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 DECEMBER 31, 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 February 17, 1999
Common Stock, par value $.01 per share                   5,080,586 Shares

<PAGE>
<TABLE>
<CAPTION>

                                ACCUHEALTH, INC. AND SUBSIDIARIES

                                              INDEX

                                                                                            PAGE NO.
                                                                                            --------
PART I.   FINANCIAL INFORMATION
<S>       <C>                                                                                  <C>
Item 1.   Condensed Consolidated Financial Statements.

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

          Condensed Consolidated Statements of Operations for the three and
          nine months ended December 31, 1998 and 1997.....................................     4

          Condensed Consolidated Statements of Cash Flows for the nine months
          ended December 31, 1998 and 1997.................................................     5

          Notes to Condensed Consolidated Financial Statements.............................   6 - 11

Item 2.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations........................................................    12

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

Part II.  OTHER INFORMATION................................................................    15

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

                                                 2
<PAGE>
<TABLE>
<CAPTION>

                                    ACCUHEALTH, INC. AND SUBSIDIARIES
                                  CONDENSED CONSOLIDATED BALANCE SHEETS
                                             (IN THOUSANDS)
                                               (UNAUDITED)

ASSETS:                                                                DECEMBER 31, 1998  MARCH 31, 1998
                                                                       -----------------  --------------
Current Assets:
<S>                                                                      <C>               <C>         
    Cash .............................................................   $           31    $        249
    Marketable Securities ............................................            3,647              --
    Accounts receivable, net .........................................           15,167          10,299
    Inventories ......................................................            2,969           1,740
    Prepaid expenses and other current assets ........................              452             295
                                                                         --------------    ------------
    Total Current Assets .............................................           22,266          12,583

Revenue producing equipment, net .....................................              820             493
Fixed assets, net ....................................................            1,995           2,060
Goodwill, net ........................................................            1,327           1,401
Other assets .........................................................               86             529
                                                                         --------------    ------------

    Total Assets .....................................................           26,494          17,066
                                                                         ==============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
    Notes payable - revolving credit facility ........................            8,960           4,737
    Notes payable - other ............................................              787             470
    Margin Loan payables .............................................        1,000,002              --
    Accounts payable .................................................            5,143           6,122
    Accrued expenses and other current liabilities ...................            2,212           2,154
    Current portion of capital lease - Facility ......................              251              71
    Current portion of other capital lease obligations ...............              322             176
                                                                         --------------    ------------

    Total Current Liabilities ........................................           18,675          13,730

12% Subordinated Debentures ..........................................            6,250              --
Notes payable - term loan ............................................              750             500
Notes payable - other ................................................              192           1,070
Capital lease - Facility, less current portion .......................               --             232
Other capital lease obligations, less current portion ................              294             315
                                                                         --------------    ------------

    Total Liabilities ................................................            7,486          15,847
                                                                         --------------    ------------

Stockholders' Equity:
  6% Redeemable cumulative convertible preferred stock $.01 par value;
    $2,713,500 liquidation preference, authorized issued and
    outstanding 1,350,000 shares .....................................                1              13
  Common stock $0.1 par value; authorized 15,000,000 shares;
    3,644,498 and 3,598,000 shares, respectively .....................               51              36
    Additional paid-in capital .......................................            7,474           7,386
    (Deficit) ........................................................            6,569          (5,592)
                                                                         --------------    ------------
                                                                                    957           1,843
    Less treasury stock (308,004 shares) at cost .....................              624             624
                                                                         --------------    ------------
Total Stockholders' Equity ...........................................              333           1,219
                                                                         --------------    ------------

Total Liabilities and Stockholders' Equity ...........................   $       26,494    $     17,066
                                                                         ==============    ============
</TABLE>
                             See notes to consolidated financial statements.
                                                    3
<PAGE>
<TABLE>
<CAPTION>

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

                                                                         THREE MONTHS ENDED             NINE MONTHS ENDED
                                                                            DECEMBER 31,                   DECEMBER 31,
                                                                     --------------------------    --------------------------
                                                                        1998            1997            1998          1997
                                                                     -----------    -----------    -----------    -----------
<S>                                                                  <C>            <C>            <C>            <C>        
Net sales ........................................................   $     9,973    $     8,205    $    27,460    $    24,249
Cost of goods sold ...............................................         6,193          5,253         16,478         13,807
                                                                     -----------    -----------    -----------    -----------
Gross profit .....................................................         3,780          2,952         10,982         10,442
Selling, general and administrative expenses .....................         3,999          2,792         11,202          9,825
                                                                     -----------    -----------    -----------    -----------

Operating (loss) income ..........................................          (219)           160           (220)           617
Interest expense .................................................           228            219            877            591
                                                                     -----------    -----------    -----------    -----------

Income (loss) before income taxes ................................          (447)           (59)        (1,097)            26

Provision for income taxes .......................................            --            162             --            162
                                                                     -----------    -----------    -----------    -----------
Net income (loss) ................................................   $      (447)   $      (221)   $    (1,097)   $      (136)
                                                                     ===========    ===========    ===========    ===========


Income (loss) per common share, applicable to common shareholders:
Basic - continuing operations ....................................   $      (.13)   $      (.14)   $      (.33)   $      (.09)
                                                                     ===========    ===========    ===========    =========== 

Diluted - continuing operations ..................................   $      (.13)   $      (.12)   $      (.32)   $      (.07)
                                                                     ===========    ===========    ===========    =========== 

Weighted number of common shares and equivalents outstanding:
 Basic ...........................................................     3,336,494      1,548,205      3,276,871      1,548,205
 Diluted .........................................................     3,441,880      1,837,481      3,382,257      1,837,481

                                        See notes to consolidated financial statements.

                                                               4
</TABLE>
<PAGE>

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

                                                                        NINE MONTHS ENDED
                                                                           DECEMBER 31,
                                                                        ------------------
                                                                        1998          1997
                                                                        ----          ----
OPERATING ACTIVITIES:
<S>                                                                 <C>         <C>      
Net income (loss) ...............................................   $   (650)   $    (77)

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

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

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

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

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

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

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

</TABLE>
            See notes to condensed consolidated financial statements.

                                        5
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 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  nine-month  period  ended  December 31, 1998 may not be  indicative  of the
results for the full fiscal year.

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

ACCOUNTS RECEIVABLE

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

INVENTORIES

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

EARNINGS PER SHARE

For the three  months and nine months ended  December  31, 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 $3,150, and $40,500, respectively, for the three
months ended December 31, 1998 and 1997 and $19,800 and $121,5,00, respectively,
for the nine  months  ended  December  31,  1998 and  1997.  Net  income  (loss)
applicable to common  stockholders  for the three months ended December 31, 1998
and 1997,  respectively,  were  ($447,000)  and $29,000,  and  ($1,097,000)  and
$219,000 for the nine months ended December 31, 1998 and 1997, respectively.  On
a fully diluted  basis,  both the net income (loss) and shares  outstanding,  if
applicable, are adjusted to assume the conversion of convertible preferred stock
from the date of issue and for the  incremental  option shares for fully diluted
purposes (See Note 4).

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.

                                       6
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 1998

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 5.5% and 15% of the
Company's  net sales for the three  months  ended  December  31,  1998 and 1997,
respectively. And 6.5% and 16.5% for the nine months ended December 31, 1998 and
1997,   respectively.   At  December  31,  1998,   this   customer   represented
approximately 2.3% of the Company's gross receivables.

BUSINESS COMBINATION

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

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

                                                         Nine Months Ended
                                                         December 31, 1998
                                                         -----------------
             Net sales
                Accuhealth ......................        $         16,476
                Healix ..........................                  10,984
                                                         ----------------
                         Combined ...............        $         27,460
                                                         ================

             Net income (loss)
                Accuhealth ......................        $        103,000
                Healix ..........................              (1,200,000)
                                                         ----------------
                         Combined ...............        $     (1,097,000)
                                                         ================

<TABLE>
<CAPTION>
NOTE 2 - NOTES PAYABLE, SUBORDINATED DEBENTURES PAYABLE  AND
         CAPITAL LEASE OBLIGATIONS
<S>                                                                         <C>       
Long-term debt at December 31, 1998 consists of the following:

12% Subordinated Debentures, interest payable
quarterly,  maturing July, August and October, 2003 .....................   $6,250,000

Notes payable to vendors bearing interest ranging
from 10.5% to 12% with monthly payments totaling
$18,509 until July 2000 .................................................      463,500

Notes payable bearing interest ranging from
10% to 14.5% with monthly  payments  totaling $40,714 until February 2000      353,695

                                       7
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 1998

Notes payable to a Bank bearing interest at rates
ranging from 2.9% to 10.25% with monthly payments
totaling $3,748 due through August 1999 .................................       35,342

Note payable to a stockholder bearing interest
at 9.75%. There are no scheduled repayment terms
and payments are made monthly for interest only .........................       52,500

Note payable bearing interest at 10.95%, monthly
payment of $6,484,  from March 1997 to December 1998 ....................       25,854

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 ...........................................       22,288

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 ...........................................       35,775
                                                                            ----------

      Total Long Term Debt ..............................................    7,238,954

      Less:  current maturities .........................................      787,175
                                                                            ----------
      Long Term Debt, net of current maturities .........................   $6,451,779
                                                                            ==========
</TABLE>

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.

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 September 30, 2001.

                                       8
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 1998

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 November 30, 2001.

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 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.

                                       9
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 1998

The June 1,  1998  dividend  was paid out in 46,526  shares  of common  stock on
November 11, 1998. Accrued and unpaid dividends are included in accrued expenses
and other current  liabilities at December 31, 1998. The Company has offered and
the  majority of  preferred  shareholders  opted to convert a total of 1,245,000
preferred shares into 1,431,750  common shares effective  December 1, 1998. This
represented a premium of 15% to the preferred shareholders.

NOTE 5 - 12% SUBORDINATED DEBENTURES

On July 14, 1998 the Company  entered into a Note  Purchase  Agreement  with RFE
Investment  Partners  L.P.,  (""RFE")  whereby RFE  purchased  $5,000,000 of the
Company's 12% Subordinated  Debentures.  On August 21, 1998,  Amendment No. 1 to
the Note Purchase Agreement was executed,  whereby  Sterling/Carl marks Capital,
Inc. was added as an "Additional  Purchaser".  Sterling/Carl marks Capital, Inc.
purchased an additional $750,000 of 12% Subordinated Debentures.  On October 26,
1998,  Amendment  No. 2 to the Note Purchase  Agreement  was  executed,  whereby
Austin Marxe was added as an "Additional  Purchaser".  Austin Marxe purchased an
additional $500,000 of 12% Subordinated Debentures.

Terms and conditions relative to the debenture include the following:

Interest on the debentures is payable quarterly, in arrears. The Company may, at
its sole discretion,  accrue up to six quarterly interest payments,  which would
otherwise be due, until the maturity date. Such accrued interest  payments shall
bear  interest  at the same rate and are  payable on the same terms as  original
interest on the debentures.

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

NOTE 6 - PROVISION FOR UNCOLLECTIBLE AMOUNT DUE FROM MAJOR CUSTOMER

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

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

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

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

                                       10
<PAGE>

                        ACCUHEALTH, INC. AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                DECEMBER 31, 1998

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

On  November  19,  1998,  PHP  Healthcare  Corp.,   including   Pinnacle  Health
Enterprises filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

This action followed HIP's announced  intention to terminate its Health Services
Agreement with Pinnacle.

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

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

                                       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

The results for the three and nine months  ended  December  31, 1998 reflect the
Company's merger with Healix Healthcare,  Inc. on April 9, 1998. As indicated in
Note 1 of this Form  10-Q,  the merger  has been  accounted  for as a pooling of
interests. Accordingly, the results for the three and nine months ended December
31, 1997,  have been  restated to include the combined  results of operations of
Healix as though it had always been a part of the Company.

THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997

Net sales  increased  approximately  $1,768,000 or 18% from the comparable  1997
quarter to $9.97  million for the three  months ended  December  31,  1998.  The
increase was the result of increases of approximately $2,000,000 and $400,000 in
the Company's oral medication and durable medical equipment revenues, partially,
offset,  by a decrease in the  Company's  Infusion  Services  and  Patient  Care
Services of approximately $632,000.

Gross  profit  for the  three  months  ended  December  31,  1998  and  1997 was
approximately $3.78 and $2.95 million, respectively.  Representing approximately
37% of net sales for the three  months  ended  December  31, 1998 as compared to
36%, for the comparable prior year.  Gross profit  decreased  primarily due to a
decrease in higher  margin  infusion  sales and an increase in lower margin oral
medication and institutional pharmacy sales.

Selling,  general and administrative  expenses ("SG&A") were approximately $3.99
and $2.79 million or approximately 40% and 34% of net sales for the three months
ended December 31, 1998 and 1997, respectively. The increases were primarily due
to increases in salaries,  delivery and other  expenses of  approximately  $1.20
million.

NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997

Net sales for the nine months ended  December 31, 1998  increased  approximately
$3.21  million  or 12% from the  comparable  1997  period to 27.5  million.  The
increase was the result of increases of  approximately  $3.00  million and $1.00
million in the Company's oral medication and durable medical equipment revenues,
partially  offset by a decrease  in the  Company's  infusion  and  patient  care
service revenues of approximately $879,000.

Gross  profit  for the  nine  months  ended  December  31,  1998  and  1997  was
approximately   $10.982  and   $10.442   million,   respectively.   Representing
approximately  39% of net sales for the nine months  ended  December 31, 1998 as
compared  to 43% for the nine months  ended  December  31,  1997.  Gross  profit
decreased  primarily  due to a decrease in higher margin  infusion  sales and an
increase in lower margin oral medication and institutional pharmacy sales.

Selling, general and administrative expenses ("SG&A") were approximately $11.202
and $9.82 million or approximately  41% and 41% of net sales for the nine months
ended December 31, 1998 and 1997,  respectively.  The increase was primarily due
to increases in salaries,  delivery  and other  expenses of  approximately  $1.4
million.

INTEREST  EXPENSE.  Net interest  increased by $9,000 and $286,000 for the three
and nine months ended December 31, 1998.  This increase is primarily a result of
increased borrowing under the Company's lines of credit, which is in accord with
the growth in accounts receivable,  as well as the issuance of the Company's 12%
subordinated debentures during the quarter.

PROVISION FOR INCOME TAXES.

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

                                       12
<PAGE>

FINANCIAL CONDITION

As of September 30, 1998, the Company had working capital of approximately  $3.6
million.

The  Company's  cash  provided by financing  activities  of  approximately  $8.8
million was  primarily  attributable  to the net  proceeds of  approximately  $3
million  under  the  Company's  revolving  credit  facility  and  term  loan and
approximately  $5.8 million from the  issuance of 12%  subordinated  debentures,
offset by principal payments on capital leases and other notes payable.

Accounts  receivable  include  amounts  due from third party  payors,  primarily
governmental  agencies  (Medicare and  Medicaid).  At September 30, 1998,  gross
Medicare and Medicaid receivables aggregated $6.0 million.

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

At its meeting of the Board of Directors on June 25, 1998, the Company  approved
the issuance of 12% Cumulative Convertible Subordinated Notes in the face amount
of  $6,250,000.  On July 14,  1995,  the  Company  completed  the Note  Purchase
Agreement relative to the 12% Subordinated  Debentures (See Note 5), in addition
to 1,  245,000  preferred  shares  converted.  As a  further  component  of this
financing,  the  majority of the  Company's  current 6%  Cumulative  Convertible
Preferred  Stock was converted to common stock at a 15% discount to the original
conversion  price of $2.00.  This  conversion  was  effective  December 1, 1998.
Accordingly, an additional 186,750 shares were issued.

Year 2000 Readiness

The Company has completed its assessment of its computer  systems and facilities
that could be affected by the "Year 2000  problem"  and has  developed a plan to
resolve the issue.  The Year 2000 problem arose  because many existing  computer
programs  use  only the last two  digits  to refer to a year.  Therefore,  these
computer programs do not properly recognize a year that begins with "20" instead
of the familiar "19." If not corrected, many computer applications could fail or
create erroneous results.

The Company is implementing  its Year 2000 compliance  program as part of a plan
to  replace  and  upgrade  its  information  technology  systems  (the  "Upgrade
Program").  The Upgrade Program was initiated to replace  information systems of
certain subsidiaries of the Company acquired by merger, to fully integrate those
systems with the Company's  information  technology  systems,  and to update the
Company's  information  technology systems.  The Company has divided the Upgrade
Program  into  the  following  phases:  assessment,  planning,  remediation  and
testing.  The Company is currently  approximately  30% complete with the Upgrade
Program and anticipates  being complete with all phases of the Upgrade  Program,
including  Year 2000  compliance,  by the fourth  quarter of 1999.  Although the
Company believes that it will complete the Upgrade Program by the fourth quarter
of 1999,  there can be no assurance that such  remediation  will be completed or
that the Company's operations will not be disrupted to some degree.

The Company  currently  expects the Upgrade  Program to be  completed  in a time
frame to avoid any material  adverse  effect on  operations.  As of December 31,
1998, the Company had incurred  approximately $160,000 of expenses in connection
with the Upgrade Program.  The Company expects to incur  additional  expenses of
approximately  $400,000 to complete the  implementation  of the Upgrade Program.
The Company would have implemented the Upgrade Program  irrespective of the Year
2000 problem,  and although the Company expects that the  implementation  of the
Upgrade Program will achieve Year 2000 compliance, the Company cannot separately
assess the expenses relating to Year 2000 compliance. The Company's inability to
complete  Year  2000  compliance  on a timely  basis or the  inability  of other
companies  with which the Company  does  business  to  complete  their Year 2000
modifications on a timely basis could adversely affect the Company's operations.

                                       13
<PAGE>

The Company has initiated communications with its major vendors to identify and,
to the extent possible,  to resolve issues involving the Year 2000 Problem.  The
Company is  attempting  to mitigate its risk with respect to the failure of such
vendors to be Year 2000  compliant by, among other things,  obtaining  Year 2000
compliance  certifications  or written  assurances  from its  material  vendors.
However,  the  Company  has  limited  or no  control  over the  actions of these
suppliers.  Thus,  while the Company expects that it will be able to resolve any
significant  Year 2000  problems with these  systems,  there can be no assurance
that these  suppliers  will  resolve  any or all Year 2000  Problems  with these
systems  before the  occurrence of a material  disruption to the business of the
Company or any of its customers.  Any failure of these suppliers to resolve Year
2000  Problems  with  their  systems  in a timely  manner  could have a material
adverse effect on the Company's business,  financial  condition,  and results of
operation.

Management  believes that the most significant risk to the Company from the Year
2000 Problem is the effect such issues may have on third party  payors,  such as
Medicare.  News reports  have  indicated  that  various  agencies of the federal
government  may have  difficulty  becoming Year 2000  compliant  before the Year
2000.  The  Company  has not yet  undertaken  to  quantify  the  effects of such
noncompliance or to determine whether such quantification is even possible.  The
Company has  initiated  communications  with its third party  payors to identify
and, to the extent possible,  to resolve issues involving the Year 2000 problem.
However,  the Company has limited or no control  over the actions of these third
party payors.  Thus,  while the Company  expects that it will be able to resolve
any significant Year 2000 problems with these payors,  there can be no assurance
that these payors will resolve any or all Year 2000  problems with their systems
before the  occurrence of a material  disruption to the business of the Company.
Any failure of these third party payors to resolve Year 2000 problems with their
systems in a timely manner could have a material adverse effect on the Company's
business, financial condition, and results of operation.

The Company is in the process of generating a Year 2000  contingency plan in the
event compliance is not achieved. In connection  therewith,  the Company expects
to identify  reasonably  likely  scenarios which could arise in the event of the
Company's Year 2000  noncompliance.  Once these scenarios have been  identified,
the  Company  will  develop  plans in an  attempt  to reduce the impact of these
noncompliance  scenarios  on the  Company  and its core  functions.  The Company
expects to be  substantially  complete with this  contingency  plan by the third
quarter of 1999.  However,  there can be no assurance that this contingency plan
will be completed on a timely basis or that such a plan will protect the Company
from  experiencing  a material  adverse  effect on its  financial  condition  or
results of operations.

Potential  consequences of the Company's failure to timely resolve its Year 2000
issues could include,  among others,  (i) the inability to accurately and timely
process  claims,  respond to third party payor  inquiries  about claims,  enroll
customers, bill third party payors, collect receivables, pay vendors, record and
disclose accurate data and perform other core functions, (ii) increased scrutiny
by regulators and breach of contractual  obligations,  and (iii)  litigations in
connection therewith.

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 Company's
Year 2000 readiness,  the impact of the cost containment  efforts of third-party
payors  and the  Company's  ability to obtain and  maintain  required  licenses.
Subsequent  written and oral  forward  looking  statements  attributable  to the
Company  or  persons  acting on its  behalf  are  expressly  qualified  in their
entirety by the  cautionary  statements in this  paragraph and elsewhere in this
Form 10-Q.

                                       14

<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings
                  None

Item 2.  Changes in Securities
                  None

Item 3.  Default Upon Senior Securities
                  None

Item 4.  Submission of Matters to a Vote of Security Holders
                  None

Item 5.  Other Information
                  None

Item 6.  Exhibits and Reports on Form 8-K
                  (a) Exhibits
                      None

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

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

                                   SIGNATURES

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

                                   ACCUHEALTH, INC.

Date: February 22, 1999            By: /s/ GLENN C. DAVIS
                                       ---------------------------------------
                                           Glenn C. Davis, as
                                           President and Chief Executive Officer

Date: February 22, 1999            By: /s/ PRISCO J. DEMERCURIO
                                         -------------------------------------
                                           Prisco J. DeMercurio
                                           Senior Vice President - Finance
                                           Chief Financial Officer


                                       15