<PAGE>   1


                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-Q

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

                      For the Quarter Ended March 31, 1998

                           Commission File No. 0-26288

                              CONTOUR MEDICAL, INC.
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in its Charter)

           Nevada                                      77-0163521
------------------------------             ----------------------------------
(State or Other Jurisdiction of           (IRS Employer Identification Number)
Incorporation or Organization)

                                6025 Shiloh Road,
                              Alpharetta, Ga 30005
                     ----------------------------------------
                     (Address of Principal Executive Offices)

                                (770) 886-2600
               ----------------------------------------------------
               (Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report(s), and (2) has been subject to such filing
requirements for the past 90 days.

                              Yes [ X ]   No [   ]

There were 8,309,081 shares of the Registrant's $.001 par value Common Stock
outstanding as of March 31, 1998.



<PAGE>   2




                            CONTOUR MEDICAL, INC.
                                  FORM 10-Q

                                      INDEX

Part I:  Financial Information

<TABLE>
<CAPTION>
Item 1.  Financial Statements                                            Page
                                                                        ------
<S>                                                                     <C>

         Consolidated Balance Sheets as of March 31, 1998
         and June 30, 1997                                               3-4

         Consolidated Statements of Operations for the Three
         Months ended March 31, 1998 and 1997                             5

         Consolidated Statements of Operations for the Nine
         Months Ended March 31, 1998 and 1997                             6

         Consolidated Statement of Stockholder's Equity
         for the Nine Months Ended March 31, 1998                        7-8

         Consolidated Statements of Cash Flows for the
         Nine Months Ended March 31, 1998                                9-10

         Notes to Consolidated Financial Statements                     11-15

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations                            16-18
</TABLE>


                                    2



<PAGE>   3




                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                              March 31,       June 30,
                                                1998            1997
                                            ------------    -----------
                                            (Unaudited)
<S>                                         <C>             <C>        
ASSETS
Current:
  Cash                                      $   158,504     $   311,657
  Accounts receivable
     Related parties (Note 4)                 6,464,564       5,135,189
     Trade, net of allowance for bad
       debts of $2,924,000 and $2,805,000
       at March 31, 1998 and June 30,
       1997, respectively.                   10,742,015       7,811,635
  Inventories                                 8,244,203       5,130,142
  Refundable income taxes                       861,085         572,875
  Prepaid expenses and other                    698,782         237,687
  Due from parent (Note 4)                    1,052,925         973,164
                                            -----------     -----------
      Total Current Assets                   28,222,078      20,172,349
                                            -----------     -----------
Property and Equipment, less
accumulated depreciation (Note 5)             2,491,719       1,492,918
                                            -----------     -----------
Other Assets:

  Goodwill, net of accumulated 
    amortization of approximately
    $464,940 and $251,000 at
    March 31, 1998 and June 30,
    1997, respectively                        9,896,087      10,109,927
  Deposit on equipment                                0         311,453
  Other                                         366,761         434,529
                                            -----------     -----------
       Total Other Assets                    10,262,848      10,855,909
                                            -----------     -----------
                                            $40,976,645     $32,521,176
</TABLE>

           See accompanying notes to consolidated financial statements


                                        3



<PAGE>   4




                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                           Consolidated Balance Sheet
<TABLE>
<CAPTION>
                                              March 31,       June 30,
                                                1997            1997
                                            -------------   -----------
                                             (Unaudited)
<S>                                         <C>             <C>        
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
      Accounts payable                        5,060,971       3,839,548
      Accrued expenses                          728,685         728,784
      Current maturities of long-term
      debt (Note 6)                          12,996,061       6,079,086
                                             ----------      ----------
      Total Current Liabilities              18,785,717      10,647,418

Long-term debt, less current
maturities (Note 6)                           5,972,226       5,473,841
                                             ----------      ----------
      Total Liabilities                      24,757,943      16,121,259

Stockholders' Equity:
  Preferred stock - Series A convertible,
   $.001 par value, shares authorized 
   1,265,000; issued 600,000, outstanding
   120,000 and 135,000,respectively,
   at aggregate liquidation preference          560,414         623,414
  Common stock $.001 par - shares
   authorized 76,000,000; issued and
   outstanding 8,309,081 and 8,127,376
   (net of $765 discount)                         7,516           7,334
  Additional paid-in capital                 16,179,651      15,796,188
  Retained earnings                            (528,879)        (27,019)
                                             ----------     -----------
      Total stockholders' equity             16,218,702      16,399,917

                                            $40,976,645     $32,521,176
</TABLE>

           See accompanying notes to consolidated financial statements


                                        4
<PAGE>   5
 

   


                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                               Three Months Ended

                                            March 31,        March 31,
                                              1998             1997
                                           -----------      -----------
                                           (Unaudited)      (Unaudited)

<S>                                        <C>              <C>        
SALES TO NON-RELATED PARTIES               $10,452,471      $11,626,229

SALES TO RELATED PARTIES                     2,871,758        1,511,178
                                           -----------      -----------
                                            13,324,229       13,137,407

COST OF SALES                                9,872,084        9,345,136


GROSS PROFIT                                 3,452,145        3,792,271


OPERATING EXPENSES                           3,950,657        3,211,310

OPERATING INCOME (LOSS)                       (498,512)         580,961

OTHER INCOME (EXPENSE):
     Interest Expense                         (404,722)        (214,346)
     Interest Income                            21,020           19,907
     Other Income                               34,539          130,743
     Guarantee Fee                                                   --
                                           -----------      -----------
                                              (349,163)         (63,696)

INCOME (LOSS) BEFORE INCOME TAXES             (847,675)         517,265

INCOME TAX EXPENSE (BENEFIT)                  (288,210)         196,750

NET INCOME                                    (559,465)         320,515

BASIC EARNINGS PER SHARE                          (.07)             .05

DILUTE EARNINGS PER SHARE                         (.07)             .05

WEIGHTED AVERAGE NUMBER
  OF COMMON SHARES                           8,171,460        7,817,379
</TABLE>



           See accompanying notes to consolidated financial statements


                                        5


    

<PAGE>   6





                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                Nine Months Ended 
                                             March 31,       March 31, 
                                               1998            1997
                                           -----------      -----------
                                           (Unaudited)      (Unaudited)
  
<S>                                        <C>              <C>        
SALES TO NON-RELATED PARTIES               $31,696,160      $34,593,307

SALES TO RELATED PARTIES                     8,698,803        4,459,416
                                           -----------      -----------
                                            40,394,963       39,052,723

COST OF SALES                               30,119,926       27,816,620

GROSS PROFIT                                10,275,037       11,236,103

OPERATING EXPENSES                          10,259,718        9,352,812

OPERATING INCOME                                15,319        1,883,291

OTHER INCOME (EXPENSE): 

     Interest Expense                       (1,012,866)        (900,421)
     Interest Income                           107,788           51,805
     Other Income                              112,101          151,529
     Guarantee Fee                                   -         (500,000) 
                                           -----------      -----------
                                              (792,977)      (1,197,087)

INCOME (LOSS) BEFORE INCOME TAXES             (777,658)         686,204

INCOME TAX EXPENSE (BENEFIT)                  (275,798)         260,947

NET INCOME (LOSS)                             (501,860)         425,257

BASIC EARNINGS PER SHARE                          (.06)             .07

DILUTED EARNINGS PER SHARE                        (.06)             .07

WEIGHTED AVERAGE NUMBER
  OF COMMON SHARES                           8,210,354        6,488,405
</TABLE>

           See accompanying notes to consolidated financial statements


                                        6




<PAGE>   7




                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                        Additional
                                             Common Stock                Paid-in
                                        Shares           Amount          Capital
                                     -----------      -----------      -----------
<S>                                  <C>              <C>              <C>        
Balance, June 30, 1997                 8,127,376      $     7,334      $15,796,188

Exercise of common stock
 warrants                                119,788              120          232,209

Non-qualified options exercised
for common stock                          46,167               46           88,270

Series A converted to Common Stock        15,750               16           62,894

Balance, March 31, 1998                8,309,081            7,516       16,179,651
                                     ===========      ===========      ===========
</TABLE>

           See accompanying notes to consolidated financial statements


                                        7



<PAGE>   8




                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                 Consolidated Statement of Stockholders' Equity
                                   (Unaudited)
<TABLE>
<CAPTION>
                                             Convertible
                                           Preferred Stock
                                        ----------------------      Retained
                                         Shares        Amount   Earnings(Deficit)
                                        --------      --------  -----------------
<S>                                     <C>           <C>       <C>      
Balance, June 30, 1997                   135,000      $623,414     $ (27,019)

Net loss                                      --            --      (501,860)

Series A Converted to Common Stock       (15,000)      (63,000)

Balance, March 31 ,1998                  120,000      $560,414     $(528,879)
                                        ========      ========     =========
</TABLE>


           See accompanying notes to consolidated financial statements


                                        8



<PAGE>   9




                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                    Nine Months Ended
                                               March 31,          March 31
                                                 1998               1997
                                             ------------       ------------
                                              (Unaudited)        (Unaudited)
<S>                                          <C>                <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)                                (501,860)      $    425,753

Adjustments to reconcile net income
 (loss) to net cash provided (used) by
 operating activities:

   Depreciation & Amortization                    723,303            577,505

     (Increase) decrease in accounts
       receivable                              (4,259,755)        (5,651,458)
     (Increase) decrease in inventories        (3,114,001)        (4,171,152)
     (Increase) decrease in other
       current assets and other assets           (681,537)       (10,232,449)
     Increase (decrease) in accounts
       payable                                  1,221,423            883,322
     Increase (decrease) in accrued
       expenses and other liabilities                 (99)           258,495
                                             ------------       ------------
       Net cash (used) by operating
            activities                         (6,612,586)       (17,909,984)

CASH FLOW FROM INVESTING ACTIVITIES:

   Acquisition of equipment                    (1,508,264)        (1,313,255)
   (Increase) Decrease in due from
    Parent                                        (79,761)          (354,267)
   Deposit on Equipment                           311,453
                                             ------------       ------------
     Net cash used by investing
       activities                              (1,276,572)        (1,667,522)
</TABLE>

           See accompanying notes to consolidated financial statements


                                        9



<PAGE>   10
 



                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                Nine Months Ended
                                            March 31,         March 31,
                                               1998             1997
                                           -----------       -----------
                                           (Unaudited)       (Unaudited)
<S>                                        <C>               <C>        
CASH FLOWS FROM FINANCING ACTIVITIES:

Convertible debentures issued                       --       $ 5,000,000
Net borrowing (payments) on loans            7,415,360         4,187,548
Proceeds from exercise of options               88,316            59,395
Proceeds from issuance of common
  stock                                             --         9,750,000
Payment of preferred stock dividends                --           (93,582)
Exercise of Warrants                           232,329           625,506
                                           -----------       -----------
Net cash provided by financing
  activities                                 7,736,005        19,528,867
                                           -----------       -----------
NET INCREASE (DECREASE) IN CASH               (153,153)          (48,639)

CASH BEGINNING OF PERIOD                       311,657           146,219
                                           -----------       -----------

CASH END OF PERIOD                             158,504       $    97,580

SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION AND NON-CASH
ACTIVITIES:

  Cash paid for interest                       889,711       $   576,944
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       10



<PAGE>   11
                     CONTOUR MEDICAL, INC. AND SUBSIDIARIES
             Notes to Consolidated Financial Statements (Unaudited)

1.   BASIS OF PRESENTATION

     The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation have been included. It is suggested that these condensed
financial statements be read in conjunction with the financial statements and
notes thereto included in the June 30, 1997, audited financial statements for
Contour Medical, Inc. The results of operations for the periods ended March 31,
1998 and 1997 are not necessarily indicative of the operating results for the
full year.

     The consolidated financial statements include the accounts of Contour
Medical, Inc. ("CMI") and its wholly-owned subsidiaries, Contour Medical -
Michigan, Inc. (formerly Contour Fabricators, Inc.) ("CFI"), Contour Medical
of Central Florida, Inc. (formerly Contour Fabricators of Florida, Inc.)
("CFFI") and, since March 1, 1996, AmeriDyne Corporation ("AmeriDyne"), and
effective July 1, 1996 Atlantic Medical Supply Company, Inc. ("Atlantic")
collectively referred to as the Company.  All material intercompany accounts
and transactions have been eliminated.  CMI is a majority-owned subsidiary of
Retirement Care Associates, Inc. ("Parent").

     On June 27, 1997, the Company sold all of its manufacturing assets,
including equipment, accounts receivable, customer lists, prepaid assets,
deposits, inventory and other assets. These assets were sold for $3,350,000 in
cash to an unrelated third party, RawCar, L.L.P. The Company retained all
liabilities related to the assets sold. Upon completion of this sale, the
Company ceased all manufacturing activity.


2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income", which establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There currently are no additional
disclosures in the financial statements of the Company that are expected to be
required by the provisions of this statement.

     In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), which changes the way
public companies report information about segments of their business in annual
financial statements and requires segment information in quarterly reports to
shareholders. SFAS 131 also requires that public companies report certain
information about their products and services, the geographic areas in which
they operate and their major customers. SFAS 131 is effective for fiscal years
beginning after December 15, 1997. The Company has not determined what
additional disclosures may be required by the provisions of SFAS 131."

     SFAS 128 - The Company has adopted SFAS 128 with respect to computing
earnings per share. The following table reflects items reconciling net income
for purposes of calculating basic and diluted earnings per share:

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                        March 31, 1998                             March 31, 1997   
==============================================================================================================================
                                               Income         Shares      Per-Share       Income        Shares       Per-Share
                                             (numerator)   (denominator)    Amount      (numerator)  (denominator)    Amount
------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>           <C>          <C>              <C>
Net Income (Loss)                             (559,465)                                 320,515           
Less: Preferred Stock Dividends                                                                      
------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders       (559,465)      8,171,460      (0.07)      320,515      7,817,379        .05           
------------------------------------------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
------------------------------------------------------------------------------------------------------------------------------
Warrants                                                                                                        
Options                                                                                                            
------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders       (559,465)      8,171,460      (0.07)      320,515      7,817,379        .05        
==============================================================================================================================
</TABLE>

                                       11
<PAGE>   12
<TABLE>
<CAPTION>
                                                                           Nine Month Ended
                                                      March 31, 1998                               March 31, 1997
==============================================================================================================================
                                            Income        Shares           Per-Share   Income       Shares           Per-Share
                                            (numerator)   (denominator)    Amount      (numerator)  (denominator)    Amount
------------------------------------------------------------------------------------------------------------------------------
<S>                                          <C>           <C>            <C>           <C>          <C>              <C>
Net Income (Loss)                            (501,860)                                  425,753
Less: Preferred Stock Dividends                10,800                                    31,571
------------------------------------------------------------------------------------------------------------------------------
BASIC EPS
------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders      (512,660)     8,210,354          .06       457,324        6,488,405         0.07
------------------------------------------------------------------------------------------------------------------------------
EFFECT OF DILUTIVE SECURITIES
------------------------------------------------------------------------------------------------------------------------------
Warrants                                                     328,878                                     242,658
Options                                                      354,714                                     249,184
------------------------------------------------------------------------------------------------------------------------------
DILUTED EPS
------------------------------------------------------------------------------------------------------------------------------
Income available to common stockholders      (512,660)     8,893,946          .06       457,324        6,980,247         0.07
==============================================================================================================================
</TABLE>

Certain securities are not included in the calculation of diluted EPS as they
would be anti-dilutive. See the Company's 1997 annual report for a description
of securities which potentially could be dilutive in future periods.

     Inventories are valued at lower of cost (first-in, first-out) or market.
AmeriDyne inventories are valued at the lower of average cost or market.

     Property and equipment are stated at cost. Depreciation is computed over
the estimated useful lives of the assets by accelerated methods for financial
reporting and income tax purposes.

     Financial instruments held by the Company at March 31, 1998 include cash, 
deposits and long-term debt. Management believes that, considering current terms
of similar financial instruments, the carrying value of the company's financial 
instruments approximated their fair values at March 31, 1998.

     The Company has classified as goodwill the cost in excess of fair value of
the net assets of Atlantic Medical and AmeriDyne acquired in purchase
transactions. Goodwill is being amortized on the straight-line method over 40
years. The Company periodically reviews goodwill to assess recoverability, and
any impairment would be recognized in operating results.  Anticipated
undiscounted future cash flows of the underlying assets do not exceed the book
value of the goodwill and the underlying assets.

    Fees, costs and expenses related to the issuance of long-term debt are
deferred and amortized over the term of the related debt using the straight-line
method.

     Income taxes are accounted for using the asset and liability method for
financial accounting and reporting purposes. Accordingly, deferred tax assets
and liabilities are recognized for temporary differences between the financial
reporting basis of assets and liabilities an their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is provided for
deferred tax assets when management considers it more likely than not that some
portion or all of the asset will not be realized.

3.   CHANGE IN METHOD OF ACCOUNTING FOR TAXES AND INCOME

     Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS 109") which
requires recognition of estimated income taxes payable or refundable on income
tax returns for the current year and for the estimated future tax effect
attributable to temporary differences and carry forwards. Measurement of
deferred income tax assets being reduced by available tax benefits not expected
to be realized.

4.   RELATED PARTY TRANSACTIONS

     During 1995, the Company began distributing medical supplies to health care
facilities owned, leased or managed by the Parent. Sales to these facilities
approximated $8,698,803 for the nine month period ended March 31, 1998 and
$2,871,758 for the three month period ended March 31, 1998. Trade accounts
receivable of $5,772,035 and $5,135,189 were outstanding as of March 31, 1998
and June 30, 1997, respectively, as related to the sale of medical supplies to
the Parent. Additionally, the Company had an outstanding loan receivable due
from its Parent of $1,052,925 at March 31, 1998, which is due within 45 days
from the date of such loan and bears interest at the prime rate.


                                       12
<PAGE>   13




5.   PROPERTY AND EQUIPMENT

     Property and equipment consists of the following:
<TABLE>
<CAPTION>
                                  Useful Lives   December 31, 1997  June 30, 1997
                                  ------------   -----------------  -------------
<S>                               <C>            <C>                <C>   
Land & Land Improvements                   --           16,004       $     9,841
Building and Improvements          5-45 years            1,164             6,159
Machinery and equipment            3-7  years        1,706,273         1,442,614
Furniture and fixtures             5-7  years        1,039,832           498,876
Leasehold improvements             5    years          697,102            74,717
Vehicles                           3-5  years          164,949            84,853
                                                 -------------       -----------
                                                     3,625,324         2,117,060
Less accumulated depreciation                       (1,133,605)         (624,142)
                                                 -------------       -----------
                                                 $   2,491,719       $ 1,492,918
</TABLE>

All property and equipment are pledged as collateral.

6.   NOTES PAYABLE

     Notes payable at March 31, 1998 and June 30, 1997 consisted of the 
following:

<TABLE>
<CAPTION>
                                                  March 31,      June 30,
                                                    1998           1997
                                                ------------    ---------
<S>                                             <C>             <C>
Borrowings under $15,000,000 line of credit, 
interest at 30 day libor plus 200bp (7.69%) 
at March 31, 1998), payable monthly, 
collateralized by accounts receivable, 
inventory and guarantees by Retirement 
Care Associates, Inc. Principal due
October 31, 1998                                 12,678,978     5,886,545

Convertible debentures, interest at 9.00%
Payable monthly, principal due July 1, 2003,
Convertible into shares of common stock           5,000,000     5,000,000

Borrowings under $1,250,000 line of credit, 
interest at prime (8.50% at March 31, 1998), 
principal of $20,833 plus interest due monthly, 
collateralized by accounts receivable, 
inventory, furniture, fixtures, equipment, 
machinery, bank accounts and guarantees
of Retirement Care Associates                     1,222,222       750,000

Note payable to stockholder, interest at 10%,
principal and interest of $5,693, due monthly
through March 1999                                   64,751       109,252

Note payable to equipment company, interest at
14.0%, monthly installments of $405 including
interest.  Matures October 1998 collateralized
by equipment                                          2,336         5,546
</TABLE>


                                       13
<PAGE>   14
<TABLE>
<S>                                             <C>           <C>
Note payable to equipment company, interest at 
11%, monthly installments of $533 including 
interest.  Matured December 1997, 
collateralized by equipment                              --         3,093

                                               ------------   -----------
                                               $ 18,968,287   $11,552,927
Less current maturities                         (12,996,061)   (6,079,086)
                                               ------------   -----------
                                               $  5,972,226   $ 5,473,841
</TABLE>

     The Company's revolving line of credit totaling $12,678,978 at March 31, 
1998 contain certain restrictive financial covenants. Under the terms of the
agreement, the Company is required to maintain a debt to net worth ratio of no
more than 2.5, a current ratio of no less than 1.50 an EBIT coverage ratio of no
less than 2.0 and an interest coverage ratio of no less than 4.0. At March 31,
1998, the Company was out of compliance with the interest coverage ratio the
total debt to equity ratio, and the EBIT coverage ratio. 

The aggregate maturities of long-term debt are as follows as of March 31, 1998:


<TABLE>
                  <S>               <C>        
                  1998              $12,996,061
                  1999                  249,996
                  2000                  249,996
                  2001                  249,996
                  2002                  222,238
                  Thereafter          5,000,000
</TABLE>

SFAS No. 107, "Disclosure About Fair Value of Financial Instruments," requires
that the Company disclose estimated fair values for its financial instruments.
Fair value is defined as the price at which a financial instrument could be
liquidated in an orderly manner over a reasonable time period under present
market conditions. The rates of the Company's fixed obligations approximate 
those rates of the adjustable loans. Therefore, the fair value of those loans
has been estimated to be approximately equal to their carrying value.

     The Company's 9% convertible debentures are convertible into shares of the
Company's common stock from the date of issuance until the date that any
adjustment may occur at a conversion price of $5.00 per share of common stock.
The conversion price may be adjusted one time to seventy-five percent (75%) of
the average closing bid price of the common stock for the 21 consecutive trading
days following the Company's public press release of the 1997 fiscal year end
financial results if (y) the Company has failed to earn before taxes, a minimum
of $3,372,000, and (z) the average closing bid price of the common stock for the
21 consecutive trading days following the Company's public press release of the
1997 fiscal year end financial results is less than the then-existing conversion
price. If an adjustment is required, then the Company must furnish to the
holders of the debentures a statement, signed by the Chief Executive Officer of
the Company, of the facts creating such adjustment and specifying the resultant
adjusted conversion price then in effect. The adjustment will only be made to
adjust the conversion price to a price that is less than the then-existing
conversion price.  As of March 31, 1998, the adjustment period expired and no
adjustment was required.

     On December 31, 1997, Sun Healthcare Group, Inc. ("Sun") purchased all of
the Company's 9% convertible debentures from Renaissance Capital Growth and
Income Fund II, Inc. and Renaissance U.S. Growth and Income Trust, PLC
("Renaissance") in a privately negotiated transaction for an aggregate purchase
price of $8.4 million in cash. As of June 30, 1997, September 30, 1997, December
31, 1997 and March 31, 1998, the Company was not in compliance with the current
ratio, debt to equity ratio and interest coverage ratio requirements of the
indenture underlying the debentures. On April 2, 1998, Sun agreed to waive such
defaults until 10 business days after the termination of the merger agreement
with Sun.

7.   LEASE COMMITMENTS

     The Company is obligated under various non-cancelable leases for equipment
and office space. Future minimum lease commitments under operating leases were
as follows as of March 31, 1998.

<TABLE>
                  <S>                       <C>     
                  1998                      $1,436,587
                  1999                       1,436,587
                  2000                       1,284,179
                  2001                       1,111,331
                  2002 and thereafter        1,278,031
</TABLE>

     Employment Agreement - The Company has entered into an employment agreement
with a key executive for a five-year period ending June 1998. The agreement 
provides for annual base compensation of $100,000.

     Litigation - During 1997 the Company was a defendant in a lawsuit filed by
one of its customers in a contractual dispute. On October 27, 1997 the Company
settled this suit for approximately $66,000.


                                       14
<PAGE>   15

8.   INCOME TAXES:

     Income taxes are provided based on the liability method of accounting 
pursuant to Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes."

     As of June 30, 1997, the Company had net operating loss carry-forwards for
tax purposes, expiring at various dates ending July 30, 2012, of approximately
$1.1 million which includes approximately $516,000 attributable to Contour
Medical, Inc. for the period prior to January 1, 1993. Due to certain change of
ownership requirements of Section 382 of the Internal Revenue Code, utilization
of the Company's operating losses is expected to be limited to approximately
$414,000 per year. The deferred tax asset related to the tax benefit of these
losses has been offset by a valuation allowance due to uncertainty of
realization.

     The income tax benefit arising from the utilization of the net operating
losses attributable to CMI will be credited to additional paid-in capital when
recognized. 

9.   YEAR 2000 DISCLOSURE:

     The Company has reviewed all of its current computer applications with
respect to the date change from 1999 to the year 2000, as discussed in the
Securities and Exchange Commission Staff Legal Bulletin No. 5 (the "Year 2000
Problem"). The Company believes that certain of its applications are
substantially in compliance with the Year 2000 Problem and that any additional
costs with respect to compliance with the Year 2000 Problem will not be material
to the Company. The Company is currently unable to determine the effect of
compliance with the Year 2000 Problem by its customers and suppliers.

                                       15
<PAGE>   16




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

     The following should be read in conjunction with the attached Financial
Statements and Notes thereto of the Company.

THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997

     As a result of the factors discussed below, for the three months ended
March 31, 1998, the Company had a net loss of $(559,465) compared to net
income of $320,515 for the three months ended March 31, 1997.

     Sales increased by $186,822 for the three months ended March 31, 1998 as
compared to the three months ended March 31, 1997. Revenues in the quarter
ended March 31, 1997 included sales from the Company's manufacturing
operations of approximately $1.6 million. The Company sold its manufacturing
assets and discontinued manufacturing operations in June, 1997. Therefore the
increase of approximately $1.7 million was the result of an increase in sales to
the Company's parent of $1.26 million and approximately $440,000 to unrelated
parties.

     Gross profit for the three months ended March 31, 1998, was $3,452,145
or 25.9% of sales, as compared to $3,792,271 or 28.9% of sales, for the same
period of the previous year. The decrease in gross profit as a percentage of
sales is primarily the result of lower gross profit margins typically earned on
the distribution of bulk medical supplies as compared to the gross profit
margins historically earned by the Company's manufacturing enterprise, the
assets of which were sold in June, 1997. Following the sale of its manufacturing
assets, the Company ceased all manufacturing activities.

     Operating expenses for the three month period ending March 31, 1998, were
$3,950,657 as compared to $3,211,310 in 1997. Operating expenses increased
$739,347 from the same period last year. Approximately $580,000 of the increase
relates to expenses incurred in the start-up of two new distribution centers in
Randolph, Massachusetts and Portland, Oregon. The balance of the increase, or
approximately $160,000, relates to the additional costs incurred as a result of
the consolidation of the Company's administrative support functions to the new
corporate office building in Atlanta, Georgia. The largest components of
operating expenses are indirect labor (including sales salaries and
commissions), occupancy expense, depreciation and amortization, and insurance.

NINE MONTHS ENDED MARCH 31, 1998 COMPARED TO NINE MONTHS ENDED MARCH 31,
1997.

     As a result of the factors discussed below, for the nine months ended
March 31, 1998, the Company had a net loss of $(501,860) compared to a net
income of $425,257 for the nine months ended March 31, 1997.

     Sales increased by $1,342,240 for the nine months ended March 31, 1998 as
compared to the nine months ended March 31, 1997. Revenues in the nine months
ended March 31, 1997 included sales from the Company's manufacturing
operation of approximately $4.1 million. The Company sold its manufacturing
assets and discontinued manufacturing operations in June 1997.

                                       16
<PAGE>   17



Therefore the increase of approximately $5.4 million was the result of an
increase in sales to the Company's parent of approximately $4.2 million, with
the balance of the increase or approximately $1.2 million, due to the expansion
of the Company's customer base.

     Gross profit for the nine months ended March 31, 1998, was $10,275,027 or
25.4% of sales, as compared to $11,236,103 or 28.8% of sales, for the same
period of the previous year. The decrease in gross profit as a percentage of
sales is primarily the result of lower gross profit margins typically earned on
the distribution of bulk medical supplies as compared to the gross profit
margins historically earned by the Company's manufacturing enterprise, the
assets of which were sold in June, 1997. Following the sale of its manufacturing
assets, the Company ceased all manufacturing activities.

     Operating expenses for the nine month period ending March 31, 1998 were
$10,259,718 as compared to $9,352,812 in 1997. The operating expenses increased
from the same period last year as a result of expenses incurred in the start-up
of two new distribution centers in Randolph, Massachusetts and Portland, Oregon.
The balance of the increase relates to additional costs incurred as a result of
the consolidation of the Company's administrative support functions to the new
corporate office building in Atlanta, Georgia.

LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 1998, the Company had $9,436,361 of working capital as
compared to $9,524,931 on June 30, 1997.

     Operating activities for the nine months ended March 31, 1998, utilized
cash of $6,612,586 as compared to operating activities during the nine months
ended March 31, 1997, which utilized cash of $17,909,984. The decreased use
of cash was primarily due to the acquisition of Atlantic Medical Supply in 1996.

     The cash flows utilized for investing activities of $1,276,572 during the
nine months ended March 31, 1998, were a result of the acquisition of
additional equipment for two new distribution centers and costs associated with
the completion of the construction of the new corporate office.

     Cash flow of $7,736,005 was provided from financing activities for the
nine month period ending March 31, 1998, whereas for the nine month period
ending March 31, 1997, cash flows from financing activities provided cash of
$19,528,867. During the nine months ended March 31, 1997, $5,000,000 was
provided from debenture borrowings, $10,850,000 was provided by acquisition
notes and $625,506 was provided by the exercise of stock warrants.  During the
nine months ended March 31, 1998, $7,415,360 was provided from borrowings and
$320,645 was provided by the exercise of stock options and warrants.



                                       17
<PAGE>   18
     On October 31, 1997, $9.5 million under the line of credit was due for
repayment. The Company obtained a forebearance from Barnett Bank on the line of
credit until November 11, 1997, at which time, the line of credit was renewed
and increased to $15 million.  The line of credit is due for repayment on
October 31, 1998.  As of March 31, 1998, $12,678,978 had been borrowed
against the line for short-term working capital and expansion needs.

     The Company's revolving line of credit and the provisions of indenture
relating to its 9% convertible debentures totaling $17,678,978 at March 31,
1998 contain certain restrictive financial covenants. Under the terms of the
agreement, the Company is required to maintain a debt to net worth ratio of no
more than 2.5, a current ratio of no less than 1.50 and an interest coverage
ratio of no less than 4.0. At March 31, 1998, the Company was out of compliance
with the interest coverage ratio requirements. The lending institutions have
waived those requirements as of March 31, 1998 and for the quarter then ended.

     On August 6, 1996, the Company acquired all of the outstanding stock of
Atlantic, a distributor of disposable medical supplies and a provider of
third-party billing services to the nursing home and home health care markets.
The acquisition was made retroactively to July 1, 1996. The Company paid $1.4
million in cash and promissory notes totaling $10.5 million (the "Atlantic
Promissory Notes") for the stock of Atlantic, and subsequently paid an
additional $50,000 in cash and issued a promissory note for $350,000 to acquire
a minority interest in a subsidiary of Atlantic . The cash for this transaction
came from the $5 million debenture placement that was completed on July 12,
1996. The Company paid the Atlantic Promissory Notes from the proceeds of a
$9.75 million loan from its parent, payable in accordance with the terms of a
promissory note that was convertible into shares of the Company's Common Stock
at the option of the note holder. The Company's parent simultaneously converted
this promissory note into 1,950,000 shares of Contour Common Stock. The balance
of the Atlantic Promissory Notes was paid by borrowing under the Company's lines
of credit.

     As a result of the acquisition of Atlantic, Contour acquired Medicare and
trade receivables totaling more than $1.8 million that were deemed to be
uncollectible. The entire amount of these receivables was reserved at the date
of the acquisition. The remaining reserve for uncollectible accounts represents
approximately 16% of trade receivables.

     The Company plans to open two additional distribution centers around the
United States during the next nine months. Total capital expenditures
anticipated to fund this expansion will approximate $2 million. The Company has
received commitments from leasing and financing organizations in amounts
sufficient to meet these anticipated needs.

     The Company presently does not anticipate any commitments for any other
material capital expenditures.

SEASONALITY AND INFLATION

     The Company's business is relatively consistent and stable on a monthly
basis, and has not indicated any seasonality over the prior three fiscal
periods.

     In addition, the Company does not believe that inflation has had a material
effect on its results from operations during the past three fiscal years. There
can be no assurance, however, that the Company's business will not be affected
by inflation in the future.

                                    PART II.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) EXHIBIT 27 - Financial Data Schedule - Filed herewith electronically.

(b) REPORTS ON FORM 8-K - None.
 

                                       18
<PAGE>   19


                                   SIGNATURES

     Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    CONTOUR MEDICAL, INC.

Date: May 15, 1998                  By:/s/ Donald F. Fox
                                       ---------------------------------
                                           Donald F. Fox, President,
                                           Treasurer and Chief Financial
                                           Officer


                                       19
<PAGE>   20



                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT              DESCRIPTION                          LOCATION
-------              -----------                          --------
<S>       <C>                                   <C>
27        Financial Data Schedule               Filed herewith electronically

</TABLE>