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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934


    For The Third Quarter Ended September 30, 1996 Commission File #0-19240
                                                                   -------

                            U.S. HOMECARE CORPORATION
             (Exact name of registrant as specified in its charter)



          New York                                         13-2853680
-------------------------------            ------------------------------------
(State or other jurisdiction of            (I.R.S. Employer
 incorporation or organization )           Identification Number)


750 Main Street, Hartford, CT                              06103
-------------------------------            ------------------------------------
(Address of principal executive            (Zip Code)
 office)


Registrant's telephone number,                            (860)278-7242
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  reports),  and (2) has been  subject to such filing
requirements for the past 90 days.
Yes X   No
   ---    ---

            Number of Shares of Registrant's Common Stock Outstanding
                          September 30, 1996: 9,097,493


<PAGE>


                            U.S. HOMECARE CORPORATION

                                      INDEX

                                                                     Page Number

Part I   -    Financial Information

   Item 1     Consolidated Balance Sheets as of September 30,
              1996 and December 31, 1995                                  1

              Consolidated Statements of Operations
              for the three months ended September 30, 1996
              and 1995.                                                   2

              Consolidated Statements of Operations
              for the nine months ended September 30, 1996
              and 1995.                                                   3

              Consolidated Statements of Cash Flows
              for the nine months ended September 30, 1996
              and 1995.                                                   4

              Notes to Unaudited Consolidated
              Financial Statements.                                       5-8

   Item 2     Management's Discussion and Analysis
              of Financial Condition and Results of
              Operations.                                                 9-13

Part II   -   Other Information


   Item 1     Legal Proceedings                                          14-15

   Item 5     Other Information                                           15

   Item 6     Exhibits & Reports on Form 8-K                             15-18

              Signatures                                                  19


<PAGE>
<TABLE>
<CAPTION>


                   U.S. HOMECARE CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except per share data)

                                                                 September 30, December 31,
                                                                   1996          1995
                                                                 ----------    --------
ASSETS                                                           (unaudited)
<S>                                                                <C>         <C>              
CURRENT ASSETS

    Cash and cash equivalents                                       $    360    $    225
    Accounts receivable, net of allowance
         for doubtful accounts of  $3,028 and $2,960                  12,138      15,480
    Other current assets                                               1,849       2,329
    Receivable from IV sale                                            2,000
                                                                    --------    --------
               TOTAL CURRENT ASSETS                                   16,347      18,034
                                                                    --------    --------

PROPERTY AND EQUIPMENT, net                                            2,708       3,875
                                                                    --------    --------

OTHER ASSETS
    Excess cost over net assets acquired, net
        of accumulated amortization of $632  and $2,496                1,602      11,669
    Intangible assets, net of accumulated
       amortization of $5,048 and $6,573                                 939       3,735
    Other                                                                854       1,128
                                                                    --------    --------
              TOTAL OTHER ASSETS                                       3,395      16,532
                                                                    --------    --------
TOTAL ASSETS                                                        $ 22,450    $ 38,441
                                                                    ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
    Current maturities of long-term debt                            $ 12,851    $  1,119
    Accounts payable                                                   3,804       4,205
    Accrued Expenses                                                   6,863       2,229
    Restructuring reserves                                             5,009       1,172
    Accrued payroll and related costs                                  1,296       1,123
                                                                    --------    --------
              TOTAL CURRENT LIABILITIES                               29,823       9,848
                                                                    --------    --------

OTHER LIABILITIES
    Bank revolving line of credit                                                 11,766
                                                                                --------
    Capital lease obligations and other long-term debt                    69         758
    Deferred income taxes                                                154         154
                                                                    --------    --------
              TOTAL OTHER LIABILITIES                                    223      12,678
                                                                    --------    --------
TOTAL LIABILITIES                                                     30,046      22,526
                                                                    --------    --------

STOCKHOLDERS' EQUITY (DEFICIT)
    Common stock, $0.01 par value,  20,000,000 shares authorized,
    9,130,303 and 8,782,963 shares outstanding                            91          88
    Preferred stock, $1 par value, 484,000 authorized, 328,569
        shares outstanding                                               328         328
    Additional paid-in capital                                        45,028      45,688
    Accumulated deficit                                              (52,856)    (28,607)
    Treasury stock at cost, 32,810 and 277,936 shares                   (187)     (1,582)
                                                                    --------    --------
              TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                    (7,596)     15,915
                                                                    --------    --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)                  $ 22,450    $ 38,441
                                                                    ========    ========
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                      -1-
<PAGE>

                            U.S. HOMECARE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)

<TABLE>
<CAPTION>
                                                         Three Months Ended
                                                             September 30,
                                                    --------------------------


<S>                                                          <C>         <C>
(In thousands, except per share data)                       1996        1995
                                                        --------    --------

Net revenues                                            $ 13,557    $ 13,937

Cost of revenues, primarily payroll and related costs     11,216       9,422
                                                        --------    --------

Gross profit                                               2,341       4,515

Operating expenses:
        Selling, general & administrative expenses         5,645       4,285
        Amortization and depreciation                        472         531
        Restructuring charges - Note 4                     4,524

                                                        --------    --------
Total operating expenses                                  10,641       4,816

Loss from operations                                      (8,300)       (301)
                                                        --------    --------

Interest expense                                             292         225
                                                        --------    --------

Loss before provision for income taxes                    (8,592)       (526)

Provision for state income taxes                              29           0
                                                        --------    --------
Income from continuing operations                         (8,621)       (526)

Discontinued Operations:  (Note 3)
Income (loss)from discontinued operations                 (1,573)        336
Loss on sale of IV therapy business                      (12,879)
                                                        --------    --------

Net loss                                                ($23,073)   ($   190)
                                                        ========    ========

Weighted average common shares outstanding                 9,066       8,073
                                                        ========    ========

Loss per share:
Loss from continuing operations                         ($   .95)   ($   .06)
Discontinued Operations:
     Income (loss) from operations                          (.17)        .04
     Loss on disposal of IV therapy business                           (1.42)
                                                        --------    --------
                                                        ($  2.54)   ($   .02)
                                                        ========    ========
</TABLE>


      See accompanying notes to unaudited consolidated financial statements.


                                      -2-
<PAGE>


                            U.S. HOMECARE CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)
<TABLE>
<CAPTION>

                                                          Nine Months Ended
                                                            September 30,
                                                     --------------------------

<S>                                                          <C>         <C>
(In thousands, except per share data)                       1996        1995
                                                        --------    --------

Net revenues                                            $ 42,300    $ 41,814

Cost of revenues, primarily payroll and related costs     30,267      28,072
                                                        --------    --------

Gross profit                                              12,033      13,742

Operating expenses:
        Selling, general & administrative expenses        14,976      13,616
        Amortization and depreciation                      1,498       1,656
        Restructuring charges                              4,524           0

                                                        --------    --------
Total operating expenses                                  20,998      15,272

Loss from operations                                      (8,965)     (1,530)
                                                        --------    --------

Interest expense                                             854         648
                                                        --------    --------

Loss before provision for income taxes                    (9,819)     (2,178)

Provision for state income taxes                              86           0
                                                        --------    --------
Income from continuing operations                         (9,905)     (2,178)

Discontinued Operations:  (Note 3)
Income (loss) from discontinued operations                (1,464)        677
Loss on sale of IV therapy business                      (12,879)
                                                        --------    --------

Net loss                                                ($24,248)   ($ 1,501)
                                                        ========    ========

Weighted average common shares outstanding                 8,773       8,050

Loss per share:
Loss from continuing operations                         ($  1.12)   ($   .27)
Discontinued Operations:
     Income (loss) from operations                          (.17)        .08
     Loss on disposal of IV therapy business               (1.47)       --
                                                        --------    --------
                                                        ($  2.76)   ($   .19)
                                                        ========    ========
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.

                                      -3-

<PAGE>

<TABLE>
<CAPTION>

                   U.S. HOMECARE CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In Thousands)

                                                                                For the nine months ended
                                                                                       September 30,
                                                                                --------------------------
                                                                                       1996        1995
                                                                                       ----        -----
                                                                                        ( unaudited )
CASH FLOWS FROM OPERATING ACTIVITIES                                     
                                                              

<S>                                                                                      <C>         <C>
    Net loss                                                                        ($24,248)   ($ 1,501)

    Adjustments to reconcile net cash (used in)/provided by operating activities:

       Loss on sale of IV therapy business                                            12,879
       Issuance of common stock for services                                             133
       Depreciation and amortization                                                   2,457       2,599
       Provision for bad debts                                                         1,016         945
    Changes in operating assets and liabilities:
       Decrease/(increase) in accounts receivable                                      2,326      (2,538)
       Decrease in other current assets                                                  480       2,478
       (Increase)in receivable from IV sale                                           (2,000)
       Decrease/(increase) in other assets                                               274        (368)
       Decrease in accounts payable                                                     (401)     (2,621)
       Increase in accrued expenses                                                    3,933           0
       (Decrease)/increase in restructuring reserve                                    3,837      (2,312)
       Increase in accrued payroll and related costs                                     172         401
                                                                                    --------    --------
    Net cash (used in)/provided by operating activities                                  858      (2,917)
                                                                                    --------    --------

CASH FLOWS FROM INVESTING ACTIVITIES

    (Purchase)of property and equipment, net                                               0        (106)
                                                                                    --------    --------
    Net cash (used in)investing activities                                                 0        (106)
                                                                                    --------    --------

CASH FLOWS FROM FINANCING ACTIVITIES

    Payments on promissory note                                                       (2,000)
    Payments on capital leases and long-term debt                                       (723)     (2,681)
    Decrease in cash overdraft                                                        (1,145)
    Purchase of treasury stock                                                          (329)
    Issuance of preferred stock                                                        8,662
                                                                                    --------    --------
    Net cash (used in) provided by financing activities                                 (723)      2,507
                                                                                    --------    --------

    Net increase/(decrease) in cash                                                      135        (516)
    Cash and cash equivalents, beginning of period                                       225         659
                                                                                    --------    --------

    Cash and cash equivalents, end of period                                        $    360    $    143
                                                                                    ========    ========

    Cash paid during the period for:
    Income taxes                                                                    $      0    $     25
                                                                                    ========    ========
    Interest                                                                        $    854    $    782
                                                                                    ========    ========
</TABLE>



     See accompanying notes to unaudited consolidated financial statements.

                                      -4-
<PAGE>

                            U.S. HOMECARE CORPORATION

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1        -   Unaudited Information

     In  the  opinion  of the  management  of  U.S.  HomeCare  Corporation  (the
     "Company"),  the accompanying  unaudited  consolidated financial statements
     contain all  adjustments  (consisting  of only normal  recurring  accruals)
     necessary  to  present  fairly  the  Company's  financial  position  as  of
     September  30, 1996 and the results of its  operations  for the three month
     and  nine  month  periods  ended   September  30,  1996  and  1995.   These
     consolidated  financial  statements  should be read in conjunction with the
     Company's Annual Report on Form 10-K for the fiscal year ended December 31,
     1995.

     The results of  operations  for the nine month period ended  September  30,
     1996 are not  necessarily  indicative of the results to be expected for the
     full year. (See Note 3)

Note 2        -   Revenue Recognition

     The Company recognizes revenues as the services are performed.  The Company
     receives  retroactive  increases to certain rates. The Company records such
     additional  amounts as revenue  when they are  notified by the payor or the
     amount  is  estimable.  Certain  of  the  Company's  revenues  and  related
     disbursements  are subject to audit by third party payors;  these  revenues
     are accrued on an  estimated  basis in the period the related  services are
     rendered.  Net revenues are adjusted,  as required in  subsequent  periods,
     based on final settlement.

Note 3        -   Discontinued Operations

     On October 31, 1996, the Company  completed the sale of certain assets (not
     including accounts receivable) of its IV therapy business for approximately
     $2,000,000 in cash.  The sale had an effective date of October 1, 1996. The
     accompanying  consolidated financial statements of operations for the three
     and nine month  periods  ended  September  30,  1996 and 1995  present  the
     results  of  operations  of  the  IV  therapy  business  as a  discontinued
     operation. As a result of the sale, the Company recorded a loss on disposal
     of the IV therapy  business of $12,879,000  in the quarter ended  September
     30, 1996.  Such loss on sale  included (1) a write-off  of  $11,577,000  of
     goodwill and other intangible assets, (2) additional  provisions for losses
     on accounts  receivable  of  $1,678,000,  and (3)  $1,624,000  related to a
     charge  for  severance  and other  anticipated  costs  during the phase out
     period  net of (4) the  net  cash  proceeds  of the  sale of  approximately
     $2,000,000.

     The  income  (loss)  from  operations  of  the  IV  therapy   business  was
     ($1,573,000) and $336,000 for the three months ended September 30, 1996 and
     1995, respectively and ($1,464,000) and $677,000 for the nine month periods
     ended  September  30,  1996 and  1995,  respectively.  As a  result  of net
     operating loss tax credit  carryforwards,  no income tax benefits have been
     recognized for the discontinued operations.  The September 30, 1996 balance
     sheet includes  approximately  $236,000 of inventory,  $250,000 of property
     and equipment and $4,200,000 of accounts

                                      -5-
<PAGE>


     receivable  (net of  securitized  accounts  receivable  and  allowance  for
     doubtful  accounts)  related to the assets of the IV therapy business which
     was sold. The accounts receivable have not been sold. Collections on the IV
     accounts  receivable will go first to repay the  securitization  funding of
     approximately  $900,000  and the  portion  of the  RLOC  facility  which is
     supported  by  the IV  receivables  of  approximately  $1,200,000  and  the
     remainder will be available for further debt reduction and operations.

Note 4 -      Restructuring Charges

     During the third  quarter of 1996,  the Company's  Board of Directors  made
     decisions  to  restructure  the  operations  of the Company and restore its
     focus on core home nursing operations. These decisions included the sale of
     the Company's IV therapy business  discussed in Note 3. Additional  actions
     included  the   retention  of  two   individual   turnaround   specialists,
     implementation of plans to reorganize its home nursing operations in a more
     cost  effective  manner,  a  reduction  in both  corporate  management  and
     non-management  expenses  and  consolidation  of  certain  offices.  It  is
     expected that the  reorganization  plan will be completed by the end of the
     first quarter of 1997. As a result of these decisions, the Company recorded
     a  restructuring  charge of  $4,524,000  at  September  30,  1996 which was
     comprised of: severance of $1,000,000,  turnaround specialists  $1,898,000,
     and other  reorganization  costs of $1,626,000  (including asset write-offs
     and  lease  costs).   The  reserve  for  compensation  for  the  turnaround
     specialists  includes a monthly cash retainer  aggregating $428,000 through
     September 1997 and significant  performance  based equity incentives valued
     at approximately $1,470,000.  (See Note 5). The liability for restructuring
     costs has been reflected in current liabilities at September 30, 1996.

Note 5 -      Stock Options

     In connection with the reorganization discussed in Note 4 the Company
     granted options to purchase an aggregate of 1,730,000 shares of common
     stock as performance based equity incentives under its Stock Issuance
     Program to the turnaround specialists for $.15 per share. 576,667 of the
     options were vested upon issuance. The remainder of the options vest
     through September 2002 with the vesting accelerated in the event certain
     earnings targets are attained in the future or certain realization events,
     including the sale of the business, occur in the future. The option
     agreement includes a provision which allows the grantees to "put" the
     options back to the Company on or after December 31, 1997 for $1,500,000.

Note 6   -    Litigation

    No significant additional litigation matters have occurred since the filing
    of the 1995 10-K. For a more detailed description of pending matters, see
    Note 9c to the Consolidated Financial Statements in the 1995 10-K.

Note 7   -    Cash and Cash Equivalents

     Cash  and cash  equivalents  at  September  30,  1996  include  a  $130,925
     certificate  of deposit which has been pledged as collateral for a stand-by
     letter of credit issued by one of the Company's  banks in connection with a
     government home health care contract.

                                      -6-
<PAGE>


Note 8   -    Stockholders Equity

     On  February 1 and  February  8,  1995,  the  Company  issued and sold in a
     private  placement  a total of  271,428  shares of  $35.00  6%  Convertible
     Preferred Stock,  $1.00 par value ( the "$35.00  Preferred") for $35.00 per
     share (the "Private  Placement").  The $35.00 Preferred is convertible into
     5,428,560  shares of Common Stock at a conversion price of $1.75 per share,
     subject to certain  adjustments,  and will be automatically  converted into
     Common  Stock if the 20 day  moving  average of the  closing  prices of the
     Company's  Common  Stock is  greater  than  $4.375  per  share.  The $35.00
     Preferred pays an annual dividend of $2.10,  which is payable  quarterly in
     cash or, at the Company's  option,  Common Stock.  Simultaneously  with the
     initial closing of the Private  Placement,  all of the holders of Preferred
     Stock  issued in  September  and October  1994 (the  "Exchange  Preferred")
     exchanged their 57,141 shares of Exchange  Preferred for an equal number of
     shares of the $35.00 Preferred and exchanged their certain related Warrants
     for Warrants to purchase an  aggregate of 99,997  shares of Common Stock at
     $1.75 per share.  These  dividends  were paid by  issuing  shares of Common
     Stock from Treasury.

     During June 1996,  the Company issued 315,931 common shares in lieu of cash
     payments for several  obligations.  These shares included 250,000 issued in
     connection with the  renegotiation  of the lease  obligation for one of the
     Company's  locations  in  New  York  State  and  25,000  shares  issued  in
     connection  with the  termination  of a lease for a former IV location.  In
     addition, 29,567 shares were issued to directors in lieu of cash fees under
     the directors  automatic stock fee program and 11,364 shares were issued to
     the Company's CEO in lieu of cash compensation for a portion of his salary.
     The impact of these  transactions was to increase  Stockholders'  Equity by
     $697,000.

     During  September  1996,  31,409 shares were issued to directors in lieu of
     cash fees under the directors  automatic  stock fee program.  The impact of
     the issuance of the shares was to increase Stockholders' Equity by $42,500.

Note 9   -    Commitments and Contingencies

     A Medicare  audit of the Home  Office cost report for the fiscal year ended
     June 30, 1994 was begun during March 1996.  The  preliminary  audit results
     were  received  in  October  1996 and as a  result  an  additional  revenue
     reduction of $633,000  was  reflected in the quarter  ended  September  30,
     1996.

     During the quarter  ended  September  30,  1996,  the  Company  recorded an
     additional  reduction in revenue of $500,000 for the remaining  cost report
     periods subject to audit.

Note 10  -    Accounting for Stock-Based Compensation

     Effective  January 1, 1996, the Company has adopted  Statement of Financial
     Accounting  Standards No. 123 "Accounting  for  Stock-Based  Compensation".
     SFAS No. 123 requires  expanded  disclosures  of  stock-based  compensation
     arrangements   with  employees  and  encourages   (but  does  not  require)
     compensation  cost to be  measured  based on the fair  value of the  equity
     instrument  awarded.  The Company will continue to apply APB Opinion No. 25
     to its stock based  compensation  awards to employees and will disclose the
     required pro forma effect on net income and earning per share.

                                      -7-
<PAGE>

Note 11  -    Debt and Accounts Receivable Securitization

     The Company's  Revolving  Line of Credit  ("RLOC") and accounts  receivable
     securitization  agreements  with  its  bank  expire  March  31,  1997.  The
     Company's  subordinated  credit  facility  expires April 1, 1997. It is the
     Company's  intention to refinance these obligations,  although there can be
     no  assurance  that  the  Company  will be  successful  in  refinancing  on
     commercially reasonable terms or at all. Because these facilities expire in
     less than a year, all such  outstanding debt has been classified as current
     liabilities  at September  30, 1996.  As a result of the third quarter 1996
     loss,  the Company was in technical  default of its RLOC  agreement and its
     subordinated  credit  facility  for which it has received  waivers  through
     March 31, 1997 and April 1, 1997 respectively.

                                      -8-
<PAGE>

                            U.S. HOMECARE CORPORATION

                     Management's Discussion and Analysis of
                  Financial Condition and Results of Operations


     This  Quarterly  Report  on Form  10-Q  contains  certain  statements  of a
forward-looking  nature  relating  to  future  events  or the  future  financial
performance of the Company.  Such statements are only predictions and the actual
events or results  may  differ  materially  from the  results  discussed  in the
forward-looking  statements.  Factors  that could  cause or  contribute  to such
differences  include  those  discussed  below as well as those  discussed in the
Company's filings with the Securities and Exchange Commission.

R E S U L T S    O F   O P E R A T I O N S

THREE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH THREE MONTHS ENDED  SEPTEMBER 30, 1995

     Reported net revenues from continuing  operations  (home nursing  services)
for the three month period ended September 30, 1996 were $13,557,000 compared to
$13,937,000  for the third  quarter of 1995.  This  decline was the result of an
increase  in third  quarter net  revenue of  $753,000  offset by a reduction  of
$1,133,000  to record the audit  results of the final 1993 home office  Medicare
cost  report,  the  preliminary  1994 home office cost report and an  additional
reduction  for other open cost  reports.  Without the  reduction in revenue from
cost report  adjustments  the Company's  third  quarter  revenue would have been
$14,690,000 or an increase of $753,000, or 5.4% over the 1995 third quarter.

     Cost of revenues increased  $1,794,000 to $11,216,000 for the third quarter
1996 compared to $9,422,000  for the third quarter of 1995. The increase in cost
of  revenues  reflects   increased  workers   compensation   insurance  expense,
additional employee benefits expense, changes in the mix of direct labor and the
additional direct labor that was required to support the increase in net revenue
(prior to Medicare cost report adjustments).

     Selling, general and administrative expenses for continuing operations were
$5,645,000  in the third  quarter of 1996 as compared to $4,285,000 in the third
quarter  of  1995.  The  increase  in  SG&A  costs  reflects  increased  workers
compensation insurance expense, increased employee benefits expense, in addition
to increased legal fees, information system expense and an increase in personnel
and related costs.

     The Company provided  $4,524,000 for its  restructuring  program  effective
September  30,  1996.  (See Note 4).  The "1996  restructuring  plan"  refocuses
efforts on the Company's core home nursing business and accomplished the sale of
certain  assets  of the  Company's  IV  operations.  The  Company  has  retained
turnaround  specialists,  eliminated  a number of executive  and  administrative
positions,  and closed the remainder of the Company's IV facilities.  Certain of
the  Company's  nursing  offices and corporate  facilities  have been/or will be
consolidated. The Company estimates that $2,272,500 of the restructuring charges
will result in cash outflows related to severance, lease obligations,  and other
restructuring  costs.  These  costs will occur over the next three years and the
Company believes these amounts will be funded from operating cash flow, existing
credit facilities and the collection of IV therapy accounts receivable.

                                      -9-
<PAGE>

     Net interest expense was $292,000 for the third quarter of 1996 compared to
$225,000 for the third  quarter of 1995.  This  increase is the result of higher
average  borrowings on the Company's RLOC facility and the  subordinated  credit
facility during the third quarter of 1996 compared to the third quarter of 1995.

     During the third quarter of 1996 the Company made a decision to exit the IV
therapy  business  and as a result this line of business  has been  treated as a
discontinued  operation.  (See Note 3).The loss from discontinued operations was
$1,573,000  for the third quarter of 1996 compared to income of $336,000 for the
third  quarter of 1995.  This loss was the result of a decrease in  revenue,  an
increase in cost of sales and an increase in selling, general and administrative
expenses.

     The Company also has  incurred a loss on the sale of certain  assets of its
IV therapy business.  (See Note 3). The sale was consummated on October 31, 1996
with an  effective  date of October  1, 1996.  As a result of the sale of the IV
therapy  business the Company  recognized a loss on sale of  $12,879,000  in the
third  quarter  of 1996.  This  loss  included  the write  off of  goodwill  and
intangible assets in the amount of $11,577,000.

     As a result of the  foregoing,  for the three  months ended  September  30,
1996, the Company had a net loss of $23,073,000 or $2.54 per share,  compared to
a net loss of $190,000 or $.02 per share for the corresponding quarter in 1995.

NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH NINE MONTHS ENDED  SEPTEMBER 30, 1995

     Net revenues from  continuing  operations  (home nursing  services) for the
nine month period ended  September 30, 1996  increased by $486,000,  or 1.2%, to
$42,300,000  compared to  $41,814,000  for the nine months ended  September  30,
1995.  Revenue for the nine month period  ended  September  30, 1996  reflects a
reduction  in revenue of $633,000 for the final audit  results of the  Company's
1993 home office Medicare Cost report and the  preliminary  audit results of the
1994 home office cost report and an additional  reduction in revenue of $500,000
for the Company  remaining open Medicare cost reports.  Without the reduction in
revenue from cost report  adjustments  the Company's net revenue from continuing
operations  for the nine  months  ended  September  30,  1996  would  have  been
$43,433,000  or an increase of $1,619,000  over the net revenue from  continuing
operations of $41,814,000 for the nine month ended September 30, 1995.

     Cost of revenues  increased  $2,195,000 to $30,267,000  for the nine months
ended  September  30, 1996  compared to  $28,072,000  for the nine months  ended
September 30, 1995. The increase in cost of revenues reflects  increased workers
compensation insurance expense, additional employee benefits expense, changes in
the mix of direct  labor and the  additional  direct  labor that was required to
support the increase in net revenue (prior to Medicare cost report adjustments).

     Selling, general and administrative expenses for continuing operations were
$14,976,000  for the first nine months of 1996 as compared to $13,616,000 in the
comparable period of 1995. The increase in SG&A costs reflects increased workers
compensation insurance expense, increased employee benefits expense, in addition
to increased legal fees, information system expense and an increase in personnel
and related costs.
                                      -10-
<PAGE>

     The Company added $4,524,000 to its restructure reserve effective September
30, 1996. (See Note 4). The "1996  restructuring  plan" refocuses efforts on the
Company's core home nursing business and accomplished the sale of certain assets
of the Company's IV operations. The Company has retained turnaround specialists,
eliminated a number of executive and  administrative  positions,  and closed the
remainder  of the  Company's IV  facilities.  Certain of the  Company's  nursing
offices and corporate facilities have been/or will be consolidated.  The Company
estimates  that  $2,272,500  of the  restructuring  charges  will result in cash
outflows related to severance, lease obligations, and other restructuring costs.
These  costs will occur over the next two or three years and will be funded from
operating cash flow, existing credit facilities and the collection of IV therapy
accounts.

     Net interest expense was $854,000 for the nine month period ended September
30, 1996  compared to $648,000 for the first nine months of 1995.  This increase
was  the  result  of  higher  average  borrowings  on  the  Company's  RLOC  and
subordinated credit facilities.

     During the third quarter of 1996 the Company made a decision to exit the IV
therapy  business to focus on its core nursing  operations  and as a result this
line of business has been treated as a discontinued operation. (See Note 3). The
loss from  discontinued  operations  was  $1,464,000  for the nine months  ended
September  30, 1996  compared to income of  $677,000  for the nine months  ended
September  30,  1995.  This loss was the result of a  decrease  in  revenue,  an
increase in cost of sales and an increase in selling, general and administrative
expenses.

     The Company also has  incurred a loss on the sale of certain  assets of its
IV therapy business.  (See Note 3). The sale was consummated on October 31, 1996
with an  effective  date of October  1, 1996.  As a result of the sale of the IV
therapy  business the Company  recognized a loss on sale of  $12,879,000  in the
third  quarter  of 1996.  This  loss  included  the write  off of  goodwill  and
intangible assets in the amount of $11,577,000.

     As a result of the foregoing, for the nine month period ended September 30,
1996, the Company had a net loss of $24,248,000 or $2.76 per share,  compared to
a net loss of $1,501,000 or $.19 per share for the corresponding period in 1995.
                                      -11-

<PAGE>

FINANCIAL CONDITION

     As of September 30, 1996 the Company's  cash and cash  equivalents  totaled
$360,000 compared to $225,000 at December 31, 1995.

     Net  accounts   receivable  on  the  balance  sheet  (net  of   securitized
receivables and allowance for bad debt) declined  $3,342,000 from $15,480,000 at
December 31, 1995 to  $12,138,000 at September 30, 1996  principally  due to the
decline in IV therapy  net  revenue  during the first nine  months of 1996.  Net
accounts  receivable managed by the Company (including  accounts receivable sold
under the Company's  securitization program) were $20,672,000 and $24,140,000 at
September 30, 1996 and December 31, 1995, respectively.

     Excess cost over net assets acquired declined  $10,067,000 from $11,669,000
at  December  31,  1995 to  $1,602,000  at  September  30,  1996 due to  regular
amortization  and the write-off of  $9,664,000  in connection  with the sale and
discontinuance of the Company's IV therapy business.

     Intangible assets declined  $2,796,000 from $3,735,000 at December 31, 1995
to $939,000 at September 30, 1996 due to regular  amortization and the write-off
of   $1,913,000  of   intangible   assets  in  connection   with  the  sale  and
discontinuance of the Company's IV therapy business

     Trade  accounts  payable  declined from  $4,205,000 at December 31, 1995 to
$3,821,000 at September 30, 1996  reflecting,  in part, the decline in purchases
of IV products  resulting  from the decline in IV revenue and the  settlement of
certain accounts payable for common stock in lieu of cash.

     Accrued  expenses  increased  from  $2,229,000  at  December  31,  1995  to
$6,863,000 at September 30, 1996 resulting from an increase in accruals  related
to the sale of the IV therapy business,  workers compensation  insurance,  other
benefits and Medicare cost report liabilities.

     The Company  believes that its cash position and liquidity will continue to
require  careful   management  over  the  remainder  of  1996  and  beyond,  not
withstanding  receipts from the proceeds of the sale of certain IV assets.  This
liquidity  pressure  has caused  the  Company  to manage  its  accounts  payable
closely,  including deferral of some disbursements.  This situation has resulted
in a number of  dissatisfied  vendors  including some who are operating with the
Company on cash in advance  (CIA) or cash on  delivery  (COD)  terms and some of
whom have  discontinued  doing  business  with the Company.  Where  vendors have
discontinued  doing business with the Company,  the Company has not  encountered
difficulty in obtaining alternative sources.

     The  Company's  financing  facilities  at  September  30,  1996  included a
$9,000,000  bank revolving line of credit  ("RLOC") which expires March 31, 1997
and a $3,000,000  subordinated  credit  facility which expires April 1, 1997. In
connection  with  the  sale of  certain  assets  of the IV  therapy  business  a
permanent reduction of $500,000 has been made in the availability under the RLOC
effective  November 1, 1996 with  additional  permanent  reductions  of $350,000
(minimum) required on or before February 15, 1997 and another $350,000 (minimum)
required on or before March 28, 1997. The  outstanding  balances on the RLOC and
the subordinated  credit facility have been classified as current liabilities at
September 30, 1996.
                                      -12-
<PAGE>

The Company will seek to renew the RLOC and the subordinated credit facility or
to refinance such facilities. There can be no assurance that the Company will be
able to do so on commercially reasonable terms, or at all. Failure by the
Company to renew or refinance its credit facility would have a material adverse
effect on the business, financial condition and results of operations of the
Company. The Company believes that funds from operations, borrowings under the
Company's credit facilities and collections on accounts receivable from the
Company's discontinued IV therapy operations may not be sufficient to enable the
Company to fund its operations for the foreseeable future. The Company is
seeking to refinance the existing revolving line of credit and subordinated
credit facility which expire March 31, 1997 and April 1, 1997, respectively. The
Company believes that it will need to raise additional equity capital in order
to obtain renewal or refinancing of its credit facilities, and fund its
operations. There can be no assurance that the Company will be able to achieve
the refinancing, or raise sufficient equity capital and failure to do so would
have a material adverse effect on the Company's business, financial conditions
and results of operation.


FACTORS AFFECTING THE COMPANY'S BUSINESS

     The  Company's  future  business,   financial   condition  and  results  of
operations  are  dependent  on the  Company's  ability to  successfully  provide
comprehensive  home health care services to its  customers  and to  successfully
collect for such services. Inherent in this process are a number of factors that
the  Company  must  carefully  manage in order to be  successful.  Some of these
factors are:  obtaining  sufficient  cash flow from  operations to meet its debt
service  and pay  vendors  on a  timely  basis;  obtaining  additional  external
financing to meet its working capital requirements, if necessary; complying with
the financial  covenants in its revolving  line of credit,  subordinated  credit
facility and accounts receivable  securitization programs so the banks would not
have the  right  to  declare  the  amounts  outstanding  under  such  facilities
immediately  due  and  payable;   maintaining  and  establishing  close  working
relationships with home care and social services agencies,  hospitals,  clinics,
nursing homes, physicians and physician groups, health maintenance organizations
and other  health  care  providers;  obtaining  reimbursement  from third  party
payors;  complying  with  applicable  law  regarding  the health care  industry;
attracting and retaining senior management personnel and branch level management
as  well  as  qualified  health  care   professionals   and   paraprofessionals;
maintaining adequate liability insurance;  and competing  effectively with other
home health care  providers.  The  failure to manage such  factors  successfully
could  have a  material  adverse  effect on the  Company's  business,  financial
condition and results of operations.

                                      -13-
<PAGE>


                            U.S. HOMECARE CORPORATION


Part II - Other Information


Item 1.  Legal Proceedings

     HIPS LITIGATION.  In July 1993, in HIPS V. USHC INFUSION, ET AL., Index No.
117835/93  (Supreme  Court,  State of New York, New York County),  Home Infusion
Pharmaceutical  Services, Inc. "HIPS") sued, on a motion for summary judgment in
lieu of complaint, to enforce the payment of promissory notes in the face amount
of $4.5 million and approximately $880,000 in consulting fees in connection with
the acquisition (the "Acquisition") of assets (or an interest therein) from HIPS
and  its  affiliate  Abel  Health  Management   Services,   Inc.   (collectively
"HIPS/Abel")  and their principal,  Edward J. Abel ("Abel").  In September 1994,
the Court denied HIPS's motion for summary judgment and instructed HIPS to bring
     a plenary suit on the promissory notes. In October 1994, HIPS brought such
a
suit and Abel joined in the suit,  seeking payment on the consulting  agreement.
In November  1994,  the Company  answered the complaint and  counterclaimed  for
rescission of the Acquisition, fraudulent inducement, fraud, breach of contract,
breach of the  covenant of good faith and fair  dealing,  and for a  declaratory
judgment  relieving it of any further  purported  obligations in connection with
the Acquisition.

     In  September  1995,  HIPS  moved  to  dismiss  certain  of  the  Company's
counterclaims.  On February 29, 1996 the court denied HIP's motion,  except that
it struck the Company's request for the imposition of punitive damages.  At this
time discovery is continuing.

     In October 1996, the Company moved to compel Able to participate in certain
discovery, and HIPS/Abel sought to  have the Court certify the case as ready for
trial. The Company has opposed that request, and is awaiting the Court's rulings
on the pending applications.

     Although the Company believes that its position in the HIPS/Abel litigation
is  meritorious,  the  ultimate  outcome  of this  matter  cannot  presently  be
determined.  A  reserve  has  been  established  in the  Company's  consolidated
financial  statements for specified amounts in connection with the resolution of
this matter.

     KINGSLAND  LITIGATION.  KINGSLAND  ASSOCIATES  V.  ABEL  HEALTH  MANAGEMENT
SERVICES,  INC. AND U.S. HOMECARE INFUSION THERAPY PRODUCTS  CORPORATION,  Index
No. 14294/93 (Supreme Court of the State of New York, Nassau County) also arises
from the Acquisition.  Based on the Asset Purchase Agreement provision regarding
USHC  Infusion's  assumption  of  certain  liabilities  in  connection  with the
Acquisition,  Abel Health Management Services,  Inc. ("AHMS") has impleaded USHC
Infusion  into these cases  brought by  Kingsland  Associates  ("Kingsland")  in
connection  with AHMS's  abandonment  of three suites of offices.  Kingsland has
also asserted a claim directly against USHC Infusion. Kingsland seeks damages in
excess of  $50,000,  approximately  $325,000 in rent,  attorneys'  fees and rent
escalation  amounts.  USHC  Infusion  filed  an  answer  on  November  5,  1993,
asserting, among other defenses, that because of AHMS's breaches of contract and
torts in connection with the Acquisition,  as alleged in USHC INFUSION,  ET. AL.
V. HIPS,  USHC  infusion  is not liable to AHMS and  therefore  is not liable to
Kingsland.
                                      -14-
<PAGE>

     In  August  1995,   AHMS  moved  to  dismiss  certain  of  USHC  Infusion's
affirmative  defenses.  On March 22, 1996 the Court  granted the motion in part,
denied it in part,  certified the case for trial and ordered AHMS to participate
in  discovery  noticed by the  Company.  In so doing,  the Court upheld the same
defense that was upheld in the HIPS litigation.

     In May 1996,  Kingsland filed a motion seeking a special trial  preference,
designed to move the case to trial  ahead of other cases on the trial  calendar;
the Company  opposed the motion.  At the same time,  the Company  filed a motion
asking the court to (a) dismiss with prejudice the claims of AHMS against it and
(b) preclude AHMS from presenting at trial any evidence or testimony  concerning
USHC Infusions  defenses against AHMS; AHMS opposed the motion, and both motions
are now awaiting decision.

     In September  1996 the Court granted  Kingsland's  motion and directed that
the case be moved  to the top of the jury  calendar  on  December  2,  1996.  In
October 1996 the Court directed AHMS to produce certain  documents and submit to
a deposition, and reserved decision on the balance of the Company's motion.

Item 5.  Other Information.

     On October 31,  1996,  the Company  completed  the sale of the business and
certain assets of its IV therapy business for approximately $2,000,000. The sale
had an effective  date of October 1, 1996.  Assets sold  included  approximately
$142,000 of inventory, $23,000 of property and equipment.

Item 6.    Exhibits and Reports on Form 8-K

  A.       Exhibits - The following exhibits are filed
           herewith or incorporated herein.

           1.  Calculation of earnings/(loss) per share - Three months ended
               September 30,1996 and 1995

           2.  Calculation of earnings/(loss) per share - Nine months ended
                September 30, 1996 and 1995

  10.  (a)  Letter Agreement between the Company and Mehdi Ali, dated
            October 2, 1996

  10.  (b)  Letter Agreement between the Company and James Laird, dated
            October 2, 1996

  10.  (c)  Settlement Agreement and Mutual Release between the Company and
            G. Robert O'Brien, dated October 14, 1996

  10.  (d)  Settlement Agreement and Mutual Release between the Company and
            Stephen H. Matheson, date as of October 31, 1996

                                      -15-
<PAGE>



10.  (e)    Asset Purchase Agreement among Transworld Acquisition Corp.,
            Transworld Home Healthcare,  Inc., U.S. HomeCare Infusion Therapy
            Services Corporation of New Jersey and U.S. HomeCare Corporation,
            dated as of October 31, 1996

 11.        Statement re computation of Per Share Earnings

 B.         Reports on Form 8-K

            1. Form 8-K dated August 22, 1996 reporting Item 5. Other Events.


                                      -16-