclassified as payment for common stock already
issued.



11. Income taxes:

     Effective June 1, 1993, the Company has adopted the Statements of Financial
Accounting  Standards No. 109 ("SFAS No. 109"),  Accounting  for Income  Taxes,"
which  applies a  balance  sheet  approach  to income  tax  accounting.  The new
standard  required the Company to reflect on its balance  sheet the  anticipated
tax impact of future taxable income or deductions  implicit in the balance sheet
in the form of temporary  differences.  The Company has reflected certain future
tax benefits on its balance sheet from the  realization  of the carryover of the
current years net operating loss to anticipated future earnings.  The cumulative
effect  as of June 1,  1993,  the  date of the  adoption  of SFAS No.  109,  was
immaterial. As permitted by SFAS No. 109, prior year's financial statements have
not been restated.




                                                                  F-11


<PAGE>



                                    HEALTH-PAK, INC. AND SUBSIDIARY

                          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









11.     Income taxes (continued):

        The components of deferred tax assets and liabilities are as follows:

           Deferred tax assets:
              Bad debt allowances                                    $    500
              Net operating loss carryfoward                          114,115
                                                                      -------
                                                                      114,615
                                                                      -------

           Deferred tax liability:
              Depreciation                                                900
                                                                          ---

           Deferred tax asset                                         113,715

           Valuation allowance                                         30,600
                                                                       ------

           Net deferred tax asset                                    $ 83,115
                                                                     ========


     As of November  30,  1998,  the Company has  available,  for tax  reporting
purposes,  net operating loss carryovers of approximately  $640,000 which expire
through 2013.



12. Employment contracts:

     The Company has no employment  contracts.  Further,  it has no  retirement,
pension or profit sharing plan covering its officers or directors.



13. Deferred offering expense:

     The  value  stated is the  amount  that has been  paid by the  Company  for
expenses  incurred for the public  offering of warrants.  The deferred  offering
expenses on the issued or expired  warrants have been deducted from the proceeds
of the  offering.  The  offering  of the  Class C  warrants  is  expected  to be
completed in 1998.  Amortization of the deferred  offering expense of $49,765 is
included at November 30, 1998.



     All deferred  offering  expenses  pertain to the Class C warrants which had
not been issued as of the statement date.












                                                                          F-12


<PAGE>


                                    HEALTH-PAK, INC. AND SUBSIDIARY

                          NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS









14. Related party transactions:

     Officers  loans are  unsecured  and  non-interest  bearing.  Officers  have
indicated  that they will not be repaid in the current  year.  In addition,  the
Company has advanced funds to its minority interest partner, Protective Disposal
Apparel, in the amount of $89,039.



15. Earnings per share:


                                         November 30, 1998    November 30, 1997
                                        -----------------     -----------------

                                               Primary              Primary
  Number of shares:
    Weighted average shares outstanding     15,490,009            15,490,009
    Incremental shares for outstanding
     stock options                                                 1,600,150
                                             ----------           ---------

                                            15,490,009            17,090,159
                                            ==========            ==========




     Primary  earnings  per share  amounts are  computed  based on the  weighted
average number of shares actually outstanding.  Shares that would be outstanding
assuming  exercise of dilutive stock options,  all of which are considered to be
common  stock  equivalents.  Fully  diluted  earnings  per share are the same as
primary earnings per share for November 30, 1998 and November 30, 1997.



                                                                        F-13




<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.

I. Financial Condition and Liquidity

Introduction

     As previously  stated,  the financial  statements and the discussion  which
follows includes, on a consolidated basis, the assets, liabilities and operating
results  for  Protective  Disposable  Apparel  Company,  LLC  ("PDA")  which was
acquired  by  the  Company  in  October,   1996  as  a  65%  owned   subsidiary.
Inter-company balances have also been eliminated in the consolidation.


(a) Financial Condition

Assets

     Total assets  increased  by $590,062 at November 30, 1998 when  compared to
the year ended May 31, 1998, an increase of approximately  18.8%.  This increase
is largely due to the acquisition by the Company of its plant facility in Utica,
New York, which took place in July, 1998.



     Total assets also  increased by $42,951  during the quarter ended  November
30, 1998 when  compared to the three months  period  ended  August 31, 1998,  an
increase of approximately 1.2%.



         The increase in assets at November 30, 1998 was also slightly  enhanced
by additions to cash  (increased  by $21,077  compared to the year ended May 31,
1998),  receivables  (which  increased by $38,205) and  machinery  and equipment
(which increased by $85,373,  reflecting additional equipment purchases).  These
increases  were also offset by  reductions in inventory  (down by  approximately
$83,432  from the  year  ended  May 31,  1998)  and  prepaid  expenses  (down by
$30,868).



     The increase in cash for the three  months ended  November 30, 1998 was due
to the fact that Anthony J. Liberatore, President of the Company, loaned $55,000
to the Company during the period to offset the dislocation of cash caused by the
purchase of the building occupied by the Company in July, 1998.


     The increase in receivables at November 30, 1998 is caused by the fact that
the Company had slower collections during the six month period ended at November
30, 1998.  Inventory  decreased  slightly as a normal part of experiencing lower
sales for the six month period and because of the  Company's  decision to remove
certain  non-profitable items from its line. At November 30, 1998, inventory was
approximately 5.3% lower than at the year end.

     There were no significant  purchases of machinery and equipment  during the
quarter. During the three months ended November 30, 1998,  approximately $70,000
was spent on the acquisition of machinery to manufacture  tissue paper which 
will be added to the Company's line of products.

<PAGE>

     In summary,  total  assets  increased  by 18.8% at  November  30, 1998 when
compared to the year ended May 31, 1998 and  increased by 1.2% since the quarter
ended August 31, 1998.  The primary  reason for the increase  since the year end
has been  previously  identified as the result of purchasing the Company's plant
facility and the purchase of machinery and equipment.  These  purchases will, of
course,  be offset by increases in liabilities to the extent that the properties
were financed.



Liabilities

     Current  liabilities  have decreased by $67,578 during the six month period
ended  November 30, 1998 compared to the year ended May 31, 1998.  The principal
reason  for this  reduction  arises  from the fact that  accounts  payable  were
reduced significantly by November 30, 1998 (by approximately $161,838 during the
six months  ended  November  30,  1998) and payroll and sales taxes were further
slightly  reduced for the period.  These  reductions were offset by increases in
the current portion of long term debt, bank notes payable and officer's loans to
the Company.




     The increase in the current  portion of long term debt arises  largely from
the liability incurred by acquiring the Company's plant facility in Utica, which
was purchased in July,  1998,  and was financed  during the quarter ended August
31, 1998. The current portion of long term debt was also slightly  influenced by
the purchase of machinery  and equipment  during the quarter ended  November 30,
1998. The increase in bank notes payable indicates  additional  borrowing by the
Company on its credit line and notes payable to officers  reflects the loan made
by the Company's president in the amount of $55,000.


     In the  previous  quarter  (ended  August  31,  1998)  we  reported  that a
significant  portion of the loan  covering  the building  purchased  during that
quarter in the amount of $240,000  was due in December,  1998 and was  accounted
for as a short term debt in current  liabilities.  It was anticipated  that this
loan would be  replaced  by a long term SBA loan,  which  would then  permit the
reversal  of this entry as a short  term  liability.  The loan was  subsequently
replaced  by the  anticipated  long term SBA loan before  maturity in  December.
Therefore, in the quarter ended November 30, 1998, the long term portion of that
loan has been  accounted for as a long term  liability and is the reason for the
dramatic drop in the current  portion of long term debt for this period compared
to the last  quarter  (i.e.  $301,472  was  reported as the  current  portion of
long-term debt in the quarter ended August 31, 1998 and only $96,907 at November
30, 1998).  Total  current  liabilities  were lower by $206,011  because of this
adjustment  when compared to the end of the first quarter ended August 31, 1998;
however, except as noted above, total current  liabilities at November 30, 1998
were otherwise quite comparable to the year ended May 31, 1998.

<PAGE>



     Total  current  liabilities  for the  quarter  ended  August  31,  1998 are
approximately  $140,000  higher when  compared to the year end,  but this is not
significant  when  you  take  into  account  the fact  that  the  Company  had a
substantial  increase in short term liabilities  associated with the acquisition
of its real property as stated above.


     It should also be noted that accounts  payable were further  reduced in the
six months ended November 30, 1998 by $42,367 when compared to the quarter ended
August 31, 1998.  This reflects the  application  of additional  cash during the
period to the payment of payables.



     Liability  for payroll  taxes  varies with the number of  employees  at any
given time and the date upon which the period  falls.  There was a reduction  in
this  account  of  approximately  $43,461  during the six  months  period  ended
November 30, 1998 when compared to the year ended at May 31, 1998.


     Long term debt at November 30, 1998 was increased by $636,245 when compared
to the year ended May 31, 1998. As stated  previously,  this increase was caused
by the addition of further  debt to finance the  purchase of the plant  facility
and machinery and equipment  purchases during the period.  This account was also
increased  from the previously  reported  $403,760 at the end of August 31, 1998
for the reasons  stated  above (i.e.  because of the transfer of debt from short
term to long term as stated above).


     While total  liabilities  increased  by some  $568,667 at November 30, 1998
compared  to the year  ended May 31,  1998 which was as  expected  from the debt
acquired in connection  with the  acquisition of the real property made in July,
1998, it has increased only slightly (by approximately $70,478) when compared to
August 31, 1998 as a result of the machinery and equipment purchases during that
period.  The  increase  in  liabilities  since  the year end is  balanced  by an
increase in total  assets of  $590,062  at November  30, 1998 and an increase in
assets of $42,951 at November 30, 1998  compared the first  quarter ended August
31, 1998.


     Also,  while the Company  experienced a higher operating profit at November
30, 1998 compared to the year end and the end of the first quarter, the net loss
for the six months ended November 30, 1998 was higher than for previous  periods
because of increased  amortization  and interest expense and is reflected in the
fact  that  the   Company's   deficit  was  greater  at  November  30,  1998  by
approximately  $24,107  compared to the year end and by $26,873  compared to the
quarter ended August 31, 1998. See "Results of Operations."


<PAGE>
                                                     

     Management  believes that, except for taking into account the fact that the
Company purchased the real property and the machinery and equipment  referred to
above,  there has been no significant  change in the financial  condition of the
Company during the quarter.


     See "Results of Operations"  for additional  information.  For  information
regarding  liquidity,  see  Subparagraph  (b) "Liquidity"  below. For additional
information  relating  to the  financial  condition  of the  Company,  also  see
"Inflation" and "Trends Affecting Liquidity, Capital Resources and Operations."




(b) Liquidity

     The Company had sufficient liquid assets to meet its obligations at the end
of November 30, 1998. Working capital at November 30, 1998 was $771,802 compared
to $759,242 at the year ended May 31,  1998,  a slight  increase in spite of the
added burdens of increased  current debt resulting from acquisitions of property
and notes payable to banks. For comparison purposes,  working capital at the end
of August 31, 1998 was $573,527.


     As we have described above,  working capital at August 31, 1998 was greatly
affected  by  accounting  for the  current  portion of the debt  incurred by the
Company  to acquire  its plant  facility.  A portion  of the debt as  originally
structured  was due in December 1998;  however,  it was to be replaced by a long
term SBA loan  which was not closed by the end of the first  quarter.  When this
loan was closed,  the current  portion of long term debt was adjusted to reflect
the  disposition  of the loan.  This explains why working  capital at August 31,
1998 was only $573,527 compared to $771,802 at November 30, 1998.


     Principal  short-term  liabilities at November 30, 1998 were $96,907 in the
current  portion  of long term  notes  due,  $734,620  in short  term bank notes
payable,  $649,892  in  accounts  payable,  payroll  taxes  due of  $55,047  and
short-term  officer's  loans due of $55,000,  for a total of $1,591,466 in short
term  liabilities.  Against this total,  at November  30, 1998,  the Company had
liquid current assets  consisting of cash in the amount of $52,982,  receivables
of  $679,357,  inventory in the amount of  $1,488,888  and notes  receivable  of
$89,039 for a total of $2,310,266.


     At November 30, 1998,  management also had at its disposal a credit line of
$850,000 of which approximately  $80,000 was available at November 30, 1998. The
credit line was  increased  in 1998 to $850,000  from  $750,000  last year.  The
Company may find it necessary to replace its credit facility in the near future;
however it is waiting for a  conclusion  with  respect to its  private  offering
before taking action in this area.

                                                    
<PAGE>


     In  summary,  management  believes  that the Company  will have  sufficient
liquidity and adequate working capital to fund the Company's  operations  during
the current fiscal year, including support for its planned expansion of sales.

     Management is planning  additional  equity  financing  which, if completed,
could add substantially to the Company's  liquidity in the near future and would
afford the Company the  opportunity to make new  acquisitions  and to expand its
business.  There is no  assurance  that the Company  will be  successful  in its
attempts to raise additional capital at an affordable cost.

     The principal source of funds for the Company's  operations  during quarter
ended November 30, 1998 has been from  operating  revenues and proceeds from its
credit line, as reflected in the Company's financial statements.



II. Results of Operations.

(a)  Net Sales

     Net sales at the six month period ended November 30, 1998 were  $1,511,569.
This  compares  with net  sales of  $1,687,907  for the six month  period  ended
November 30, 1997. While the difference is $176,338, a decrease of approximately
10.4%  from  1998 to 1997,  it must be looked at from the point of view that the
Company took deliberate action to eliminate a certain percentage of sales in the
previous  quarter  (ended  August  31,  1998)  that  were not  profitable.  This
elimination,  combined with shipping  differences (i.e. during the first quarter
ended August 31, 1998, orders which are usually shipped in this period were made
early enough during the last fiscal year to be shipped in the year ended May 31,
1998) and a general  downturn in industry  orders (which the Company also serves
in  addition to the medical  supply  industry)  resulted in lower sales for this
period.


     Net sales at the end of the three month period ended November 30, 1998 were
also lower  than for the same  period  last year  (i.e.  net sales for 1998 were
$704,716 for the quarter  compared to sales of $820,150 in 1997, a difference of
$115,434 or  approximately  14%).  Lower sales during the quarter ended November
30, 1998 resulted from a continuation  of the factors  described  above,  except
that shipping  differences  were not involved,  but the other factors  mentioned
above had more of an impact in this period.



     Net sales for the three months ended August 31, 1998 were $804,853 which is
quite comparable to the $867,757 net sales for the three months ended August 31,
1997,  and  were  lower  in  that  period  more or  less,  because  of  shipping
differences  as explained  above  combined with the beginning of  elimination of
unprofitable sales and slightly slower industry sales at this time.
                                                    
<PAGE>


     Sales  which  were   eliminated   from  the   Company's   line  because  of
unprofitability  included  nurses  caps,  shoe covers and  surgical  masks among
others and represented products which were primarily manufactured by others.


     The Company is now seeing a  turnaround  in demand from  industry as orders
are beginning to improve and sales are increasing now in that area.

     Net sales in the six month period ended November 30, 1998 were not affected
by price changes or significant additions from new business during the period to
increase sales to former levels.

     As for the future in terms of  increasing  sales,  the  Company has entered
into an  agreement  with  Jake  Industries,  Inc.  ("Jake")  and  its  principal
shareholders  to acquire the  substantial  part of the assets of Jake as a going
concern.  Located in New Jersey, Jake is a manufacturer of paper products to the
medical and  institutional  industries  which  includes  toilet tissue paper for
institutions and tissue gowns.  Revenues are presently  approximately $2 million
per annum;  however,  the Company  believes  that these  revenues can be greatly
expanded  with its own network of customers  and new business  which the Company
will seek to obtain after the closing.

         The  acquisition  agreement for Jake calls for the payment of more than
$300,000 cash and the issuance of stock to the shareholders of Jake. The Company
has not yet closed this  agreement as of the date of this report and is awaiting
currently planned additional financing to support the purchase of Jake.


     The  Company is also  looking  forward to  entering  into the tissue  paper
supply  business  with the  purchase  of its  machinery  and  equipment  for the
production  of tissue  paper.  Management  believes  that there is an  excellent
market opportunity for this type of product.  While the acquisition of Jake will
enhance the  Company's  entry into this market,  the Company is prepared to move
ahead in this area with or without the acquisition.


     The Company also  recently  introduced  "sonic  sealed"  garments in former
periods which are produced by a sonic sealing or welding  process,  manufactured
by ultrasonic equipment which essentially changes the molecular structure of the
material  being made to form a complete  and  impenetrable  seal at the point of
closure. No heat is used or necessary for this process. These garments are fluid
and chemical  resistant and are used  primarily in chemical and nuclear work. It
is expected  that these  products  will  contribute  to sales during the current
fiscal year.

<PAGE>

     The  shift,  beginning  in 1996,  to  private  label  work  has  also  been
essentially discontinued as the Company assumed additional responsibility  
for  the   manufacture  of  PDA's  products  and  requiredadditional 
manufacturing capacity for its own products

     Under new  agreements  for  manufacturing  private label goods with two new
principal  customers,  the Company will sustain  sufficient profits to warrant a
continuation of this work at a reduced rate.


     The  Company's  production  of operating  gowns did not achieve the results
expected   and  were   essentially   discontinued;   however,   the  Company  is
manufacturing  such gowns presently to the  specifications of a new customer and
will continue to offer this product mainly through the orders  received from its
customer.

     There were again no significant  contributions to revenues from the sale of
the "Rigg" (a sling  designed to hold  basketballs,  soccer balls and baseballs,
among  other  things,  allowing  free use of the hands  and arms) a  non-medical
product  offered for  consumer  use  beginning  in 1995 and the Company is still
awaiting  marketing  efforts  of  others  to see  important  revenues  from this
product.

     However,  based on the potential of the new products  mentioned  above, the
new markets opened by the Company and the addition of PDA's sales and customers,
management believes the Company will grow again in terms of overall net revenues
for 1999.

     For additional  information  see Item 1.  "Description  of Business" in the
Company's 10-KSB report for the year ended May 31, 1998.
<PAGE>


(b)  Cost of Sales

     The elimination of  unprofitable  sales did result in a lower cost of sales
percentage  for the six months ended  November  30, 1998  compared to 1997 (i.e.
66.6% for 1998 compared to 68.6% for 1997) which,  combined with lower costs for
selling,  general and administrative  expenses for the six months ended November
30, 1998, resulted in higher income from operations for 1998 compared to 1997.


     However,  the  Company did  experience  a set back in cost of sales for the
three months ended November 30, 1998 compared to the three months ended November
30, 1997 (i.e.  cost of sales at the end of the three months ended  November 30,
1998 was at 72.5%  compared to 69.2% for the same  period in 1997).  This result
occurred  because  the  Company  suffered  a loss of  approximately  $34,000  in
inventory in its Mexican production  facility.  This facility was inherited from
the PDC acquisition and operated as a separate contractor with the Company. When
requested  to  deliver  an  inventory  count,  it was  noticed  that part of the
inventory,  consisting  mainly  of  raw  materials,  was  missing.  The  Company
immediately took steps to terminate its relationship with this facility and will
 perform the operations  previously  made in Mexico at itsplant in Utica,
 New York.  The  Company  does not  anticipate  any  dislocationbecause  of 
this move and  further,  does not expect  any  substantial  negativeimpact on 
cost of sales or profitability  because  management  believes the work
done in Mexico  can be easily  replaced  in its own  plant  without  significant
increases in costs


     The effect of the Company's  action to discontinue  unprofitable  sales was
clearly  evident in the previous  quarter  (ended  August 31, 1998) which showed
cost of sales of only  61.6%.  It was  because of this low  percentage  that the
impact of the higher cost of sales percentage for the quarter ended November 30,
1998 was less significant and the average cost of sales for the six months ended
November 30, 1998 was lower overall.  See "Management's  Discussion and Analysis
or Plan of  Operation"  in the 10-QSB  report filed for the quarter ended August
31, 1998.


     It should be remembered  that the cost of sales  increased in 1997 to 73.8%
with the  introduction  of PDA products as part of the Company line.  Management
pointed out that the PDA products  were  initially  introduced  at a higher cost
basis than the Company's  products.  Costing  analysis and immediate  action was
taken to correct these  differences  which  resulted in a cost of sales for more
recent periods that is more in line with the Company's usual standards.


(c) Gross Profits

     Gross  profits  for the six months  ended  November  30, 1998 were lower by
$24,122 than gross profits for the comparable  period in 1997,  primarily due to
the fact that net sales for the six months  ended  November  30,  1998 were also
lower by  approximately  10.5% for that period  compared to November  30,  1997.
Expressed as a percentage  of net sales,  gross  profits were 33.4% of net sales
for the six months ended  November  30, 1998  compared to 31.3% of net sales for
the same period in 1997.  The  improvement  occurs  because of the lower cost of
sales  percentage for the six months ended November  30,1998 compared to the six
months ended November 30, 1997. The lower cost of sales  percentage was achieved
in this period even though certain  difficulties  were  experienced in the three
months ended  November 30, 1998 (see below).  This  compares with a gross profit
percentage of 32.2% at the year ended May 31, 1998.


<PAGE>

     For the three months ended  November 30, 1998 gross profits  expressed as a
percentage of net sales was 27.9% compared with 30.8% for the comparable  period
in 1997.  The lower gross profit  percentage for the three months ended November
30, 1998 is caused by both lower sales and a high cost of sales  percentage  for
that period as explained above. As previously stated, this period was influenced
by a loss of inventory, lower sales because of the elimination of unprofitable 
 products and because of a downturn in industry orders.


(d)  Selling, General and Administrative Costs

     Selling, general and administrative costs for the six months ended November
30, 1998 were  substantially  lower when  compared to the same period last year.
This was due to the fact that the two principal  officers of the Company  waived
their salaries during this period and one other officer  (mainly  concerned with
the operations of PDA) resigned and was not replaced during the period.

     Selling,  general  and  administrative  costs  were also lower in the three
months ended November 30, 1998 for the same reasons stated above.

     As has been said, the elimination of unprofitable business in recent months
and the price  increases  effected for the PDA  products  during the 1997 fiscal
year,  among other things,  influenced  the lower cost basis for products in the
six months  period ended  November 30, 1998 and,  combined  with lower  selling,
general and administrative costs in that period resulted in a slight improvement
in income  from  operations  for the first six  months of the 1999  fiscal  year
compared to the same period in 1997 which showed a profit of $24,007 compared to
the $101,979  Income from operations for the six months ended November 30, 1998.
Selling,  general  and  administrative  expenses  were also  lower for the three
months ended November 30, 1998 for the same reasons described above.


<PAGE>


(e)  Interest and Amortization Expenses

     Interest  expenses  increased  by  approximately  $20,000 in the six months
period ended  November 30, 1998  compared to the previous  period in 1997.  This
reflects  additional  borrowing by the Company  during the period.  Amortization
also increased  during the period to account for the additional debt incurred by
the acquisition of the Company's plant facility in July, 1998.


     These  expenses  combined to result in a net loss for the six months  ended
November 30, 1998 as it did for November 30, 1997;  however the loss for the six
months ended November 30, 1998 was more significant  because of the increases in
interest costs and  amortization.  These same factors  combined to produce a net
loss for the three months ended  November 30, 1998  compared to the three months
period ended November 30, 1997 which showed a profit of $7,950, because the full
weight of the amortization costs were not in place as yet.


     In order to offset  the costs of  borrowing  and  amortization,  it will be
necessary for the Company to increase its net sales by either adding  additional
products, services or customers or by making an  acquisition.  The Company is 
undertaking  to do this now by itsproposed  plan to increase  sales and by
arranging for  additional  financing toallow  acquisitions which management has 
had in mind as well as the acquisitionof Jake  Industries  Inc.,  discussed  
above,  which is  scheduled  shortly.  Inaddition,  the Company believes that 
with its new tissue products,  (i.e. toilettissue for industrial use and tissue
paper for examination tables in medical andveterinary offices) it will open new
 markets and sales.

     For  information  with respect to the possible  effect of future  trends on
operations,  see the discussion under the caption "Trends  Affecting  Liquidity,
Capital Resources and Operations."


III.  Capital Resources

     On July 21, 1998 the Company acquired its plant facility in Utica, New York
for a purchase  price of  $600,000.  As part of the  agreement  to purchase  the
building,  all back rent (the Company was  withholding  rent for repairs) except
for $50,000 was forgiven.  The Company was paying $7,500 per month for rental of
this facility.



     Also,  during the six months ended November 30, 1998 the Company  purchased
additional  machinery and equipment to manufacture  tissue paper for its planned
entry  into  the  market  for  such  products,   including   toilet  tissue  for
institutional  customers and tissue paper for examination tables.  There were no
other significant increases in the purchase of any other property or equipment.



     The Company also does not  presently  anticipate  the  allocation  of other
significant  resources for machinery and equipment purchases in the near future,
unless its proposed  private  offering of  securities  is  successful.  Any such
commitments,  however,  will be dependent on demand for the delivery of products
under new or increased  orders and will  primarily  be purchased in  cooperation
with New York State  financing  programs,  leasing  programs  or bank  financing
without committing substantial cash resources.  Future conditions,  however, may
change this position.

<PAGE>

     Current conditions indicate,  however, that some funds will be required for
additional  capital  expenditures  in  the  near  future  which  coincides  with
management's sales expansion program; however, as explained above, financing for
purchasing  these resources will be obtained from sources which will not require
a substantial outlay of cash and will be in proportion to its expansion program.


IV. Inflation
     Management  anticipates  that inflation will not have a material  effect on
the Company's operations in the future. This IS  principally due to two factors.
 First, if orders increase due to inflation,the Company  presently  has 
 adequate  manufacturing equipment  and capacity tosupport not only its present 
 level of  operations  but,  with the addition of asecond  and,  if needed,  
a third  operating  shift,  to  support a  substantialincrease in production of 
its present product lines.  Second,  although  productpricing would be affected 
by inflation due to higher costs,  management believesthat public health and 
safety  concerns  would  outweigh any negative  impact ofprice increases and 
would not adversely  affect the Company's  projected  sales.Additionally, 
 the hospital and health care markets have  historically been bestable to pass
 on increased costs which are typically paid by insurance coverage.




V.  Trends Affecting Liquidity, Capital Resources and Operations

     A number of factors are  expected to impact upon the  Company's  liquidity,
capital  resources  and  future   operations.   Included  among  these  are  (i)
environmental  concerns;  (ii) economic factors  generally  affecting the health
care industry;  (iii) governmental regulation of the Company's products and (iv)
the  growing  concern  in  many  industries  about  controlling  the  spread  of
infectious disease.



     Some disposable products offered by the Company are made from plastic-based
materials which have raised concern among environmental groups over their proper
disposal.  Although  management  believes that such concerns are, in many cases,
valid,  it is also  believed  that these  concerns  must be balanced with safety
provided by these products against infectious  diseases such as AIDS,  hepatitis
and others.  This belief has recently been reinforced by the new,  comprehensive
safety regulations issued by the Occupational  Safety and Health  Administration
(OSHA) which  require  extensive  new measures to combat the spread of infection
and disease in many industries which had not previously  required such measures.
Most  importantly,  from the point of view of the Company,  are the requirements
for  protective  apparel such as that  manufactured  by the Company.  Management
believes that the regulations,  which are now fully  implemented,  will increase
demand  for the  Company's  products  and  significantly  expand  the  Company's
markets.  Based upon recent  increased  orders,  management  believes  that most
significant  among  these new  markets  for its  products  will be the  hospital
looking to comply with the new OSHA regulations,  emergency service  industries,
including police,  fire and ambulance  services,  which routinely are exposed to
unusually high risk of infectious diseases and physicians.

<PAGE>

     Nevertheless, the requirements relating to proper disposal of plastic-based
garments is still in question and the Company  cannot predict the outcome of any
future  regulations  relating to these matters.  Any changes in manufacturing or
disposal  requirements  could  result  in  higher  manufacturing  costs and less
profitability  for the Company or, perhaps,  complete  elimination,  which could
have a substantially  negative impact on liquidity and capital  resources in the
future.


     Management also believes that perhaps the most  significant  adverse impact
upon its  liquidity,  capital  resources and future  operations  may result from
economic  pressures  to keep health care costs low.  Spearheaded  by health care
insurers and now the federal government,  the entire health care industry in the
United  States  has come  under  increasing  pressure  and  scrutiny  to  reduce
unnecessary  and wasteful  costs. To meet the criticism in recent years over the
higher cost of disposable products, the Company has introduced a line of limited
reusable  products.  These  products  are  designed to be washed and reused from
between 25 and 100 times before being  replaced.  Management  believes that such
products will not only address the economic  concerns but also the environmental
issues by reducing the amount of products which are being discarded. However, as
already  mentioned,  in  situations  where  there  is a high  risk of  spreading
infection,  management  believes that the  disposable  products will continue to
have strong appeal and demand in the marketplace.


     As new Company manufactured  products and other items under development are
introduced,  management believes that sales revenues will increase and, over the
long term,  will result in more stable sales and higher  profit  margins for the
Company.  In  addition,  the  existence  of the  Occupational  Safety and Health
Administration  (OSHA)  regulations  are expected to continue to have a positive
influence on the demand for the Company's products.


     In short,  the above  factors may each have a  significant  impact upon the
Company's  future  operations.  At  present,  management  believes  that  safety
concerns over the spread of infectious diseases such as AIDS and hepatitis will,
at  least  for the  foreseeable  future,  outweigh  economic  and  environmental
concerns.  Consequently,  management does not anticipate any adverse impact upon
its future  operations  for the  foreseeable  future.  Apart from these factors,
management  knows of no  trends or  demands  that  would  adversely  affect  the
financial condition of the Company.




<PAGE>



                                                       



                                            PART II  OTHER INFORMATION


ITEM 5.  Other Information

     Effective  January  8, 1999,  the  Company  adopted a reverse  split of its
Common Stock on the basis of one (1) new share for every fifteen (15)  presently
issued shares of Common Stock.


     Based on the  15,490,009  shares of Common Stock  outstanding at January 8,
1998, the new total number of new outstanding shares are 1,032,667.


     A new CUSIP  number has been  issued to  identify  post-split  shares  from
pre-split shares.


     Shareholders   are  not  required  to  surrender  their  presently   issued
certificates;  however they may do so  voluntarily or the  certificates  will be
exchanged when presented for transfer.


ITEM 6.   Exhibits and Reports on Form 8-K

          (a) Exhibits.

               11   - Calculation of primary and fully-diluted income (loss) per
                    share.  Reference  is  made  to  Note  16 of  the  financial
                    statements,
                     incorporated herein by reference.

          (b) Reports on Form 8-KSB

                None.




                                                      

<PAGE>



                                                    SIGNATURES



         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.





                                             HEALTH-PAK, INC.




                                    /s/ Anthony J. Liberatore
                                        Anthony J. Liberatore
                                             President
                                        Chief Operating Officer
Dated:  March 25, 1998



                                    /s/ Michael A. Liberatore
                                        Michael A. Liberatore
                                           Vice President
                                       Chief Financial Officer