UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


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

For the quarterly period ended                 November 30, 1997
                               --------------------------------------------

                                       or

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

For the transition period from                   to                         
                              -------------------  ----------------------



                           MEDICUS SYSTEMS CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)

       Delaware                                                       36-4056769
--------------------------------------------------------------------------------
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 of incorporation of organization)

One Rotary Center, Suite 1111, Evanston, Illinois 60201           (847) 570-7500
--------------------------------------------------------------------------------
(Address of principal executive offices)         (Registrant's telephone number)

Commission File Number               0-27614
                      -----------------------------------


   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.

[X] Yes  [ ] No

There were 5,523,169 shares of common stock outstanding as of January 12, 1998.











<PAGE>





                         PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

                                              MEDICUS SYSTEMS CORPORATION
                                                    BALANCE SHEETS

                                          November 30,                May 31,
ASSETS                                        1997                      1997
                                        ---------------           --------------
Current assets                           (Unaudited)
    Cash and cash equivalents          $    244,217                $  1,205,135
    Accounts receivable and unbilled
     services, net of allowance for
     doubtful accounts of $1,290,459 
     and 1,713,008                       13,224,602                  10,500,676
    Inventories                             181,572                     214,264
    Prepaid expenses and other              235,616                     258,725
    Prepaid and deferred income taxes     1,756,163                   2,147,416
    Net assets of discontinued operation       -                        111,381
                                        ---------------           --------------
                                         15,642,170                  14,437,597
                                        ---------------           --------------
Property and equipment, net of
 accumulated depreciation of 
 $5,578,254 and $5,080,110                1,977,827                   2,335,175
Internally developed software, 
 net of accumulated amortization of
 $2,648,322 and $2,110,378                2,673,710                   3,087,849
Installment accounts receivable due 
 after one year, net of unearned 
 interest of $117,309 and $154,647          431,345                     533,488
Deferred income taxes                     3,414,474                   2,454,563
                                        ---------------           --------------
                                       $ 24,139,526                $ 22,848,672
                                        ===============           ==============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
    Accounts payable                   $    251,608                $    597,787
    Accrued compensation                    554,716                     453,035
    Accrued restructuring charge          1,627,616                   2,247,416
    Other accrued liabilities             1,475,901                   1,138,226
    Deferred revenue                      9,872,854                   6,910,599
    Notes payable                         1,000,000                   1,000,000
                                        ---------------           --------------
                                         14,782,695                  12,347,063
                                        ---------------           --------------
Notes payable                             1,000,000                   1,000,000
                                        ---------------           --------------
Stockholders' equity
    Preferred stock $1,000 par, 500
     shares authorized and issued           500,000                     500,000
    Common stock $.01 par:
    Authorized - 10,000,000 shares
    Issued - 6,492,803 and 6,487,159
     shares, respectively                    64,928                      64,872
    Capital in excess of par value       22,310,767                  22,063,715
    Capital in excess of par 
     value - warrant                        944,000                     944,000
    Less treasury stock:
    Preferred stock, at cost - 500 shares  (500,000)                   (500,000)
    Common stock, at cost - 
     1,007,002 shares                    (5,687,418)                 (5,687,418)
    Accumulated deficit                  (9,275,446)                 (7,883,560)
                                        ---------------           --------------
                                          8,356,831                   9,501,609
                                        ---------------           --------------
                                       $ 24,139,526                $ 22,848,672
                                        ===============           ==============


     The accompanying notes are an integral part of these statements.


<PAGE>





                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                               Three Months Ended
                                      ------------------------------------------
                                          November 30,              November 30,
                                               1997                      1996
                                      -------------------      -----------------
Revenues
  Software products and services      $  1,384,083                 $  2,286,033
  Maintenance and support services       2,384,357                    2,876,744
                                      -------------------      -----------------
                                         3,768,440                    5,162,777

Costs and expenses
  Software products and services           528,763                      724,747
  Maintenance and support services       1,387,933                    1,397,150
                                      -------------------      -----------------
                                         1,916,696                    2,121,897

  Marketing, general and administrative  2,662,236                    2,232,201
  Research and development                 522,375                      698,774
                                      -------------------      -----------------
                                         5,101,307                    5,052,872
                                      -------------------      -----------------

Operating income (loss)                 (1,332,867)                     109,905

  Interest and other income, net             6,023                      155,303
                                      -------------------      -----------------

Income (Loss) from continuing 
 operations before income taxes         (1,326,844)                     265,208

  Provision for (benefit from)
   income taxes                           (510,835)                      98,876
                                      -------------------      -----------------

Income(Loss)from continuing operations    (816,009)                     166,332

Discontinued operation, net of taxes       (69,068)                      45,242
                                      -------------------      -----------------

Net income (loss)                     $   (885,077)                $    211,574
                                      ===================      =================

Earnings (loss) per common and 
 common equivalent share
  Continuing operations               $      (0.15)                $       0.02
  Discontinued operation                     (0.01)                        0.01
                                      -------------------      -----------------
                                      $      (0.16)                $       0.03
                                      ===================      =================
Weighted average common and
 common equivalent shares outstanding    5,500,536                    6,496,990
                                      ===================      =================




   
     The accompanying notes are an integral part of these statements.


<PAGE>





                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF OPERATIONS
                                  (Unaudited)

                                                      Six Months Ended
                                        ----------------------------------------
                                          November 30,              November 30,
                                              1997                      1996
                                        ----------------       -----------------
Revenues
  Software products and services        $  3,627,943               $  4,101,769
  Maintenance and support services         4,760,407                  5,257,787
                                        ----------------       -----------------
                                           8,388,350                  9,359,556

Costs and expenses
  Software products and services           1,247,031                  1,238,540
  Maintenance and support services         2,515,083                  2,262,337
                                        ----------------       -----------------
                                           3,762,114                  3,500,877

  Marketing, general and 
   administrative                          5,385,899                  4,263,893
  Research and development                 1,503,434                  1,204,214
                                        ----------------       -----------------
                                          10,651,447                  8,968,984
                                        ----------------       -----------------

Operating income (loss)                   (2,263,097)                   390,572

  Interest and other income, net               8,872                    275,397
                                        ----------------       -----------------

Income (Loss) from continuing
 operations before income taxes           (2,254,225)                   665,969

  Provision for (benefit from)
   income taxes                             (867,876)                   258,419
                                        ----------------       -----------------

Income(Loss)from continuing operations    (1,386,349)                   407,550

Discontinued operation, net of taxes          (5,537)                    96,240
                                        ----------------       -----------------

Net income (loss)                       $ (1,391,886)              $    503,790
                                        ================       =================

Earnings (loss) per common and 
 common equivalent share
  Continuing operations                 $      (0.25)              $       0.06
  Discontinued operation                        0.00                       0.02
                                        ----------------       -----------------
                                        $      (0.25)              $       0.08
                                        ================       =================
Weighted average common and
 common equivalent shares outstanding      5,501,233                  6,485,121
                                        ================       =================




     The accompanying notes are an integral part of these statements.


<PAGE>





                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                    Six Months Ended
                                       -----------------------------------------
                                         November 30,               November 30,
                                              1997                       1996
                                       -----------------        ----------------

Cash flows from operating activities
 Income (Loss) from continuing operations  $ (1,386,349)         $      407,550
 Adjustments to reconcile to net cash
 from operating activities:
  Depreciation of property and equipment        498,144                 557,087
  Amortization of internally 
   developed software                           537,944                 151,588
  Deferred income taxes                        (468,832)                119,507
  Accrued restructuring charge                 (540,153)               (646,281)
  Allowance for doubtful accounts               150,000                    -
  Changes in certain current assets and 
   current liabilities:
    Accounts receivable and unbilled 
    services                                 (2,953,573)             (3,032,605)
    Due from Managed Care Solutions, Inc.          -                    515,361
    Inventories                                  32,692                  15,962
    Prepaid expenses and other current assets   (76,717)                719,239
    Accounts payable                           (346,179)              1,371,842
    Accrued compensation                        101,681              (1,358,114)
    Deferred revenue                          2,962,255                (531,386)
  Other, net                                    421,971                  91,466
                                       -----------------        ----------------
                                             (1,067,116)             (1,618,784)
                                       -----------------        ----------------

Cash flows from investing activities
 Additions to property and equipment           (140,796)               (312,695)
 Additions to internally developed software    (123,805)               (946,749)
 Proceeds from maturity of short-term 
  investments                                      -                  3,594,793
 Proceeds from sale of short-term 
  investments                                      -                 58,588,023
 Purchases of short-term investments               -                (59,896,661)
                                       -----------------        ----------------
                                               (264,601)              1,026,711
                                       -----------------        ----------------

Cash flows from financing activities
 Sale of common stock                           247,108                  79,476
                                       -----------------        ----------------
                                                247,108                  79,476
                                       -----------------        ----------------

Net decrease in cash 
 and cash equivalents                        (1,084,609)               (512,597)
Cash and cash equivalents, 
 beginning of period                          1,205,135                 765,312
Net cash activity from 
 discontinued operation                         123,691                 571,994
                                       -----------------        ----------------
Cash and cash equivalents,
 end of period                             $    244,217          $      824,709
                                       =================        ================


      The accompanying notes are an integral part of these statements.


<PAGE>





                           MEDICUS SYSTEMS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

   In  management's   opinion,  the  financial  statements  of  Medicus  Systems
Corporation  (the "Company" or "Medicus")  reflect all  adjustments  (consisting
only  of  normal  recurring   adjustments)   considered  necessary  for  a  fair
presentation  of the  operating  results for the  quarters  and six months ended
November  30,  1997 and 1996.  Certain  reclassifications  have been made in the
prior period financial statements to conform to the current period presentation.
These reclassifications had no effect on previously reported total assets, total
liabilities, equity or results of operations.

   Operating  results for the interim periods are not necessarily  indicative of
the results to be expected for the full year. The financial information included
herein should be read in conjunction with the financial statements and footnotes
thereto  included in the Company's Annual Report on Form 10-K for the year ended
May 31, 1997.

   During the quarter and six months ended November 30, 1996,  Medicus performed
certain administrative services for Managed Care Solutions, Inc. ("MCS") under a
services agreement  resulting from the spin off of the Company from MCS on March
1, 1996.  During the quarter and six months ended November 30, 1996, the Company
received  $175,000  and  $350,000,  respectively,  in  consideration  for  these
services,  and reduced marketing,  general and  administrative  expenses by this
amount.

NOTE 2 - QUADRAMED ACQUISITION

   On  November  9,  1997,   QuadraMed   Corporation,   a  Delaware  corporation
("QuadraMed")  acquired (the  "Acquisition")  56.7% of the  outstanding  capital
stock of the Company.  The  Acquisition was completed by means of Stock Purchase
Agreements,  dated as of  November 9, 1997,  with  certain  stockholders  of the
Company  (the  "Selling  Stockholders").  Pursuant  to the  terms  of the  Stock
Purchase  Agreements,  the Selling  Stockholders  agreed to sell an aggregate of
3,111,105 shares of Medicus Common Stock to QuadraMed.  In consideration for the
transfer  of  these  shares  to  QuadraMed,   QuadraMed   paid  to  the  Selling
Stockholders $7.50 per share, in cash, without interest,  or approximately $23.3
million,   together  with  warrants  (the  "Warrants")   entitling  the  Selling
Stockholders  to acquire 0.3125 shares of QuadraMed  Common Stock for each share
of the Medicus  Common Stock sold (subject to adjustment in accordance  with the
Agreement).  The Warrants entitle the Selling Stockholders to purchase QuadraMed
Common  Stock at a price of  $24.00  per  share,  on the  terms set forth in the
Warrants.

   Simultaneously with the execution of the Stock Purchase Agreements, QuadraMed
and the Company entered into an Agreement and Plan of Reorganization dated as of
November 9, 1997 (the "Agreement")  pursuant to which a wholly-owned  subsidiary
of  QuadraMed  will be merged,  subject to the approval of the  stockholders  of
QuadraMed,  with and into the Company (the  "Merger").  At the effective time of
the Merger,  the  stockholders of the Company  participating  in the Merger will
exchange all  outstanding  shares of Medicus  Common Stock for any of (i) a cash
payment  of $7.50 per share of  Medicus  Common  Stock,  (ii)  0.3125  shares of
QuadraMed  Common  Stock per share of  Medicus  Common  Stock sold  (subject  to
adjustment  in  accordance  with  the  Agreement),  or  (iii) a  combination  of
QuadraMed  Common Stock and cash.  In  addition,  all stock  options  previously
issued by Medicus and  outstanding  at the time of the Merger will be assumed by
QuadraMed at an exchange  ratio of 0.3565  shares of QuadraMed  Common Stock for
each share of Medicus Common Stock subject to such options.  The  Acquisition is
intended to qualify as a tax-free  reorganization  within the meaning of Section
368 (a) of the  Internal  Revenue  Code of 1986 and will be  accounted  for as a
purchase transaction.

   The  acquisition  is subject to approval of the Company's  stockholders  at a
Special Meeting of  Stockholders.  The terms of the acquisition are set forth in
the Agreement filed with the Securities and Exchange  Commission by QuadraMed on
November 21, 1997.


<PAGE>
                           MEDICUS SYSTEMS CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, Continued
                                   (Unaudited)


NOTE 3 - RESTRUCTURING CHARGES

   During  February,  1996,  the Company  commenced  a process to  evaluate  its
current strategic  position,  including the markets it expects to pursue and its
product offerings in those chosen markets. As a result of decisions made as part
of this evaluation  process,  the Company recorded $4.7 million in restructuring
charges,  representing  costs and expenses to exit  certain  product  lines,  to
abandon  certain  product  development  efforts and to provide  for  liabilities
resulting  from the strategic  redirection of the Company,  including  severance
costs.  Specifically,  the Company  decided to exit the Clinical Case Management
Systems   ("CCM")  and  the  Executive   Information   Systems   product  lines.
Additionally, product development efforts for the Clinical Data Systems Wincoder
V2 project and portions of the MACH 1 project,  which will no longer be utilized
in the Medicus  product line,  were abandoned and their  associated  development
costs,  which had been previously  capitalized,  were expensed.  Severance costs
associated with an officer and several  employees,  in addition to the write-off
of a portion  of the  Contract  Management  System,  were also  included  in the
restructuring charge.

   As part of an ongoing evaluation,  the Company refined its strategic planning
process during fiscal 1997, and assessed continuing  obligations associated with
the   implementation   of  the  plan.  The  Company  continued  the  process  of
implementing its plans during 1997 and,  following the stock repurchase from its
founder in the quarter ended February 28, 1997, recorded $2.8 million in charges
to  complete  its plan,  including  accruing  certain  costs to  reorganize  the
Company's  business  units,  to  abandon  certain  development  efforts,  and to
increase the allowance for doubtful accounts.  Specifically, the Company decided
to relocate operations for its Clinical Data Systems ("CDS") division,  based in
Alameda,  CA, to the Company's  Evanston,  IL corporate  offices.  Costs accrued
associated  with  the  relocation   included  costs  to  cancel  existing  lease
agreements,  to  terminate  employees  and to write down  abandoned  assets.  In
addition,  the Company  increased  its  reserves for product line exit costs and
severance  costs  that  relate  to the  remaining  customer  of  the  previously
discontinued CCM product line. Also, certain product development efforts for the
Company's  Patient  Focused Systems  ("PFS")  products were  abandoned,  and the
associated development costs, which had been previously capitalized,  along with
other related product line exit costs were expensed.  The Company also increased
its allowance for doubtful accounts due to the potential for certain  additional
billed  and  unbilled  accounts  to  become  uncollectible  as a  result  of the
decisions discussed above.

  The components of the restructuring  reserve,  which the Company expects will
be utilized during the next six months, are as follows:

                                            November 30,          May 31,
                                              1997                  1997
                                         -----------------   -------------------
     Product line exit costs             $     671,978       $     774,425
     Business unit reorganization costs        418,550             674,597
     Employee termination and severance 
       costs                                   537,088             798,394
                                         -----------------   -------------------
                                         $   1,627,616       $   2,247,416
                                         =================   ===================

   During the quarter  ended  November  30, 1997,  the Company paid  $161,436 in
business unit reorganization costs related to the relocation of the CDS division
and $86,857 in severance benefits and employee termination costs. During the six
months ended November 30, 1997, the Company  incurred  $79,647 in write-downs of
accounts  receivable  and  $22,800  in product  line exit  costs  related to the
remaining customer of the previously  discontinued CCM product line. The Company
also  paid  $256,047  in  business  unit  reorganization  costs  related  to the
relocation  of the CDS division and $261,306 in severance  benefits and employee
termination costs.

<PAGE>



                           MEDICUS SYSTEMS CORPORATION
                    NOTES TO FINANCIAL STATEMENTS, Continued
                                   (Unaudited)

NOTE 4 - DISCONTINUED OPERATION

   Effective May 31, 1997 the Company adopted a plan to discontinue its contract
services  line  of  business.  This  separate  line  of  business  consisted  of
information systems management contracts with Bethesda, Inc. As a result of this
decision, the net assets of the contract services line of business,  principally
accounts receivable and unbilled services,  property and equipment, and accounts
payable and other  accrued  liabilities  have been  reclassified  in the Balance
Sheets at  November  30,  1997 and May 31,  1997.  In  addition,  the results of
operations  of the contract  services  business  have been  reclassified  in the
Statements of Operations for the quarters and six months ended November 30, 1997
and 1996 and in the  Statements of Cash Flows for the six months ended  November
30, 1997 and 1996.

   The following  table  summarizes  unaudited  selected  financial  data of the
contract  services  business for the quarters and six months ended  November 30,
1997 and 1996:

                   Three Months Ended                     Six Months Ended
              --------------------------------     -----------------------------
                November 30,    November 30,        November 30,    November 30,

                  1997            1996                1997               1996
              --------------  ----------------     --------------  -------------
Revenues         $2,501,000      $2,539,000          $5,002,000      $5,036,000
Operating
  income (loss)    (112,000)         73,000              (9,000)        156,000


   In December 1997,  following meetings with  representatives from both Medicus
and Bethesda,  Inc., the contracts to manage the information  systems  functions
were terminated,  effective December 31, 1997. As a result, the Company recorded
$150,000  in related  settlement  costs for the  quarter  and six  months  ended
November 30, 1997.

NOTE 5 - EARNINGS PER SHARE

   Earnings  (Loss) per common  share have been  computed by dividing net income
(loss) by the  weighted  average of common  stock and common  stock  equivalents
outstanding during the period.  Common stock equivalents include shares issuable
on the  exercise of stock  options and the warrant  (when  dilutive),  using the
treasury  method  from the  date of  grant.  Common  stock  equivalents  are not
included in the calculation of loss per share because they are antidilutive.


NOTE 6 - NOTE PAYABLE AND LINE OF CREDIT

   On December 5, 1996,  the Company  reached an agreement in principle with its
founder,  Richard C. Jelinek, to purchase from Mr. Jelinek, and a trust of which
he is a beneficiary  (the  "Trust"),  one million shares of Medicus Common Stock
and 500 shares of Medicus  Voting  Preferred  Stock.  In  exchange,  the Company
agreed to pay Mr. Jelinek and the Trust $4.5 million in cash and $2.0 million in
8% two-year  promissory  notes,  and issued to Mr. Jelinek and the Trust 400,000
five-year warrants to purchase Medicus Common Stock at $8.00 per share. Interest
costs incurred and paid on the promissory  notes totaled $40,040 and $79,705 for
the quarter and six months ended  November 30, 1997. In December 1997, the notes
and related interest were redeemed in their entirety by QuadraMed.

   In April  1997,  the  Company  entered  into an  agreement  with a bank  that
provides  for a  secured,  revolving  line of  credit  up to a  maximum  of $2.5
million.  The credit  facility,  which has an initial  maturity  date of October
1998, bears interest at the bank's prime rate and provides the bank with a first
security interest in all assets of the Company.  Certain financial covenants and
reporting  requirements  are also included in the agreement.  As of November 30,
1997, the Company had not utilized the line of credit.


<PAGE>


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

                           MEDICUS SYSTEMS CORPORATION
                              RESULTS OF OPERATIONS

   This report contains statements that may be considered forward-looking,  such
as the discussion of the Company's strategic goals, new products and cash flows.
These statements speak of the Company's plans,  goals or expectations,  refer to
estimates, or use similar terms. Actual results could differ materially from the
results  indicated by these statements  because the realization of those results
is subject to many uncertainties.

   Some of these  uncertainties  that may affect future results are discussed in
more detail  below under  "Management's  Discussion  and  Analysis of  Financial
Condition and Results of Operations." All forward-looking statements included in
this document are based upon information  presently  available,  and the Company
assumes no obligation to update any forward-looking statement.

   The Company's quarterly operating results  historically have varied depending
upon such  factors  as the  timing of  significant  sales and the  timing of new
product introductions.  Consequently, the results for any one quarter may not be
indicative of future operating results.

   The following  table sets forth for the periods  indicated (i) the percent of
revenues  represented  by certain  line  items in the  Company's  Statements  of
Operations and (ii) the percentage  change in each line item from the prior year
period.
<TABLE>
<CAPTION>

                                                   Percent of Revenues        Percentage         Percent of Revenues     Percentage
                                                   Three Months Ended          Increase           Six Months Ended        Increase
                                                   Nov. 30,   Nov. 30,         (Decrease)        Nov. 30,   Nov. 30,     (Decrease)
                                                   1997       1996           1996 to 1997      1997       1996       1996 to 1997
                                                     ----       ----           ------------      ----       ----       -------------
<S>                                                <C>        <C>              <C>               <C>        <C>         <C>

Revenues
 Software products and services                        37%       44%              (39)%            43%       44%           (12)%
 Maintenance and support services                      63        56               (17)             57        56             (9)
                                                      ----      ----              ----            ----      ----           ----
                                                      100       100               (27)            100       100            (10)
                                                      ----      ----              ----            ----      ----           ----
Costs and expenses
 Software products and services <F1>                   38        32               (27)             34        30              1
 Maintenance and support services <F1>                 58        49                (1)             53        43             11
                                                      ----      ----              ----            ----      ----           ----
                                                       51        41               (10)             45        37              7
 Marketing, general and administrative                 70        43                19              64        46             26
 Research and development                              14        14               (25)             18        13             25
                                                      ----      ----              ----            ----      ----           ----
                                                      135        98                 1             127        96             19
                                                      ----      ----              ----            ----      ----           ----

Operating income (loss)                               (35)        2               N/M             (27)        4            N/M
 Interest and other income, net                         -         3               (96)              -         3            (97)
                                                      ----      ----              ----            ----      ----           ----

Income (Loss) from continuing
 operations before income taxes                       (35)        5               N/M             (27)        7            N/M
 Provision for (benefit from) income taxes            (14)        2               N/M             (10)        3            N/M
                                                      ----      ----                              ----      ----           ----
Income (Loss) from continuing
 operations                                           (21)        3               N/M             (17)        4            N/M
Discontinued operation, net of taxes                   (2)        1               N/M               -         1            N/M
                                                      ----      ----                              ----      ----           ----
Net income (loss)                                     (23)%       4%              N/M             (17)%       5%           N/M
                                                      ====      ====                              ====      ====           ====
<FN>

<F1>  Shown as a percent of related revenues.
</FN>

</TABLE>

   Operating  revenues are derived  from two  sources:  (1) license fees and the
related services for licensing the Company's proprietary software products;  and
(2) maintenance and support services related to such software products.



                                                         


                                                         


<PAGE>





                           MEDICUS SYSTEMS CORPORATION
                        RESULTS OF OPERATIONS, Continued

SOFTWARE PRODUCTS AND SERVICES

   Revenues  decreased  39% to  $1.4  million  for the  quarter  and 12% to $3.6
million for the six months,  primarily due to sales force turnover and continued
weakness in the Company's  primary markets and product lines.  Also contributing
to the decline for the six months were delays in the release of certain  Windows
based  products  from the Clinical  Data Systems and  Decision  Support  Systems
divisions. Costs and expenses decreased 27% for the quarter but increased 1% for
the six  months,  compared  to the  corresponding  prior year  period,  and as a
percentage of related revenues, increased to 38% from 32% for the quarter and to
34% from 30% for the six  months.  The  decrease  for the quarter and six months
resulted primarily from lower personnel and service-related expenses,  partially
offset by increased  amortization of capitalized software for the newly released
products. In addition,  costs and expenses for the six months ended November 30,
1996  included  the effect of the  Company's  decision to reduce its reserve for
continuing  obligations  on product line exit costs by $200,000,  as a result of
favorable negotiations with its customers.

MAINTENANCE AND SUPPORT SERVICES

   Revenues decreased 17% to $2.4 million for the quarter and 9% to $4.8 million
for the six months,  primarily due to modest increases  associated with customer
migrations being more than offset by discontinued support services on individual
modules  from  the  Company's   PFS   customers  as  well  as  slightly   higher
cancellations  overall.  Costs and  expenses  for the quarter  decreased  1% but
increased  11% for the six  months  compared  to the  corresponding  prior  year
periods, and as a percentage of related revenues,  increased to 58% from 49% for
the  quarter and to 53% from 43% for the six months.  The  increase  for the six
months is  primarily  due to  additional  labor  costs  incurred  to support new
product  releases  from the Clinical Data Systems and Decision  Support  Systems
divisions  and higher  labor  costs  resulting  from shifts to  maintenance  and
support activities from development activities.

MARKETING, GENERAL AND ADMINISTRATIVE

   Expenses  increased  19% to  $2.7  million  for the  quarter  and 26% to $5.4
million for the six months.  The  increase  was  primarily  due to $162,000  and
$301,000 in costs and  expenses,  for the quarter and six months,  respectively,
related to the move of the Alameda office. Additionally,  costs and expenses for
the  quarter  and six months  ended  November  30,  1996  include  the effect of
$175,000 and $350,000, respectively, in administrative fees the Company received
as a result of the  services  agreement  with MCS.  Costs and  expenses  for the
quarter  ended  November  30,  1996 also  include  the  effect of the  Company's
decision to reduce its reserve for future severance obligations by $100,000, due
to favorable settlements with two of its employees.

RESEARCH AND DEVELOPMENT

   Actual  research and development  expenses  decreased 52% to $576,000 for the
quarter and 29% to $1,627,000 for the six months. Research and development costs
presented in the accompanying  financial statements were $522,000 and $1,503,000
for  the  quarter  and  six  months,  respectively,  compared  to  $699,000  and
$1,204,000 in the corresponding prior year periods. The Company also capitalized
software  development  costs of $54,000 and $124,000  during the quarter and six
months,  respectively,  compared to $476,000 and  $947,000 in the  corresponding
prior year periods,  reflecting the release of new products in the quarter ended
August 31, 1997 and the  resulting  cessation of software  cost  capitalization.
Actual  research  and  development  expenditures  were  42% and 45% of  software
products and services revenues for the quarter and six months ended November 30,
1997,  respectively,  compared  to 52% and 56% in the  corresponding  prior year
periods.

   During the first six months of fiscal 1998, the Company's development efforts
were focused on the Decision  Support Systems product line and the Clinical Data
Systems  product line.  During the first six months of fiscal 1997,  the Company
was  engaged  in several  development  projects,  including  the  Resource  Case
Management  System,  and the Decision  Support Systems and Clinical Data Systems
product lines.

                                                        

<PAGE>



                           MEDICUS SYSTEMS CORPORATION
                        RESULTS OF OPERATIONS, Continued

INTEREST AND OTHER INCOME, NET

   Interest and other  income,  net  decreased 96% to $6,000 for the quarter and
97% to $9,000 for the six months,  primarily  due to lower average cash balances
and interest expense incurred relating to the promissory notes.

INCOME TAXES

   The  Company's  effective  tax rate was 38.5% for the  quarter and six months
ended November 30, 1997,  compared to 37.3% and 38.8% in the corresponding prior
periods.

                               FINANCIAL CONDITION

   As a result of the Company's  commitment to expand its software  products and
services,  funds are  required  to support  its  ongoing  product  research  and
development  activities  and the  infrastructure  required to serve its customer
base.  Historically,  cash  generated  from its operations has been an important
contributor  to  these  needs.  As a  result  of the  market  factors  adversely
affecting fiscal 1997 results, as well as the stock repurchase transaction,  the
Company was required to use a significant  portion of its cash  reserves.  It is
expected that,  following the restructuring  efforts begun in prior periods, the
Company will return to a situation  where cash from  operations  will provide an
important  source of liquidity  to support its normal  capital  needs,  although
numerous   factors,   including  any   reductions  in  revenues  from  currently
anticipated amounts, could affect the amount of such cash available.

   At November 30, 1997, the Company had available cash reserves of $244,000. In
addition,  the Company had a $2.5  million  standby  credit  facility as well as
funds  from  QuadraMed  available.  The  Company  anticipates  cash  outlays  of
approximately $1.7 million in the next six months,  resulting primarily from its
decision to reorganize  its business  units and to exit certain  product  lines.
However,  cash outlays  related to the Company's 8%  promissory  notes no longer
exist since the notes were redeemed in their  entirety by QuadraMed in December,
1997.

   While  the  Company  has  experienced  negative  cash  flows  from  operating
activities  during the past two fiscal  years,  management  believes  that, as a
result of significant reductions in expenses, its cash flows will improve. While
there can be no assurance that this will occur, the Company  currently  believes
that it will have adequate financial resources available from operations and the
available  credit  facility  and  intercompany  (QuadraMed)  sources  to provide
sufficient   liquidity  to  meet  its  ordinary  capital  requirements  for  the
foreseeable   future,   including   cash  outlays   related  to  the   Company's
restructuring plan.

   During its second fiscal  quarter,  the Company billed its clients in advance
for the next calendar year's  maintenance and support  services  provided on its
software  products.  This  generated  an  increase  in  the  Company's  accounts
receivable  and deferred  revenue  balances,  and will increase cash balances in
subsequent months as the related accounts receivable are collected.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

   Statement of Financial  Accounting  Standards ("SFAS") No. 128, "Earnings per
Share," issued in February 1997, changes the method of calculating  earnings per
share and will be effective for the Company's financial  statements for the year
ending May 31, 1998. Earlier application is not permitted.  However, the Company
is permitted to disclose pro forma  earnings per share  amounts  computed  using
SFAS 128 in periods prior to adoption.  Upon adoption, all prior period earnings
per  share  data  presented  shall be  restated  to  conform  to SFAS  128.  The
calculation  of earnings per share under SFAS 128 is simpler than prior  methods
and more consistent with international accounting standards.  Because a majority
of the Company's common stock  equivalents have exercise prices in excess of the
Company's  Common Stock price, the Company does not believe that the adoption of
SFAS 128 will have a significant impact on amounts reported as net income (loss)
per common share.


                                                        


<PAGE>





                           PART II - OTHER INFORMATION

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

The following  matters were  submitted to a vote of security  holders during the
Medicus Systems  Corporation  Annual Meeting of  Stockholders  held November 17,
1997:

                             Votes Cast    Authority
 Description of Matter         For         Withheld
                            ------------  ------------
1.  Election of Directors:
     William G. Brown         5,157,437       18,877
     Dorsey R. Gardner        5,157,623       18,691
     Jon E. M. Jacoby         5,157,623       18,691
     Richard C. Jelinek       5,151,778       24,536
     John P. Kunz             5,157,323       18,991
     Risa Lavizzo-Mourey      5,157,623       18,691
     Patrick C. Sommers       5,157,578       18,736
     Gail L. Warden           5,157,623       18,691



                             Votes Cast    Votes Cast                   Broker
                               For         Against       Abstentions   Non-Votes
                            ------------  ------------  ------------  ----------
2.  Proposal to approve the
    Company's 1997 Directors'
    Stock Option Plan         5,102,927       48,794         10,604       13,989



Item 5.  Other Information.

   On  November  9,  1997,   QuadraMed   Corporation,   a  Delaware  corporation
("QuadraMed")  acquired (the  "Acquisition")  56.7% of the  outstanding  capital
stock of the Company.  The  Acquisition was completed by means of Stock Purchase
Agreements,  dated as of  November 9, 1997,  with  certain  stockholders  of the
Company  (the  "Selling  Stockholders").  Pursuant  to the  terms  of the  Stock
Purchase  Agreements,  the Selling  Stockholders  agreed to sell an aggregate of
3,111,105 shares of Medicus Common Stock to QuadraMed.  In consideration for the
transfer  of  these  shares  to  QuadraMed,   QuadraMed   paid  to  the  Selling
Stockholders $7.50 per share, in cash, without interest,  or approximately $23.3
million,   together  with  warrants  (the  "Warrants")   entitling  the  Selling
Stockholders  to acquire 0.3125 shares of QuadraMed  Common Stock for each share
of the Medicus  Common Stock sold (subject to adjustment in accordance  with the
Agreement).  The Warrants entitle the Selling Stockholders to purchase QuadraMed
Common  Stock at a price of  $24.00  per  share,  on the  terms set forth in the
Warrants.

   Simultaneously with the execution of the Stock Purchase Agreements, QuadraMed
and the Company entered into an Agreement and Plan of Reorganization dated as of
November 9, 1997 (the "Agreement")  pursuant to which a wholly-owned  subsidiary
of  QuadraMed  will be merged,  subject to the approval of the  stockholders  of
QuadraMed,  with and into the Company (the  "Merger").  At the effective time of
the Merger,  the  stockholders of the Company  participating  in the Merger will
exchange all  outstanding  shares of Medicus  Common Stock for any of (i) a cash
payment  of $7.50 per share of  Medicus  Common  Stock,  (ii)  0.3125  shares of
QuadraMed  Common  Stock per share of  Medicus  Common  Stock sold  (subject  to
adjustment  in  accordance  with  the  Agreement),  or  (iii) a  combination  of
QuadraMed  Common Stock and cash.  In  addition,  all stock  options  previously
issued by Medicus and  outstanding  at the time of the Merger will be assumed by
QuadraMed at an exchange  ratio of 0.3565  shares of QuadraMed  Common Stock for
each share of Medicus Common Stock subject to such options.  The  Acquisition is
intended to qualify as a tax-free  reorganization  within the meaning of Section
368 (a) of the  Internal  Revenue  Code of 1986 and will be  accounted  for as a
purchase transaction.

<PAGE>
   
                          PART II - OTHER INFORMATION, Continued


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

(a)   Exhibits

      Exhibit 27 - Financial Data Schedule
        
(b)   Reports on Form 8-K

      The Company  filed a report on Form 8-K (dated  November 9, 1997) with the
Securities and Exchange Commission on November 10, 1997.



                                                         

<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.




                                                     MEDICUS SYSTEMS CORPORATION
                                                     ---------------------------
                                                               (Registrant)




        January 14, 1998                              /s/  Patrick C. Sommers
-------------------------------------     --------------------------------------
                                                           Patrick C. Sommers
                                                               President
                                                     (Chief Executive Officer)
                                                  

        January 14, 1998                              /s/  Bernie J. Murphy
-------------------------------------     --------------------------------------
                                                           Bernie J. Murphy
                                                             Vice President
                                                    (Chief Financial Officer)