<PAGE>

-------------------------------------------------------------------------------

                                   UNITED STATES
                         SECURITIES AND EXCHANGE COMMISSION
                              Washington, D.C.  20549
                                    ____________
                                          
                                    FORM 10-QSB
                                          
         (MARK ONE)
          [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
               OF THE SECURITIES EXCHANGE ACT OF 1934.

                      For the quarter ended December 31, 1997
                                          
                                         OR
                                          
          [  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
               OF THE SECURITIES EXCHANGE ACT OF 1934.

                          Commission File Number:  0-27048
                                    ____________
                                          
                                    MECON, INC.
                                          
         (Exact name of small business issuer as specified in its charter)
                                          
           Delaware                                       94-2702762
(State or other jurisdiction                           (I.R.S. Employer
of incorporation or organization)                  Identification Number)
                                               
                             200 Porter Drive, Suite 100
                            San Ramon, California  94583
                       (Address of principal executive officers)

         Issuer's telephone number, including area code:  (510) 838-1700
                                          
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 has been subject to such filing requirements
for the past 90 days          X  Yes        No
                             ---        ---

The number of shares outstanding of the registrant's Common Stock on February 3,
1998 was

                                 6,138,500 shares

Transitional Small Business Disclosure Format (check one):     Yes     X   No
                                                           ---        ---

-------------------------------------------------------------------------------

<PAGE>

                                     MECON, INC.
                                     FORM 10-QSB 
                                  DECEMBER 31, 1997

                                 TABLE OF CONTENTS

                                                                            PAGE
PART I:  FINANCIAL INFORMATION

Item 1.   Financial Statements

          Consolidated Balance Sheets as of
          December 31, 1997 (unaudited) and March 31, 1997                     3

          Consolidated Statements of Operations (unaudited) for the
          Three and Nine Month Periods Ended December 31, 1997 and 1996        4

          Consolidated Condensed Statements of Cash Flows (unaudited) for the
          Nine Month Periods Ended December 31, 1997 and 1996                  5

          Notes to Consolidated 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                                                   14

Item 2.   Changes in Securities and Use of Proceeds                           14

Item 3.   Defaults upon Senior Securities                                     14

Item 4.   Submission of Matters to a Vote of Security Holders                 14

Item 5.   Other Information                                                   14

Item 6.   Exhibits and Reports on Form 8-K                                    14

          Exhibits 11.1  Computation of Earnings (Loss) per Share             15
                   27.0  Financial Data Schedules                             16

SIGNATURES

                                       2

<PAGE>

ITEM 1.  FINANCIAL STATEMENTS

                                     MECON, INC.
                             CONSOLIDATED BALANCE SHEETS
                   (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)


<TABLE>
<CAPTION>
                                                             December 31, 1997   March 31, 1997
                                                               (unaudited)
                                                             ----------------------------------
<S>                                                          <C>                 <C>
                             ASSETS
Current assets:
     Cash and cash equivalents                                      $11,559         $9,211
     Securities available-for-sale, at market                         3,661          4,467
     Accounts receivable, net of allowances of $353 and $555 
        at December 31, 1997 and March 31, 1997, respectively         2,583          2,542
     Unbilled accounts receivable                                       532            886
     Other current assets                                               461            414
                                                             ----------------------------------

             Total current assets                                    18,796         17,520

Property and equipment, net                                           1,422          1,588
Software development costs, net                                       1,701          1,510
Other assets                                                             10             13
                                                             ----------------------------------
                                                                    $21,929        $20,631
                                                             ----------------------------------
                                                             ----------------------------------

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable                                                $1,151         $1,134
     Accrued salaries and benefits                                      375            452
     Deferred revenue                                                 1,936          1,058
                                                             ----------------------------------

            Total current liabilities                                 3,462          2,644

Long-term obligations, less current portion                              20             25
                                                             ----------------------------------

            Total liabilities                                         3,482          2,669
                                                             ----------------------------------

Stockholders' equity:
Preferred stock, $.001 par value 5,000,000 shares authorized;
   none issued and outstanding                                            -              -
Common stock, $.001 par value; 50,000,000 shares
   authorized; 6,132,815 and 6,000,297 issued and
   outstanding at December 31 1997 and March 31, 1997, 
   respectively                                                           6              6
Additional paid in capital                                           25,350         25,033
Accumulated deficit                                                  (6,909)        (7,077)
                                                             ----------------------------------

             Total stockholders' equity                              18,447         17,962
                                                             ----------------------------------

                                                                    $21,929        $20,631
                                                             ----------------------------------
                                                             ----------------------------------
</TABLE>
              See accompanying notes to consolidated financial statements

                                       3

<PAGE>

                                  MECON, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                                     Three months ended              Nine months ended 
                                                         December 31,                   December 31,
                                             ---------------------------------------------------------------
                                                  1997                1996           1997          1996
                                               ------------------------------------------------------------
<S>                                              <C>                <C>             <C>           <C>
Revenue:
     Subscription and license                    $2,973              $2,163         $7,937         $8,137
     Services                                       924                 889          2,981          3,000
                                               ------------------------------------------------------------
            Net revenue                           3,897               3,052         10,918         11,137

Cost of revenue                                   1,400               1,483          4,087          4,194
                                               ------------------------------------------------------------

Gross profit                                      2,497               1,569          6,831          6,943

Operating costs:
     Research and development                       665                 676          1,934          1,526
     Sales and marketing                            705                 906          1,958          2,677
     General and administrative                     811                 826          2,504          2,135
     Reorganization and other special charges         -               1,459            749          1,706
                                               ------------------------------------------------------------

            Total operating costs                 2,181               3,867          7,145          8,044
                                               ------------------------------------------------------------

Operating income (loss)                             316              (2,298)          (314)        (1,101)
                                               ------------------------------------------------------------

Interest and other income, net                      185                 185            529            619
                                               ------------------------------------------------------------

Income (loss) before provision for income taxes     501              (2,113)           215           (482)
                                               ------------------------------------------------------------

Provision for income taxes                           25                (532)            45             40
                                               ------------------------------------------------------------

Net income (loss)                                  $476             ($1,581)          $170          ($522)
                                               ------------------------------------------------------------
                                               ------------------------------------------------------------

Basic earnings (loss) per share                   $0.08              ($0.27)         $0.03         ($0.09)
                                               ------------------------------------------------------------
                                               ------------------------------------------------------------

Weighted average common stock outstanding         6,097               5,957          6,041          5,915
                                               ------------------------------------------------------------
                                               ------------------------------------------------------------

Diluted earnings (loss) per share                 $0.07              ($0.27)         $0.03         ($0.09)
                                               ------------------------------------------------------------
                                               ------------------------------------------------------------

Weighted average common and dilutive potential
   common stock outstanding                       6,456               5,957          6,316          5,915
                                               ------------------------------------------------------------
                                               ------------------------------------------------------------
</TABLE>

        See accompanying notes to consolidated financial statements

                                       4

<PAGE>

                                 MECON, INC.
               CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                (IN THOUSANDS)
                                 (UNAUDITED)

<TABLE>
<CAPTION>
                                                                      Nine months ended
                                                                        December 31,
                                                                 ---------------------------
                                                                      1997            1996
                                                                 ----------------------------
<S>                                                              <C>               <C>
Net cash provided by (used in) operating activities                $  2,124        $(2,275)
                                                                 ----------------------------

Cash flows from investing activities:
     Purchase of securities available-for-sale                       (5,241)             -
     Proceeds from sales or maturities of securities 
        available-for-sale                                            6,047            840
     Acquisition of property and equipment                             (283)          (669)
     Computer software development costs                               (616)          (562)
                                                                 ----------------------------

            Net cash used in investing activities                       (93)          (391)
                                                                 ----------------------------

Cash flows from financing activities:
     Repayment of bank borrowings                                         -         (1,940)
     Proceeds from issuance of stock options and
        employee stock purchase plan                                    317            561
                                                                 ----------------------------
            Net cash provided by (used in) financing
                 activities                                             317         (1,379)
                                                                 ----------------------------

Net increase (decrease) in cash and cash 
    equivalents                                                       2,348         (4,045)
Cash and cash equivalents at beginning of period                      9,211         15,205
                                                                 ----------------------------
Cash and cash equivalents at end of period                          $11,559        $11,160
                                                                 ----------------------------
                                                                 ----------------------------
</TABLE>

             See accompanying notes to consolidated financial statements

                                       5

<PAGE>

                                    MECON, INC.
                                          
                     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                          
                                 DECEMBER 31, 1997
                                    (UNAUDITED)
                                          

(1)  BUSINESS OF THE COMPANY

     MECON, Inc. (the Company) provides subscriptions to an information
database, licenses to software products, and consulting services to the health
care industry. These products and services improve performance and reduce costs
for health care organizations through the use of benchmark information,
processes, and tools. 

(2)  INTERIM FINANCIAL INFORMATION

     The consolidated interim financial statements of the Company presented
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission.  Accordingly, certain information and
notes required by generally accepted accounting principles have been condensed
or omitted.  In the opinion of management, these statements include all
adjustments (all of which consist of normal recurring adjustments except as
otherwise noted herein) necessary to present fairly the Company's financial
position and results of operations for the interim periods presented.  These
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto for the fiscal year ended March 31, 1997 contained
in the Company's Annual Report on Form 10-KSB.  The results of operations for
the three and nine months ended December 31, 1997 are not necessarily indicative
of the results of operations that may be expected for the full year.

(3)  MERGER OF MANAGED CARE INFORMATION SYSTEMS, INC.

     On March 29, 1996, the Company merged with Managed Care Information
Systems, Inc. ("MCIS") in a pooling of interests transaction.  In connection
with the merger, the Company exchanged 338,155 shares of its common stock for
all of the outstanding shares of MCIS, assumed 33,052 common stock options, and
assumed a note payable and accrued interest to a third party in the amount of
$2.5 million which was repaid during the first fiscal quarter of 1997.  In
addition, the Company recorded merger related charges during the first fiscal
quarter of 1997 totaling $152,000.  Accordingly, all prior period financial
information has been restated.

(4)  REORGANIZATION AND OTHER SPECIAL CHARGES

     During the third quarter of fiscal 1997, the Company announced a plan to
reorganize its operations by centralizing the management of its product
development, sales and product support organizations to better achieve its
strategic growth objectives. In connection with the implementation of this new
corporate structure, the Company recorded pretax charges totaling $1,459,000
that primarily included $1,337,000 of reorganization charges and a $122,000
charge for an aborted acquisition.  Included in the reorganization costs were
provisions for shutting down two of the Company's satellite offices, employee
reassignment and relocation, severance and related benefits, asset writedowns
and a provision for accounts receivable that management believed would not be
collectible.  All amounts related to this charge were paid by March 31, 1997,
except that at March 31, 1997 there was $249,000 accrued for the doubtful
accounts provision.  During the nine months ended December 31, 1997, this 
reserve was utilized for the write-off of doubtful accounts, and as of 
December 31, 1997, no accrual remained.

                                 6

<PAGE>

     During the first quarter of fiscal 1998, the Company took action to reduce
its ongoing quarterly operating expense base. As a part of the expense reduction
effort, the Company decreased its workforce by 38 employees on April 17, 1997
and incurred a $749,000 reorganization charge during the first quarter of fiscal
1998. This charge was primarily comprised of employee outplacement, severance
and related benefits as well as employee reassignment, relocation and additional
costs associated with facility shutdowns. The following table sets forth a
description of the reorganization expense for the nine months ended December 31,
1997 and the liability at December 31, 1997:

<TABLE>
<CAPTION>

                                            Total     Non-cash     Accrued                   Accrual
Reorganization Cost                        Expense     Expense     Expense      Paid        At 12/31/97
-------------------                       --------    --------    ---------    --------    ------------
<S>                                       <C>         <C>         <C>          <C>         <C>
Salaries and termination benefits of
   thirty-eight employees                 $634,000        $0      $634,000     $599,000      $35,000

Relocation and facilities shutdown          38,000         0        38,000       38,000            0

Professional fees                           77,000         0        77,000       77,000            0

Total                                     $749,000        $0      $749,000     $714,000      $35,000

</TABLE>


(5) STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128

     In December 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" (SFAS No. 128), which requires the
presentation of basic earnings per share (EPS) and, for companies with complex
capital structures, diluted EPS. Accordingly, all prior period EPS have been
restated. The following table sets forth a reconciliation of the numerators and
denominators of the basic and diluted EPS computations:

<TABLE>
<CAPTION>
                                                            Three months ended December 31,
                                                    1997                                 1996
                                    -----------------------------------     --------------------------------------
                                      Income      Shares      Per Share       Income        Shares       Per Share
                                    (Numerator) (Denominator)  Amount        (Numerator)  (Denominator)   Amount
                                    -----------------------------------     --------------------------------------
<S>                                 <C>         <C>            <C>           <C>          <C>            <C>
BASIC EPS

Income (loss) available
  to common stockholders                 $476       6,097        $0.08       ($1,581)         5,957         ($0.27)

EFFECT OF DILUTIVE
   SECURITIES
Stock options                                         359                                         -                              
                                    -----------------------------------     --------------------------------------

DILUTED EPS
Income (loss) available
  to common stockholders
  + assumed exercises                    $476       6,456        $0.07       ($1,581)         5,957         ($0.27)
                                    -----------------------------------     --------------------------------------
                                    -----------------------------------     --------------------------------------
</TABLE>

Options to purchase 277,164 common shares at prices ranging from $8 to $24 
and 290,485 common shares at prices ranging from $1 to $24 per share were 
outstanding during the three months ended December 31, 1997 and 1996, 
respectively, but were not included in the computation of diluted EPS because 
to do so would have been anti-dilutive for the periods presented. The 
options, which expire between October 2004 and December 2006 were still 
outstanding as of December 31, 1997.

                                      7


<PAGE>

<TABLE>
<CAPTION>
                                                            Nine months ended December 31,
                                                    1997                                 1996
                                    -----------------------------------     --------------------------------------
                                      Income      Shares      Per Share       Income        Shares       Per Share
                                    (Numerator) (Denominator)  Amount        (Numerator)  (Denominator)   Amount
                                    -----------------------------------     --------------------------------------
<S>                                 <C>         <C>            <C>           <C>          <C>            <C>
BASIC EPS
Income (loss) available to
  common stockholders                    $170     6,041      $0.03         ($522)         5,915         ($0.09)

EFFECT OF DILUTIVE
   SECURITIES
Stock options                                       275                                       -
                                    -----------------------------------     --------------------------------------

DILUTED EPS
Income (loss) available to
  common stockholders 
  + assumed exercises                    $170     6,316      $0.03         ($522)         5,915         ($0.09)
                                    -----------------------------------     --------------------------------------
                                    -----------------------------------     --------------------------------------
</TABLE>

Options to purchase 411,114 common shares at prices ranging from $5 to $24 
and 385,807 common shares at prices ranging from $1 to $24 per share were 
outstanding during the nine months ended December 31, 1997 and 1996, 
respectively, but were not included in the computation of diluted EPS because 
to do so would have been antidilutive for the periods presented. The options, 
which expire between October 2004 and December 2006 were still outstanding as 
of December 31, 1997.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

     Except for historical information, the matters discussed in this Report 
on Form 10-QSB are forward looking statements that are subject to certain 
risks and uncertainties that could cause actual results to differ materially 
from those projected. Such factors include:

   - Variability of quarterly results and seasonality
   - Dependance on principal products
   - Integrity and reliability of database
   - Competition
   - Dependance on strategic relationships
   - Consolidation and uncertainty in the healthcare industry
   - Potential acquisitions
   - Dependance on key personnel

     Additionally, the Company announced, on April 17, 1997, that the 
original management team had rejoined the Company and adopted a 
"back-to-basics" strategy, which is discussed below. One tactic supporting 
this "back-to-basics" strategy is to remain firm on MECON-PEERx pricing 
related to renewal subscriptions. This tactic may result in certain existing 
customers not renewing their older, low margin contracts at higher total 
contract values due to price sensitivity. Termination of customer 
relationships could result in lower subscription revenues for the Company, 
which could have a material adverse effect on the Company's business, 
operating results and financial condition.

     Such factors also include the risk factors listed from time to time in 
the Company's SEC reports, including but not limited to the report on Form 
10-K for the year ended March 31, 1997, and/or Form 10-QSB for the quarter 
ended September 30, 1997, copies of which are available from the Company's 
Investor Relations Department. The Company assumes no obligation to update 
the forward-looking statements included in this Form 10-QSB.

OVERVIEW

     MECON is a leading healthcare benchmarking solutions company.  The
Company's proprietary data, family of premium quality, easy-to-use software
products and consulting services combine to produce and sustain optimum
performance in healthcare delivery systems.  From its incorporation until 1989,
MECON's revenue was primarily derived from consulting services for acute care
hospitals. Since 1990, the Company has transitioned into providing a variety of
products and services that employ its proprietary database comprised of acute
care hospitals' operational cost and key performance information. For the nine
months ended December 31, 1997, approximately 73% of the Company's revenues were
derived from database subscriptions and software licenses. Within the acute care
segment of the hospital market, MECON has marketed its product and services
primarily to individual hospitals with over 100 beds. 

     On March 29, 1996, the Company merged with Managed Care Information
Systems, Inc. ("MCIS") in a pooling of interests transaction. In connection with
the merger, the Company exchanged 338,155 shares of its common stock for all of
the outstanding shares of MCIS, assumed 33,052 common stock options, and assumed
a note payable and accrued interest to a third party in the amount of $2.5
million. In addition, the Company recorded special charges of $152,000 for
merger-related costs in the first quarter of fiscal 1997. Accordingly, all prior
period financial information has been restated.

     The following factors continue to contribute to the Company's performance
during fiscal year 1998. On November 25, 1996, the Company announced plans to
complete the integration of MCIS, centralize management of its product
development, sales and product support organizations, increase its investment in

                                       8

<PAGE>

the development of new products and relocate its headquarters to larger
facilities to accommodate these changes. These actions were intended to position
the Company on a strong footing for long-term growth. In connection with the
implementation of this new corporate structure, the Company recorded pretax
charges of $1.5 million in the third quarter of fiscal 1997 that consisted
of $1.3 million of reorganization charges and a $122,000 charge for an aborted
acquisition. Included in the reorganization costs were provisions for shutting
down two of the Company's satellite offices, employee reassignment and
relocation, severance and related benefits, asset writedowns and a provision
for doubtful accounts which was established as a reserve for returns,
concessions and uncollectible accounts.   This reserve was established because
the Company believed its commitment to the development of new products would
change the strategic direction of its product lines.

     As a result of these integration, reorganization and product transition
efforts, revenue and expenses for the third and fourth quarter of fiscal 1997
were adversely affected.  Revenue was impacted by declined productivity in the
sales force that led to contract signing delays. The effect of such delays was a
shortfall in revenue recognized in both the third and fourth quarters of fiscal
1997. This shortfall resulted in incurred operating losses, and accordingly, the
Company announced that it would take corrective measures.

     On April 17, 1997, the Company announced a number of strategic and 
operational changes intended to improve the Company's financial performance. 
As a first step, the Company's original management team rejoined the Company 
and adopted a "back-to-basics" strategy of selling the Company's current 
products into its current market. Although the Company believed, and still 
believes, that additional healthcare market sectors targeted by the Company's 
increased investments in developing clinical outcomes and patient 
satisfaction products represent growth opportunities for the Company, the 
Company also believes that continued efforts in these areas compromises both 
its leadership position in benchmark-based cost management solutions and its 
profitability.

     Tactics supporting this "back-to-basics" strategy include, but are not 
limited to, selling the MECON-Total Solution whenever possible, cross-selling 
existing products to existing customers and remaining firm on MECON-PEERx-TM- 
pricing related to the renewal of older, low margin subscriptions. The 
MECON-Total Solution is a packaged product offering that includes a 
MECON-PEERx subscription, MECON-Advisory-TM- and MECON-OPTIMIS-TM-. Such a 
packaged offering assures the customer achieves and sustains optimum 
performance by not only receiving benchmarked-based cost management reports 
but by also receiving MECON's integrated consulting approach of implementing 
cost reduction opportunities identified by MECON-PEERx and installing 
MECON-OPTIMIS, the Company's operational cost monitoring software tool.

     Less than 50% of MECON-OPTIMIS customers are subscribers to MECON-PEERx 
because MECON-OPTIMIS predates MECON-PEERx and many of the early 
MECON-OPTIMIS customers, on current maintenance agreements, are now sales 
prospects for the MECON-Total Solution. Additionally, less than 10% of 
MECON-Action*Point-TM- customers are MECON-PEERx subscribers because the 
Company only recently began integrating the selling of MECON-Action*Point, 
its only clinical product, with its operational cost management products. 
Therefore, a cross-selling opportunity exists that has become a tactic of the 
"back-to-basics" strategy.

     Many of the older multi-year MECON-PEERx subscriptions were 
grandfathered at substantially lower prices. The Company has adopted a firm 
pricing policy to migrate expiring MECON-PEERx subscriptions to current list 
prices, and accordingly, certain of these subscribers may not renew their low 
margin subscriptions at higher margins due to pricing sensitivity. 
Accordingly, the Company is emphasizing replacing the revenue stream up for 
renewal more heavily than replacing all the expiring units. During the nine 
months ended December 31, 1997, the Company renewed essentially all expiring 
contracts at significantly higher average selling prices. However, as a 
result of this firm pricing tactic, the Company believes that some of the 
expiring contracts may not renew. One such contract that recently did not 
renew is a contract with a hospital consortium that covers approximately 40 
academic teaching hospitals. During the nine months ended December 31, 1997, 
this contract totaled 7% of revenue. The original three-year contract, signed 
in fiscal 1992, was one of the Company's first multi-year contracts, was 
steeply discounted and hence contributed very low margins. The Company 
believes that the termination of this contract will not adversely effect 
earnings.

     As a second step, the Company took action to reduce its ongoing quarterly
operating expense base.  As a part of the expense reduction effort, the Company
decreased its workforce by 38 employees on April 17, 1997. This reduction was
made in an effort to reduce the Company's overall quarterly expenses, and along
with the Company's renewed focus on its core markets, return the Company to
profitability and growth. As a part of this expense reduction effort, the
Company incurred a reorganization charge of $749,000 during the first quarter of
fiscal 1998. This charge was primarily comprised of employee outplacement,
severance and related benefits as well as employee reassignment, relocation and
additional costs associated with facility shutdowns.

     Although the Company's revenue decreased 2% for the nine months ended
December 31, 1997 compared to the same period in the prior year, this decrease
was primarily as a result of a lack of software sales of MECON-Action-Point and
MECON-OPTIMIS during the first two quarters of fiscal 1998. As a result of the
renewed focus and restored management team, the Company achieved a resumption of
software contracts signed to similar signing rates achieved in quarters prior 
to the November 25, 1996 reorganization.

     The Company signed $4.9 million in total contract value in the
third quarter of fiscal 1998. The third quarter of fiscal 1998 marked the
Company's third consecutive quarter with sequential increases in the total value
of contracts signed.  As a result of these continued increases in the total
value of contracts signed, the Company achieved, for the first time in four
quarters, year-over-year revenue growth of 28% for the three months ended
December 31, 1997 compared to the same period in the prior year.

     These sequential increases continue to build the Company's backlog which is
defined as the total value of contracts signed that have not been recognized as
revenue. Backlog is then depleted by the revenue recognized during the period.

     Approximately 25% to 33% of the Company's quarterly revenue is derived from
backlog.  The remaining 67% to 75% is generated from contracts signed during
that respective quarter.  As a result of the 

                                     9

<PAGE>

sequential increases in contract value signed during the first three quarters 
of fiscal 1998, the Company has achieved sequential revenue increases in the 
first, second and third quarters of fiscal 1998.  These sequential revenue 
increases, coupled with strong expense controls since the reductions achieved 
in the April 17, 1997 reorganization, have returned the Company to 
profitability, excluding the reorganization charge in the first quarter of 
fiscal 1998, for the third consecutive quarter.

RESULTS OF OPERATIONS

     The following table sets forth certain operating data as a percentage of
net revenue for the periods indicated: 

<TABLE>
<CAPTION>
                                      THREE MONTHS ENDED         NINE MONTHS ENDED 
                                         DECEMBER 31,               DECEMBER 31,
                                      ----------------------------------------------
                                          1997     1996        1997         1996
                                      ----------------------------------------------
<S>                                   <C>          <C>         <C>          <C>
 Statements of Operations
 Revenue:
     Subscription and license........     76%       71%        73%           73%
     Services........................     24%       29%        27%           27%
                                      ----------------------------------------------
          Net revenue................     100%      100%       100%          100%
 Cost of revenue.....................     36%       49%        37%           38%
                                      ----------------------------------------------

 Gross profit........................     64%       51%       63%            62%
 Operating costs:
     Research and development........     17%       22%        18%           14%
     Sales and marketing.............     18%       30%        18%           24%
     General and administrative......     21%       27%        23%           19%
     Reorganization and other 
          special charges............      0%       48%         7%           15%
                                      ----------------------------------------------
          Total operating costs......     56%      127%        65%           72%
                                      ----------------------------------------------

 Operating income (loss).............      8%      (75%)       (3%)         (10%)
 Interest and other income, net......      5%        6%         5%            6%
                                      ----------------------------------------------

 Income (loss) before provision for 
    income taxes.....................     13%      (69%)        2%           (4%)
 Provision for income taxes..........      1%      (17%)        0%            0%
                                      ----------------------------------------------

 Net Income (loss)...................     12%      (52%)        2%           (5%)
</TABLE>

THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE THREE MONTHS ENDED 
DECEMBER 31, 1996

REVENUE

     Revenue for the three months ended December 31, 1997 increased 28% to $3.9
million compared to $3.1 million for the comparable period in the prior year.
Subscription and license revenue for the three months ended December 31, 1997
increased 37% to $3.0 million compared to $2.2 million for the comparable period
in the prior year and accounted for substantially all of the revenue increase.
This increase was primarily due to increased revenue from new and renewing
MECON-PEERx and MECON-PEERVIEW subscriptions. Service revenue for the three
months ended December 31, 1997 increased 4% to $924,000 compared to $889,000 for
the comparable period in the prior year. This increase is primarily due to the
Company's current strategy of expanding customer support services, such as
training programs and consulting projects, that build relationships with
customers and enhance benefits customers derive from the Company's products.

                                  10

<PAGE>

COST OF REVENUE

     Cost of revenue for the three months ended December 31, 1997 decreased 6%
to $1.4 million compared to $1.5 million for the comparable period in the prior
year primarily due to the implementation of cost-cutting measures relating to
travel and telephone infrastructure, as well as the continued maintenance of the
Company's reduction in workforce that occurred during the three months ended
June 30, 1997, offset by higher amortization of software development costs
related to the Company's MECON-PEERVIEW 4.0 product. Cost of revenue for the
three months ended December 31, 1997 included $147,000 in amortization expense
from the capitalization of software development costs compared to $41,000 for
the comparable period in the prior year. Cost of revenue for the three months
ended December 31, 1997 decreased to 36% of total revenue compared to 49% for
the comparable period in the prior year, primarily due to current year benefits
from the prior year reduction in workforce. The Company anticipates cost of 
revenue to increase in absolute dollars due to the increase in amortization 
as the next generation of products are released and the anticipated hiring of 
product delivery personnel.


RESEARCH AND DEVELOPMENT

     Research and development expenses for the three months ended December 
31, 1997 decreased 2% to $665,000 compared to $676,000 for the comparable 
period in the prior year, primarily due to the replacement of more expensive 
outside consultants with technical and programming personnel, offset by
additional facilities space related to new product development. During the 
three months ended December 31, 1997 approximately $199,000 was capitalized 
for internally developed software related to product development compared to 
$159,000 for the comparable period in the prior year.  Research and 
development expenses for the three months ended December 31, 1997 decreased 
to 17% of revenue compared to 22% for the comparable period in the prior 
year. While the dollars spent as a percentage of revenue decreased, the 
absolute dollars spent remained relatively consistent as the Company 
continues to develop the next generation of MECON-PEERVIEW, Version 5.0, 
through late fiscal 1999, and accordingly, the Company anticipates research 
and development spending to increase nominally in absolute dollars.

SALES AND MARKETING

     Sales and marketing expenses for the three months ended December 31, 1997
decreased 22% to $705,000 compared to $906,000 for the comparable period in the
prior year.  This decrease was primarily due to the current year benefits of the
Company's reduction in workforce that occurred during the three months ended
June 30, 1997 and a significant decrease in advertising, tradeshow participation
and travel.  Sales and marketing expenses for the three months ended December
31, 1997 decreased to 18% of revenue compared to 30% for the comparable period
in the prior year, primarily due to personnel reductions in the marketing
department and reduced marketing activities. The Company anticipates sales 
and marketing expenses to increase in absolute dollars due to the increase in 
marketing efforts.


GENERAL AND ADMINISTRATIVE

     General and administrative expenses for the three months ended December 31,
1997 decreased 2% to $811,000 compared to $826,000 for the comparable period in
the prior year, primarily due to the implementation of certain cost-cutting
measures relating to travel, telephone infrastructure and directors and
officers' insurance. General and administrative expenses for the three months
ended December 31, 1997 decreased to 21% of revenue compared to 27% of revenue
for the comparable period in the prior year, primarily due to the aforementioned
factors. The Company anticipates general and administrative expenses to 
increase nominally in absolute dollars due to depreciation and amortization 
and a new corporate wide training program.

                                    11

<PAGE>

REORGANIZATION AND OTHER SPECIAL CHARGES

     The reorganization and other special charges incurred during the three
months ended December 31, 1996 were incurred as a result of an aborted
acquisition and implementing a new corporate structure, which was primarily
comprised of shutting down satellite offices, employee reassignment and
relocation, severance and related benefits, asset writedowns and a provision for
doubtful accounts related to one of the Company's product lines.


NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THE NINE MONTHS ENDED 
DECEMBER 31, 1996

REVENUE

     Revenue for the nine months ended December 31, 1997 decreased 3% to
$10.9 million compared to $11.1 million for the comparable period in the prior
year. Subscription and license revenue for the nine months ended December 31,
1997 decreased 2% to $7.9 million compared to $8.1 million for the comparable
period in the prior year and accounted for essentially all of the decrease.
These decreases were primarily due to decreased revenue from new
MECON-Action-Point license fees. Services revenue for the nine months ended
December 31, 1997 remained constant at $3.0 million and 27% of total revenue
from the comparable period in the prior year. The Company anticipates service
revenue to increase as a percentage of total revenues due to the Company's 
current strategy of expanding customer support services, such as training 
programs and consulting projects, that build relationships with customers and 
enhance benefits customers derive from the Company's products.

COST OF REVENUE

     Cost of revenue for the nine months ended December 31, 1997 decreased 2% to
$4.1 million compared to $4.2 million for the comparable period in the prior
year. Although the Company did reduce its workforce in the April 17, 1997
reorganization, the expense reduction related to the reorganization was offset
by increased amortization of software development costs related to the Company's
MECON-PEERVIEW product. Cost of revenue for the nine months ended December 31,
1997 included $433,000 of amortization expense from the capitalization of
software development expenses compared to $89,000 for the comparable period in
the prior year.  Cost of revenue for the nine months ended December 31, 1997
decreased to 37% of total revenue compared to 38% for the comparable period in
the prior year, primarily due to the aforementioned factors.


RESEARCH AND DEVELOPMENT

     Research and development expenses for the nine months ended December 31,
1997 increased 27% to $1.9 million compared to $1.5 million for the comparable
period in the prior year, primarily due to the addition of technical and
programming personnel and facilities space related to new product development.
During the nine months ended December 31, 1997, $614,000 was capitalized for
internally developed software related to product development compared to
$505,000 for the comparable period in the prior year.  Research and development
expenses for the nine months ended December 31, 1997 increased to 18% of total
revenue compared to 14% for the comparable period in the prior year primarily
due to an increased commitment to develop the next generation of MECON-PEERVIEW,
Version 5.0.

                                         12

<PAGE>

SALES AND MARKETING

     Sales and marketing expenses for the nine months ended December 31, 1997
decreased 27%  to $2.0 million compared to $2.7 million for the comparable
period in the prior year, primarily due to the Company's reduction in workforce
during the three months ended June 30, 1997 and a significant decrease in
advertising, tradeshow participation and travel.  Sales and marketing expenses
for the nine months ended December 31, 1997 decreased to 18% of revenue compared
to 24% for the comparable period in the prior year, primarily due to the
Company's reduction in workforce during the three-months ended June 30, 1997 and
a significant decrease in advertising, tradeshow participation and travel.


GENERAL AND ADMINISTRATIVE

     General and administrative expenses for the nine months ended December 31,
1997 increased 17% to $2.5 million compared to $2.1 million for the comparable
period in the prior year, primarily due to increased staffing, facilities
expenses and infrastructure expenses related to a public company's operations. 
General and administrative expenses for the nine months ended December 31, 1997
increased to 23% of revenue compared to 19% for the comparable period in the
prior year, primarily due to the aforementioned factors.


REORGANIZATION AND OTHER SPECIAL CHARGES

     The reorganization charge incurred during the nine months ended December
31, 1997 was primarily comprised of employee outplacement, severance and related
benefits as well as employee reassignment, relocation and additional costs
associated with facility shutdowns. Of the total $749,000 reorganization costs
incurred, $714,000 was paid during the nine months ended December 31, 1997 and
$35,000 remained accrued and unpaid as of December 31, 1997.

LIQUIDITY AND CAPITAL RESOURCES

     Over the past three years, the Company has financed its operations
primarily through sales of preferred and common stock. On December 7, 1995, the
Company completed an initial public offering of 2,000,000 shares of its common
stock. The offering yielded $23 million in net proceeds to the Company. At
December 31, 1997, the Company's cash, cash equivalents and securities
available-for-sale increased by $1.5 million to $15.2 million compared to $13.7
million at March 31, 1997 primarily as a result of strong cash collections and
cash management. The Company generated $2.1 million of cash flow from operating
activities for the nine months ended December 31, 1997 compared to cash used of
$2.3 million in the comparable period in the prior year. This improvement was
primarily due to increased cash collections augmented by strong cash 
management. The Company reduced its days of sales outstanding (DSO) in 
accounts receivable to 63 days at December 31, 1997 from 84 days at December 
31, 1996. This improvement increased cash collections by approximately 
$600,000 during the three months ended December 31, 1997 compared to the same 
period in the prior year.

     As of December 31, 1997, the Company had net working capital of $15.3
million, including cash, cash equivalents and securities available-for-sale of
$15.2 million.  Given the Company's strong cash position as of December 31,
1997, the Company has elected to have no outstanding debt facilities.  The
Company currently has no material commitments for capital expenditures. 

     The Company believes that with its access to financing sources, strong cash
position, and lack of debt, it will be able to adequately fund its cash
requirements for at least the next twelve months.


                                     13

<PAGE>

PART II:  OTHER INFORMATION

Item 1.  Legal Proceedings
            None

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:
       Exhibits 11.1  Computation of Earnings (Loss) per Share 
       Exhibits 27.0  Financial Data Schedules

(b) Reports on Form 8-K:
       The Company did not file any reports on Form 8-K during the three months 
       ended December 31, 1997.

                                          14



<PAGE>

Signatures

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

                                       MECON INC.
                                       (Registrant)

Date:  2/17/98                         /s/ Vasu Devan
                                       -----------------------
                                        Vasu R. Devan
                                        President and Chief Executive Officer

Date:  2/17/98                         /s/ David J. Allinson
                                       -----------------------
                                       David J. Allinson
                                       Chief Financial Officer


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