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 JUNE 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 August 14, 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>
Item 1.    Condensed Consolidated Financial Statements.

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

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

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

           Notes to Condensed Consolidated Financial
           Statements................................................................ 6 -10

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............................................................ 12

PART II.   OTHER INFORMATION......................................................... 13


SIGNATURES........................................................................... 13
</TABLE>

                                       2
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                    June 30, 1998   March 31, 1998
                                                                    -------------   --------------
<S>                                                                         <C>                  <C>
ASSETS:
Current Assets:
   Cash                                                              $     84,581    $    248,657
   Accounts receivable, net                                            11,530,146      10,299,482
   Inventories                                                          1,719,256       1,740,056
   Prepaid expenses and other current assets                              485,249         295,340
                                                                     ------------    ------------
      Total Current Assets                                             13,819,232      12,883,535

Revenue producing equipment, net                                          761,196         493,365
Fixed assets, net                                                       2,054,575       2,059,459
Goodwill, net                                                           1,389,636       1,401,304
Other assets                                                               53,390         528,748
                                                                     ------------    ------------

     Total Assets                                                    $ 18,078,029    $ 17,066,411
                                                                     ============    ============

LIABILITIES AND STOCKHOLDER'S EQUITY:

Current Liabilities:
   Notes payable - revolving credit facility                         $  6,268,680    $  4,736,563
   Notes payable - term loan                                                   --              --
   Notes payable - other                                                1,020,945         470,325
   Accounts payable                                                     4,923,033       6,122,572
   Accrued expenses and other current liabilities                       2,403,604       2,153,550
   Current portion of capital lease - Facility                            286,000          71,500
   Current portion of other capital lease obligations                     274,402         175,891
                                                                     ------------    ------------
   Total Current Liabilities                                           15,176,664      13,730,401

Notes payable - term loan                                                 750,000         500,000
Notes payable - other                                                     324,555       1,070,370
Capital lease - Facility, less current portion                                 --         232,375
Other capital lease obligations, less current portion                     158,976         314,661
                                                                     ------------    ------------
    Total Liabilities                                                  16,410,195      15,847,807
                                                                     ------------    ------------

Stockholders' Equity:
  Preferred stock, $.01 par value; authorized 3,650,000
    shares; no shares issued and outstanding                                                   --
  6% Redeemable cumulative convertible preferred stock
    $.01 par value; $2,713,500 liquidation preference, authorized,
    issued and outstanding 1,350,000 shares                                13,500          13,500
  Common stock, $.01 par value; authorized 15,000,000
    shares; issued 3,644,498 and 3,598,000 shares, respectively            36,445          35,980
  Additional paid-in capital                                            7,459,624       7,385,590
  Accumulated Deficit                                                  (5,217,415)     (5,592,146)
                                                                     ------------    ------------
                                                                        2,292,154       1,842,924
  Less treasury stock (308,004 shares) at cost                            624,320         624,320
                                                                     ------------    ------------
Total Stockholders' Equity                                              1,667,834       1,218,604
                                                                     ------------    ------------

Total Liabilities and Stockholders' Equity                           $ 18,078,029    $ 17,066,411
                                                                     ============    ============
</TABLE>

                                       3
<PAGE>

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



                                                 Three Months Ended June 30,
                                                 ---------------------------
                                                      1998         1997
                                                   ----------   ----------
Net sales                                          $8,623,017   $7,581,993
                                                 
Cost of goods sold                                  5,138,602    4,182,638
                                                   ----------   ----------
                                                 
Gross profit                                        3,484,415    3,399,355
                                                 
Selling, general and administrative expenses        2,980,437    3,199,184
                                                   ----------   ----------
                                                 
Operating income                                      503,978      200,171
                                                 
Interest expense                                      257,072      182,748
                                                   ----------   ----------
                                                 
Net income                                         $  246,906   $   17,423
                                                   ==========   ==========
                                              


Net income per common share applicable to common
      shareholders
         Basic                                     $      .07   $     (.01)
                                                   ----------   ----------
         Diluted                                   $      .07   $     (.01)
                                                   ----------   ----------

Weighted number of common shares and equivalents
     outstanding
         Basic                                      3,193,975    1,548,205
                                                   ----------    ----------
         Diluted                                    3,332,605    1,837,481
                                                   ----------    ----------


                                       4
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                                  Three Months Ended
                                                                        June 30
                                                              --------------------------
                                                                  1998           1997
                                                              -----------    -----------
<S>                                                               <C>             <C>
OPERATING ACTIVITIES

Net income                                                    $   246,906    $    17,423
Adjustments to reconcile net income to net cash provided by
operating activities:
    Depreciation and amortization                                 176,403        136,229

CHANGES IN OPERATING ASSETS AND LIABILITIES
    Accounts receivable                                        (1,230,664)      (530,270)
    Inventories                                                    20,800          5,439
    Prepaid expenses and other assets                            (189,909)       128,380
    Other assets                                                  475,358        (45,028)
    Accounts payable                                           (1,199,539)       614,347
    Accrued expenses and other current liabilities                223,054        (68,681)
                                                              -----------    -----------
    Cash provided by operating activities                      (1,477,591)       395,201
                                                              -----------    -----------


INVESTING ACTIVITIES
Purchase of fixed assets                                         (147,219)       (38,952)
Net change in goodwill                                            (67,838)            --
Cash (used in) provided by investing activities                  (215,057)       (38,952)
                                                              -----------    -----------

FINANCING ACTIVITIES
    Proceeds from note payable - revolving credit facility      7,460,000     (3,915,540)
    Proceeds from notes payable - other                           657,041     (4,306,400)
    Proceeds from term loan                                       250,000             --
    Payments on note payable - revolving credit facility       (5,927,883)       569,599
    Payments on notes payable - other                            (852,236)      (604,620)
    Principal payments on capital lease - Facility                (17,875)            --
    Proceeds from issuance of capital stock                        74,499         10,600
    Payments on other capital lease obligations                  (114,974)        59,341
                                                              -----------    -----------
    Cash provided by (used in) financing activities             1,528,572       (474,622)
                                                              -----------    -----------

    Net increase (decrease) in cash                              (164,076)      (118,373)
    Cash at beginning of period                                   248,657        309,381
                                                              -----------    -----------
    Cash at end of period                                     $    84,581    $   191,008
                                                              ===========    ===========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
    Interest paid                                             $   243,982    $   176,717
                                                              -----------    -----------

NONCASH INVESTING AND FINANCING ACTIVITIES
    Additions to capital leases                               $    57,800    $    73,135
                                                              -----------    -----------

    Accrued dividends and accretion on redeemable
    preferred stock                                           $    27,000    $    40,500
                                                              -----------    -----------

           See notes to condensed consolidated financial statements.

                                       5
</TABLE>

<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 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 three-month  period ended June 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 quarters ended June 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
$27,000 and $40,500,  respectively, for the three months ended June 30, 1998 and
1997. Net income (loss)  applicable to common  stockholders for the three months
ended June 30, 1998 and 1997,  respectively  were $219,906 and  $(23,077).  On a
fully  diluted  basis,  both  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).  For the  period  ended  June 30,  1998 the  effect of
converting the convertible preferred stock was anti-dilutive and not included in
the calculation.

                                       6
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 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 7.7% and 9.6% of the
Company's  net  sales  for the  three  months  ended  June 30,  1998  and  1997,
respectively.  At June 30, 1998, this customer represented approximately 4.2% 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  operations  for the separate  companies  and the  combined  amounts
presented in the consolidated financial statements are as follows:

                        Three Months Ended    Three Months Ended
                          June 30, 1998         June 30, 1997
                          -------------         -------------
Net sales
     Accuhealth            $5,140,573             $4,284,502
     Healix                 3,482,444              3,297,491
                           ----------             ----------
         Combined          $8,623,017             $7,581,993
                           ==========             ==========

Net income (loss)
     Accuhealth            $  341,981             $   76,661
     Healix                   (95,075)               (59,238)
                           ----------             ----------
         Combined          $  246,906             $   17,423
                           ==========             ==========

                                       7
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 1998

NOTE 2 - NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

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


<TABLE>
<S>                                                                                           <C>
Note payable to Rye Beach  Pharmacy,  Inc.  bearing  interest at 8% with
monthly  payments of principal and interest of $8,022,  until  September
30, 1998                                                                                        $23,749

Notes payable to vendors bearing interest ranging from 10.5% to 12% with monthly
payments totaling $18,509 until July 2000.                                                      643,494

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.                                   39,268

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.                                                                49,804

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.                                                                                    25,171

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.                                                                                    40,403
                                                                                             ----------

            Total Long Term Debt                                                              1,345,500

Less:  current maturities                                                                      1,020945
                                                                                             ----------
         Long Term Debt, net of current maturities                                           $  324,555
                                                                                             ==========
</TABLE>

                                       8
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 1998

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
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.

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

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.  


NOTE 4 - 6% REDEEMABLE  CUMULATIVE  CONVERTIBLE



                                       10
<PAGE>
                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 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  will be paid out in 46,526 shares of common stock on
August 31, 1998.  Accrued and unpaid  dividends are included in accrued expenses
and other current liabilities at June 30, 1998.

                                       11
<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

THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997

The  results for the three  months  ended June 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 months  ended June 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.

NET REVENUES. Net revenues increased approximately  $1,041,024 or 13.7% from the
comparable  1997 quarter to  $8,623,017  million for the three months ended June
30, 1998.  The increase was  primarily  the result of increases in the Company's
institutional pharmacy business, oral medication,  durable medical equipment and
respiratory  revenues.  The  increase in the  Company's  institutional  pharmacy
business  was  attributable  to  the  commencement  of a new  pharmacy  services
agreement with a major sub-acute HIV/AIDS health care facility in New York City.

GROSS PROFIT. Gross profit for the three months ended June 30, 1998 and 1997 was
approximately $3.5 and $3.4 million,  respectively,  representing  approximately
40% of net sales for the three months ended June 30, 1998 as compared to 45% for
the  comparable  prior year period.  Gross  profit  decreased  primarily  due to
decreased  margins in our infusion services  businesses.  Although the number of
new patient  referrals  from managed care  entities for infusion  services  grew
throughout the period, the Company continues to experience  downward pressure on
its fees within this business  segment.  Compounding  this downward  pressure on
reimbursement  rates has been a change in our managed  care patient mix to lower
margin  modalities  as a  result  of  the  prolonged,  reduced  availability  of
intravenous  immune  gamma  globulin  - a higher  margin  medication  frequently
administered to our patients.

SELLING,   GENERAL   AND   ADMINISTRATIVE   EXPENSES.   Selling,   general   and
administrative  expenses ("SG &A") were  approximately  $3.0 and $3.2 million or
approximately  34% and 42% of net sales for the three months ended June 30, 1998
and 1997,  respectively.  The decrease was primarily due to the successful first
phase of the  elimination of duplicate  overhead costs in the merged  companies.
Also included within Selling, General and Administrative Expenses are the direct
expenses  related to the  production  of net  revenues,  primarily  pharmacy and
nursing salaries and employee benefits.  Direct expenses were approximately $1.3
million or 15% of net revenues for the three months ended June 30, 1998.

                                       12
<PAGE>
INTEREST EXPENSE.  Net interest  increased by $74,000 for the three months ended
June 30,  1998,  to $257,072.  This  increase is primarily a result of increased
borrowing  under  its line of  credit,  which is in  accord  with the  growth in
accounts receivables.

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 June 30, 1998, the Company had a working capital deficit of  approximately
$1,357,432.

The Company's cash provided by financing activities of approximately  $1,528,572
was primarily attributable to the net proceeds of approximately $1,532,117 under
the  Company's  revolving  credit  facility  and term loan  offset by  principal
payments on capital leases.

Accounts  receivable  include  amounts  due from third party  payors,  primarily
governmental agencies (Medicare and Medicaid).  At June 30, 1998, gross Medicare
and Medicaid receivables aggregated $4,711,285.

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.

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

                                       13
<PAGE>
are expressly  qualified in their entirety by the cautionary  statements in this
paragraph and elsewhere in this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.


                                       14
<PAGE>
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 of 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: August 8, 1998               By: /s/ Glenn C. Davis
                                       ------------------------------------
                                           Glenn C. Davis, as
                                           President and Chief Executive Officer

Date: August  , 1998               By: /s/ Prisco J. Demercurio
                                       -------------------------------------
                                           Senior Vice President - Finance
                                           Chief Financial Officer


                                       15