UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C. 20549
                                  FORM 10-Q

(Mark One)

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

               For the quarterly period ended December 31, 1996

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

                      Commission File No. 33-80987

                     Merit Behavioral Care Corporation
      (Exact name of registrant as specified in its charter)

Delaware                                                    22-3236927
(State or other jurisdiction of                            (I.R.S. Employer
 incorporation or organization)                         Identification Number)

                            One Maynard Drive
                      Park Ridge, New Jersey 07656
                (Address of principal executive offices)

                               (201) 391-8700
                    (Registrant's telephone number,
                             including area code)

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

                         Yes..X...    No.......

As of January 31, 1997,  28,477,800 shares of the registrant's common stock, par
value $.01 per share, which is the only class of common stock of the registrant,
were outstanding.


<PAGE>



                    MERIT BEHAVIORAL CARE CORPORATION

                             Table of Contents
                    Form 10-Q for the Quarterly Period
                           Ended December 31, 1996
<TABLE>

<CAPTION>

PART I                     FINANCIAL INFORMATION                                                 PAGE
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Item 1.                    Financial Statements (Unaudited)

                             Condensed Consolidated Balance Sheets at                                3
                             December 31, 1996 and September 30, 1996

                             Condensed Consolidated Statements of
                             Operations for the three months ended
                             December 31, 1996 and December 31, 1995                                 4

                             Condensed Consolidated Statements of
                             Cash Flows for the three months ended
                             December 31, 1996 and December 31, 1995                                 5

                             Notes to Condensed Consolidated
                             Financial Statements                                                    6

Item 2.                    Management's Discussion and Analysis
                           of Financial Condition and Results of
                           Operations                                                                7

PART II                    OTHER INFORMATION

Item 1.                    Legal Proceedings                                                        10

Item 6.                    Exhibits and Reports on Form 8-K                                         10

</TABLE>

                                                         2

<PAGE>



<TABLE>
                           MERIT BEHAVIORAL CARE CORPORATION
                         CONDENSED CONSOLIDATED BALANCE SHEETS
                                        (UNAUDITED)
                                  (dollars in thousands)


<CAPTION>
<S>                                                                                        <C>             <C>
                                                                                December 31,       September 30,
         ASSETS                                                                     1996                  1996
                                                                                ------------         ---------
Current Assets:
Cash and cash equivalents.......................................................$  40,731           $  47,375
Accounts receivable, net........................................................   34,875              28,383
Other current assets............................................................    6,113               4,777
                                                                                -----------        -----------
  Total current assets..........................................................    81,719             80,535
                                                                                -----------        -----------
Property, plant and equipment, net..............................................    69,991             67,880
                                                                                -----------        -----------
Other Assets:
Goodwill and other intangibles, net.............................................  156,940             162,849
Restricted cash.................................................................    5,621               5,668
Deferred financing costs, net...................................................   11,029              11,362
Other assets....................................................................   16,988              16,507
                                                                                ----------          ----------
                                                                                  190,578              196,386
                                                                                ----------          ----------
Total assets....................................................................$ 342,288            $ 344,801
         LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................................................$    4,851           $   5,888
Claims payable..................................................................    60,812              57,611
Deferred revenue................................................................     6,639               6,577
Accrued interest................................................................     2,204               5,008
Current portion of long-term debt...............................................       500                 500
Other current liabilities.......................................................     9,131              13,079
                                                                                -----------          ----------
  Total current liabilities.....................................................    84,137              88,663

Long-term debt..................................................................   258,000             253,500
Deferred income taxes...........................................................    25,796              30,669
Other long-term liabilities.....................................................     1,955               1,451

Stockholders' Equity:
Common stock (40,000,000 shares authorized, $0.01 par
  value, 28,477,800 and 28,398,800 shares issued)...............................       285                 284
Additional paid in capital......................................................    (4,858)             (9,756)
Retained deficit................................................................   (17,307)            (14,435)
Notes receivable from officers..................................................    (5,720)             (5,470)
                                                                                -----------          -----------
                                                                                   (27,600)            (29,377)
Less common stock in treasury (21,000 shares)...................................       ---                (105)
                                                                                ------------       -------------
  Total stockholders' equity....................................................   (27,600)            (29,482)
                                                                                ------------       -------------
Total liabilities and stockholders' equity......................................$  342,288           $ 344,801
                                                                                 =========            =========

                      See accompanying notes to condensed consolidated financial statements.
</TABLE>

                                                         3

<PAGE>

<TABLE>
<CAPTION>
                                         MERIT BEHAVIORAL CARE CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                                    (UNAUDITED)
                                              (dollars in thousands)
<S>     <C>    <C>    <C>    <C>    <C>    <C>


 
                                                                     Three months ended
                                                                         December 31,

                                                                  1996              1995
                                                              ------------      ----------

Revenue.......................................................$ 128,625         $110,920
Expenses:
  Direct service costs........................................  102,932           88,350
  Selling, general and administrative.........................   16,579           14,308
  Amortization of intangibles.................................    6,799            6,315
                                                              ------------      -----------
                                                                126,310          108,973

Operating income..............................................    2,315             1,947
Other income (expense):
  Interest income and other...................................      780               541
  Interest expense............................................   (6,186)           (5,445)
  Merger costs................................................      ---            (3,972)
                                                              -------------     -----------
                                                                 (5,406)           (8,876)
                                                              -------------     -----------

Loss  before income taxes  and cumulative effect of
  accounting change...........................................   (3,091)           (6,929)
Benefit for income taxes......................................     (219)             (985)
                                                              -------------     ------------
Loss before cumulative effect of accounting change...            (2,872)           (5,944)
Cumulative effect of accounting change for deferred
 contract start-up costs, net of tax benefit of $757.......         ---            (1,012)
                                                              -------------     -------------

Net loss...................................................   $  (2,872)        $  (6,956)
                                                                ==========        ==========


                      See accompanying notes to condensed consolidated financial statements.
</TABLE>


                                                         4

<PAGE>

<TABLE>
<CAPTION>
                                         MERIT BEHAVIORAL CARE CORPORATION
                                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                    (UNAUDITED)
                                              (dollars in thousands)
<S>     <C>    <C>    <C>    <C>    <C>    <C>

                                                                                Three months ended
                                                                                   December 31,
                                                                             1996                1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ..............................................................  $ (2,872)            $ (6,956)
Adjustments to reconcile net loss to net cash
  (used for) provided by operating activities:
  Cumulative effect of accounting change...............................       ---                1,012
  Depreciation and amortization........................................     9,907                8,533
  Amortization of deferred financing costs.............................       335                  253
  Deferred taxes.......................................................      (369)              (2,214)
Changes in operating assets and liabilities, net of the effect of acquisitions:
  Accounts receivable..................................................    (6,492)               3,609
  Other current assets.................................................    (1,336)                 369
  Deferred contract start-up costs.....................................      (637)              (1,187)
  Accounts payable and accrued liabilities.............................    (4,526)               8,884
                                                                       -----------          -----------
Net cash (used for) provided by operating activities...................    (5,990)              12,303
                                                                       -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment...........................    (5,554)              (6,670)
  Sales of marketable securities.......................................       ---                1,143
  Long-term restrictions removed from (placed on) cash..............           47               (1,193)
  Investments in and advances to joint ventures........................      (850)              (1,170)
  Repayments of advances from joint ventures...........................       180                  ---
  Cash used for acquisitions, contingent consideration, and
    related expenses, net of cash acquired.............................       ---               (8,501)
  Other................................................................       773                  211
                                                                       -----------          ------------
  Net cash used for investing activities...............................    (5,404)             (16,180)
                                                                       -----------          ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from capital contribution...................................      ---               114,980
  Proceeds from bridge loan............................................      ---                75,000
  Proceeds from revolving credit facility..............................    40,000               51,500
  Proceeds from senior term loans......................................      ---               120,000
  Proceeds from sale of notes..........................................      ---               100,000
  Repayment of notes receivable from officers..........................       250                  250
  Redemption of common stock...........................................      ---              (259,039)
  Repayment of due to parent...........................................      ---               (70,813)
  Repayment of bridge loan.............................................      ---               (75,000)
  Repayment of revolving credit facility...............................  (35,000)              (26,000)
  Repayment of senior term loans.......................................     (500)                  ---
  Payment of financing costs...........................................      ---               (11,999)
                                                                       -----------           ------------
  Net cash provided by financing activities............................     4,750               18,879
                                                                       -----------           ------------
INCREASE (DECREASE) IN CASH AND CASH
  EQUIVALENTS..........................................................   (6,644)               15,002
  Cash and cash equivalents at beginning of period.....................   47,375                29,531
                                                                       ---------             ------------ 
CASH AND CASH EQUIVALENTS AT END OF
  PERIOD...............................................................$  40,731             $  44,533
                                                                         ========             =========
SUPPLEMENTAL DISCLOSURES OF CASH
  FLOW INFORMATION:
  Cash (received) paid for income taxes................................$    (124)            $     173
  Cash paid for interest...............................................$   8,655             $   3,161

                      See accompanying notes to condensed consolidated financial statements.

                                                         5
</TABLE>

<PAGE>


                             MERIT BEHAVIORAL CARE CORPORATION
                   NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                        (UNAUDITED)
                                  (dollars in thousands)




1.  BASIS OF PRESENTATION

The accompanying  unaudited interim condensed  consolidated financial statements
include the accounts of Merit  Behavioral Care  Corporation and its wholly-owned
subsidiaries  (the  "Company"),  and  have  been  prepared  in  accordance  with
generally accepted accounting  principles for interim financial  information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.

The condensed  consolidated balance sheet at December 31, 1996 and the condensed
consolidated  statements of operations and cash flows for all periods  presented
are unaudited and reflect all adjustments, consisting of normal recurring items,
which management considers necessary for a fair presentation.  Operating results
for fiscal 1997 interim periods are not necessarily  indicative of results to be
expected  for the entire  year.  The  condensed  consolidated  balance  sheet at
September  30, 1996 was derived from the  Company's  September  30, 1996 audited
financial  statements.  Certain  prior year  amounts have been  reclassified  to
conform with the current year's presentation.

Although the Company believes the accompanying disclosures are adequate, certain
information  and  disclosures  normally  included in the notes to the  financial
statements  have  been  condensed  or  omitted  as  permitted  by the  rules and
regulations  of  the  Securities  and  Exchange  Commission.   The  accompanying
unaudited financial  statements should be read in conjunction with the financial
statements  contained  in the  Annual  Report  on Form  10-K for the year  ended
September 30, 1996.

2.  CONTINGENCIES

In  October  1996,  a group of  eight  plaintiffs  purporting  to  represent  an
uncertified class of psychiatrists,  psychologists and social workers brought an
action under the federal  antitrust laws in the United States District Court for
the Southern  District of New York against nine  behavioral  health managed care
organizations, including the Company (collectively, "Defendants"). The complaint
alleges that Defendants  violated  section 1 of the Sherman Act by engaging in a
conspiracy to fix the prices at which Defendants  purchase  services from mental
healthcare  providers such as  plaintiffs.  The complaint  further  alleges that
Defendants  engaged in a group boycott to exclude  mental  healthcare  providers
from  Defendants'  networks  in  order  to  further  the  goals  of the  alleged
conspiracy.   The  complaint  also   challenges  the  propriety  of  Defendants'
capitation arrangements with their respective customers,  although it is unclear
from  the  complaint  whether  plaintiffs  allege  that  Defendants   unlawfully
conspired to enter into capitation arrangements with their respective customers.
The complaint seeks treble damages against  Defendants in an unspecified  amount
and a permanent injunction  prohibiting  Defendants from engaging in the alleged
conduct which forms the basis of the complaint,  plus costs and attorneys' fees.
In January  1997,  defendants  filed a motion to dismiss  the  complaint,  which
motion has not yet been heard or  decided.  The  Company  intends to  vigorously
defend  itself in this  litigation.  No amounts are recorded on the books of the
Company in anticipation of a loss as a result of this contingency.

The Company is engaged in various  other legal  proceedings  that have arisen in
the ordinary  course of its  business.  The Company  believes  that the ultimate
outcome of such  proceedings  will not have a material  effect on the  Company's
financial position, liquidity or results of operations.



                                                         6

<PAGE>



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


Results of Operations

Overview

The Company is one of the leading  behavioral  health  managed care companies in
the United  States,  arranging  for a full  spectrum  of  behavioral  healthcare
services on a nationwide basis.  Behavioral healthcare involves the treatment of
a variety of behavioral  health  conditions  such as emotional and mental health
problems,  substance abuse and other personal concerns that require  counseling,
outpatient therapy or more intensive  treatment  services.  The Company provides
managed behavioral  healthcare  services through a systematic  clinical approach
with the objective of diagnosing problems promptly and designing treatment plans
to ensure that patients  receive the  appropriate  level of care in an effective
and cost-efficient  manner. The Company manages behavioral  healthcare  programs
for approximately  1,000 payors across all segments of the healthcare  industry,
including  health  maintenance  organization  ("HMOs"),  Blue Cross Blue  Shield
organizations  and other  insurance  companies,  corporations  and labor unions,
Federal,  state and local  governmental  agencies,  and various  state  Medicaid
programs.

Three Months Ended December 31, 1996 Compared to Three Months Ended December  
31, 1995

Revenue. Revenue increased by $17.7 million, or 16.0%, to $128.6 million for the
three  months ended  December 31, 1996 from $110.9  million for the three months
ended December 31, 1995. Of this increase, $28.2 million was attributable to the
inclusion of revenue  from certain  contracts  that  commenced  during the prior
fiscal year as well as additional revenue from existing  customers  generated by
an increase  in both the number of programs  managed by the Company on behalf of
such customers and an increase in the number of  beneficiaries  enrolled in such
customers'  programs;  and  $3.5  million  was  attributable  to  new  customers
commencing  service in the current quarter.  This revenue increase was partially
offset by a $14.0 million  decrease in revenue as a result of the termination of
certain contracts,  $12.8 million of which was due to terminations that occurred
in various periods of the prior fiscal year. Contract price increases were not a
material factor in the increase in revenue.

Direct Service Costs. Direct service costs increased by $14.6 million, or 16.5%,
to $102.9  million  for the three  months  ended  December  31,  1996 from $88.4
million for the three  months  ended  December  31,  1995.  As a  percentage  of
revenue,  direct service costs  increased from 79.7% in the prior year period to
80.0% in the current year period.  The increase was due to the anticipated lower
than average  direct  profit  margin  earned on the TennCare  Partners  Program,
partly  offset by a year over year  decline  in  healthcare  utilization  in the
Company's overall business. Under the TennCare Partners Program,  services under
which commenced in the fourth quarter of fiscal 1996, the Company (together with
a local  Tennessee  partner)  provides mental health and substance abuse managed
care  services  to  approximately   500,000  Medicaid  eligibles  and  uninsured
individuals residing in the State of Tennessee.  In light of the significance of
the contract to the Company's  overall revenue base and the unusual structure of
the TennCare  Partners Program,  the Company expects  unfavorable year over year
direct cost percentage  comparisons for the remainder of fiscal 1997.  Excluding
the effect of the TennCare Partners contract, however, the Company experienced a
decline in the  direct  service  cost  percentage  as a result of overall  lower
healthcare  utilization  in the current  three  month  period as compared to the
previous year period, due to continued development and deployment of alternative
treatment  programs  designed to achieve more  cost-effective  treatment and the
Company's  increased  focus on  clinical  care  techniques  directed at patients
requiring more  intensive  treatment  services.  Also  positively  impacting the
direct cost percentage was the effect of a nationwide recontracting program with
providers which began in the second quarter of fiscal 1996.

Selling,   General   and   Administrative   Expenses.   Selling,   general   and
administrative  expenses  increased by $2.3 million,  or 15.9%, to $16.6 million
for the three  months ended  December 31, 1996 from $14.3  million for the three
months  ended  December 31, 1995.  The  increase in total  selling,  general and
administrative  expenses was primarily  attributable  to (i) growth in marketing
and sales  administrative  staff,  corporate and regional management and support
systems associated with the higher sales volume,  (ii) expenses  associated with
the expansion of both the Company's national

                                                         7

<PAGE>



service center located in St. Louis,  Missouri (the "National  Service Center"),
and the Company's  headquarters  located in Park Ridge,  New Jersey,  which will
allow for growth beyond its current  needs,  and (iii)  expenses  related to the
planned deployment of the Company's new information  systems. As a percentage of
revenue, selling, general and administrative expenses remained constant at 12.9%
for both the current and prior year  periods,  but  declined  from the third and
fourth  quarters of fiscal  1996 due to the  Company's  efforts to contain  such
expenses as well as an allocation of such expenses over a larger revenue base.

Amortization  of  Intangibles.  Amortization  of  intangibles  increased by $0.5
million,  or 7.9%, to $6.8 million for the three months ended  December 31, 1996
from $6.3 million for the three months ended December 31, 1995. The increase was
primarily  due  to  an  increase  in  amortization  of  goodwill  recognized  in
connection with the acquisitions of Choate Health Management, Inc. and ProPsych,
Inc., as well as to increases in the amortization of deferred  contract start-up
costs related to new contracts.

Other Income  (Expense).  For the three months  ended  December 31, 1996,  other
income and expense  consisted of (i) interest expense of $6.2 million related to
debt  incurred  as a result of the merger of the  Company  with MDC  Acquisition
Corp.  (the  "Merger");  and (ii)  interest  and other  income  of $0.8  million
relating   primarily  to  investment   earnings  on  the  Company's   short-term
investments  and  restricted  cash  balances.  The year  over year  increase  in
interest expense of $0.7 million was primarily  attributable to the full quarter
impact of (i) the  indebtedness  incurred  on October 6, 1995 by the  Company in
connection with the Merger;  and (ii) the 11 1/2% Senior  Subordinated Notes due
2005 issued in November 1995,  and exchanged for publicly  traded Notes in March
1996 (the  "Notes"),  which  bore  interest  at a higher  rate  than the  bridge
financing  facility  that the Notes  replaced.  The year over year  increase  in
interest  income of $0.2 million was primarily  attributable to both an increase
in average  invested  cash  balances  as  compared  to the prior year period and
interest earned on advances to certain joint ventures.

Income Taxes.  The Company  recorded a benefit for income taxes during the three
months  ended  December 31, 1996 based upon the  Company's  pre-tax loss in such
period.

Liquidity and Capital Resources

General. For the three months ended December 31, 1996, operating activities used
cash of $6.0  million,  investing  activities  used  cash  of $5.4  million  and
financing activities provided cash of $4.8 million,  resulting in a net decrease
in cash  and cash  equivalents  of $6.6  million.  Investing  activities  in the
current three month period consisted  principally of (i) capital expenditures of
$5.6 million related primarily to the continued development of the Company's new
information  systems and expansion of the Company's National Service Center; and
(ii)  payments  totaling  $0.9 million for funding  under  various joint venture
arrangements,  the most  significant of which was with Community Sector Systems,
Inc.

Senior  Indebtedness.  As of December 31, 1996, $39.0 million of revolving loans
and $6.2  million of  letters of credit  were  outstanding  under the  revolving
credit facility of the Company's Credit Agreement with The Chase Manhattan Bank,
N.A. (the "Senior Credit  Facility") and  approximately  $39.8 was available for
future borrowing.

Adjusted EBITDA.  Adjusted EBITDA, a financial measure used in the Senior Credit
Facility and the  indenture for the Notes (the  "Indenture"),  increased by $2.0
million, or 18.0%, to $13.0 million for the three months ended December 31, 1996
from $11.0 million for the three months ended December 31, 1995.

Cash in Claims Funds and  Restricted  Cash. As of December 31, 1996, the Company
had total cash balances  (including cash equivalents) of $46.4 million, of which
$33.3 million was restricted under certain contractual, fiduciary and regulatory
requirements;  moreover,  of such  amount,  $5.6  million  was  classified  as a
long-term asset on the Company's  balance sheet.  Under certain  contracts,  the
Company is required to establish segregated claims funds into which a portion of
its capitation  fee is held until a  reconciliation  date (which  reconciliation
typically   occurs   annually).   Until  that  time,  cash  funded  under  these
arrangements  is  unavailable to the Company for purposes other than the payment
of claims.  In addition,  California and Illinois state regulatory  requirements
restrict access to cash held by the Company's subsidiaries in such states. As of
December 31, 1996,  the Company also held surplus cash  balances,  classified as
cash and cash  equivalents,  as  required by the  contracts  held by the Company
relating to Medicaid programs for the States

                                                         8

<PAGE>



of Iowa and Tennessee and for a Medicaid contract in the Commonwealth of 
Pennsylvania.

Availability  of Cash.  Historically,  the  Company  has funded  its  operations
primarily with cash generated from operations and through the funding of certain
acquisitions,  investments and other transactions by its former parent,  Merck &
Co., Inc. The Company expects to finance its capital  requirements in the future
through  existing cash balances,  cash generated from  operations and borrowings
under the revolving  credit facility of the Senior Credit  Facility.  Based upon
the current level of cash flows from  operations  and  anticipated  growth,  the
Company believes that available cash,  together with available  borrowings under
the revolving  credit facility and other sources of liquidity,  will be adequate
to meet the  Company's  anticipated  future  requirements  for working  capital,
capital  expenditures,  and scheduled  payments of principal and interest on its
indebtedness for the foreseeable future.


                                                         9

<PAGE>





                                PART II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS

         In October 1996, a group of eight plaintiffs purporting to represent an
uncertified class of psychiatrists,  psychologists and social workers brought an
action under the federal  antitrust laws in the United States District Court for
the Southern  District of New York against nine  behavioral  health managed care
organizations,  including  the  Company  (collectively,  "Defendants")  entitled
Edward  M.  Stephens,  Jose  A.  Yaryura-Tobias,   Judith  Green,  Ph.D.,  Fugen
Neziroglu,  Ph.D.,  Ona Robinson,  Ph.D.,  Laurie A. Baum,  C.S.W.,  Agnes Wohl,
C.S.W., and The On-Step Institute For Mental Health Research, Inc., individually
and on behalf of all others  similarly  situated,  v. CMG Health,  FHC  Options,
Inc., Foundation Health PsychCare Services,  Inc., Green Spring Health Services,
Inc.,  Human Affairs  International,  Inc.,  Merit  Behavioral  Care Corp.,  MCC
Behavioral Care Inc.,  United  Behavioral  Systems,  Inc., and Value  Behavioral
Health, Inc., 96 Civ. 7798 (KMW). The complaint alleges that Defendants violated
section 1 of the Sherman Act by  engaging in a  conspiracy  to fix the prices at
which  Defendants  purchase  services from mental  healthcare  providers such as
plaintiffs.  The complaint  further alleges that  Defendants  engaged in a group
boycott to exclude  mental  healthcare  providers from  Defendants'  networks in
order to  further  the  goals of the  alleged  conspiracy.  The  complaint  also
challenges  the  propriety of  Defendants'  capitation  arrangements  with their
respective  customers,  although  it  is  unclear  from  the  complaint  whether
plaintiffs allege that Defendants  unlawfully conspired to enter into capitation
arrangements with their respective customers. The complaint seeks treble damages
against  Defendants  in  an  unspecified  amount  and  a  permanent   injunction
prohibiting  Defendants  from  engaging in the alleged  conduct  which forms the
basis of the  complaint,  plus  costs and  attorneys'  fees.  In  January  1997,
Defendants  filed a motion to dismiss the  complaint,  which  motion has not yet
been heard or decided.  The Company intends to vigorously  defend itself in this
litigation.  However,  there  can be no  assurance  that  the  outcome  of  this
litigation will be favorable to the Company. An unfavorable outcome could have a
material adverse effect on the Company.

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

(a) Exhibits

         *27      Financial Data Schedule (electronic filing only).

                  *filed herewith

(b) Reports on Form 8-K

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

                                                        10

<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.

The signatory  hereby  acknowledges and adopts the typed form of his name in the
electronic filing of this document with the Securities and Exchange Commission.







Date: February 12, 1997              Merit Behavioral Care Corporation


                                  By: /s/ Arthur H. Halper
                                     ___________________________________
                                     Arthur H. Halper, Executive Vice President
                                     and Chief Financial Officer
                                     (Principal Financial Officer,
                                      Accounting Officer and
                                      Duly Authorized Officer)


                                                        11

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