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

                                   FORM 10-QSB

              [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                              For the Quarter ended
                                 March 31, 1997

                                       OR

             [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
           For the transition period from____________ to_____________

                       Commission file number ___________

                            UNIVERSAL SELF CARE, INC.
             (Exact Name of Registrant as Specified in its Charter)

          Delaware                                           95-4228470
-------------------------------                         ------------------------
(State or other jurisdiction of                          (I.R.S. Employer
 incorporation or organization)                         Identification No.)

                             11585 Farmington Road.
                             Livonia, Michigan 48150
               (Address of principal executive offices) (Zip code)

        Registrant's telephone number, including area code (313) 261-2988

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.0001 par value
                                (Title of Class)

     Check 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|

     The number of shares outstanding of the registrant's Common Stock, $.0001
Par Value, as of March 31, 1997 was 7,889,706 shares.

<PAGE>

                  UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES

                                    INDEX

PART I - FINANCIAL INFORMATION
                                                                   Page
                                                                  Number
                                                                  ------
      Item 1 - Consolidated Financial Statements

      Consolidated Balance Sheet - March 31, 1997
           and June 30, 1996                                           3

      Consolidated Statement of Operations - For the three
           months and the nine months ended March 31, 1997
           and 1996                                                    4

      Consolidated Statement of Cash Flows - For the
           nine months ended March 31, 1997 and 1996                   5

      Notes to Consolidated Financial Statements                     6 - 9

      Item 2 - Management's Discussion and Analysis of Financial
      Condition and Results of Operation                            10 - 13

PART II - OTHER INFORMATION                                            13

SIGNATURE                                                              14


                                     2 of 14

<PAGE>

                   UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET

                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                    March 31,      June 30,
                            ASSETS                                                    1997           1996
                                                                                  ------------   ------------
<S>                                                                               <C>            <C>         
CURRENT ASSETS:
  Cash                                                                            $    194,033   $     91,066
  Accounts receivable, net allowance for doubtful accounts                        
    of $2,619,000 and $2,007,000, respectively                                      11,982,159     10,200,373 
  Inventories                                                                          502,162        551,154 
  Prepaid expenses                                                                     145,778        136,036 
                                                                                  ------------   ------------ 
      TOTAL CURRENT ASSETS                                                          12,824,132     10,978,629 
                                                                                  
PROPERTY AND EQUIPMENT
  net of accumulated depreciation of $544,478 and $354,361, respectively               915,373        972,334

INTANGIBLE ASSETS
  net of accumulated amortization of $796,116 and $532,771, respectively             5,938,556      6,201,901

DEPOSITS AND OTHER ASSETS                                                               47,637         56,204
                                                                                  ------------   ------------ 
                                                                                  $ 19,725,698   $ 18,209,068
                                                                                  ============   ============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                $  4,599,042   $  6,694,173
  Notes payable - current portion                                                    1,678,497        300,259
  Related party loans                                                                  114,965         60,000
  Accured liabilities                                                                  863,561      1,632,911
  State audit reserves                                                               1,400,000      1,400,000
  Payroll taxes payable                                                                212,341        594,318
  Revolving credit loan                                                              5,543,139           --
                                                                                  ------------   ------------ 
      TOTAL CURRENT LIABILITIES                                                     14,411,545     10,681,661

LONG TERM NOTES PAYABLE, net of current portion                                        793,166      2,315,469

REDEEMABLE PREFERRED STOCK, Series A                                                 1,923,329      2,246,209

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY:
  Preferred stock, Series B Cumulative Convertible, $.0001 par value,
    10,000,000 shares authorized, 1,580,000 shares issued and outstanding              505,000        505,000
  Common stock, $.0001 par value, 40,000,000 shares authorized, 7,889,706 shares
    issued and outstanding as of March 31, 1997                                            789            788
  Additional paid-in capital                                                        10,623,796     10,623,796
  Retained earnings/(deficit)                                                       (8,531,927)    (8,163,855)
                                                                                  ------------   ------------ 
      TOTAL STOCKHOLDERS' EQUITY                                                     2,597,658      2,965,729
                                                                                  ------------   ------------ 

                                                                                  ------------   ------------ 
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 19,725,698   $ 18,209,068
                                                                                  ============   ============
</TABLE>

                See notes to consolidated financial statements.


                                     3 of 14
<PAGE>

                      CONSOLIDATED STATEMENT OF OPERATIONS

                                  (Unaudited)

<TABLE>
<CAPTION>
                                                Three months ended March 31,     Nine months ended March 31,
                                                    1997             1996            1997           1996
                                                 -----------     -----------     ------------     ------------
<S>                                              <C>             <C>             <C>              <C>         
REVENUES                                         $ 7,433,628     $ 8,662,337     $ 25,902,592     $ 27,119,887

COST OF GOODS SOLD                                 4,068,833       5,362,463       14,773,270       16,763,111
                                                 -----------     -----------     ------------     ------------

  GROSS PROFIT                                     3,364,795       3,299,874       11,129,322       10,356,776

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES                          3,442,899       3,755,940       10,726,684       10,527,977
                                                 -----------     -----------     ------------     ------------

OPERATING INCOME/(LOSS)                              (78,104)       (456,066)         402,638         (171,201)

OTHER EXPENSES:
  Amortization and write-off of finance costs                         36,878                            90,959
  Interest expense, net                              225,045        2253,419          610,260          606,853
                                                 -----------     -----------     ------------     ------------

NET INCOME/(LOSS)                                $  (303,149)    $  (746,363)    $   (207,622)        (869,013)
                                                 ===========     ===========     ============     ============

NET INCOME/(LOSS) PER SHARE                      $     (0.06)    $     (0.12)    $      (0.05)           (0.16)
                                                 ===========     ===========     ============     ============

WEIGHTED AVERAGE NUMBER
  OF SHARES USED IN COMPUTATION                    7,889,706       6,669,280        7,889,706        6,501,724
</TABLE>

                See notes to consolidated financial statements.


                                     4 of 14
<PAGE>

                   UNIVERSAL SELF CARE, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENT OF CASH FLOWS

                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                  Nine Months Ended
                                                                      March 31,
                                                               -------------------------
                                                                   1997         1996
                                                               -----------   -----------
<S>                                                            <C>           <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income/(loss)                                            $  (207,622)  $  (869,013)
                                                               -----------   -----------
  Adjustments to reconcile net income (loss) to net cash from
    operating activities:
       Depreciation and amortization                               479,239       401,712

  Changes in operating assets and liabilities:
    (Increase) decrease in accounts receivables                 (1,781,786)    6,962,108
    (Increase) in receivable from accounts receivable sale            --      (4,949,950)
    Decrease in other accounts receivable                             --          89,681
    Decrease in inventories                                         48,992       571,003
    (Increase) in prepaid expenses                                  (9,742)     (923,493)
    Decrease in deposits and other assets                            8,567        67,765
    (Increase) in intangible assets                                   --        (135,480)
    (Decrease) increase in accounts payable                     (2,095,131)    1,300,179
    (Decrease) increase  in accrued liabilities                   (769,350)      361,462
    (Decrease) in payroll taxes payable                           (381,977)         --
                                                               -----------   -----------
       Total adjustments                                        (4,501,188)    3,744,987
                                                               -----------   -----------

    NET CASH (USED IN) OPERATING ACTIVITIES                     (4,708,810)    2,875,974
                                                               -----------   -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Capital expenditures                                            (158,932)     (407,995)
  Net cash paid for acquisitions                                      --        (150,000)
                                                               -----------   -----------
     NET CASH (USED IN) INVESTING ACTIVITIES                      (158,932)     (557,995)
                                                               -----------   -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Increase in cash escrow reserve account                                     (1,550,000)
  Issuance/(Repayment) of related party loans                       54,965      (190,000)
  Borrowing of revolving credit line                             5,543,139          --
  Repayment of revolving credit line                                  --        (884,000)
  Issuance of common stock, net of expenses                           --         485,479
  Issuance of note payable, net of discount                           --       1,783,972
  Net proceeds from (repayment of) long-term debt                 (144,065)   (1,734,778)
  Dividends paid on Series A Preferred Stock                      (160,450)     (153,258)
  Redemption of Series A Preferred Stock                          (322,880)      (40,076)
                                                               -----------   -----------

    NET CASH PROVIDED BY FINANCING ACTIVITIES                    4,970,709    (2,282,661)
                                                               -----------   -----------

NET INCREASE (DECREASE) IN CASH                                    102,967        35,318

CASH AT BEGINNING OF PERIOD                                         91,066        87,853
                                                               -----------   -----------

CASH AT END OF PERIOD                                          $   194,033   $   123,171
                                                               ===========   ===========
</TABLE>

                 See notes to consolidated financial statements.


                                     5 of 14

<PAGE>

                            UNIVERSAL SELF CARE, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - March 31, 1997
                                   (UNAUDITED)

1.  Basis of Presentation

      Reference is made to the annual report on form 10-KSB/A of Universal Self
Care, Inc. (the "Company") dated October 15, 1996 for the year ended June 30,
1996.

      The accompanying financial statements reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented. Except
as otherwise disclosed, all such adjustments are of a normal and recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results attainable for a full fiscal year.

2.  Earnings/(loss) per Share

      Earnings/(loss) per share are based on the weighted average number of
common shares and common share equivalents outstanding during the period after
giving effect for preferred stock dividends during the period.

3.  Contingencies

      Department of Health Services

      The Company has undergone an audit by representatives of the State of
California, State Controller's Office, Division of Audits. The purpose of the
audit was to determine the level of the Company's compliance with the guidelines
of the California Department of Health Services (Medi-Cal) and the California
State Board of Equalization. Representatives from the State Controller's Office
have raised the issue of whether the Company may have practiced two-tier pricing
policies in the charges to it's customers which are not in conformance with
Medi-Cal regulations. Under such regulations, a company may not charge any
customer prices less than those charged to the Medi-Cal program. Based upon
Management's independent review, the Company maintains that it has conformed
with pricing regulations because its prices are consistent within each of its
operating subsidiaries, Sugar Free and Home Therapy, and because these two
subsidiaries are offering different services. The Company's Management further
believes that the Medi-Cal program was charged the "prevailing prices" charged
for supplies, and that those charges were in compliance with


                                     6 of 14

<PAGE>

current regulations, and that the Representatives from the Controller's Office
compared prices for different services with different delivery methods. The
State Controller's Office contends that the reimbursement was paid for products,
and not for services, so the difference in pricing was not warranted based upon
the services rendered in conjunction with the products delivered. In July 1994,
the State Controller's Office issued an Auditor's Report with findings to the
Department of Health Services ("DHS") for the period beginning July 1, 1990
through June 30, 1993. The Report recommends a recovery of approximately $1.3
million due to such alleged two-tier pricing. In November 1994 the State
Controller's Office issued Letter of Demand for the recovery of such amounts
due. In November 1994, the Company appealed the audit determination made by the
State Controller's Office. In January 1996 a hearing was held before an
Administrative Law Judge. In July 1996 the Judge recommended that the
overpayment determination be upheld. In August 1996 the DHS adopted the
recommendation of the Law Judge as the final decision of the Director of DHS. In
January 1997 the Company filed an appeal to the decision with the Superior Court
for the County of Los Angeles. The Company intends to vigorously contest any
recovery by the State with respect to such alleged improper pricing practices
for services rendered.

      Based upon the above contingency, the Company has provided a reserve, in
the event that a defense of its position does not prevail, of $700,000. The
Company had previously provided a combined reserve with the California State
Board of Equalization matter (below) in the amount of $1,630,000. Due to the
defined settlement amount on the other matter, the reserve has been allocated
among the two actions. Management believes that a total estimated settlement
amount of $700,000, or 54% of the maximum amount demanded, is reasonable under
the circumstances with respect to this matter.

      California State Board of Equalization

      The Company has also undergone an audit by the California State Board of
Equalization ("SBE") as a result of separate findings made by the State
Controller's Office (see Department of Health Services above). The SBE has
disagreed with the Company's policies regarding its sales tax payments on
certain items. The SBE has maintained that blood glucose meters, testing strips
and finger-prick lancets are taxable items. The Company has taken the position
that these items are exempt from sales tax because they were provided pursuant
to a doctor's prescription and furthermore, they are part of an integrated
treatment for providing insulin and insulin syringes, items which are
specifically exempt from sales tax in California. In addition, the Company
maintains that a portion of the revenues earned from the sales of diabetic
supplies were non-taxable services rendered as a separate and distinct charge.

      On January 6, 1997 the SBE issued a Notice of Determination of $860,004
for the period July 1, 1989 through September 30, 1993. Of this amount,
penalties of $69,170 were subsequently waived. Additionally, interest has
accrued on this assessment of $186,330. The Company filed for appeal of this
assessment. The matter was referred to the SBE settlement department and Company
management determined that it would be in the Company's best


                                     7 of 14

<PAGE>

interest to arrive at a final negotiated settlement amount. On April 28, 1997,
the Company agreed to a settlement of this matter for a total amount of
$980,000. Of this amount, $50,000 had previously been paid. Of the remaining
$930,000, $691,695 is associated with taxes and $238,305 is associated with
accrued interest. Upon acceptance of this settlement by SBE (which the Company
believes will be reflected in a formal Settlement Agreement), the full $930,000
will be payable in installments, with $300,000 payable upon consummation of the
Settlement Agreement and monthly installments of $63,000 commencing on September
30, 1997 until the liability plus accrued interest are repaid.

      The Company has undergone an audit by Medicare covering the charges
submitted for reimbursement in the Western region (Region D) during the period
January 1, 1994 through December 31, 1995. Medicare determined that an
overpayment to the Company may have occurred as a result of the use of a
superseded diagnosis code on claims submitted. The claims in question were
originally submitted to Medicare in order to gain a denial of charges so that an
alternative carrier could be validly billed, since a denial is required by
certain intermediaries prior to billing for certain charges. Medicare may have
inappropriately made reimbursements on these charges. In November 1996 Medicare
issued a demand for refund of $795,702 plus interest of $35,475. In January 1997
Medicare began to offset the Company's claims for payment, and the interest
charged to the Company's account. The Company balance claimed by Medicare to be
owed by the Company on March 31, 1997 was $808,887, of which $795,701 was
principal and $22,290 was accrued interest. The Company rebilled Medi-Cal
$732,853 in February and in March $62,849. Company management feels that the
ultimate settlement to Medicare will not have a material impact on earnings
since the Company will collect any amounts paid to Medicare out of amounts
collected after rebillings to MediCal.

4.  Revolving Line of Credit

      In August, 1996 the Company entered into an accounts receivable funding
agreement with Health Care Partners Funding, L.P. ("HealthPartners") under which
the Company is able to borrow up to $4,500,000 against its qualified accounts
receivable, less the reserve. "Reserve" means the sum of $1,500,000. Qualified
accounts are generally defined as those which are less than 91 days old and are
due from a third-party payee source (ie. Medicare, Medicaid or Commercial
insurance carrier) as opposed to those that are payable directly by patients.
The term of the agreement is three years. Outstanding principal under the
agreement is secured by a first priority lien against substantially all of the
Company's assets.

      On August 30, 1996, the Company transacted for the initial draw under this
agreement, the maximum available amount of $3,000,000. Substantially all such
funds were immediately expended by the Company for the repayment of past due
payroll taxes, past due accounts payable and certain short-term notes payable.

       On November 4, 1996, the Company's Loan and Security Agreement with


                                     8 of 14

<PAGE>

HealthPartners was amended by, among other things, adjusting the Base Rate of
interest to equal 2.2% above the prime rate, increasing funding under the loan
to $4.5 million against its qualified accounts receivable, less the reserve.
"Reserve" means the sum of $100,000. Additionally, providing for the creation of
a sole purpose subsidiary of the Company to be responsible for marketing and
managing all of the Company's managed care contracts ("Newco"). Under the
amended agreement, HealthPartners received warrants to acquire 5% of the
outstanding common stock of Newco, subject to anti-dilution protection,
registration rights and redemption provisions. HealthPartners also received a
warrant to acquire 375,000 shares of Company Common stock at an exercise price
of $2.50.

      On February 26, 1997, the Company's Loan and Security Agreement with
HealthPartners was temporarily amended for 90 days by eliminating the $4.4
million cap on borrowings based on the Company's qualified accounts. This
temporary amendment allows the Company to borrow up to the full amount that its
qualified accounts will support under the terms of such agreement.

      Pursuant to the Loan Agreement with HealthPartners, the Company may
receive revolving credit advances in an amount not to exceed the lesser of (a)
80% of the qualified accounts receivable of the Company, or (b) $4,400,000. All
loans and other obligations under the Loan Agreement are secured by a first
priority lien and security interest in all accounts receivable of the Company.
The Loan Agreement was amended to contain a financial covenant which required
that the Company's net loss not exceed $50,000 for its quarter ended September
30, 1996, and requires it to achieve net income of at least $500,000 for its
fiscal year ending June 30, 1997. The Company was in default under the covenant
concerning the achievement of net income for the quarter ending September 30,
1996 and this default has been waived by HealthPartners. The Company is
classifying the revolving credit line as short term debt, because of the
financial covenant requirement listed above.


                                   9 of 14

<PAGE>

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

Forward-Looking Statements

      When used in the Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which speak
only as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
has no obligation to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect anticipated or unanticipated
events or circumstances occurring after the date of such statements.

Results of Operations

The three months ended March 31, 1997 (the "1997 Three Month Period") as
compared to the three months ended March 31, 1996 (the "1996 Three Month
Period")

      Revenue for the 1997 Three Month Period was $7,433,628, a decrease of
$1,228,709 or 14.2 percent from the 1996 Three Month Period. A contributing
factor was customer deductibles in the 1997 Three Month Period which were
approximately $885,000, an increase of $385,000 from the 1996 Three Month
Period. This impacted on sales revenue, which in turn slowed cash flow and
impeded the Company's ability to purchase product for shipment.

      Total cost of goods sold during the 1997 Three Month Period were
$4,068,833, representing costs of approximately 55% of revenue for the period,
while total cost of goods sold for the 1996 Three Month Period were $5,362,463
or approximately 62% of revenue. This seven point improvement is in part the
result of favorable product discounts from various vendors. Total material cost
during the 1997 Three Month Period was $3,872,278 compared to $4,994,873 for the
1996 Three Month Period, or a decrease of 22.5%. Additionally, the Company
continued to realize favorable variances regarding total cost of packaging as
discussed in prior quarterly reports, during the 1997 Three Month Period which
were $192,520, compared to $253,341 for the 1996 Three Month Period, or a
decrease of 24.0%.

      Selling, general and administrative expenses during the 1997 Three Month
Period decreased to $3,442,899, as compared to $3,755,940 during the 1996 Three
Month Period. Accrual for bad debt expense for the 1997 Three Month Period is 2%
of revenue, as compared to the 1996 Three Month Period which was greater than 3%
of revenue. The combined costs of


                                    10 of 14

<PAGE>

payroll and fringe benefits, including sales commissions, decreased by
approximately 9% during the 1997 Three Month Period over the 1996 Three Month
Period. Additionally, temporary labor for the 1997 Three Month Period decreased
to $26,426, as compared to $101,777 during the 1996 Three Month Period, or 74%.
The Company's consolidation of operations has resulted in many employees being
retrained for new positions, reducing the need for temporary labor.

      Other expenses include interest expense, which decreased by $28,374 during
the 1997 Three Month Period over the 1996 Three Month Period. This decrease was
primarily due to the reduced costs associated with the HealthPartners line of
credit, as compared to the previous cost related to the sale of accounts
receivable and term loans.

      Net loss for the 1997 Three Month Period of $303,149 is primarily
attributable to insufficient sales revenue in relation to operating expenses.
Sales revenue are normally lower in the first quarter of the calendar year due
to the requirement that customers meet their insurance deductible amounts in the
new benefit year.

The nine months ended March 31, 1997 (the "1997 Nine Month Period") as compared
to the nine months ended March 31, 1996 (the "1996 Nine Month Period")

      Revenue for the 1997 Nine Month Period was $25,902,592, a decrease of
$1,217,295, or 4.5 % from the 1996 Nine Month Period. The Company traditionally
has experienced a slow third quarter due to the impact of deductibles and has
recovered the difference in the final quarter of the fiscal year.

      Total cost of goods sold during the 1997 Nine Month Period was
$14,773,270, representing costs of approximately 57% of revenue for the period,
while total cost of goods sold for the 1996 Nine Month Period was $16,763,111 or
approximately 62% of revenue. This five point improvement is in part the
continuing result of a volume discount program initiated in fiscal year 1997 and
retroactively applied to fiscal year 1996. The amount of $77,383 which covered a
three month period of time, April through June 30, 1996, and $25,933 for the
month of July, which were both recorded during the 1997 fiscal year. The volume
discounts have increased by another 2 % in 1997 fiscal year and will continue to
the extent that the Company meets specified purchasing levels. Additionally,
improved pricing agreements with several vendors has contributed to the improved
margin on sales and a reduction in the Company's shipping and packaging costs by
utilizing a new vendor for the distribution of our products .

      Selling, general and administrative expenses during the 1997 Nine Month
Period increased to $10,726,684 or 41% of revenue, as compared to $10,527,977 or
39% of revenue during the 1996 Nine Month Period. These increases are primarily
due to higher fees charged by Healthpartners of $199,773, or an increase of
$157,280, and an increase in consulting expenses of $109,473, or an increase of
$91,120, related to strategic planning and various outside consultants.


                                    11 of 14

<PAGE>

      Other expenses include interest expense, which increased by $3,407 during
the 1997 Nine Month Period over the 1996 Nine Month Period.

      Net loss for the 1997 Nine Month Period of $207,622. Profits from
operations, in the amount of $402,638, were insufficient to support debt service
costs in the total amount of $610,260.

Liquidity and Capital Resources

      As of March 31, 1997, the Company had a negative working capital of
$1,587,413, compared to working capital of $296,968 at June 30, 1996. The
decrease in working capital during the Nine Month Period is primarily due to the
reclassification of the Company's revolving line of credit from long term to
short term. This is based upon the financial covenant listed below.

      Cash used by operations during the 1997 Nine Month Period was $4,708,810
as compared to cash provided by operations of $2,875,974 during the 1996 Nine
Month Period. This decrease is primarily due to required reductions in account
payables and accrued liabilities as well as an increase in accounts receivable.
Additionally, prior year saw the sale of accounts receivable to Daiwa.

      On August 30, 1996, the Company made its first borrowings under a Loan and
Security Agreement, dated as of August 15, 1996 (the "Loan Agreement"), by and
among the Company and HealthPartners. Such initial loan was in the aggregate
principal amount of $3,000,000, of which approximately $101,000 was utilized to
pay a portion of the breakage costs under a prior financing agreement, $200,000
was utilized to repay a short-term outstanding loan and the balance was utilized
to pay past-due payroll taxes, certain accounts payable and accrued expenses.

      Pursuant to the Loan Agreement with HealthPartners, the Company may
receive revolving credit advances in an amount not to exceed the lesser of (a)
80% of the qualified accounts receivable of the Company, or (b) $4,400,000. All
loans and other obligations under the Loan Agreement are secured by a first
priority lien and security interest in all accounts receivable of the Company.
The Loan Agreement was amended to contain a financial covenant which required
that the Company's net loss not exceed $50,000 for its quarter ended September
30, 1996, and requires it to achieve net income of at least $500,000 for its
fiscal year ending June 30, 1997. The Company was in default under the covenant
concerning the achievement of net income for the quarter ending September 30,
1996 and this default has been waived by Healthpartners. The Company is
classifying the revolving credit line as short term debt, because of the
financial covenant requirement listed above.

      In connection with the transactions pursuant to the Loan Agreement with
HealthPartners, the Company entered into an agreement with Fred Kassner, to whom
the Company remains


                                    12 of 14

<PAGE>

indebted in the approximate amount of $1,474,000 (which is due and payable on
July 14, 1997). Pursuant to such agreement, Mr. Kassner has agreed to
subordinate his lien on the accounts receivable of the Company to the lien and
security interest held by HealthPartners in such collateral. In addition, in
consideration of Mr. Kassner's waiver of certain events of default under his
loan agreement with the Company (such events of default consisting of the
Company's failure to make certain mandatory prepayments out of the proceeds
received by the Company from certain exercises of the Company's common stock
purchase warrants), the Company issued to Mr. Kassner five-year warrants
entitling Mr. Kassner to purchase up to 100,000 shares of common stock of the
Company at an exercise price of $2.50 per share. Mr. Kassner has a pledge of all
the outstanding stock of each of the Company's operating subsidiaries to further
secure the Company's outstanding indebtedness to him.

      In May 1997, the Company initiated a private placement of a maximum of
500,000 shares of its common stock at $2.00 a share. Shares of common stock sold
in this private placement are subject to "piggyback" registration rights. Under
the terms of this private placement, in May 1997 the Company sold 430,000 shares
of its common stock to accredited investors. The Company continues its efforts
to close the sale of the remaining 70,000 share available in this private
placement. To date, the Company has received gross proceeds of $860,000 from the
sale of shares in this private placement.

PART II - OTHER INFORMATION

      5. Exhibits and reports on form 8-K

           (a) Exhibits - None


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<PAGE>

                                    SIGNATURE

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
it's behalf by the undersigned, thereunto duly authorized.

                          UNIVERSAL SELF CARE, INC.


                          By:
                             ----------------------
                               Brian Bookmeier
                                  President

Date: May 14, 1997


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