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          February 28, 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.)
   incorporation or 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 5,923,963 shares of common stock outstanding as of April 14, 1997.





                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                           MEDICUS SYSTEMS CORPORATION
                                 BALANCE SHEETS


                                              February 28,           May 31,
ASSETS                                           1997                 1996
------                                        -----------          ----------  
Current assets                                (Unaudited)
     Cash and cash equivalents                $   975,354          $  765,312
     Short-term investments                     4,985,814           7,705,380
     Accounts receivable and unbilled 
     services, net of allowance for
     doubtful accounts of $1,851,981 and 
     $1,222,463                                13,841,487           9,664,422
     Due from Managed Care Solutions, Inc.          -                 647,408
     Inventories                                  248,978             235,398
     Prepaid and deferred income taxes          1,826,255           2,423,746
     Prepaid expenses and other                   182,614             709,394
                                              -----------          ----------
                                               22,060,502          22,151,060
                                              -----------          ----------

PROPERTY AND EQUIPMENT, NET OF ACCUMULATED
     DEPRECIATION OF $3,382,007 AND $2,854,135  1,960,907           1,950,581
SOFTWARE, NET OF ACCUMULATED AMORTIZATION OF
     $3,414,302 AND $2,900,540                  4,069,363           3,051,387
INSTALLMENT ACCOUNTS RECEIVABLE DUE AFTER ONE 
     YEAR, NET OF UNEARNED INTEREST OF $134,426 
     AND $147,963                                 508,230             398,897
DEFERRED INCOME TAXES                           2,175,600             227,635
                                              -----------          ----------
                                             $ 30,774,602        $ 27,779,560 

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
     Accounts payable                        $  1,222,609        $    188,777
     Accrued compensation                         186,454             828,857
     Accrued restructuring charge               2,495,080           1,527,461
     Other accrued liabilities                  1,200,275           1,719,829
     Stock repurchase                           1,690,042                -
     Deferred revenue                           9,081,414           5,313,399
                                              -----------         ----------- 
                                               15,875,874           9,578,323
                            

STOCKHOLDERS' EQUITY 
Common stock $.01 par:
     Authorized - 10,000,000 shares
     Issued - 6,480,257 and 6,456,447 shares       64,803              64,564
     Capital in excess of par value            22,020,333          21,880,994
     Treasury stock, at cost - 7,002 and 
     7,002 shares                                 (62,418)            (62,418)
Unrealized loss on short-term investments         (34,001)            (18,361)
Accumulated deficit                            (7,089,989)         (3,663,542)
                                              ------------        ------------
                                               14,898,728          18,201,237
                                              ------------        ------------
                                             $ 30,774,602        $ 27,779,560
                                              ============        ============


The accompanying notes are an integral part of these statements.

                                                   



                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                  Three Months Ended
                                       -----------------------------------------
                                       February 28,                February 29,
                                         1997                        1996
Revenues                               
  Software products and services       $ 1,688,369                  $ 1,870,379
  Maintenance and support services       2,364,967                    2,392,662
  Contract services                      2,517,375                    2,764,489
                                       ------------                  -----------
                                         6,570,711                    7,027,530

Costs and expenses
  Software products and services           800,958                      840,536
  Maintenance and support services       1,623,455                      920,175
  Contract services                      2,409,277                    2,571,391
                                       ------------                  -----------
                                         4,833,690                    4,332,102

  Marketing, general and administrative  3,137,812                    2,286,954
  Research and development                 385,069                      244,689
  Restructuring charges                  2,800,391                    1,569,240
  Stock repurchase                       1,690,042                         -
                                       ------------                  -----------
                                        12,847,004                    8,432,985
                                       ------------                  -----------

Operating loss                          (6,276,293)                  (1,405,455)

  Interest and other income                 79,423                      134,089
                                       ------------                  -----------

Loss before income taxes                (6,196,870)                  (1,271,366)

  Income tax benefit                    (2,266,633)                    (489,476)
                                       ------------

Net loss                              $ (3,930,237)                 $  (781,890)
                                       ============                  ===========

Loss per share
                                      $      (0.60)                 $     (0.12)
                                       ============                  ===========
WEIGHTED AVERAGE COMMON AND COMMON 
EQUIVALENT SHARES OUTSTANDING            6,503,346                    6,445,826
                                       ============                  ===========




The accompanying notes are an integral part of these statements.

                                                      



                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)


                                                 Nine Months Ended
                                    --------------------------------------------
                                      February 28,                February 29,
                                         1997                        1996
Revenues
  Software products and services    $   5,723,413                 $  7,931,847
  Maintenance and support services      7,622,754                    7,216,599
  Contract services                     7,620,067                    8,521,576
                                     ------------                 ------------
                                       20,966,234                   23,670,022

Costs and expenses
  Software products and services        1,981,232                    2,848,080
  Maintenance and support services      3,863,542                    4,098,843
  Contract services                     7,192,546                    8,036,250
                                     ------------                 ------------
                                       13,037,320                   14,983,173

  Marketing, general and 
    administrative                      7,401,705                    6,847,882
  Research and development              1,766,009                    1,166,425
  Restructuring charges                 2,800,391                    1,569,240
  Stock repurchase                      1,690,042                         -
                                     ------------                 ------------
                                       26,695,467                   24,566,720
                                     ------------                 ------------

Operating loss                        (5,729,233)                    (896,698)

  Interest and other income              354,820                      455,659
                                     ------------                 ------------

Loss before income taxes              (5,374,413)                    (441,039)

  Income tax benefit                  (1,947,966)                    (187,266)
                                     ------------                 ------------

Net loss                            $ (3,426,447)                $   (253,773)
                                     ============                 ============

LOSS PER SHARE                      $      (0.53)                $      (0.04)
                                     ============                 ============
WEIGHTED AVERAGE COMMON AND 
COMMON EQUIVALENT SHARES 
OUTSTANDING                            6,491,196                    6,463,491
                                     ============                 ============




The accompanying notes are an integral part of these statements.


                           MEDICUS SYSTEMS CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)


                                                  Nine Months Ended
                                      ------------------------------------------
                                        February 28,                February 29,
                                           1997                        1996

Cash flows from operating activities
   Net loss                           $ (3,426,447)               $    (253,773)
   Adjustments to reconcile to net cash 
      flows from operating activities:
      Depreciation of property and 
          equipment                        527,872                      504,790
      Amortization of software             513,762                      937,167
      Deferred income taxes             (1,947,965)                      30,322
      Accrued restructuring charge       1,694,445                    1,208,445
      Stock repurchase                   1,690,042                         -
      Provision for doubtful accounts      368,361                      214,920
      Changes in certain current assets and 
          current liabilities:           
         Accounts receivable and unbilled 
          services                      (4,982,368)                  (2,153,077)
         Due from Managed Care 
          Solutions, Inc.                  647,408                   (1,370,562)
         Prepaid income taxes              597,491                         -
         Accounts payable and other accrued 
          liabilities                      514,278                     (509,420)
         Accrued compensation             (642,403)                    (474,956)
         Deferred revenue                3,768,015                    1,452,561
      Other, net                           414,624                     (118,215)
                                      --------------              --------------
                                          (262,885)                    (531,798)
                                      --------------              --------------

Cash flows from investing activities
   Additions to property and equipment    (538,198)                    (506,624)
   Additions to software                (1,808,564)                  (1,722,785)
   Proceeds from maturity of short-term 
     investments                         4,784,361                    4,033,377
   Proceeds from sale of short-term 
     investments                        79,688,023                   38,800,000
   Purchases of short-term investments (81,779,215)                 (41,386,664)
                                       ------------                 ------------
                                           346,407                     (782,696)
                                       ------------                 ------------

Cash flows from financing activities
    Sale of common stock                   126,520                         -
    Cash infusion to Managed Care 
     Solutions, Inc.                          -                        (250,000)
                                           126,520                     (250,000)
                                       -------------                ------------

Net increase (decrease) in cash and 
     cash equivalents                      210,042                   (1,564,494)
Cash and cash equivalents, beginning 
     of period                             765,312                    2,556,016
Cash allocated to Managed Care               
     Solutions, Inc.                          -                        (346,111)
                                       ------------                 ------------
Cash and cash equivalents, end of 
     period                            $   975,354                  $   645,411
                                      =============                 ============



The accompanying  notes are an integral part of these statements.

                             


                           MEDICUS SYSTEMS CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)


NOTE 1 - BASIS OF PRESENTATION

   Prior  to  March  1,  1996,  the  Company's   predecessor  (the  "Predecessor
Corporation")  operated a software  and related  services  business  and a small
managed  care  business.  In  connection  with a series  of  transactions  which
occurred on March 1, 1996,  the  Predecessor  Corporation  formed a new Delaware
subsidiary,  Medicus Systems Software,  Inc., to which it transferred all of its
assets and liabilities  excluding only the defined assets and liabilities of its
managed care business.  In turn, the stock of this  newly-formed  subsidiary was
distributed on a  share-for-share  basis to the  stockholders of the Predecessor
Corporation  (the  "Distribution"),  the name of the  subsidiary  was changed to
Medicus Systems  Corporation  ("the  Company"),  and the name of the Predecessor
Corporation was changed to Managed Care Solutions,  Inc. ("MCS"). The Company is
liable  for  all  obligations  of  the  Predecessor   Corporation  except  those
specifically related to the Predecessor Corporation's managed care business.

   Although  the  Company  is,  in  substance,  the  Predecessor   Corporation's
successor,  the  financial  statements  of the  Company for the quarter and nine
months ended February 29, 1996 have been prepared as if the Company had operated
as a  free-standing  entity for all the  periods  presented  (excluding  certain
incremental  corporate expenses that would have been incurred had it operated on
a  stand-alone  basis).  Accordingly,  the  financial  statements  include those
assets,  liabilities,   revenues  and  expenses  directly  attributable  to  the
Company's  operations and exclude those specifically related to the managed care
business.  The Company  believes this  presentation  most fairly  represents its
financial  condition,  results of operations and changes in stockholders' equity
and cash flows.  The financial  statements  included herein for periods prior to
the  Distribution  do not  necessarily  reflect what the financial  position and
results  of  operations  of the  Company  would have been had it  operated  as a
stand-alone  entity  during the periods  covered,  and may not be  indicative of
future operations or financial position.

   The  Company  and MCS  signed a  services  agreement,  pursuant  to which the
Company (i) made available to MCS certain services,  including tax,  accounting,
data processing, cash management,  employee benefits,  monitoring,  operational,
supervisory, insurance purchasing and claims administration consulting services,
and (ii) provided  certain  financial  services to MCS,  including  analysis and
advice regarding potential financial transactions  (including but not limited to
proposed  issuance  of debt or  equity  securities,  proposed  merger  or  asset
acquisition  or  sale   transactions  and  dividend,   stock  split  or  similar
transactions),  assistance in budget and forecast  preparation,  relations  with
financial  analysts,  financial press, and investors,  and crisis management and
control.  Such services  commenced on March 1, 1996, and continued for one year.
MCS paid the Company  $700,000 for such  services.  In order to  compensate  the
Company for fixed costs  incurred in making such  services  available,  MCS paid
such fees whether or not it elected to utilize the services. MCS also reimbursed
the Company for its out-of-pocket expenses in connection therewith. The services
agreement  also  provided that the Company would not be liable for any losses or
damages suffered in respect of services to be performed  thereunder,  other than
by reason of its willful  misconduct  or gross  negligence  in  performing  such
services.  Marketing,  general  and  administrative  expenses  were  reduced  by
$175,000 in the quarter and $525,000 in the nine months ended  February 28, 1997
as a result of this agreement.

   In management's  opinion, the financial statements of the Company reflect all
adjustments   (consisting  only  of  normal  recurring  adjustments)  considered
necessary for a fair  presentation of the operating  results for the quarter and
nine months ended February 28, 1997. 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, 1996.



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


NOTE 2 - EARNINGS PER SHARE

   Earnings  per common  share have been  computed by dividing net income 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.

NOTE 3 - DIVIDENDS

   The  Predecessor  Corporation  declared  quarterly  dividends of $0.03 in the
first three  quarters of fiscal year 1996. The Board of Directors of the Company
has  determined  not to pay  dividends  on the Common  Stock in the  foreseeable
future.

NOTE 4 - RESTRUCTURING CHARGES

   During the third quarter of fiscal 1996,  the Company  commenced a process to
evaluate  its  strategic  position,  including  the  markets it will  pursue and
product offerings in those chosen markets.  As a result of decisions made in the
quarter  ended  February 29,  1996,  the Company  began a plan  resulting in the
recording of approximately $1.6 million in charges to exit certain product lines
and abandon certain development  efforts.  Specifically,  the Company decided to
exit the Executive  Information Systems product line, recording charges to write
down related  customer  accounts and accrue future costs to provide  maintenance
associated  with  existing  contractual   obligations.   In  addition,   product
development  efforts  for the  Optimizer  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.  During the fourth quarter of fiscal year 1996, the
Company continued the process resulting in additional charges of $3.1 million.

   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  future  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 associated
with the  relocation,  which is expected to be completed  during the next twelve
months,  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  Clinical  Case  Management
Systems ("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 has 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  restructuring  charges  included in the Statements of Operations for the
quarter  and nine  months  ended  February  28,  1997  and  February  29,  1996,
respectively, were comprised of the following items:

                                          February 28,              February 29,
                                             1997                       1996
                                          ------------              ------------
Product line exit costs                   $    798,000               $   360,793
Business unit reorganization costs             705,697                      -
Employee termination and severance costs       569,868                      -
Accounts receivable reserves                   450,000                   471,835
Capitalized software write-downs               276,826                   736,612
                                          ------------              ------------
                                          $  2,800,391               $ 1,569,240
                                          ============              ============




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


NOTE 4 - RESTRUCTURING CHARGES, CONTINUED

   At May 31, 1996,  restructuring  liabilities in the Balance Sheet  aggregated
$1,527,461.  During the quarter ended February 28, 1997,  the Company  increased
its reserve for future employee termination and severance costs and product line
exits  costs  by  $569,868  and  $798,000,  respectively,  primarily  due to the
Company's  decision to relocate  its CDS  division  and increase its CCM product
line reserve,  and paid $249,290 and $210,375 in severance  benefits and product
line exit costs,  respectively.  The Company also recorded a $705,697 charge for
business unit reorganization  costs associated with the relocation.  The Company
did not  accrue  estimated  incremental  costs  of  approximately  $1.1  million
associated with the relocation.  Such costs relate to the orderly  transition of
the  division,  will be  incurred  during  the next  twelve  months  and are not
accruable under Generally Accepted Accounting Principles.

   During the nine months ended  February 28, 1997,  the Company  increased  its
reserve for future  employee  termination  and severance  costs and product line
exits  costs  by  $569,868  and  $798,000,  respectively,  primarily  due to the
Company's  decision to relocate  its CDS  division  and increase its CCM product
line  reserve.  The  Company  also  reduced  its  reserve  for future  severance
obligations  and  continuing  obligations on product line exit costs by $124,716
and $200,000, respectively, as a result of favorable settlements with two of its
employees and negotiations with its customers, and paid $570,855 and $210,375 in
severance benefits and product line exit costs, respectively.

   The components of the  restructuring  reserve at February 28, 1997, which the
Company expects will be paid during the next twelve months,  and at May 31, 1996
are as follows:

                                         February 28,                 May 31,
                                            1997                       1996
                                         ------------              -------------
Product line exit costs                  $    798,000              $     410,375
Business unit reorganization costs            705,697                       -
Employee termination and severance costs      991,383                  1,117,086
                                         ------------              -------------
                                         $  2,495,080              $   1,527,461
                                         ============              =============

NOTE 5 - STOCK REPURCHASE

   On December 5, 1996,  the Company  reached an  agreement  in  principle  (the
"Agreement") with its founder,  Richard C. Jelinek, to purchase from Mr. Jelinek
one million  shares of Common  Stock and 500 shares of Voting  Preferred  Stock.
Also, Mr. Jelinek agreed to resign as Chairman and agreed not to attempt to seek
voting  control of the  Company for a period of five years.  (Mr.  Jelinek  will
continue to serve as a  Director.)  In exchange,  the Company  agreed to pay Mr.
Jelinek $4.5 million in cash and $2.0 million in 8% two-year  promissory  notes,
and will issue to Mr. Jelinek 400,000 warrants to purchase Common Stock at $8.00
per share. The Company's Board of Directors approved the Agreement on January 2,
1997,  and the  Company's  stockholders  approved  the  Agreement  at the Annual
Meeting of Stockholders on March 19, 1997.

   The  Company's  results of  operations  for the quarter and nine months ended
February 28, 1997 include $1,690,042 in related costs and expenses,  as a result
of the  Agreement.  Amounts in excess of the fair value of the Common  Stock and
the exercise price of the Voting Preferred Stock,  aggregating $1,319,000,  have
been expensed as these amounts are  attributable  to the control  represented by
the stock being  acquired and are not expected to benefit the  Company's  future
operations.  Also included are $371,042 in outside professional fees incurred to
consummate the Agreement.  The Company  recorded the charge in the quarter ended
February 28, 1997, even though  consummation did not occur until March 19, 1997,
because,  prior to February 28, 1997,  it  controlled  enough votes  through the
Board of Directors and the receipt of irrevocable  proxies to ensure approval of
the Agreement at the Annual Meeting of Stockholders.


NOTE 6 - SUBSEQUENT EVENT

   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.




Item 2.   Management's  Discussion  And Analysis Of Financial  Condition And
          Results Of Operations.

                           MEDICUS SYSTEMS CORPORATION
                              RESULTS OF OPERATIONS


   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 Income
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          Nine Months Ended          Increase

                                              Feb. 28,       Feb. 29,        (Decrease)       Feb. 28,       Feb. 29,   (Decrease)
                                                1997           1996         1996 to 1997        1997           1996    1996 to 1997
<S>                                           <C>            <C>             <C>              <C>            <C>        <C>

Revenues
   Software products and services                 26%            27%            (10)%            27%            34%       (28)%
   Maintenance and support services               36             34              (1)             37             30          6
   Contract services                              38             39              (9)             36             36        (11)
                                                 ---            ---                             ---            ---        ---
                                                 100            100              (7)            100            100        (11)
                                                 ---            ---                             ---            ---        ---

Costs and expenses
   Software products and services<F1>             47             45              (5)             35             36        (30)
   Maintenance and support services<F1>           69             38              76              51             57         (6)
   Contract services<F1>                          96             93              (6)             94             94        (11)
                                                  ----          ---                             ---            ---       
                                                  73             62              12              62             63        (13)
   Marketing, general and administrative
                                                  48             33              37              35             29          8
   Research and development                        6              3              57               9              5         51
   Restructuring charges                          42             22              78              13              7         78
   Stock repurchase                               26              -             N/M               8              -        N/M
                                                 ---            ---                             ---            ---
                                                 195            120              52             127            104          9
                                                 ---            ---

Operating loss                                   (95)           (20)            N/M             (27)            (4)       N/M
   Interest and other income                       1              2             (41)              2              2        (22)
                                                 ---            ---             ---             ---            ---            

Loss before income taxes                         (94)           (18)            N/M             (25)            (2)       N/M
   Income taxes                                  (34)            (7)            N/M              (9)            (1)       N/M
                                                 ---            ---                             ---             ---

Net loss                                         (60)%          (11)%           N/M             (16)%           (1)%      N/M
                                                 ===            ===                             ===             ===           

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

   The Company's  revenues are derived from three sources:  (1) license fees and
the related services for licensing the Company's  proprietary software products;
(2) maintenance and support services related to such software products;  and (3)
contract services.



                           MEDICUS SYSTEMS CORPORATION
                        RESULTS OF OPERATIONS, Continued


SOFTWARE PRODUCTS AND SERVICES

   Revenues  decreased  10% to  $1.7  million  for the  quarter  and 28% to $5.7
million for the nine  months,  primarily  due to the  continued  weakness in the
Company's primary markets and product lines as a result of delays in the release
of certain  Windows-based  products and continued  competition  in many markets.
Costs  and  expenses  for the  quarter  and nine  months  decreased  5% and 30%,
respectively,  compared  to  the  corresponding  prior  year  periods,  and as a
percentage of related  revenues,  increased to 47 % from 45% for the quarter but
decreased to 35% from 36% for the nine months.  The decrease resulted  primarily
from lower personnel and service-related  expenses associated with product lines
discontinued  during  the  latter  part of  fiscal  1996 and lower  labor  costs
resulting from a reduction in service- related personnel for continuing  product
lines.  Additionally,  costs and expenses for the nine months include 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,  and to reduce its reserve for future  severance  obligations by
$25,000, due to a favorable settlement with one of its employees.

MAINTENANCE AND SUPPORT SERVICES

   Revenues  decreased  1% to $2.4  million for the quarter but  increased 6% to
$7.6 million for the nine months,  primarily  due to the larger base of licensed
products and modest price increases, partially offset by the loss of maintenance
revenue from  product  lines which were  discontinued  during the latter part of
fiscal 1996.  Costs and expenses  increased 76% for the quarter but decreased 6%
for the nine months,  compared to the corresponding prior year periods, and as a
percentage  of related  revenues,  increased to 69% from 38% for the quarter but
decreased to 51% from 57% for the nine months.  Costs  increased for the quarter
primarily due to additional labor costs incurred to support new product releases
from the Clinical Data Systems and Patient Focused Systems divisions and charges
to record  cancellations  identified  during the annual  maintenance and support
billing  process.  The  decrease  in total  costs for the nine  months  resulted
primarily  from lower labor and operating  costs  associated  with product lines
that were  discontinued in the third and fourth  quarters of fiscal 1996.  Also,
the decrease  reflected  lower labor costs  resulting from  personnel  shifts to
development activities from maintenance and support services.

CONTRACT SERVICES

   Revenues decreased 9% to $2.5 million for the quarter and 11% to $7.6 million
for the nine months, primarily due to lower revenues from the contract to manage
the  information  systems  functions  at  Bethesda,  Inc. in  Cincinnati,  Ohio.
Additionally,  the prior year period  includes  revenues  from the Drake  Center
contract,  which expired in February,  1996.  Costs and expenses for the quarter
and  nine  months   decreased  6%  and  11%,   respectively,   compared  to  the
corresponding  prior year  periods,  and as a  percentage  of related  revenues,
increased to 96% from 93% for the quarter but remained consistent at 94% for the
nine  months,   primarily  reflecting  a  corresponding   decrease  in  expenses
associated  with the Bethesda,  Inc.  contract and the  elimination  of expenses
associated with the Drake Center contract.

MARKETING, GENERAL AND ADMINISTRATIVE

   Expenses increased 37% to $3.1 million for the quarter and 8% to $7.4 million
for the nine  months.  The  increase  reflected  accruals  and  direct  expenses
recorded in the third quarter of fiscal 1997 for  additional  taxes arising from
audits of prior year returns,  increased  recruiting  fees  associated  with the
hiring of new sales and development personnel, higher marketing costs to support
new product  introductions,  increased  professional  fees  incurred for tax and
legal services,  and higher labor and employee benefit costs associated with the
filling of budgeted  corporate and executive  positions.  Costs and expenses for
the quarter and nine months  ended  February 28, 1997 also include the effect of
$175,000 and $525,000, respectively, in administrative fees the Company received
as a result of the services agreement with MCS.





                           MEDICUS SYSTEMS CORPORATION
                        RESULTS OF OPERATIONS, Continued


RESEARCH AND DEVELOPMENT

   Actual  research and development  expenses  increased 22% to $1.2 million for
the quarter and 9% to $3.5 million for the nine months. Research and development
costs  presented in the  accompanying  financial  statements for the quarter and
nine months were $385,000 and $1,766,000, respectively, compared to $245,000 and
$1,166,000 in the corresponding  prior year periods.  The Company did not obtain
funding from clients under development service agreements during the quarter and
nine months ended February 28, 1997,  compared to $158,000 and $470,000 obtained
in the  corresponding  prior year  periods,  for its  research  and  development
efforts.   These  development  service  agreements  provided  for  retention  of
ownership of the products  developed by the Company and for payment of royalties
of up to 5% of future license fees to the clients.  The Company also capitalized
software  development  costs of $829,000 and  $1,776,000  during the quarter and
nine  months,   respectively,   compared  to  $580,000  and  $1,508,000  in  the
corresponding  prior  year  periods,  reflecting  increased  investment  in  the
development of new products and significantly  enhanced functionality of current
products.  Actual  research  and  development  expenditures  were 72% and 62% of
software  products  and  services  revenues  for the  quarter  and nine  months,
respectively, compared to 53% and 40% in the corresponding prior year periods.

   During  the first  nine  months of fiscal  1997,  the  Company's  development
efforts were focused on the Resource Case  Management  System,  and the Clinical
Data Systems and Decision  Support Systems product lines.  During the first nine
months of fiscal 1996, the Company was engaged in several development  projects,
including the Resource Case Management System, Medicus Architecture (MACH 1) and
the Decision Support Systems product lines.

RESTRUCTURING CHARGES

   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.  As a result of decisions  made in the quarter
ended  February 28, 1997, and following the stock  repurchase  from its founder,
$2.8  million in  charges  were  recorded  for future  costs to  reorganize  the
Company's  business units, to provide for additional costs, to exit discontinued
product  lines,  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 division,  based in Alameda, CA, to the
Company's Evanston, IL corporate offices.  Costs associated with the relocation,
which is expected to be completed during the next twelve months,  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
discontinued  Clinical  Case  Management  Systems  product line.  Also,  certain
product  development  efforts for the Company's Patient Focused Systems products
were abandoned,  and the associated development costs, which had been previously
capitalized, along with other related product line exit costs were expensed.

   During the third quarter of fiscal 1996,  the Company  commenced a process to
evaluate  its  strategic  position,  including  the  markets it will  pursue and
product offerings in those chosen markets.  As a result of decisions made in the
quarter  ended  February  29, 1996,  approximately  $1.6 million in charges were
recorded to exit certain product lines and abandon certain development  efforts.
Specifically,  the Company  decided to exit the  Executive  Information  Systems
product  line,  recording  charges to write down related  customer  accounts and
accrue future costs to provide maintenance  associated with existing contractual
obligations.  In addition, product development efforts for the Optimizer 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.






                           MEDICUS SYSTEMS CORPORATION
                        RESULTS OF OPERATIONS, Continued


STOCK REPURCHASE

   On December 5, 1996,  the Company  reached an  agreement  in  principle  (the
"Agreement") with its founder,  Richard C. Jelinek, to purchase from Mr. Jelinek
one million  shares of Common  Stock and 500 shares of Voting  Preferred  Stock.
Also, Mr. Jelinek agreed to resign as Chairman and agreed not to attempt to seek
voting  control of the  Company  for a period of five years.  In  exchange,  the
Company  agreed to pay Mr.  Jelinek  $4.5 million in cash and $2.0 million in 8%
two-year  promissory  notes,  and will issue to Mr. Jelinek 400,000  warrants to
purchase Common Stock at $8.00 per share.

   The  Company's  results of  operations  for the quarter and nine months ended
February 28, 1997 include $1,690,042 in related costs and expenses,  as a result
of the  Agreement.  Amounts in excess of the fair value of the Common  Stock and
the exercise price of the Voting Preferred Stock,  aggregating $1,319,000,  have
been expensed as these amounts are  attributable  to the control  represented by
the stock being  acquired and are not expected to benefit the  Company's  future
operations.  Also included are $371,042 in outside professional fees incurred to
consummate the Agreement.  The Company  recorded the charge in the quarter ended
February 28, 1997, even though  consummation did not occur until March 19, 1997,
because,  prior to February 28, 1997,  it  controlled  enough votes  through the
Board of Directors and the receipt of irrevocable  proxies to ensure approval of
the Agreement at the Annual Meeting of Stockholders.

INTEREST AND OTHER INCOME

   Interest and other income decreased 41% to $79,000 for the quarter and 22% to
$355,000 for the nine months, primarily due to lower average cash and investment
balances.

INCOME TAXES

   The Company's  effective tax rate was 36.6% for the quarter and 36.2% for the
nine  months,  compared  to 38.5%  and 42.5% for the  corresponding  prior  year
periods. The effective tax rates and resulting benefits decreased in the current
year primarily due to the  nondeductibility  of certain  expenses related to the
stock repurchase.


                               FINANCIAL CONDITION

   As of  February  28,  1997,  the  Company  had no  long-term  debt  and  held
approximately  $975,000  in cash  and  cash  equivalents  and  $5.0  million  in
short-term  investments.  In addition,  the Company has a $2.5  million  standby
credit facility available.

   The Company's current  commitments consist primarily of lease obligations for
office space.  During the fourth  quarter of fiscal year 1997,  the Company will
pay to its founder, Richard C. Jelinek, $4.5 million in cash and $2.0 million in
8% two-year promissory notes, and will issue 400,000 warrants to purchase Common
Stock at $8.00 per share,  resulting  from an  agreement  (the  "Agreement")  to
purchase from Mr.  Jelinek one million  shares of Common Stock and 500 shares of
Voting   Preferred  Stock.  The  Company  will  also  pay  $371,000  in  outside
professional fees incurred to consummate the Agreement. 

   In  addition,  the Company  anticipates  cash outlays of  approximately  $3.2
million during the next twelve months,  resulting primarily from its decision to
reorganize its business units and to exit certain  product lines. Of this total,
approximately $2.1 million was expensed as part of the restructuring charge. The
remainder will be expensed as incurred during the next twelve months.

   The Company believes that it has sufficient financial resources to meet these
obligations and its ordinary capital needs for the foreseeable future.



                           PART II - OTHER INFORMATION


Item 5.  Other Information.

   On March 19, 1997, the Company  announced that its stockholders  approved the
repurchase  of one  million  shares  of Common  Stock  and 500  shares of Voting
Preferred Stock from its founder,  Richard C. Jelinek. In addition,  the Company
announced  that Patrick C.  Sommers,  Chief  Executive  Officer,  was elected as
Chairman of the Board of Directors.  A copy of the  announcement  is filed as an
exhibit and listed in the Exhibit Index below.

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

(a)   Exhibits

      Exhibit 27 - Financial Data Schedule
      Exhibit 99 - Press Release Announcing New Chairman and Completion of Stock
      Repurchase

(b)   Reports on Form 8-K

      The Company did not file any reports on Form 8-K during the quarter.







                                              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)




      April 14, 1997                   /s/  Patrick C. Sommers
---------------------------     --------------------------------------
                                            Patrick C. Sommers
                                                 President
                                         (Chief Executive Officer)




       April 14, 1997                  /s/  Daniel P. DiCaro
---------------------------     -------------------------------------
                                            Daniel P. DiCaro
                                            Vice President
                                        (Chief Financial Officer)