<PAGE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-Q
 
              [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
 
                        Commission File Number 333-57191
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
             (Exact name of registrant as specified in its charter)
 
                Delaware                               36-4045521
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                  AMARILLO ACUTE DIALYSIS SPECIALISTS, L.L.C.
             (Exact name of registrant as specified in its charter)
 
                 Texas                                 75-2600337
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                          CON-MED SUPPLY COMPANY, INC.
             (Exact name of registrant as specified in its charter)
 
                Illinois                               36-3147024
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                         CONTINENTAL HEALTH CARE, LTD.
             (Exact name of registrant as specified in its charter)
 
                Illinois                               36-3084746
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                 DIALYSIS SPECIALISTS OF CORPUS CHRISTI, L.L.C.
             (Exact name of registrant as specified in its charter)
 
                 Texas                                 74-2749663
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                  DIALYSIS SPECIALISTS OF SOUTH TEXAS, L.L.C.
             (Exact name of registrant as specified in its charter)
 
                 Texas                                 74-2749689
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
<PAGE>
 
                              DUPAGE DIALYSIS LTD.
             (Exact name of registrant as specified in its charter)
 
                Illinois                               36-3029873
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                            EVEREST MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)
 
                Delaware                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                        HEMO DIALYSIS OF AMARILLO L.L.C.
             (Exact name of registrant as specified in its charter)
 
                 Texas                                 75-2592110
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                         HOME DIALYSIS OF AMERICA, INC.
             (Exact name of registrant as specified in its charter)
 
                Arizona                                86-0711476
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                         HOME DIALYSIS OF DAYTON, INC.
             (Exact name of registrant as specified in its charter)
 
                  Ohio                                 31-1423002
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                       LAKE AVENUE DIALYSIS CENTER, INC.
             (Exact name of registrant as specified in its charter)
 
                Indiana                                36-3490713
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                          MERCY DIALYSIS CENTER, INC.
             (Exact name of registrant as specified in its charter)
 
               Wisconsin                               39-1589773
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
<PAGE>
 
                       NEW YORK DIALYSIS MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)
 
                New York                               36-3702390
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                      NORTH BUCKNER DIALYSIS CENTER, INC.
             (Exact name of registrant as specified in its charter)
 
                Delaware                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                        NORTHWEST INDIANA DIALYSIS, INC.
             (Exact name of registrant as specified in its charter)
 
                Indiana                                36-3372131
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                       OHIO VALLEY DIALYSIS CENTER, INC.
             (Exact name of registrant as specified in its charter)
 
                Indiana                                36-3575844
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                          WSKC DIALYSIS SERVICES, INC.
             (Exact name of registrant as specified in its charter)
 
                Illinois                               36-2668594
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                        EVEREST NEW YORK HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)
 
                New York                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
 
                             EVEREST ONE IPA, INC.
             (Exact name of registrant as specified in its charter)
 
                New York                               13-3988854
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
                             EVEREST TWO IPA, INC.
             (Exact name of registrant as specified in its charter)
 
                New York                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
<PAGE>
 
                            EVEREST THREE IPA, INC.
             (Exact name of registrant as specified in its charter)
 
                New York                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
                     ACUTE EXTRACORPOREAL SERVICES, L.L.C.
             (Exact name of registrant as specified in its charter)
 
                Delaware                              Applied for
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)
 
                  101 North Scoville, Oak Park, Illinois 60302
              (Address of principal executive offices) (zip code)
 
       Registrant's telephone number, including area code: (708) 386-1000
 
  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
 
  As of February 16, 1999, the number of shares outstanding of the Common Stock
of Everest Healthcare Services Corporation, par value $.001 per share, was
12,884,720.
 
 
 
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
 
                         PART I--FINANCIAL INFORMATION
 
<TABLE>
<CAPTION>
                                                                       Page No.
                                                                       --------
<S>                                                                    <C>
Item 1. Financial Statements
  Condensed Consolidated Balance Sheet
     September 30, 1998 and December 31, 1998 (unaudited).............     2
  Condensed Consolidated Income Statement--(unaudited)
     For the three months ended December 31, 1997 and 1998............     3
  Condensed Consolidated Statement of Cash Flow--(unaudited)
     For the three months ended December 31, 1997 and 1998............     4
  Notes to the Condensed Consolidated Financial Statements............     5
Item 2. Management's Discussion and Analysis of Financial Condition
 and Results of Operations............................................     9
Item 3. Quantitative and Qualitative Disclosures About Market Risk....    15
 
                           PART II--OTHER INFORMATION
 
Item 1. Legal Proceedings.............................................    15
Item 2. Changes in Securities and Use of Proceeds.....................    15
Item 6. Exhibits and Reports on Form 8-K..............................    16
Note: Items 3, 4 and 5 of Part II are omitted because they are not
 applicable.
</TABLE>
 
                                       1
<PAGE>
 
--------------------------------------------------------------------------------
                         PART I--FINANCIAL INFORMATION
--------------------------------------------------------------------------------
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
 
                      CONDENSED CONSOLIDATED BALANCE SHEET
 
<TABLE>
<CAPTION>
                                                       September   December 31,
                                                        30, 1998       1998
                                                      ------------ ------------
                                                                   (unaudited)
ASSETS
------
<S>                                                   <C>          <C>
Current assets:
  Cash and cash equivalents.......................... $ 12,525,567 $  9,514,424
  Patient accounts receivable, less allowance of
   $6,481,000 and $6,818,000                            41,473,765   41,843,104
  Other current assets...............................   12,072,099   13,357,627
                                                      ------------ ------------
    Total current assets.............................   66,071,431   64,715,154
Other assets:
  Goodwill, net......................................   58,815,302   58,334,770
  Intangible assets, net.............................   26,446,720   25,990,273
  Amounts due from affiliates........................   16,643,738   14,772,774
  Other..............................................    2,983,319    2,643,816
                                                      ------------ ------------
    Total other assets...............................  104,889,079  101,741,633
Property and equipment, net..........................   27,734,949   28,064,306
                                                      ------------ ------------
    Total assets..................................... $198,695,459 $194,521,093
                                                      ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S>                                                   <C>          <C>
Current liabilities:
  Accounts payable................................... $  8,845,097 $  7,953,103
  Accrued liabilities................................   19,148,881   15,438,883
  Current portion of long-term debt..................      606,624      637,733
  Current portion of capital lease obligations.......      506,058      544,515
                                                      ------------ ------------
    Total current liabilities........................   29,106,660   24,574,234
Long-term debt, less current portion ................  108,146,981  108,020,939
Capital lease obligations, less current portion......      311,408      162,722
Deferred income taxes................................    1,500,000    1,513,104
Minority interests...................................    1,374,764    1,504,180
Stockholders' equity:
  Common stock, $.001 par value, 20,000,000 shares
   authorized; 12,884,720 shares issued and
   outstanding.......................................       12,885       12,885
  Additional paid-in capital.........................   55,171,224   55,171,224
  Retained earnings..................................    3,071,537    3,561,805
                                                      ------------ ------------
    Total stockholders' equity.......................   58,255,646   58,745,914
                                                      ------------ ------------
    Total liabilities and stockholders' equity....... $198,695,459 $194,521,093
                                                      ============ ============
</TABLE>
 
           See notes to condensed consolidated financial statements.
 
                                       2
<PAGE>
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
 
               UNAUDITED CONDENSED CONSOLIDATED INCOME STATEMENT
 
<TABLE>
<CAPTION>
                                                         Three months ended
                                                            December 31,
                                                       ------------------------
                                                          1997         1998
                                                       -----------  -----------
<S>                                                    <C>          <C>
Net revenues.......................................... $33,605,270  $39,868,685
Operating expenses:
  Patient care costs..................................  20,179,338   24,909,891
  General and administrative..........................   6,905,540    8,163,797
  Provision for bad debts.............................   1,151,447      837,487
  Depreciation and amortization.......................   1,392,274    2,356,217
                                                       -----------  -----------
    Total operating expenses..........................  29,628,599   36,267,392
                                                       -----------  -----------
Income from operations................................   3,976,671    3,601,293
Nonoperating income (expense):
  Interest expense....................................  (1,157,760)  (2,958,944)
  Interest income.....................................     409,442      534,543
  Equity in earnings of unconsolidated subsidiaries...         --       126,660
  Minority interests in earnings......................    (629,599)    (300,016)
  Other...............................................         --        39,588
                                                       -----------  -----------
                                                        (1,377,917)  (2,558,169)
                                                       -----------  -----------
Income before income taxes............................   2,598,754    1,043,124
Income taxes..........................................   1,450,000      552,856
                                                       -----------  -----------
Net income............................................ $ 1,148,754  $   490,268
                                                       ===========  ===========
</TABLE>
 
 
 
           See notes to condensed consolidated financial statements.
 
                                       3
<PAGE>
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
 
            UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                       Three months ended
                                                          December 31,
                                                    --------------------------
                                                        1997          1998
                                                    ------------  ------------
<S>                                                 <C>           <C>
Operating activities
Net income........................................  $  1,148,754  $    490,268
Adjustments to reconcile net income to net cash
 provided by (used in) operating activities:
  Provision for bad debts.........................     1,151,447       837,487
  Depreciation and amortization...................     1,392,274     2,356,217
  Equity in earnings of unconsolidated
   subsidiaries...................................           --       (126,660)
  Minority interests in earnings..................       629,599       300,016
  Changes in operating assets and liabilities (net
   of effect of acquisitions):
    Patient and other accounts receivable.........      (708,330)   (1,212,759)
    Other assets..................................     1,323,610      (677,184)
    Accounts payable, accruals, and other
     liabilities..................................     1,658,856    (4,601,993)
                                                    ------------  ------------
      Net cash provided by (used in) operating
       activities.................................     6,596,210    (2,634,608)
Investing activities
Additions to property and equipment...............    (2,331,000)   (1,589,300)
(Increase) decrease in amounts due from
 affiliates.......................................    (2,130,608)    1,870,964
                                                    ------------  ------------
      Net cash provided by (used in) investing
       activities.................................    (4,461,608)      281,664
Financing activities
Proceeds from long-term debt......................    15,250,000    20,550,000
Payments on long-term debt........................   (16,360,080)  (20,698,933)
Payments on capital lease obligations.............      (570,747)     (186,266)
Distributions to members..........................      (600,000)     (323,000)
                                                    ------------  ------------
      Net cash used in financing activities.......    (2,280,827)     (658,199)
Decrease in cash and cash equivalents.............      (146,225)   (3,011,143)
Cash and cash equivalents at beginning of period..     2,456,669    12,525,567
                                                    ------------  ------------
Cash and cash equivalents at end of period........  $  2,310,444  $  9,514,424
                                                    ============  ============
Supplemental cash flow disclosures:
Income taxes paid.................................  $    349,700  $  1,117,275
Interest paid.....................................       984,254     5,287,049
Distributions of notes receivable to members......     7,208,831           --
Issuance of common stock to acquire minority
 interests........................................    26,610,000           --
</TABLE>
 
 
           See notes to condensed consolidated financial statements.
 
                                       4
<PAGE>
 
                    EVEREST HEALTHCARE SERVICES CORPORATION
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
1. Basis of Presentation and Reorganization
 
  Effective November 30, 1997, Peak Healthcare, L.L.C. (Peak), the predecessor
to the Company, was reorganized whereby the following transactions occurred
simultaneously. The members of Peak contributed all of their interests in Peak
for an equal number of membership interests in Peak Liquidating, L.L.C. (Peak
Liquidating), a newly formed limited liability company. The operating agreement
and number and classes of interests of Peak Liquidating were identical to Peak.
Upon the exchange, Peak Liquidating, the sole member of Peak, contributed its
interests in Peak for shares of common stock of Everest Healthcare II, Inc.
(Everest II), a newly-formed subchapter C Corporation. The number of shares of
common stock of Everest II received by Peak Liquidating was equal to the number
of shares of Everest held by Peak. The number and class of authorized shares of
Everest II upon formation was identical to that of Everest. Following the
exchange, Peak was liquidated. Upon the consummation of these transactions,
Everest II issued shares of common stock, representing approximately 30% of the
shares of the Company, to the minority interest holders in Everest in exchange
for their shares of Everest common stock. The acquisition of minority interest
was treated as a purchase in accordance with generally accepted accounting
principles and goodwill of approximately $12.4 million was recognized. Upon the
consummation of these transactions, Everest became a wholly owned subsidiary of
Everest II. In March 1998, Everest was merged into Everest II. Upon the merger,
Everest II (the surviving entity) changed its name to Everest Healthcare
Services Corporation.
 
  All references to the Company or Everest refer collectively to Peak and its
subsidiaries prior to the reorganization, and Everest Healthcare Services
Corporation and its subsidiaries subsequent to the reorganization.
 
2. Interim Financial Statements
 
  The financial information at December 31, 1998 and for the three months ended
December 31, 1997 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring adjustments) that the Company considers
necessary for a fair presentation of the financial position at such date and
the results of operations and cash flows for those periods. Results of
operations for the three months ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the entire year. It is
suggested that these financial statements be read in conjunction with the
consolidated financial statements and the related notes thereto included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on
December 29, 1998.
 
3. New Accounting Standards
 
  In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" (SFAS 131). The provisions of SFAS 131
establish standards for the way companies report information about operating
segments in annual financial statements and require that such companies report
selected information about operating segments in interim financial reports
issued to shareholders. The provisions of SFAS 131 require the disclosure of
segment information be based on a "management approach" whereby disclosures are
made of information that is available and evaluated regularly by the chief
decision makers of the Company in deciding how to allocate resources and
assessing performance. Application of the provisions of SFAS 131 will be
required for fiscal year 1999. The Company operates in two business segments;
as a provider of chronic dialysis services and as a contract service provider
of extracorporeal services including perfusion, apheresis, and autotransfusion.
The Company believes that the adoption of SFAS 131 will not have a material
impact on its future disclosure requirements.
 
                                       5
<PAGE>
 
  In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures
about Pensions and Other Postretirement Benefits." SFAS 132 revises the
previous disclosure requirements of pension and postretirement plans. The
Statement does not change the recognition or measurement of pension plans. The
Company is evaluating the disclosure requirements of SFAS 132 and believes that
its adoption will not have a material impact on its future disclosure
requirements.
 
4. Other Financial Information
 
  The Company is a holding company with no independent assets or operations.
Therefore, the Company relies primarily upon payment from its subsidiaries for
the funds necessary to meet its obligations, including the payment of interest.
The ability of the subsidiaries to fund the obligations is subject to
significant restrictions, will be dependent upon the earnings of the
subsidiaries, and will be subject to applicable laws and approval by the
subsidiaries. Full separate statements of the Guarantor Subsidiaries have not
been presented as the guarantors are wholly owned subsidiaries of the Company.
Management does not believe that inclusion of such financial statements would
be material to investors. The guarantees of the Guarantor Subsidiaries are
full, unconditional, and joint and several.
 
                                       6
<PAGE>
 
  The following table sets forth the financial data at December 31, 1998 and
for the three months then ended:
 
<TABLE>
<CAPTION>
                                                          Non-
                             Parent      Guarantor     Guarantor
                            Company     Subsidiaries  Subsidiaries  Eliminations  Consolidated
                          ------------  ------------  ------------  ------------  ------------
<S>                       <C>           <C>           <C>           <C>           <C>
Statement of Operations
 Data:
 Net revenue............  $        --   $ 31,795,016  $ 8,073,669   $        --   $ 39,868,685
 Patient care costs.....           --     19,418,842    5,491,049            --     24,909,891
 General and
  Administrative
  expenses..............     4,770,728     2,419,943      973,126            --      8,163,797
 Provision for bad
  debts.................           --        746,195       91,292            --        837,487
 Depreciation and
  amortization..........       458,442     1,575,267      322,508            --      2,356,217
                          ------------  ------------  -----------   ------------  ------------
 Income (loss) from
  operations............    (5,229,170)    7,634,769    1,195,694            --      3,601,293
 Interest expense, net..     2,099,040        28,158      297,203            --      2,424,401
 Equity in earnings of
  unconsolidated
  subsidiaries..........           --       (126,660)         --             --       (126,660)
 Minority interest
  expense...............           --        277,172       22,844            --        300,016
 Other..................           --        (39,588)         --             --        (39,588)
                          ------------  ------------  -----------   ------------  ------------
 Income (loss) before
  income taxes expense..    (7,328,210)    7,495,687      875,647            --      1,043,124
 Income tax expense.....           --        452,986       99,870            --        552,856
                          ------------  ------------  -----------   ------------  ------------
 Net income (loss)......  $ (7,328,210) $  7,042,701  $   775,777   $        --   $    490,268
                          ============  ============  ===========   ============  ============
Balance Sheet Data:
 Assets:
 Cash and cash
  equivalents...........  $  8,413,678  $    915,973  $   184,773   $        --   $  9,514,424
 Patient accounts
  receivable and other..        33,740    38,583,590    7,872,628     (1,669,706)   44,820,252
 Other current assets...     5,176,047     4,071,385    1,133,047            --     10,380,479
 Property and Equipment,
  net...................     8,509,448    16,567,792    2,987,065            --     28,064,305
 Goodwill, net..........    13,010,739    31,257,619   14,066,412            --     58,334,770
 Amounts due from
  affiliates............    45,960,922   (31,523,907)     335,759            --     14,772,774
 Investment in
  affiliates............    40,643,536     7,171,201          --     (46,100,367)    1,714,370
 Other assets...........     7,229,129    18,106,510    1,999,849       (415,769)   26,919,719
                          ------------  ------------  -----------   ------------  ------------
 Total assets...........  $128,977,239  $ 85,150,163  $28,579,533   $(48,185,842) $194,521,093
                          ============  ============  ===========   ============  ============
 Liabilities and
  Stockholders' Equity:
 Current liabilities....  $  5,736,946  $ 10,393,533  $10,113,461   $ (1,669,706) $ 24,574,234
 Long-term liabilities..   100,139,378     3,358,990    8,118,346       (415,769)  111,200,945
 Total stockholders'
  equity................    23,100,915    71,397,640   10,347,726    (46,100,367)   58,745,914
                          ------------  ------------  -----------   ------------  ------------
 Total liabilities and
  stockholders' equity..  $128,977,239  $ 85,150,163  $28,579,533   $(48,185,842) $194,521,093
                          ============  ============  ===========   ============  ============
Statement of Cash Flows
 Data:
 Operating activities:
 Net income (loss)......  $ (7,328,210) $  7,042,701  $   775,777   $        --   $    490,268
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by (used in)
  operating activities:
  Provision for bad
   debts................           --        746,195       91,292            --        837,487
  Depreciation and
   amortization.........       458,442     1,575,267      322,508            --      2,356,217
  Equity in earnings of
   unconsolidated
   subsidiaries.........           --       (126,660)         --             --       (126,660)
  Minority interest in
   earnings.............           --        277,172       22,844            --        300,016
  Other.................           --            --           --             --            --
  Net change in
   operating assets and
   liabilities (net of
   effect of
   acquisitions)........      (844,509)  (11,080,784)   5,433,357            --     (6,491,936)
                          ------------  ------------  -----------   ------------  ------------
  Net cash provided by
   (used in) operating
   activities...........    (7,714,277)   (1,566,109)   6,645,778            --     (2,634,608)
 Investing Activities:
  Additions to property
   and equipment........      (274,775)     (827,355)    (487,170)           --     (1,589,300)
  Increase in amounts
   due from affiliates..    (8,561,942)   10,768,665     (335,759)           --      1,870,964
                          ------------  ------------  -----------   ------------  ------------
  Net cash provided by
   (used in) investing
   activities...........    (8,836,717)    9,941,310     (822,929)           --        281,664
 Financing Activities:
  Proceeds from notes
   payable..............    20,550,000           --           --             --     20,550,000
  Payments on notes
   payable..............   (20,550,000)     (335,199)         --             --    (20,885,199)
  Other.................           --            --      (323,000)           --       (323,000)
                          ------------  ------------  -----------   ------------  ------------
  Net cash provided by
   (used in) financing
   activities...........           --       (335,199)    (323,000)           --       (658,199)
Increase (decrease) in
 cash and cash
 equivalents............   (16,550,994)    8,040,002    5,499,849            --     (3,011,143)
Cash and cash
 equivalents at
 beginning of period....       816,398    10,385,316    1,323,853            --     12,525,567
                          ------------  ------------  -----------   ------------  ------------
Cash and cash
 equivalents at end of
 period.................  $(15,734,596) $ 18,425,318  $ 6,823,702   $        --   $  9,514,424
                          ============  ============  ===========   ============  ============
</TABLE>
 
                                       7
<PAGE>
 
  The following table sets forth the financial data at December 31, 1997 and
for the three months then ended:
 
<TABLE>
<CAPTION>
                                                          Non-
                             Parent      Guarantor     Guarantor
                            Company     Subsidiaries  Subsidiaries Eliminations Consolidated
                          ------------  ------------  ------------ ------------ ------------
<S>                       <C>           <C>           <C>          <C>          <C>
Statement of Operations
 Data:
 Net revenue............  $        --   $27,322,086    $6,283,184      $--      $ 33,605,270
 Patient care costs.....           --    15,856,986     4,322,352       --        20,179,338
 General and
  administrative
  expenses..............     4,288,897    1,689,814       926,829       --         6,905,540
 Provision for bad
  debts.................           --     1,092,884        58,563       --         1,151,447
 Depreciation and
  amortization..........       161,743      978,107       252,424       --         1,392,274
                          ------------  -----------    ----------      ----     ------------
 Income (loss) from
  operations............    (4,450,640)   7,704,295       723,016       --         3,976,671
 Interest expense, net..       333,498       82,986       331,834       --           748,318
 Equity in earnings of
  unconsolidated
  subsidiaries..........           --           --            --        --               --
 Minority interest
  expense...............           --       569,127        60,472       --           629,599
 Other..................           --           --            --        --               --
                          ------------  -----------    ----------      ----     ------------
 Income (loss) before
  income taxes expense..    (4,784,138)   7,052,182       330,710       --         2,598,754
 Income tax expense.....           --     1,450,000           --        --         1,450,000
                          ------------  -----------    ----------      ----     ------------
 Net income (loss)......  $ (4,784,138) $ 5,602,182    $  330,710      $--      $  1,148,754
                          ============  ===========    ==========      ====     ============
Statement of Cash Flows
 Data:
 Operating activities:
 Net income (loss)......  $ (4,784,138) $ 5,602,182    $  330,710      $--      $  1,148,754
 Adjustments to
  reconcile net income
  (loss) to net cash
  provided by (used in)
  operating activities:
  Provision for bad
   debts................           --     1,092,884        58,563       --         1,151,447
  Depreciation and
   amortization.........       161,743      978,107       252,424       --         1,392,274
  Equity in earnings of
   unconsolidated
   subsidiaries.........           --           --            --        --               --
  Minority interest in
   earnings.............           --       569,127        60,472       --           629,599
  Other.................           --           --            --        --               --
  Net change in
   operating assets and
   liabilities (net of
   effect of
   acquisitions)........     9,665,792   (8,860,685)    1,469,029       --         2,274,136
                          ------------  -----------    ----------      ----     ------------
  Net cash provided by
   (used in) operating
   activities...........     5,043,397     (618,385)    2,171,198       --         6,596,210
 Investing Activities:
  Additions to property
   and equipment........      (284,745)  (1,639,139)     (407,116)      --        (2,331,000)
  Acquisition of
   businesses, net of
   cash acquired........           --           --            --        --               --
  Increase in amounts
   due from affiliates..   (20,767,106)  18,636,498           --        --        (2,130,608)
                          ------------  -----------    ----------      ----     ------------
  Net cash provided by
   (used in) investing
   activities...........   (21,051,851)  16,997,359      (407,116)      --        (4,461,608)
 Financing Activities:
  Proceeds from notes
   payable..............    15,250,000          --            --        --        15,250,000
  Payments on notes
   payable..............   (15,900,000)  (1,030,827)          --        --       (16,930,827)
  Other.................      (600,000)         --            --        --          (600,000)
                          ------------  -----------    ----------      ----     ------------
  Net cash used in
   financing
   activities...........    (1,250,000)  (1,030,827)          --        --        (2,280,827)
Increase (decrease) in
 cash and cash
 equivalents............   (17,258,454)  15,348,147     1,764,082       --          (146,225)
Cash and cash
 equivalents at
 beginning of period....       816,398      316,418     1,323,853       --         2,456,669
                          ------------  -----------    ----------      ----     ------------
Cash and cash
 equivalents at end of
 period.................  $(16,442,056) $15,664,565    $3,087,935      $--      $  2,310,444
                          ============  ===========    ==========      ====     ============
</TABLE>
 
                                       8
<PAGE>
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
  The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the more
detailed information contained in the Consolidated Financial Statements and
notes thereto appearing elsewhere in this Report and in the Company's Report on
Form 10-K for the fiscal year ended September 30, 1998.
 
             CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 
  This Report contains certain "forward-looking statements" with respect to
results of operations and businesses of the Company. All statements other than
statements of historical facts included in this Report, including those
regarding market trends, the Company's financial position, business strategy,
projected costs, and plans and objectives of management for future operations,
are forward-looking statements. In general, such statements are identified by
the use of forward-looking words or phases including, but not limited to,
"intended," "will," "should," "may," "expects," "anticipates," and
"anticipated" or the negative thereof or variations thereon or similar
terminology. These forward-looking statements are based on the Company's
current expectations. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct. Because forward-
looking statements involve risks and uncertainties, the Company's actual
results could differ materially. See the "Risk Factors" section of the
Company's Registration Statement on Form S-4 (File No. 333-57191) for a
discussion of certain risks applicable to the Company and its business.
 
Overview
 
  Everest is a leading provider of dialysis and other blood treatment services.
Founded in 1968 and principally owned by nephrologists, the Company has a long-
standing focus on developing strong relationships with physicians to provide
high-quality patient care. The Company is the nation's sixth-largest provider
of chronic dialysis outpatient services and serves approximately 5,700 patients
through 63 facilities in 12 states. Everest also contracts with 102 hospitals
in 11 states to provide a broad range of other extracorporeal blood treatment
services, including inpatient acute dialysis, perfusion, apheresis and auto-
transfusion (together, "Contract Services"). Pursuant to management contracts,
Everest provides management services to (i) a physician practice group
comprised of 26 nephrologists, primarily in the Chicago and northwest Indiana
areas, and (ii) certain minority-owned or unaffiliated dialysis facilities. For
the three months ended December 31, 1998, the Company derived 84.1% of its net
revenues from chronic dialysis services, 13.9% from Contract Services and 2.0%
from management services.
 
Sources of Revenues
 
  The Company's net revenues from chronic dialysis services are derived from:
(i) in-center dialysis and home dialysis services including drugs and supplies;
and (ii) management contracts with hospital-based and other outpatient dialysis
programs. The majority of the Company's in-center and home dialysis services
are paid for under the Medicare End-Stage Renal Disease ("ESRD") program in
accordance with rates established by the Health Care Financing Administration
("HCFA"). Additional payments are provided by other third-party payors
(particularly by employer group health plans during the first thirty months of
treatment), generally at rates higher than those reimbursed by Medicare.
Everest is currently seeking to expand the portion of its revenues attributable
to non-government payors by entering into contracts with managed care companies
and other private payors. Because dialysis is an ongoing, life-sustaining
therapy used to treat a chronic condition, utilization of the Company's chronic
dialysis services is generally predictable and not subject to seasonal or
economic fluctuations. ESRD patients may receive up to 156 dialysis treatments
per year; however, due to hospitalization and no shows the Company's average
number of treatments per patient per year is 136. Unless the patient moves to
another dialysis facility, receives a kidney transplant or dies, the revenues
generated per patient per year can be estimated with reasonable accuracy.
 
                                       9
<PAGE>
 
  The Company's Contract Services revenues are derived from acute dialysis,
perfusion, apheresis and auto-transfusion services provided to hospitalized
patients pursuant to contracts with hospitals. Rates paid for such services are
negotiated with individual hospitals. Because extracorporeal blood treatment
services are required for patients undergoing major surgical procedures,
utilization of the Company's Contract Services is not subject to seasonal or
economic fluctuations.
 
  The Company's revenues also include fees paid under management services
contracts. Management service fee revenue is recognized when earned. Management
service fees are based on contracted rates. The contracted rates are estimates
based upon the cost of services provided such as billing, accounting, technical
support, cash management and facilities management.
 
Acquisitions
 
  Acquisitions of dialysis and Contract Services providers have been recorded
under purchase accounting with the purchase price being principally allocated
to fixed assets, accounts receivable and inventory based on respective
estimated fair market values at the date of acquisition. Any excess of the
purchase price over the fair value of identifiable assets (including
identifiable intangible assets) is allocated to goodwill, which is amortized
over 25 years. The results of these acquisitions have been included in the
results of operations from their respective acquisition dates. The Company
regularly evaluates the potential acquisition of, and holds discussions with,
various potential acquisition candidates; as a general rule, the Company does
not intend to publicly announce such acquisitions until a definitive agreement
has been reached.
 
  During fiscal 1998, the Company acquired additional equity in three entities
in which it previously held a minority interest: (i) Hemo Dialysis of Amarillo,
L.L.C., which owns one outpatient and home dialysis facility located in
Amarillo, Texas (the Company's interest was increased from 30.0% to 100.0%);
(ii) Home Dialysis of Mount Auburn, Inc., which owns one home dialysis facility
located in Cincinnati, Ohio (the Company's interest was increased from 50.0% to
80.5%); and (iii) Dialysis Specialists of South Texas, L.L.C., which owns three
outpatient and home dialysis facilities in Corpus Christi, Texas (the Company's
interest was increased from 33.3% to 100.0%). In addition, effective April 1,
1998, the Company acquired 100.0% of North Buckner Dialysis Center, Inc., which
owns one outpatient dialysis facility in Dallas, Texas. These acquisitions
represented approximately 550 patients in the aggregate. Effective March 1,
1998, the Company acquired 70% of Perfusion Resource Association, L.L.C., a
Contract Services business with two hospitals under contract. In May 1998, the
Company developed and opened one outpatient dialysis facility located in Bronx,
New York, pursuant to the management agreement with MMC described below.
 
  Pursuant to a Management Agreement with Montefiore Medical Center ("MMC"),
New York Dialysis Management, Inc., a wholly-owned subsidiary of the Company
("NYDM"), has been managing four dialysis facilities located in the Bronx, New
York (the "Facilities"). Under the original Management Agreement, NYDM had a
right of first refusal to purchase the Facilities and the right to operate them
(and in effect terminate the Management Agreement) in the event that MMC
received and proposed to accept a bona fide offer for the purchase of one or
all of the Facilities. After having been informed by MMC of the receipt of such
an offer early in 1998, NYDM exercised its right of first refusal and, as a
result, in July 1998, the parties entered into an Agreement to Amend and Not-
to-Compete (the "Agreement to Amend") and Amendment No. 3 to the Management
Agreement (the "Amendment"). Pursuant to the Agreement to Amend, NYDM paid an
amount equal to $19,216,000 to MMC in consideration for MMC's covenant not-to-
compete and other undertakings, including MMC's agreement to enter into the
Agreement. Contemporaneously with the execution of the Agreement to Amend and
the Amendment, MMC entered into a Medical Asset Purchase Agreement (the
"Purchase Agreement") pursuant to which it agreed to sell the Facilities'
medical assets to Everest Dialysis Services, Inc. ("EDS"), a corporation formed
for this purpose under the laws of the State of New York, and which is owned by
Craig Moore and Paul Balter, who are directors and officers of the Company. The
parties have made the filings necessary to obtain the approval of the New York
Public Health Council required for the consummation of the transactions
contemplated under the Purchase Agreement and the subsequent operation of
 
                                       10
<PAGE>
 
the Facilities by EDS. If the parties are unable to obtain such approval, at
the option of NYDM, either NYDM and MMC will enter into a forty-year
Administrative Services Agreement or MMC will be required to make certain
payments to NYDM in exchange for the transfer by NYDM of the Facilities' non-
medical assets to MMC.
 
Results of Operations
 
Three Months Ended December 31, 1998 Compared to Three Months Ended December
31, 1997
 
  Net Revenues. Net revenues increased $6.3 million or 18.8% to $39.9 million
for the three months ended December 31, 1998 from $33.6 million for the three
months ended December 31, 1997. This increase resulted primarily from a 22.2%
increase in the number of treatments from 118,700 for the three months ended
December 31, 1997 to 152,656 for the three months ended December 31, 1998. This
growth in treatments is the result of the acquisition and development of
various dialysis facilities and an 8.5% increase in same store treatments for
the three months ended December 31, 1998 over the three months ended December
31, 1997.
 
  During the first quarter of fiscal 1999, the Company implemented a system to
gather patient-level data to refine its estimate of its contractual adjustments
(a component of the allowance for doubtful accounts). This patient-level
information has improved the Company's ability to better estimate its
adjustments to accounts receivable for contractual changes. Based upon this new
information, it was determined that the allowance for doubtful receivables was
underestimated by approximately $1.4 million. Also, based upon this new
information, the Company made a business decision to reduce approximately $1.4
million in discretionary compensation that was previously accrued, as the
financial results of the Company were not as previously anticipated. Overall,
there has not been a significant effect on the net income of the Company for
the year ended September 30, 1998 or for the three months ended December 31,
1998 for these estimates. In addition, the Company believes that the
contractual adjustment component of the allowance for doubtful accounts
(approximately $3.4 million of the $6.8 million allowance for doubtful
receivables) at December 31, 1998 accurately reflects the potential adjustments
to accounts receivable due to contractual changes. Additionally, the Company
incurred approximately $1.0 million in contractual adjustments related to this
new system and recognized a reduction in net revenues for the three months
ended December 31, 1998. The Company will continue to make refinements and
other modifications in the way it gathers and analyzes data for contractual
adjustments. As the Company continues to refine the way it estimates these
reserves it may cause additional adjustments to the financial results of the
Company in the periods they are discovered. The Company believes that these
refinements will not have a material effect on its future profitability.
Furthermore, the Company believes that this new system will ultimately enhance
the Company's profitability through improvements of collections of accounts
receivable. The net revenue per treatment was $217 for the first quarter of
fiscal 1999. Factoring in the $1.4 million of contractual adjustments the net
revenue per treatment would have been $226 as compared to $224 for the first
quarter of fiscal 1998.
 
  Patient Care Costs. Patient care costs consist of costs directly related to
the care of patients, including direct and indirect labor, drugs and other
medical supplies and operational costs of the facilities. Patient care costs
increased $4.7 million or 23.3% to $24.9 million for the three months ended
December 31, 1998 from $20.2 million for the three months ended December 31,
1997. This increase resulted primarily from an increase in the number of
treatments performed during the period that caused a corresponding increase in
the use of labor, drugs and supplies. Patient care costs as a percentage of net
revenues increased from 60.1% in the first quarter of fiscal 1998 to 62.4% in
the first quarter of fiscal 1999 as a result of the contractual adjustments
that caused net revenues to increase less than costs. However, patient care
costs per treatment decreased from $141 for the three months ended December 31,
1997 to $138 for the three months ended December 31, 1998, a decrease of $3, or
2.2%. This decrease was achieved due to operating efficiencies resulting from
the Company's profit improvement programs.
 
                                       11
<PAGE>
 
  General and Administrative Expenses. General and administrative expenses
include corporate office costs and other administrative costs including
accounting, billing, quality assurance, facility costs, treasury and
information systems. General and administrative expenses increased $1.3 million
or 18.8% to $8.2 million for the three months ended December 31, 1998 from $6.9
million for the three months ended December 31, 1997. This increase is mainly
attributable to the continued growth of the corporate infrastructure, including
the expansion of information systems, Year 2000 costs and increased
professional fees. The increased costs related to the growth of the corporate
infrastructure were directly offset by the reduction of $1.4 million of
accruals related to discretionary compensation. As a result, general and
administrative expenses as a percentage of net revenue remained constant at
20.5%.
 
  Provision for Bad Debts. The Company provides for doubtful patient
receivables in the period that the revenue is recognized. The provision is
based on management's estimate of the collectibility of the accounts receivable
based upon several factors such as payor mix and billing practices. Provision
for bad debts decreased $314,000 or 26.2% to $837,000 for the three months
ended December 1998 from $1.2 million for the three months ended December 1997.
This decrease was a result of the timing of the bad debt provision in fiscal
1998. Specifically, the Company increased its provision for bad debts by $1.2
million in the first quarter of fiscal 1998, which was a result of provisions
established for specific receivables due to price increases in July 1997.
 
  Depreciation and amortization. Depreciation and amortization increased
approximately $1 million or 71.4% to $2.4 million for the three months ended
December 31, 1998 from $1.4 million for the three months ended December 31,
1997. The increase was due to increased amortization of goodwill as a result of
business acquisitions (including the purchase of minority interests) and due to
increased depreciation expense as a result of fixed asset purchases.
 
  Income from Operations. Income from operations decreased $375,000 or 9.4% to
$3.6 million for the three months ended December 31, 1998 from $3.9 million for
the three months ended December 31, 1997. Income from operations as a
percentage of net revenues decreased to 9% for the three months ended December
31, 1998 as compared to 11.8% for the three months ended December 31, 1997. The
decrease was due to the increase in expenses described above.
 
  Interest Expense, Net. Interest expense, net increased $1.7 million or 224%
to $2.4 million for the three months ended December 31, 1998 from $748,000 for
the three months ended December 31, 1997. The increase was attributable to the
interest associated with the Company's senior subordinated debt issued in May
1998, offset in part by a decrease in the net borrowings under the Company's
revolving bank credit facility.
 
  Equity in Earnings of Unconsolidated Subsidiaries. Equity in earnings of
unconsolidated subsidiaries represents the Company's portion of earnings in
unconsolidated joint ventures. The Company recognized equity in earnings of
unconsolidated subsidiaries of approximately $127,000 for the three months
ended December 31, 1998. Throughout fiscal 1997 and into the first quarter of
fiscal 1998, the joint venture entities were start up in nature and as such,
the Company did not recognize any earnings.
 
  Minority Interests in Earnings. Minority interests in earnings represents the
proportionate equity interests of other partners' in the Company's consolidated
entities that are not wholly owned. Minority interests in earnings decreased
approximately $330,000 or 52.4% to $300,000 for the three months ended December
31, 1998 as compared to $630,000 for the three months ended December 31, 1997.
The decrease is primarily attributable to the reorganization of the Company in
November 1997.
 
  Income Taxes. Income taxes decreased approximately $885,000 or 63.2% to
$511,000 for the three months ended December 31, 1998 from $1.4 million for the
three months ended December 31, 1997 as a result of the factors discussed
above.
 
                                       12
<PAGE>
 
Year 2000 Compliance by the Company and Others
 
  Year 2000 compliance concerns the ability of certain computerized information
systems to properly recognize date-sensitive information as the year 2000
approaches. Systems that do not recognize such information could generate
erroneous data or cause systems to fail; this problem may occur as early as
calendar year 1999. The Company is at risk both for its own Year 2000
compliance and for the Year 2000 compliance of those with whom it does
business, particularly third party payors.
 
  The Company has established a Year 2000 Task Force to study and address Year
2000 issues. The Task Force consists of the Company's Director of Technology
and Chief Information Officer, and representatives from all major areas of the
Company. The task force meets weekly. The Company has hired four consultants
that devote full time attention to Year 2000 issues. The Year 2000 Group of
PricewaterhouseCoopers Consultants has also been retained as an advisor for
Year 2000 issues.
 
  The Task Force has formulated and begun to implement a plan with six stages,
as follows: (i) awareness, (ii) inventory, (iii) impact analysis, (iv)
remediation, (v) testing and (vi) implementation. Phases (i) through (v) are
currently in progress; the Company's goal is to complete all phases and be Year
2000 compliant by June 30, 1999.
 
  The Company has five major information technology systems, the present
compliance of which is described below:
 
    1. Client tracking system. This system is Year 2000 compliant.
 
    2. Accounting package. The existing accounting package is not Year 2000
  compliant. A Year 2000 upgrade will be available in the first quarter of
  calendar 1999 and will be installed at that time.
 
    3. Interim accounting package for Contract Services. This package is Year
  2000 compliant.
 
    4. Physician billing. The Company installed a new billing system which is
  Year 2000 compliant.
 
    5. Facilities billing. This system is not yet Year 2000 compliant. It has
  been analyzed, and arrangements are being made with the vendor to upgrade
  the system.
 
  These systems would have been upgraded or replaced to support Company growth
irrespective of the Year 2000 issue. The process of upgrading or replacing
these systems was not accelerated by Year 2000 considerations.
 
  The Company has started a full review of the Year 2000 compliance of its non-
information technology systems (i.e., embedded technology such as micro-
controllers).
 
  The Company anticipates that the total amounts it will expend on Year 2000
issues are as follows:
 
<TABLE>
      <S>                                                            <C>
      Consultants................................................... $  750,000
      Hardware......................................................    785,000
      Software......................................................    215,000
      Bio-Med Embedded Technology...................................    100,000
                                                                     ----------
          Total..................................................... $1,850,000
                                                                     ==========
</TABLE>
 
  Management believes that the most significant risk to the Company of Year
2000 issues is the effect such issues may have on third-party payors, such as
Medicare. With respect to Medicare payments, neither HCFA nor its fiscal
intermediaries have any contingency plan in place. However, HCFA has mandated
that its fiscal intermediaries submit a draft of their contingency plans to it
and that they be prepared to ensure that no interruption of Medicare payments
results from Year 2000 related failures of their systems. The Task Force has
begun to consider worst case scenarios and contingency plans to deal with those
scenarios.
 
                                       13
<PAGE>
 
  There can be no assurance that Year 2000 issues will not have a material
adverse effect on the Company's business, results of operations and financial
condition.
 
Liquidity and Capital Resources
 
  The Company requires capital primarily for the acquisition and development of
dialysis centers and Contract Services businesses, the purchase of property and
equipment for existing centers and to finance working capital requirements. At
December 31, 1998, the Company's working capital was $38.6 million.
 
  The Company's net cash used in operating activities was $2.6 million for the
three months ended December 31, 1998. Cash used in operating activities
consists of net income increased by non-cash expenses such as depreciation,
amortization and the provision for bad debts and adjusted by the changes in
components of working capital, primarily receivables, payables and accrued
expenses. Accounts payable and other accrued liabilities decreased from
September 30, 1998 due to the semi-annual interest payment related to the
senior subordinated notes and due to a reduction of several accruals. The
Company's net cash provided by investing activities was $282,000 for the three
months ended December 31, 1998. The Company's principal sources and uses of
cash consist of investing activities related to purchases of new equipment and
leasehold improvements for existing dialysis centers, the development of de
novo dialysis centers and net advances due from affiliated entities. Net cash
used in financing activities was $658,000 for the three months ended December
31, 1998. The primary sources and uses of cash from financing activities were
net borrowings or repayments under the Company's credit facility.
 
  The Company does not have any current material commitments for capital
expenditures.
 
  On May 18, 1998, the Company refinanced its prior credit facility (the "Prior
Credit Facility") with the same commercial bank that provided the Prior Credit
Facility. The new credit facility (the "New Credit Facility") consists of two
separate facilities: (i) a $35.0 million revolving credit facility maturing on
May 15, 2001, which may be extended for two one-year periods at the issuing
bank's discretion (the "Working Capital Facility"); and (ii) a $70.0 million
acquisition financing facility maturing on May 15, 1999 (the "Acquisition
Facility"), which includes the right to convert all or a portion of the
borrowings outstanding thereunder to one or more five-year term loans (the
"Term Loans"). The total amount drawn under the New Credit Facility may not
exceed $100.0 million. The New Credit Facility contains operating and financial
covenants, including, without limitation, requirements to maintain leverage and
debt service coverage ratios and minimum tangible net worth. In addition, the
New Credit Facility includes customary covenants relating to the delivery of
financial statements, reports, notices and other information, access to
information and properties, maintenance of insurance, payment of taxes,
maintenance of assets, nature of business, corporate existence and rights,
compliance with applicable laws, including environmental laws, transactions
with affiliates, use of proceeds, limitation on indebtedness, limitations on
liens, limitations on certain mergers and sales of assets, limitations on
indebtedness, limitations on stock repurchases, and limitations on debt
payments and other distributions including prepayment or redemption of the
Company's senior subordinated notes. The New Credit Facility contains certain
events of default after expiration of applicable grace periods, including
defaults relating to: (i) nonpayment of principal, interest, fees or other
accounts; (ii) violation of covenants; (iii) material inaccuracy of
representations and warranties; (iv) bankruptcy; (v) material judgments; (vi)
certain ERISA liabilities; and (vii) actual or asserted invalidity of any loan
documents.
 
  In November 1996, the Company issued notes in the aggregate principal amount
of $7.0 million as part of the purchase price for its acquisition of The
Extracorporeal Alliance. The notes bear interest at a variable rate equal to
the five-year Treasury note rate plus three percent and mature on October 31,
2002.
 
  A significant component of the Company's growth strategy is the acquisition
and development of dialysis centers and the acquisition of Contract Services
businesses. The Company believes that the remaining net proceeds from the
offering of its senior subordinated notes (described in Part II, Item 2),
existing cash and funds from operations, together with funds available under
the New Credit Facility, will be sufficient to meet
 
                                       14
<PAGE>
 
the Company's acquisition, development, expansion, capital expenditure and
working capital needs for at least the next twelve months. In order to finance
certain strategic acquisition opportunities, the Company may from time to time
incur additional short and long-term bank indebtedness and may issue equity or
debt securities, the availability and terms of which will depend on market and
other conditions. There can be no assurance that the Company will be successful
in implementing its growth strategy or that adequate sources of capital will be
available in the future as needed on terms acceptable to the Company.
 
Impact of Inflation
 
  A substantial portion of the Company's net revenues is subject to
reimbursement rates that are regulated by the federal government and do not
automatically adjust for inflation. The Company is unable to increase the
amount it receives for the services provided by its dialysis businesses that
are reimbursed under the Medicare composite rate. Increased operating costs due
to inflation, such as labor and supply costs, without a corresponding increase
in reimbursement rates, may adversely affect the Company's earnings in the
future. However, part of the Company's growth strategy is to acquire additional
Contract Services businesses which are not directly dependent on reimbursement
from government agencies. In addition, the Company believes that the effect of
inflation is further mitigated by a recent change in current governmental
health care laws that extends the coordination of benefits period for ESRD
patients who are covered by an employer group health plan from 18 to 21 months
to 30 to 33 months before Medicare becomes the primary payor.
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
  The Company does not engage in hedging or other market structure derivative
trading activities. Additionally, the Company's debt obligations are primarily
fixed-rate in nature and, as such, are not sensitive to changes in interest
rates. The Company does not believe that its market risk financial instruments
on December 31, 1998 would have a material effect on future operations or cash
flow.
 
--------------------------------------------------------------------------------
                           PART II--OTHER INFORMATION
--------------------------------------------------------------------------------
 
ITEM 1. LEGAL PROCEEDINGS
 
  The Company is subject to claims and suits in the ordinary course of
business, including those arising from patient treatment. The Company believes
it will be covered by malpractice insurance with respect to these claims and
does not believe that the ultimate resolution of pending proceedings will have
a material adverse effect on the Company. However, claims against the Company,
regardless of their merit or eventual outcome, could require management to
devote time to matters unrelated to the operation of the Company's business,
and may also have a material adverse effect on the Company's ability to attract
patients or expand its business.
 
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
 
  (a) Not applicable.
 
  (b) Not applicable.
 
  (c) Not applicable.
 
  (d) On May 5, 1998, the Company sold (the "Initial Offering") its
$100,000,000 9 3/4% Senior Subordinated Notes due 2008, Series A (the "Private
Notes"). On October 2, 1998, the Company delivered in exchange (the "Exchange")
for the Private Notes its $100,000,000 9 3/4% Senior Subordinated Notes due
2008,
 
                                       15
<PAGE>
 
Series B (the "Notes"). The net proceeds to the Company from the Initial
Offering were $95.2 million, after deducting the initial purchaser's discount
and offering expenses. The Company used $48.4 million of the net proceeds to
repay indebtedness under the Company's prior credit facility (the "Prior Credit
Facility") that bore interest at a weighted average rate of 8.99% per annum as
of June 30, 1998 and was to mature in May 2000. $7.2 million of the net
proceeds were used to repay loans made to the Company by certain of its
shareholders. $5.1 million of these loans bore interest at the prime rate plus
1% per annum and matured at various times throughout 1998. $2.1 million of
these loans bore interest at the prime rate plus 1% per annum and matured on
November 29, 2000. The Company used $19.2 million of net proceeds to acquire a
management services agreement and $4.7 million to acquire land and buildings.
Additionally, the Company used $5.4 million for working capital purposes. The
remaining $10.3 million of net proceeds will be used to finance future
acquisitions of dialysis facilities and Contract Services providers and for
working capital and general corporate purposes. Pending such uses, the net
proceeds have been and will be invested in cash and cash equivalents.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
  (a) Exhibits
 
<TABLE>
     <C>       <S>
     3.41      Certificate of Incorporation of Everest Two IPA, Inc.
 
     3.42      By-laws of Everest Two IPA, Inc.
 
     3.43      Certificate of Incorporation of Everest Three IPA, Inc.
 
     3.44      By-laws of Everest Three IPA, Inc.
 
     3.45      Certificate of Formation of Acute Extracorporeal Services,
               L.L.C.
 
     27        Financial Data Schedule.
</TABLE>
 
  (b) No reports on Form 8-K have been filed during the quarter for which this
report is filed.
 
                                       16
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest Healthcare Services
                                           Corporation
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       17
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Amarillo Acute Dialysis Specialists,
                                           L.L.C.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       18
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Con-Med Supply Company, Inc.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       19
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Continental Health Care, Ltd.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       20
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Dialysis Specialists of Corpus
                                           Christi, L.L.C.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       21
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Dialysis Specialists of South Texas,
                                           L.L.C.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       22
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          DuPage Dialysis Ltd.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       23
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest Management, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       24
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Hemo Dialysis of Amarillo, L.L.C.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       25
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Home Dialysis of America, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       26
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Home Dialysis of Dayton, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       27
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Lake Avenue Dialysis Center, Inc.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       28
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Mercy Dialysis Center, Inc.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       29
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          New York Dialysis Management, Inc.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       30
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          North Buckner Dialysis Center, Inc.
 
                                                   /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                                Chairman and Chief Executive
                                                           Officer
 
                                                   /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                   Chief Financial Officer
 
                                       31
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Northwest Indiana Dialysis, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       32
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Ohio Valley Dialysis Center, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       33
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          WSKC Dialysis Services, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       34
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest New York Holdings, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       35
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest One IPA, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       36
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest Two IPA, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       37
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Everest Three IPA, Inc.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
 
                                       38
<PAGE>
 
                                   SIGNATURES
 
  Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 16th day of
February, 1999.
 
                                          Acute Extracorporeal Services,
                                           L.L.C.
 
                                                  /s/ Craig W. Moore
                                          By: _________________________________
                                                       Craig W. Moore
                                               Chairman and Chief Executive
                                                          Officer
 
                                                  /s/ John B. Bourke
                                          By: _________________________________
                                                       John B. Bourke
                                                  Chief Financial Officer
 
                                       39
<PAGE>
 
                               INDEX TO EXHIBITS
 
<TABLE>
 <C>  <S>
 3.41 Certificate of Incorporation of Everest Two IPA, Inc.
 3.42 By-laws of Everest Two IPA, Inc.
 3.43 Certificate of Incorporation of Everest Three IPA, Inc.
 3.44 By-laws of Everest Three IPA, Inc.
 3.45 Certificate of Formation of Acute Extracorporeal Services, L.L.C.
 27   Financial Data Schedule.
</TABLE>
 
                                       40