<PAGE>   1
--------------------------------------------------------------------------------
                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
--------------------------------------------------------------------------------
                                   FORM 10-QSB

(Mark One)
[x]      QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
                           SECURITIES EXCHANGE ACT OF 1934
                                       OR
[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                           EXCHANGE ACT


                         FOR THE QUARTERLY PERIOD ENDED

                                 MARCH 31, 1997

                        Commission File Number 000-21157

                             C O M P U R A D, I N C.

        (Exact name of small business issuer as specified in its charter)

                Delaware                              86-0710268
       (State or other jurisdiction               (I.R.S.  Employer
       of incorporation or organization)          Identification No.)

                                 1350 North Kolb
                              Tucson, Arizona 85715
                    (Address of principal executive offices)

                                 (520) 298-1000
                           (Issuer's telephone number)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 _____


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

At May 12, 1997 there were 3,857,950 shares, $.01 par value, outstanding.


<PAGE>   2




                                 COMPURAD, INC.

                                   FORM 10-QSB

                                TABLE OF CONTENTS

                         Part I. - FINANCIAL INFORMATION

                                                                            Page
Item 1.           FINANCIAL STATEMENTS

   Condensed Balance Sheets - March 31, 1997 and December 31, 1996             3
   Condensed Statements of Operations - Three Months Ended
         March 31, 1997 and March 31, 1996                                     4
   Condensed Statements of Cash Flows - Three Months
         Ended March 31, 1997 and March 31, 1996                               5
   Notes to Condensed Financial Statements                                     6

Item 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS                8


                          Part II. - OTHER INFORMATION


Item 1.           LEGAL PROCEEDINGS                                           16

Item 2.           CHANGES IN SECURITIES                                       16

Item 3.           DEFAULTS UPON SENIOR SECURITIES                             16

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF
                  SECURITY HOLDERS                                            16

Item 5.           OTHER INFORMATION                                           16

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K                            16


SIGNATURES                                                                    18
<PAGE>   3
                                 COMPURAD, INC.
                            CONDENSED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                   MARCH 31,        DECEMBER 31,
                                                                                     1997              1996
                                                                                 -----------        -----------
                                                                                 (Unaudited)
ASSETS
Current assets:
<S>                                                                              <C>                <C>        
   Cash and cash equivalents                                                     $ 2,514,518        $ 4,051,968
   Accounts receivable, net of $100,000 and $80,000 allowance at March
     31, 1997 and December 31, 1996, respectively                                  2,597,665          1,423,910
   Inventories                                                                       403,055            313,724
   Prepaid expenses and other                                                        146,860             75,789
                                                                                 -----------        -----------
Total current assets                                                               5,662,098          5,865,391

Property and equipment, net                                                          668,151            538,018
                                                                                 -----------        -----------
Total assets                                                                     $ 6,330,249        $ 6,403,409
                                                                                 ===========        ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                              $   658,783        $   558,290
   Accrued expenses                                                                  339,300            456,428
   Customer deposits and unearned revenue                                            301,341            227,329
                                                                                 -----------        -----------
Total current liabilities                                                          1,299,424          1,242,047
Note payable to related party                                                        117,949            117,969

Stockholders' equity:
   Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
     issued or outstanding at March 31, 1997 and December 31,
     1996, respectively                                                                   --                 --
   Common stock, $.01 par value; 20,000,000 shares authorized, 3,857,950
     and  3,857,260 shares issued and outstanding at March 31, 1997 and
     December 31, 1996, respectively                                               6,551,969          6,551,967
   Paid in capital--stock-based compensation and expenses                            470,500            467,500
   Accumulated deficit                                                            (2,109,593)        (1,976,074)
                                                                                 -----------        -----------
Total stockholders' equity                                                         4,912,876          5,043,393
                                                                                 ===========        ===========
Total liabilities and stockholders' equity                                       $ 6,330,249        $ 6,403,409
                                                                                 ===========        ===========
</TABLE>



                             See accompanying notes.

                                       3
<PAGE>   4



                                 COMPURAD, INC.
                       CONDENSED STATEMENTS OF OPERATIONS
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31
                                                         ------------------------------
                                                            1997               1996
                                                         -----------        -----------
<S>                                                      <C>                <C>        
Net revenues                                             $ 2,443,469        $ 1,136,327
Cost of revenues                                           1,193,321            677,199
                                                         -----------        -----------
   Gross profit                                            1,250,148            459,128

Operating expenses:
   Selling and marketing                                     500,544            190,070
   Research and development                                  533,954            197,420
   General and administrative                                390,758            132,044
   Stock-based compensation and expenses                       3,000            162,000
                                                         -----------        -----------
    Loss from operations                                    (178,108)          (222,406)
Other income (expense)                                        44,589             (4,375)
                                                         ===========        ===========
Net loss                                                 $  (133,519)       $  (226,781)
                                                         ===========        ===========

Net loss per common share                                $     (0.03)       $     (0.08)
                                                         ===========        ===========

Shares used in computing net loss per common share         3,857,873          2,849,407
                                                         ===========        ===========
</TABLE>





                             See accompanying notes.

                                       4
<PAGE>   5
                                 COMPURAD, INC.
                       CONDENSED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)


<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31
                                                             ------------------------------
                                                                1997               1996
                                                             -----------        -----------
<S>                                                          <C>                <C>         
OPERATING ACTIVITIES:
Net loss                                                     $  (133,519)       $  (226,781)
Adjustments to reconcile net loss  to net cash used in
   operating activities:
     Depreciation and amortization                                45,558             12,518
       Stock-based compensation and expenses                       3,000            162,000
Changes in operating assets and liabilities:
     Accounts receivable                                      (1,173,755)          (165,197)
     Inventories                                                 (89,331)            21,064
     Prepaid expenses and other                                  (71,071)                --
     Accounts payable and accrued expenses                       (16,635)            79,033
     Customer deposits and unearned revenue                       74,012             77,723
                                                             -----------        -----------

Net cash used in operating activities                         (1,361,741)           (39,640)
                                                             -----------        -----------

INVESTING ACTIVITIES:
Purchases of property and equipment                             (175,711)            (8,420)
                                                             -----------        -----------

Net cash used in investing activities                           (175,711)            (8,420)
                                                             -----------        -----------

FINANCING ACTIVITIES:
Proceeds from issuance of common stock                                 2             13,685
                                                             -----------        -----------

Net cash provided by financing activities                              2             13,685
                                                             -----------        -----------

Net decrease in cash and cash equivalents                     (1,537,450)           (34,375)

Cash and cash equivalents, beginning of period                 4,051,968             36,024
                                                             -----------        -----------

Cash and cash equivalents, end of period                     $ 2,514,518        $     1,649
                                                             ===========        ===========
</TABLE>




                             See accompanying notes.

                                       5
<PAGE>   6
                                 COMPURAD, INC.

                     NOTES TO CONDENSED FINANCIAL STATEMENTS

                                   (UNAUDITED)


1.  BASIS OF PRESENTATION

The accompanying unaudited condensed financial statements of CompuRAD, Inc. (the
"Company" or "CompuRAD") presented herein have been prepared in accordance with
generally accepted accounting principles for interim financial information,
pursuant to the rules and regulations of the Securities and Exchange Commission.
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, such unaudited interim information reflect all
adjustments, consisting of normal recurring adjustments, necessary to present
the Company's financial position and results of operations for the periods
presented. The results of operations for the three months ended March 31, 1997
are not necessarily indicative of the results to be expected for a full fiscal
year or future operating periods. The Condensed Balance Sheet as of December 31,
1996 was derived from audited financial statements as of that date but does not
include all of the information and footnotes required by generally accepted
accounting principles. The information included in this report should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1996, which are contained in the Company's 1996 Form 10-KSB, filed
with the Securities and Exchange Commission.

2.  SIGNIFICANT ACCOUNTING POLICIES

Description of Business: The Company develops, manufactures, and markets
computer software which captures, stores, distributes, and displays electronic
medical images and other types of clinical information and distributes this
information: (i) between hospitals and physicians' offices and homes; (ii)
between clinicians and healthcare delivery systems; and (iii) between various
departments within hospitals and clinics. The Company currently operates
primarily in North America and in only one business segment, the medical
software industry.

Inventories: The Company values its inventories at the lower of cost or market.
Cost is computed on a first-in, first-out basis. Substantially all inventories
are comprised of finished computer hardware goods purchased from computer
manufacturers. The Company does not modify any such computer hardware, but
integrates its software into the customer's ordered system.

Software Development Costs: Under Statement of Financial Accounting Standards
No. 86, Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, once technological feasibility is established related to
software development costs for new products or for enhancements to existing
products which extend the product's useful life, such costs are capitalized up
until the time the product or enhancement is available for release to customers,
after which the capitalized costs are amortized over the estimated life of the
products.

Income Taxes: The Company was a subchapter S-corporation for income tax purposes
until August 28, 1996 (the date of the Company's initial public offering). At
the date of the offering, deferred taxes were established for the difference in
the financial reporting and tax basis of the Company's assets and liabilities.

The Company's deferred tax assets at March 31, 1997 and December 31, 1996
approximate $322,000. The valuation allowance for deferred tax assets was also
$322,000 at March 31, 1997 and December 31, 1996 to fully offset deferred tax
balances due to uncertainties regarding recoverability.

Revenue Recognition: Revenue from the sale of hardware and software is
recognized when the product has been shipped, and related costs of installation
are not significant and are accrued upon shipment. Revenue from maintenance,
service, and support agreements is recognized over the term of the agreement,
which in most instances is one year. Revenue from post-contract customer support
is recognized in the period the customer support services are provided. At the
request of certain customers, the Company acquires computer hardware for
purposes of configuration with its software products. The Company expects that
this service of acquiring hardware for resale will be phased out in the next
several years.

                                       6
<PAGE>   7
Loss per Common Share: Loss per common share is computed using the weighted
average number of shares of common stock outstanding, except as noted below.
Common equivalent shares from stock options are excluded from the computation
when their effect is antidilutive, except that, pursuant to the Securities and
Exchange Commission Staff Accounting Bulletins and Staff Policy, common shares,
warrants, and options issued during the period commencing 12 months prior to the
initial filing of the initial public offering at prices below the anticipated
public offering price are presumed to have been in contemplation of the public
offering and have been included in the calculation as if they were outstanding
for all periods presented prior to the initial public offering determined using
the treasury stock method.

In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("SFAS No. 128"),
which is required to be adopted on December 31, 1997. At that time, the Company
will be required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements for
calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Due to the Company's net losses in the quarters ended March
31, 1997 and 1996, the impact of SFAS No. 128 will not be material.

3.   COMMON STOCK

On August 28, 1996, the Company completed an initial public offering (the
"Offering"), selling 1,000,000 shares of common stock at $6.00 per share. The
net proceeds to the Company were $5,130,000 after payment of underwriting
discounts and offering expenses. In conjunction with the Offering, the Company
effected a 150-for-1 stock split. All share and per share amounts have been
retroactively adjusted to reflect the stock split. On October 1, 1996 the
Company's underwriters exercised their overallotment option. The underwriters
purchased an additional 150,000 shares of Common Stock from the Company,
resulting in additional net proceeds of $837,000 to the Company after payment of
underwriting discounts and offering expenses.

4.    RELATED PARTY TRANSACTIONS

The Company's president, was, and certain of the Company's stockholders are,
stockholders of Arizona State Radiology, P.C. ("ASR"). Certain technology was
transferred to the Company at its inception by ASR. The terms and amount to be
paid to ASR for such technology were subject to negotiations between the
parties, which were finalized in July 1996. The final settlement, which is
reflected in the accompanying condensed financial statements as if it had
occurred on January 1, 1993, called for the Company to pay ASR a settlement
consisting of common stock, a note payable ($117,949 and $117,969 at March 31,
1997 and December 31, 1996, respectively), and a deferred payment of $541,676
due either in cash or stock. The technology was valued at $610,000, based on the
value of consideration given, and was amortized over a three year period
beginning January 1, 1993. The technology is fully amortized on the accompanying
condensed balance sheets. The Company issued 93,480 shares of stock to ASR in
November 1996 in compensation of the deferred payment. Subsequently, ASR
requested mediation with the Company related to the number of shares tendered.
Should mediation be unsuccessful, ASR could file litigation against the Company.
While the outcome of such litigation is uncertain, the Company believes it has
meritorious defenses to the claims and intends to conduct a vigorous defense.


                                       7
<PAGE>   8
                                 COMPURAD, INC.
                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS


IMPORTANT NOTE ABOUT FORWARD LOOKING STATEMENTS

This quarterly report on Form 10-QSB contains forward looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Predictions of future events are inherently
uncertain. Actual events could differ materially from those predicted in the
forward looking statements as a result of the risks set forth in the following
discussion, and in particular, the risks discussed below under the caption
"Risk Factors that Could Effect Operating Results." Readers are also    
encouraged to refer to the Company's 1996 Form 10-KSB for a further discussion
of the Company's business and the risks and opportunities attendant thereto.

GENERAL

         CompuRAD, Inc. is a leading provider of software that enables
healthcare clinicians to access medical images and clinical information at any
point of care. The Company pioneered the use of personal computer software in
the point-to-point, on call teleradiology market, with the introduction of its
PC Teleradiology product. In response to the increasing acceptance of
teleradiology and increasing demand for multi-user and multi-access off-site
teleradiology systems, the Company introduced its iNET product line in late
1994. The Company has entered the larger clinical information market with its
release of ClinicalWare in the first quarter of 1997. ClinicalWare is an
Internet/Intranet software solution which provides enterprise-wide, secure
electronic access through a Web browser to clinical information systems at any
point of care.

THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1996

Net Revenues

         Net revenues for the three months ended March 31, 1997 were $2.4
million, compared with $1.1 million for the three months ended March 31, 1996,
reflecting an increase of 118.1%. Of these amounts, hardware sales, software
licenses and maintenance and support services accounted for 44.8%, 49.2% and
6.0%, respectively, for the 1997 period and 45.3%, 47.4% and 7.3%, respectively,
for the 1996 period. The overall increase in revenues was attributable to a
substantial increase in revenues from sales of iNET software, partially offset
by a decrease in revenues from sales of the Company's PC Teleradiology products,
and initial sales of the Company's ClinicalWare line. One customer represented
29.7% and 23.2% of net revenues for the three months ended March 31, 1997 and
1996, respectively.

Gross Margin

         Gross margin increased to 51.2% for the three months ended March 31,
1997 from 40.4% for the three months ended March 31, 1996. This increase in
gross margin was attributable to a continued change in the relative mix of
higher margin software sales and lower margin hardware sales, as well as
increased controls on inventory and pricing. The increase in gross margin was
also attributable to a slightly higher average selling price, reflecting the
availability during the 1997 period of the entire iNET product line. Cost of
hardware sales for the three months ended March 31, 1997 was $985,000 and for
the three months ended March 31, 1996 was $481,000. Cost of software licenses
for the three months ended March 31, 1997 was $142,000 and for the three months
ended March 31, 1996 was $135,000. Cost of maintenance and support services for
the three months ended March 31, 1997 was $67,000 and for the three months ended
March 31, 1996 was $61,000.


Selling and Marketing Expense

         Selling and marketing expense for the three months ended March 31, 1997
was $501,000, or 20.5% of net revenues, compared with $190,000 or 16.7% of net
revenues, for the three months ended March 31, 1996, an increase of 163.3%. This
increase was attributable primarily to increases in compensation associated with
a larger sales force and greater advertising and marketing expenses.


                                       8
<PAGE>   9
Research and Development Expense

         Research and development expense for the three months ended March 31,
1997 was $534,000, or 21.9% of net revenues, compared with $197,000, or 17.4% of
net revenues, for the three months ended March 31, 1996, an increase of 170.5%.
This increase was attributable primarily to the Company's hiring of additional
research and development staff.

General and Administrative Expense

         General and administrative expense for the three months ended March 31,
1997 was $391,000, or 16.0% of net revenues, compared with $132,000, or 11.6% of
net revenues, for the three months ended March 31, 1996, reflecting an increase
of 195.9%. This increase was attributable primarily to the Company's hiring of
additional administrative staff.

Stock-Based Compensation and Expenses

         Stock-based compensation and expenses are comprised of non-cash charges
primarily associated with the Company's issuance of 150,000 shares of the
Company's Common Stock to an executive officer of the Company in March 1996. The
difference between the price paid for such shares and the deemed fair market
value of the Company's Common Stock on the date of grant of $1.00 per share was
recognized immediately as a $150,000 non-cash charge. Total stock-based
compensation and expenses for the three months ended March 31, 1996 were
$162,000.

LIQUIDITY AND CAPITAL RESOURCES

         The Company expects its capital needs and operating expenditures to
increase in the next few years. There can be no assurance that the Company will
not need additional capital. The Company's need for additional financing will
depend upon numerous factors, including, but not limited to, the level of future
revenues and expenditures, market acceptance of new products, the results and
scope of ongoing research and development projects, competing technologies,
market and regulatory developments and increased working capital requirements.
There can be no assurance that additional financing will be available when
needed or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result and debt financing, if available, may
involve restrictive covenants. If adequate funds are not available, the
Company's business, financial condition and results of operations could be
materially affected.

NEW ACCOUNTING STANDARD

         In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings per Share ("SFAS
No. 128"), which is required to be adopted on December 31, 1997. At that time,
the Company will be required to change the method currently used to compute
earnings per share and to restate all prior periods. Under the new requirements
for calculating primary earnings per share, the dilutive effect of stock options
will be excluded. Due to the Company's net losses in the quarters ended March
31, 1997 and 1996, the impact of SFAS No. 128 will not be material.

RISK FACTORS THAT COULD EFFECT OPERATING RESULTS

         The Company's future operating results are subject to a number of risks
and uncertainties including those listed below.

History of Operating Losses; Uncertain Profitability

         The Company incurred net losses of approximately $134,000 for the three
months ended March 31, 1997 and $227,000 for the three months ended March 31,
1996, and, as of March 31, 1997, had an accumulated deficit of $2,110,000. The
development and marketing by the Company of new and existing products will
continue to require substantial product development and other expenditures. The
Company's prior operating history and dependence upon emerging and developing
markets and key personnel, as well as competition, uncertainty in the
consolidation of the healthcare industry, and general economic and other factors
make the prediction of future operating results difficult.

                                       9
<PAGE>   10

There can be no assurance that any of the Company's business strategies will be
successful or that the Company will be able to achieve consistent revenue growth
or achieve profitability on a quarterly or annual basis.

Variability in Quarterly Operating Results; Seasonality

         The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results may fluctuate as
a result of a variety of factors, including the following: demand for the
Company's software, applications and services, including the relative mix of
hardware and software purchased by its customers; the number, timing and
significance of announcements and releases of software enhancements and new
applications by the Company and its competitors; the number, timing and
significance of announcements and releases of hardware and other related
peripherals by third party suppliers; the termination of, or a reduction in,
offerings of the Company's software, applications and services; the loss of
customers due to consolidation in the healthcare industry; delays in delivery
requested by customers or caused by other factors; customer budgeting cycles;
marketing and sales promotional activities; software defects and other system
quality factors; and general economic conditions. In addition, since purchases
of the Company's software generally involve a significant commitment of capital,
any downturn in a potential customer's business or the economy in general,
including changes in the healthcare market, could have a materially adverse
effect on the Company's business, financial condition and results of operations.
Moreover, the Company's operating expense levels are relatively fixed and, to a
large degree, are based on anticipated revenues, therefore, if revenues are
below expectations, net income is likely to be disproportionately effected.
Further, it is likely that in some future quarter the Company's operating
results, including the Company's revenues, gross margins, expenses or backlog,
will be below the expectations of public market analysts and investors. In such
event, the trading price of the Company's Common Stock could be materially
adversely effected.

         The Company has historically experienced some seasonality. The Company
believes a number of its customers and potential customers defer making purchase
commitments in the fourth quarter because of budget constraints and the timing
of the Radiological Society of North America trade show and convention in the
fourth quarter. This has had the effect of increasing the level of orders
received by the Company in the first quarter, although the revenues associated
with such orders are generally not recognized until the second quarter.
Typically, net revenues are higher during the second and third quarters and
weaker in the first and fourth quarters. However, the timing and amount of large
purchase orders from significant customers may decrease the effect of such
seasonality. There can be no assurance that the Company will not experience
seasonality in the future.

Possible Need for Additional Funds; Uncertainty of Additional Financing

         The Company expects its capital needs and operating expenditures to
increase in the next few years. There can be no assurance that the Company will
not need additional capital. The Company's need for additional financing will
depend upon numerous factors, including, but not limited to, the level of future
revenues and expenditures, market acceptance of new products, the results and
scope of ongoing research and development projects, competing technologies,
market and regulatory developments and increased working capital requirements.
There can be no assurance that additional financing will be available when
needed or, if available, that it will be available on acceptable terms. If
additional funds are raised by issuing equity securities, further dilution to
then existing stockholders may result and debt financing, if available, may
involve restrictive covenants. If adequate funds are not available, the
Company's business, financial condition and results of operations could be
materially adversely effected.

Need to Manage Anticipated Growth in Operations; Dependence Upon Key Personnel

         The Company intends to expand its operations which may place a strain
on its management systems and resources. In addition, planned increases in the
number of products sold by the Company may place additional strains on the
Company's installation and support services and the Company will need to train
and manage additional customer service personnel. There can be no assurance that
the Company will be able to effectively manage these tasks, and the failure to
do so could have a materially adverse effect on the Company's business,
financial condition and results of operations.

         The Company's future success also depends to a significant part upon
the continued service of its executive officers and other key sales, marketing,
development and installation employees. The loss of the services of any of its

                                       10
<PAGE>   11
executive officers or other key employees could have a materially adverse effect
on the Company's business, financial condition and results of operations.

Dependence on Emerging Medical Image Management and Teleradiology Systems
Markets; Uncertainty of Market Acceptance

         The Company's success is dependent on the development of the medical
image management and teleradiology systems markets and on market acceptance of
its existing software, as well as software it is currently developing. To date,
substantially all of the Company's revenues have been derived from the sale of
software and related hardware for the teleradiology market. The markets for the
Company's software are still relatively undeveloped and may not grow in the near
future, if at all. In the event that the medical image management and
teleradiology systems markets do not develop as anticipated by the Company, the
Company's business, financial condition and results of operations would be
materially adversely effected.

         The commercial success of the Company's software will depend upon its
acceptance by the healthcare community as a useful, cost-effective component of
radiological procedures and healthcare delivery. There can be no assurance that
sales of the Company's software will continue at historical rates or that the
Company will introduce new software products that will achieve significant
market acceptance in the future. Furthermore, new product introductions or
enhancements by the Company's competitors or the use of other technologies could
cause a decline in sales or loss of market acceptance of the Company's software.
In addition, third-party payors, such as governmental programs and private
insurance plans, can indirectly affect the pricing and the relative
attractiveness of the Company's software by regulating the reimbursement that
they will provide for rendering professional and technical radiology services. A
decrease in the amount of reimbursement or elimination of reimbursement for
services using teleradiology may decrease or eliminate the amount which
radiologists and healthcare providers are able to charge parties for such
services and could result in a reduction of the Company's historical customer
base. Additionally, a reduction in reimbursement rates could cause hospitals and
other healthcare providers to decrease the number of radiology procedures
performed, which may slow the adoption of teleradiology and/or PACS, thereby
significantly reducing the potential demand for the Company's software. In the
event that the Company's existing software and software under development do not
achieve market acceptance, the Company's business, financial condition and
results of operations would be materially adversely effected.

Consolidation and Uncertainty in the Healthcare Industry

         Many healthcare providers are consolidating to create larger healthcare
networks with greater market concentration. Such consolidation could erode the
Company's existing customer base and reduce the size of the Company's target
markets. In addition, the resulting enterprises could have greater bargaining
power, which could lead to price erosion of the Company's software and services.
The reduction in the size of the Company's target market or the failure of the
Company to maintain adequate price levels could have a materially adverse effect
on the Company's business, financial condition and results of operations. The
healthcare industry also is subject to changing political, economic and
regulatory influences that may affect the procurement practices and operation of
healthcare industry participants. During the past several years, the United
States healthcare industry has been subject to an increase in governmental
regulation and reform proposals. These proposed reforms, if adopted, may
increase governmental involvement in healthcare, lower reimbursement rates and
otherwise change the operating environment for the Company's customers.
Healthcare industry participants may react to these proposals and the
uncertainty surrounding such proposals by curtailing or deferring investments,
including those for the Company's software and services. This could have a
materially adverse effect on the Company's business, financial condition and
results of operations.

Long Sales Cycles

         The sales cycle for medical image management systems is lengthy. The
sales cycle of the Company's products is subject to delays associated with
changes or the anticipation of changes in the regulatory environment affecting
healthcare enterprises, changes in the customer's strategic system initiatives,
competing information systems projects within the customer organization,
consolidation in the healthcare industry in general, the highly sophisticated
nature of the Company's software and competition in the medical image management
and healthcare information systems markets in general. The time required from
initial contact to purchase order typically ranges from one to three months, and
the time from purchase order to delivery and recognition of revenue typically
ranges from one to three months. During the sales process, the Company expends
substantial time, effort and funds preparing a contract proposal,

                                       11
<PAGE>   12
demonstrating the software and negotiating the purchase order. For these and
other reasons, the Company cannot predict when or if the sales process with a
prospective customer will result in a purchase order.

Product Liability

         The Company's software captures, stores, distributes and displays
clinical information used by clinicians in the diagnosis and treatment of
patients. Any failure by the Company's software to provide accurate, reliable
and timely information, or to adequately protect the confidentiality of the
information, could result in claims against the Company. The Company maintains
insurance to protect against claims associated with the use of its software or
systems, but there can be no assurance that its insurance coverage would
adequately cover any claims asserted against the Company. A successful claim
brought against the Company in excess of its insurance coverage could have a
materially adverse effect on the Company's business, financial condition and
results of operations. Even unsuccessful claims could result in the Company's
expenditure of funds in litigation and diversion of management time and
resources. There can be no assurance that the Company's insurance will cover
such claims, that the Company will not be subject to product liability claims
that will result in liability in excess of its insurance coverage or that
appropriate insurance will continue to be available to the Company in the future
at commercially reasonable rates.

International Sales

         To date, the Company's international sales have been insignificant. The
Company intends to increase its marketing efforts in the international markets.
To the extent that international sales become significant, the Company's results
of operations may be subject to the risks inherent in international
transactions, including difficulties in staffing and managing foreign sales
operations, changes in regulatory requirements, exchange rates and tariffs or
other barriers. The Company has limited experience in business operations
outside the United States, and there can be no assurance that the Company's
software will be accepted in international markets or that the Company can
compete successfully in such markets.

Control by Directors, Executive Officers and Affiliated Entities

         As of March 31, 1997, the Company's executive officers, directors and
their affiliates beneficially own approximately 52% of the outstanding shares of
the Company's Common Stock. As a result, these stockholders are able to elect
all of the Company's directors, retain the voting power to approve all matters
requiring stockholder approval, including the acceptance and rejection of any
proposals relating to a merger of the Company or an acquisition of the Company
by another entity, and has significant influence over the affairs of the
Company. Such concentration of ownership may have the effect of delaying,
deferring or preventing a change in control of the Company.

Products

         Software and systems as complex as those offered by the Company
frequently contain undetected errors or failures when first introduced or when
new versions are released. The Company has in the past discovered bugs and
system errors in certain of its software enhancements, both before and after
initial shipment. There can be no assurance that, despite testing by the
Company, errors will not occur in the Company's products resulting in loss of,
or delay in, market acceptance. Any such loss or delay could have a materially
adverse effect on the Company's business, financial condition and results of
operations. Peripherals and hardware from third party manufacturers may contain
defects and incompatibilities which could adversely effect market acceptance of
the Company's software products.

         In addition, the markets for the Company's software are characterized
by rapid technological advances, changes in customer requirements and frequent
new product introductions and enhancements of products, operating systems and
environments. The Company's future success will depend upon its ability to
enhance its current product line, to complete products currently under
development, to develop and introduce new products that keep pace with
technological developments and to respond to evolving customer requirements. Any
failure by the Company to anticipate or respond adequately to technological
developments by its competitors or to changes in customer requirements, or any
significant delays in product development or introduction could have a
materially adverse effect on the Company's business, financial condition and
results of operations. In the past, the Company has occasionally experienced
delays in the development and introduction of new software and software
enhancements, and there can be no assurance that the Company will not experience
such delays in the future. Timeliness of delivery is of critical importance to
certain customers, and the Company's failure to successfully develop and ship
such products in a timely 

                                       12
<PAGE>   13
manner could result in cancellation of customer orders which could have a
materially adverse effect on the Company's business, financial condition and
results of operations.

New Product Development; Technological Change

         The market for Internet/Intranet-related software designed for use in
healthcare environments is in the early stages of development. Since this market
is new, and because current and future competitors are likely to introduce
competing Internet/Intranet software, it is difficult to predict the rate at
which the market will grow, if at all, or the rate at which new or increased
competition will result in market saturation. The success of ClinicalWare is
highly dependent upon the market acceptance of the Internet/Intranet
technologies for healthcare environments. If the market for such
Internet/Intranet software fails to grow or grows more slowly than anticipated,
the Company's business, financial condition and results of operations would be
materially adversely effected. The Company expects that the sales cycle for
ClinicalWare will be longer than that for its other existing products and that
the price for ClinicalWare will be higher than that for the Company's other
current products. Accordingly, the Company's quarterly revenues and operating
results may be subject to greater fluctuation as the Company begins to market
and sell ClinicalWare. Additionally, the Company faces greater challenges in
installing and supporting ClinicalWare because of the complexity of
Internet/Intranet related software and systems. The Company has limited
experience in marketing, installing and supporting Internet/Intranet clinical
information systems, and there can be no assurance that the Company can obtain
the necessary resources to market, install and support ClinicalWare in an
efficient, cost-effective and competitive manner. The failure of ClinicalWare to
achieve market acceptance for any reason could have a materially adverse effect
on the Company's business, financial condition and results of operations.

Customers

         CompuRAD presently has licensed its products to hospitals, clinics,
other healthcare facilities and physician groups. The Company's customers
include New York University Medical Center, Alliant Health Systems, Symphony
Mobilex, which is a subsidiary of Integrated Health Services, Inc., and the
Nursing Home Group plus many other leading healthcare facilities and
organizations.

         For the three months ended March 31, 1997 and 1996, one customer,
Symphony Mobilex, a subsidiary of Integrated Health Services, Inc. ("Symphony
Mobilex"), accounted for 29.7% and 23.2%, respectively, of the Company's
revenues. The Company has agreements with OEMs and some of these agreements
require OEMs to purchase a minimum amount of the Company's products each year. A
significant reduction in sales volume attributable to the loss of any of the
Company's customers, losses arising from customer disputes regarding shipments
or license, installation and service fees or the Company's inability to collect
accounts receivable from any major customer could have a materially adverse
effect on the Company's business, financial condition and results of operations.

         To date, sales of the Company's teleradiology products, including PC
Teleradiology and its successor iNET, accounted for a substantial majority of
its revenues. Sales of the iNET product line could decline for a number of
reasons including consolidation in the healthcare market and changes in
government regulation that reduce or eliminate reimbursement for teleradiology
services. If sales of the Company's iNET product line decline for any reason,
the Company's business, financial condition and results of operations would be
materially adversely effected.

Competition

         The Company believes that the principal competitive factors for
selecting medical image management software and systems are the reputation and
market position of the vendor and the price, reliability, ease of use,
functionality and performance of the product or system. The Company believes it
competes effectively with respect to these factors.

         Competition in the markets for medical image management products and
healthcare information systems and services is intense and is expected to
increase. The Company's competitors include other providers of medical image
management and healthcare information products. The Company's principal
competitors in the medical image management industry are E-Med, an E-Systems
Medical Electronics Inc. company, which is a subsidiary of Raytheon Corp.,
Cemax-Icon, Inc. and Applicare Medical Imaging B.V. Furthermore, other major
healthcare information and equipment companies not presently offering competing
products may enter the Company's markets. In addition, the emerging market for
Internet/Intranet clinical information systems is expected to be highly
competitive, and the 

                                       13
<PAGE>   14
Company's competitors in this market could include many of its competitors in
the medical image management systems market as well as other providers of
healthcare information systems and new entrants into the marketplace. Increased
competition could result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely effect the Company's
business, financial condition and results of operations. In addition, many of
the Company's competitors and potential competitors have significantly greater
financial, technical, product development, marketing and other resources and
market recognition than the Company. Many of the Company's competitors also
currently have, or may develop or acquire, substantial installed customer bases
in the healthcare industry. As a result of these factors, the Company's
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements or to devote greater resources to the
development, promotion and sale of their products than the Company. There can be
no assurances that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not have a materially adverse effect on its business, financial
condition or results of operations.

Proprietary Rights

         The Company relies on a combination of trade secrets, copyright and
trademark laws, nondisclosure and other contractual provisions to protect its
proprietary rights. The Company has not filed any patent applications covering
its technology or registered its trademarks. There can be no assurance that
measures taken by the Company to protect its intellectual property will be
adequate or that the Company's competitors will not independently develop
systems and services that are substantially equivalent or superior to those of
the Company. Substantial litigation regarding intellectual property rights
exists in the software industry, and the Company expects that software products
may be increasingly subject to third party infringement claims as the number of
competitors in the Company's industry segment grows and the functionality of
systems overlap. Although the Company believes that its systems and applications
do not infringe upon the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future, that the Company would prevail in any such dispute or
that a license or similar agreement will be available on reasonable terms in the
event of an unfavorable ruling on any such claim. In addition, any such claim
may require the Company to incur substantial litigation expenses or subject the
Company to significant liabilities and could have a material adverse effect on
the Company's business, financial condition and results of operations.

Government Regulation

         Medical image management software is subject to extensive government
regulation as a medical device in the United States by the Food and Drug
Administration ("FDA") and in other countries by corresponding foreign
regulatory authorities. The process of obtaining and maintaining required
regulatory clearances and approvals is lengthy, expensive and uncertain.
Generally, before a new medical device can be introduced into the market in the
United States, the manufacturer or distributor must obtain FDA clearance of a
510(k) premarket notification or approval of a Premarket Approval ("PMA")
application. If a medical device manufacturer or distributor can establish,
among other things, that a device is "substantially equivalent" in intended use
and technological characteristics to certain legally marketed devices, for which
the FDA has not required a PMA, the manufacturer or distributor may seek
clearance from the FDA to market the device by filing a 510(k). In recent years,
the FDA has been requiring a more rigorous demonstration of substantial
equivalence. Material changes to legally marketed medical devices are also
subject to FDA review and clearance or approval prior to commercialization in
the United States.

         The Company has obtained 510(k) clearance for its current medical image
management software. However, the Company believes that its success depends upon
commercial sales of new versions of its medical image management software which
may be subject to clearance or approval from the FDA and its foreign
counterparts. There can be no assurance that a similar 510(k) clearance for any
future product or enhancement of an existing product will be granted or that the
process will not be lengthy. If the Company cannot establish that a product is
"substantially equivalent" to certain legally marketed devices, the 510(k)
clearance procedure may be unavailable and the Company may be required to
utilize the longer and more expensive PMA process. Failure to receive or delays
in receipt of FDA clearances or approvals, including the need for additional
data as a prerequisite to clearance or approval, could have a materially adverse
effect on the Company's business, operating results and financial condition.

         The process of obtaining a 510(k) clearance generally requires
supporting data, which can be extensive and extend the regulatory review process
for a considerable length of time. FDA enforcement policy strictly prohibits the
marketing of cleared or approved medical devices for uncleared or unapproved
uses. The Company has been inspected 

                                       14
<PAGE>   15
once and will continue to be inspected on a routine basis by the FDA for
compliance with the FDA's Quality System Regulation ("QSR") and other applicable
regulations. The Company will be required to adhere to applicable FDA QSR
regulations and similar regulations in other countries, which include testing,
control, and documentation requirements. Failure to comply with applicable
regulatory requirements could result in the failure of the government to grant
market clearance or premarket approval, withdrawal of approvals or criminal
prosecution. The Company is also subject to other federal, state and local laws
and regulations relating to safe working conditions and manufacturing practices.
The extent of government regulation that might result from any future
legislation or administrative action cannot be predicted. Failure to comply with
regulatory requirements could have a materially adverse effect on the Company's
business, financial condition and results of operations.

         Sales of the Company's software outside the United States are subject
to foreign regulatory requirements that vary from country to country. Additional
approvals from foreign regulatory authorities may be required, and there can be
no assurance that the Company will be able to obtain foreign marketing approvals
on a timely basis or at all, or that it will not be required to incur
significant costs in obtaining or maintaining its foreign regulatory approvals.
In Europe, the Company will be required to obtain certifications necessary to
enable the "CE" mark to be affixed to the Company's products by mid 1998 to
continue commercial sales in member countries of the European Union. The CE mark
is an international symbol of quality and complies with applicable European
medical device directives. The Company has not obtained such certifications, and
there can be no assurance it will be able to obtain such certifications or any
other international regulatory approvals in a timely manner, or at all. Failure
to obtain such certifications, any necessary foreign regulatory approvals or any
other failure to comply with regulatory requirements outside the United States
could have a materially adverse effect on the Company's business, financial
condition and results of operations.





                                       15
<PAGE>   16
                                 COMPURAD, INC.
                          PART II. - OTHER INFORMATION


Item 1.           LEGAL PROCEEDINGS

                  The Company is not involved in any material legal proceedings
                  at this time. However, there can be no assurances that the
                  Company will not be subject to legal proceedings in the
                  future, which could have a material effect on the Company's
                  financial position. In addition, even if the ultimate outcome
                  of such legal proceedings is resolved in favor of the Company,
                  the defense of such litigation could entail considerable costs
                  and the diversion of efforts of management, either of which
                  could have a material adverse effect on the Company's results
                  of operations.

Item 2.           CHANGES IN SECURITIES

                  None.

Item 3.           DEFAULTS UPON SENIOR SECURITIES

                  None.

Item 4.           SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None.

Item 5.           OTHER INFORMATION

                  None.

Item 6.           EXHIBITS AND REPORTS ON FORM 8-K

         (a)      EXHIBITS

     Exhibit No.  Description
     -----------  -----------

         3.1*     Restated Certificate of Incorporation, as amended, of
                  Registrant.

         3.2*     Bylaws, as amended, of Registrant.

         3.3      Certificate of Amendment of Bylaws of Registrant.

         4.1*     Form of Common Stock certificate.

         4.2*     Form of Warrant.

         10.1*    Stock Option Plan and form of option agreement thereunder.

         10.2*    1996 Stock Plan and form of option agreement thereunder.

         10.3*    1996 Employee Stock Purchase Plan and form of subscription
                  agreement thereunder.

         10.4*    Form of Indemnification Agreement to be entered into between
                  Registrant and its directors and officers.

         10.5*    Shareholder Agreement dated January 15, 1993 between
                  Registrant and certain holders of Common Stock, amended by
                  Settlement Agreement - See Exhibit 10.10.

         10.6**   Lease dated August 24, 1996, relating to facility located at
                  Tucson, Arizona.

         10.7**   Amendment one to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         10.8**   Amendment two to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         10.9***  Amendment three to the lease dated August 24, 1996, relating
                  to facility located at Tucson, Arizona.

         10.10*   Settlement Agreement dated as of July 14, 1996 among the
                  Company, Arizona State Radiology, P.C. et al.

         10.11*   Employment Agreement between Registrant and Phillip Berman.

         10.12*   Employment Agreement between Registrant and Cary Cole.

         10.13    Amendment four to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         11.1     Statement Regarding Computation of Net Loss Per Share.

         27.1     Financial Data Schedule.



                                       16
<PAGE>   17
----------
*        Incorporated by reference to exhibits filed with the Company's
         Registration Statement on Form SB-2 (File No. 333-5296-LA), in the form
         declared effective on August 27, 1996.

**       Incorporated by reference to the Company's Form 10-QSB (File No.
         000-21157) and its exhibits filed for the quarterly period ended
         September 30, 1996.

***      Incorporated by reference to the Company's Form 10-KSB (File No.
         0000-21157) and its exhibits filed for the year ended December 31,
         1996.

         (b)      REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed during the quarter for which
this report is filed.



                                       17
<PAGE>   18
                                 COMPURAD, INC.
                                   SIGNATURES


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


CompuRAD, Inc.


Date:  May  12, 1997                            /s/ Phillip Berman, M.D.
       --------------------                    ---------------------------------
                                               Phillip Berman, M.D.
                                               Chairman, Chief Executive Officer
                                               and President




Date:  May  12, 1997                           /s/ Kevin Donovan
       --------------------                    ---------------------------------
                                               Kevin Donovan
                                               Vice President, Finance and Chief
                                               Financial Officer




                                       18
<PAGE>   19
                                 COMPURAD, INC.
                                    EXHIBITS


      Exhibit No.               Description
      -----------               -----------

         3.1*     Restated Certificate of Incorporation, as amended, of
                  Registrant.

         3.2*     Bylaws, as amended, of Registrant.

         3.3      Certificate of Amendment of Bylaws of Registrant.

         4.1*     Form of Common Stock certificate.

         4.2*     Form of Warrant.

         10.1*    Stock Option Plan and form of option agreement thereunder.

         10.2*    1996 Stock Plan and form of option agreement thereunder.

         10.3*    1996 Employee Stock Purchase Plan and form of subscription
                  agreement thereunder.

         10.4*    Form of Indemnification Agreement to be entered into between
                  Registrant and its directors and officers.

         10.5*    Shareholder Agreement dated January 15, 1993 between
                  Registrant and certain holders of Common Stock, amended by
                  Settlement Agreement - See Exhibit 10.10.

         10.6**   Lease dated August 24, 1996, relating to facility located at
                  Tucson, Arizona.

         10.7**   Amendment one to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         10.8**   Amendment two to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         10.9***  Amendment three to the lease dated August 24, 1996, relating
                  to facility located at Tucson, Arizona.

         10.10*   Settlement Agreement dated as of July 14, 1996 among the
                  Company, Arizona State Radiology, P.C. et al.

         10.11*   Employment Agreement between Registrant and Phillip Berman.

         10.12*   Employment Agreement between Registrant and Cary Cole.

         10.13    Amendment four to the lease dated August 24, 1996, relating to
                  facility located at Tucson, Arizona.

         11.1     Statement Regarding Computation of Net Loss Per Share.

         27.1     Financial Data Schedule.


----------
*        Incorporated by reference to exhibits filed with the Company's
         Registration Statement on Form SB-2 (File No. 333-5296-LA), in the form
         declared effective on August 27, 1996.

**       Incorporated by reference to the Company's Form 10-QSB (File No.
         000-21157) and its exhibits filed for the quarterly period ended
         September 30, 1996.

***      Incorporated by reference to the Company's Form 10-KSB (File No.
         0000-21157) and its exhibits filed for the year ended December 31,
         1996.