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

                                    Form 10-Q

(MARK ONE)

[X]  Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

     For the quarterly period ended September 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
                                           ---------  ---------

                         Commission file number 0-27374


                          UNISON HEALTHCARE CORPORATION
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                              86-0684011
-------------------------------                              ------------------
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)


                    8800 North Gainey Center Drive, Suite 245
                              Scottsdale, AZ 85258
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (602) 423-1954
              ----------------------------------------------------
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days: Yes [X]  No [ ]

As of November 1, 1997 there were  6,422,096  shares of $0.001 par value  common
stock outstanding.
<PAGE>

                          UNISON HEALTHCARE CORPORATION

                                      INDEX

PART I. FINANCIAL INFORMATION

                                                                        PAGE NO.
                                                                        --------
Item 1.  Financial Statements:

         Consolidated Balance Sheets as of September 30, 1997
         and December 31, 1996 .......................................    3

         Consolidated Statements of Operations for the Three
         Months and Nine Months Ended September 30, 1997 and 1996 ....    4

         Consolidated Statements of Cash Flows for the Nine
         Months Ended September 30, 1997 and 1996 ....................    5

         Notes to Consolidated Financial Statements ..................    6

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations .........................   10

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings ...........................................   25

Item 3   Defaults on Senior Securities ...............................   27

Item 6.  Exhibits and Reports on Form 8-K ............................   28

Signatures ...........................................................   29


NOTE: Items 2, 4 and 5 of Part II are omitted because they are not applicable.


                                       2
<PAGE>
                          UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                      (In thousands, except share amounts)

                                                   September 30,   December 31,
                                                       1997           1996
                                                       ----           ----
                                                    (unaudited)
                                     ASSETS
Current assets:
  Cash and cash equivalents ........................ $   3,800      $  17,409
  Accounts receivable, net .........................    36,601         28,608
  Prepaid expenses and other current assets ........     5,779          5,885
                                                     ---------      ---------
    Total current assets ...........................    46,180         51,902
Lease operating rights and
  other intangible assets, net .....................   111,827        113,781
Property and equipment, net ........................    31,174         30,830
Goodwill, net ......................................    28,610         28,431
Security deposits and other assets .................     6,935          5,977
                                                     ---------      ---------
                                                     $ 224,726      $ 230,921
                                                     =========      =========
                       LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable ................................. $  13,287      $  10,505
  Accrued expenses .................................    19,797         21,437
  Current portion of notes payable and
    long-term debt due to related parties ..........    20,139         12,312
  Current portion of other notes
    payable and long-term debt .....................    22,537         21,603
                                                     ---------      ---------
    Total current liabilities ......................    75,760         65,857
Notes payable and long-term debt due to
  related parties, less current portion ............       819         15,882
Other notes payable and long-term debt .............   118,187        107,341
Deferred taxes .....................................    20,529         24,791
Leasehold liability, net ...........................     4,293          4,434
Other liabilities ..................................       932            927
                                                     ---------      ---------
  Total liabilities ................................   220,520        219,232
Stockholders' equity:
  Common stock, $.001 par value; 25,000,000
    shares authorized; 6,422,096 and 6,078,498
    shares issued and outstanding at September 30,
    1997 and December 31, 1996 .....................         5              5
  Additional paid-in capital .......................    36,211         34,723
  Accumulated deficit ..............................   (32,010)       (23,039)
                                                     ---------      ---------
    Net stockholders' equity .......................     4,206         11,689
                                                     ---------      ---------
                                                     $ 224,726      $ 230,921
                                                     =========      =========

See  accompanying  Notes to Consolidated  Financial  Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.

                                       3
<PAGE>

                          UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
                    (In thousands, except per share amounts)


                                  Three Months Ended        Nine Months Ended
                                     September 30,            September 30,
                                 --------------------    ---------------------
                                   1997         1996        1997        1996
                                   ----         ----        ----        ----
Total revenues ...............   $59,525     $ 35,587    $172,628     $104,146

Expenses:
Wages and related ............    28,789       20,294      88,333       54,255
Other operating ..............    22,013       21,460      63,214       44,125
Rent .........................     3,966        3,902      12,352       10,606
Interest .....................     5,104        1,457      14,698        2,965
Depreciation and 
  amortization ...............     2,538        1,621       7,264        2,773
Impairment losses ............        --        3,865          --        3,865
                                 -------     --------    --------     --------

   Total expenses ............    62,410       52,599     185,861      118,589
                                 -------     --------    --------     --------

Loss before income taxes .....    (2,885)     (17,012)    (13,233)     (14,443)
Income tax benefit ...........      (929)      (4,803)     (4,262)      (3,753)
                                 -------     --------    --------     --------

Net loss .....................   $(1,956)    $(12,209)   $ (8,971)    $(10,690)
                                 =======     ========    ========     ========

Net loss per share ...........   $ (0.30)    $  (2.73)   $  (1.41)    $  (2.43)

Common shares used in
 per share calculation .......     6,422        4,468       6,354        4,393




See  accompanying  Notes to Consolidated  Financial  Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.

                                       4
<PAGE>
                          UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                 (In thousands)

                                                    Nine Months Ended
                                                       September 30,
                                                 ---------------------
                                                   1997         1996
                                                   ----         ----
Net cash used in operating activities
  (including changes in all operating
  assets and liabilities) .....................  $ (7,176)    $ (7,317)
                                                 --------     --------
Investing activities:
Purchase of equipment and leasehold
  improvements ................................    (2,311)      (3,291)
Increase in intangible assets .................       (60)      (1,593)
Increase in lease deposits and other assets ...      (958)        (341)
Acquisitions, net of cash acquired ............      (659)      (1,159)
                                                 --------     --------
  Net cash used in investing activities .......    (3,988)      (6,384)
                                                 --------     --------
Financing activities:
Net increase in borrowings under revolving
  lines of credit .............................     9,395        8,870
Proceeds from borrowings ......................     3,950       10,710
Debt payments .................................   (13,227)     (10,721)
Checks drawn in excess of bank balances .......    (2,068)         480
Debt issue costs ..............................      (503)          --
Other items ...................................         8         (130)
                                                 --------     --------
  Net cash provided by (used in)
    financing activities ......................    (2,445)       9,209
                                                 --------     --------
Net decrease in cash ..........................   (13,609)      (4,492)
Cash and cash equivalents at
  beginning of period .........................    17,409        6,169
                                                 --------     --------
Cash and cash equivalents at end of period ....  $  3,800     $  1,677
                                                 ========     ========
Supplemental disclosures:
Cash paid for:
  Interest ....................................  $ 11,272     $  1,538
  Income taxes ................................     1,299           --
Acquisition of leased facilities:
  Increase in assets ..........................     1,100        5,279
  Liabilities assumed and incurred ............       441        4,120
Conversion of debentures into shares
  of common stock .............................       800        1,714
Equipment purchased under capital leases ......       568        4,743
Accounts payable converted to debt ............     2,177           --

See  accompanying  Notes to Consolidated  Financial  Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.

                                       5
<PAGE>

                          UNISON HEALTHCARE CORPORATION
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. BASIS OF PRESENTATION

The  unaudited  financial  information  furnished  herein,  in  the  opinion  of
management,  reflects all  adjustments  which are  necessary to state fairly the
financial  position,  cash flows and results of operations of Unison  HealthCare
Corporation and its  subsidiaries  ("Unison" or the "Company") as of and for the
periods  indicated.   Unison  presumes  that  users  of  the  interim  financial
information  herein have read or have access to the Company's  audited financial
statements and Management's  Discussion and Analysis of Financial  Condition and
Results of  Operations  for the  preceding  fiscal year and that the adequacy of
additional  disclosures  needed  for a fair  presentation,  except  in regard to
material contingencies, may be determined in that context. Accordingly, footnote
and other  disclosures  which  would  substantially  duplicate  the  disclosures
contained  in  Unison's  most recent  annual  report to  stockholders  have been
omitted.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the  reported  amounts of revenues  and expenses  during the  reporting  period.
Actual  results  could differ from those  estimates.  Operating  results for the
three  months and nine  months  ended  September  30,  1997 are not  necessarily
indicative of the results which may be expected for the year ended  December 31,
1997.

In  October  1996,  Unison  completed  a  merger  with two  clinical  laboratory
companies,  American Professional Holding, Inc. and Memphis Clinical Laboratory,
Inc.  (together,  "Ampro")(the "Ampro  Acquisition").  The Ampro Acquisition has
been  accounted for as a pooling of  interests.  Accordingly,  the  consolidated
financial statements of Unison for the three and nine months ended September 30,
1996 have been restated to include the accounts of Ampro.

Certain  reclassifications  have been made to the 1996  financial  statements to
conform to the current year presentation.

Other operating revenues include management fees from third parties amounting to
$43,000 and $187,000 for the three months ended  September 30, 1997 and 1996 and
$268,000 and $744,000  for the nine months  ended  September  30, 1997 and 1996,
respectively.  The  provision  for doubtful  accounts  receivable is included in
other operating expenses. Provisions totaled $285,000 and $155,000 for the three
months ended  September 30, 1997 and 1996 and $795,000 and $476,000 for the nine


                                       6
<PAGE>

months  ended  September  30, 1997 and 1996,  respectively.  The  allowance  for
doubtful  accounts  totaled $3.8 million at September  30, 1997 and December 31,
1996.

In May 1997, Unison announced that the results of operations for the nine months
ended   September  30,  1996   (excluding  the  pooling  effects  of  the  Ampro
Acquisition)  were  restated  from pretax income of $328,000 to a pretax loss of
approximately  $15.0  million.  No attempt was made to determine the  particular
fiscal  quarter or quarters  to which the  adjustments  causing the  restatement
pertain,  and all of the adjustments were confined to the third quarter of 1996.
Because of the  considerable  costs and  difficulty  involved and inasmuch as it
would  take  months  of effort to do a  precise  allocation,  if indeed  such an
allocation is possible,  Unison does not believe it is in the best  interests of
its  shareholders to expend the Company's  limited  resources on that effort and
has instead focused on improving its information systems.

2.  LONG-TERM DEBT

In January 1997,  with proceeds from the sale in October 1996 of $100.0  million
of its 12.25% Senior Notes Due 2006 (the "Senior  Notes"),  Unison repaid (i)the
$8.0 million  subordinated note (the "Subordinated  Note") payable to the former
shareholders of BritWill HealthCare Company ("BritWill"),  (ii) $1.75 million of
the  contingent   obligation  due  to  the  former  BritWill  shareholders  (the
"Additional  Payment  Obligation"),  (iii) $2.0 million of the convertible notes
and  debentures  payable to the former  owners of Sunbelt  Therapy (the "Sunbelt
Notes") and (iv) other debt obligations in the aggregate amount of approximately
$2.9 million. The remaining balance of the Sunbelt Notes in the aggregate amount
of $800,000  was  converted  into  105,196  shares of Unison  Common  Stock.  In
accordance with the terms of the Sunbelt Notes, the conversion price ($7.61) was
equal to 85% of the average  closing price of Unison's  Common Stock ($8.95) for
the 20-day trading period preceding notice of conversion on November 27, 1996.

In  October  1996,  Unison  acquired   Signature  Health  Care  Corporation  and
affiliated companies ("Signature") (the "Signature Acquisition").  In accordance
with an adjustment  provision of the  Signature  merger  agreements  relating to
stockholders'  equity,  in  March  1997 the  former  shareholders  of  Signature
received additional consideration of $2,511,000, paid in the form of convertible
promissory notes  ($1,827,000) (the  "Convertible  Notes") and 238,052 shares of
Unison Common Stock.  The adjustment was recorded as an addition to the purchase
price of Signature.  The Convertible Notes are convertible into shares of Unison
Common Stock at a conversion  price of $2.875 per share,  subject to  adjustment
under certain circumstances.  The Convertible Notes bear interest at the rate of
12.0% per annum and the unpaid principal balance,  plus accrued interest, is due


                                       7
<PAGE>

on December 31, 1997. The former  majority  shareholder  of Signature,  David A.
Kremser, is currently serving as a director of Unison.

On April 21, 1997,  Unison  obtained a $2.95  million  loan for general  working
capital  purposes from affiliates of two of its directors,  David A. Kremser and
Bruce H.  Whitehead.  This loan matured on November 1, 1997.  On  September  25,
1997,  Unison  borrowed an  additional  $1.0 million  from  Messrs.  Kremser and
Whitehead  which was due on October 7, 1997.  The loans bear  interest  at prime
plus 2.0% and are  secured by a pledge of certain  accounts  receivable  and the
stock of certain  Unison  subsidiaries.  Unison is  currently  in default of its
obligation  to  repay  these  loans.  In  addition  to the  foregoing,  the loan
documents  state that the collateral  pledged for the working capital loans also
collateralizes  all  other  obligations  which  may be due to these  individuals
and/or entities which they control; and further that all such obligations are in
default due to cross default  provisions  in those loan and security  documents.
All of these obligations total, in the aggregate, approximately $18.9 million as
of September 30, 1997.

A  portion  of  the  purchase  consideration  for  Signature  was  comprised  of
promissory  notes in the amount of $1.1  million  which were placed in an escrow
account.  Of this  amount,  $500,000  was due to be paid to Mr.  Kremser and the
other former shareholder of Signature on October 31, 1997. This note has not yet
been paid.

The November  payment of the  Additional  Payment  Obligation,  in the amount of
approximately $117,000, is currently in arrears.

As of November 14, 1997,  Unison had not made the scheduled  payment of interest
on the Senior Notes in the amount of $6.6  million  which was due on November 1,
1997.  The grace  period with  respect to such  payment  expires on November 30,
1997,  at which time the Senior  Notes may be  accelerated  and payable in full.
This would  cause the total  amount of the Senior  Notes to be  classified  as a
current liability.

The stated interest rate on the Senior Notes is subject to temporary increase if
the Senior Notes (or Exchange Notes with the same terms) are not registered with
the  Securities  and  Exchange  Commission  (the "SEC")  within  specified  time
periods.  As of September 30, 1997,  the interest rate was 13.50%.  The interest
rate is subject to further  increases of 0.25% on December 15, 1997 and every 90
days thereafter (up to a maximum rate of 14.25%) until such registration becomes
effective.

3.  COVENANT COMPLIANCE

The terms of certain of Unison's  indebtedness and lease obligations require the
Company to meet certain financial covenants, including cash flow to rent ratios,
cash flow to debt service ratios,  current ratios,  specified  minimum levels of


                                       8
<PAGE>

cash and net worth. The Company is also subject to periodic financial  reporting
requirements.  At September 30, 1997,  Unison was not in compliance with certain
of these  covenants.  At  September  30,  1997,  Unison was  obligated  to Omega
Healthcare  Investors,  Inc.  ("Omega")  as a tenant  under three  master  lease
agreements   covering  14  facilities   having  an  aggregate  minimum  rent  of
approximately  $32.0 million (subject to increase) during the remainder of their
initial terms ending in 2005. Unison was, as of November 14, 1997, in arrears of
its  rent  obligations  under  these  leases  (and  the  BritWill  Texas  Leases
hereinafter  referred  to) in the  approximate  amount  of  $874,000  plus  late
charges.  The master leases require the Company to maintain  specified cash flow
to rent ratios,  cash flow to debt service ratios,  minimum cash, current ratios
and  tangible  net worth  ratios  (each as  defined).  Unison  also  leases  six
facilities  located in Texas from BritWill Texas (the  "BritWill  Texas Leases")
for an initial term that  expires in December  2005.  The BritWill  Texas Leases
contain cross default  provisions with the Omega leases by which if Unison is in
default under any Omega indebtedness or lease obligation, the Company is also in
default under the BritWill Texas Leases.  The Company was not in compliance with
the master lease financial  covenants at September 30, 1997 and did not obtain a
waiver of the  covenant  violations  from Omega or BritWill  Texas.  The Company
continues  to be out of  compliance  with these  covenants  after this date and,
accordingly,  is  negotiating  with  Omega  to  restructure  the  aforementioned
covenants.   There  can  be  no  assurance  that  such   restructuring  will  be
accomplished,  or if accomplished,  that the  restructuring  will result in more
favorable  terms to  Unison.  In any  event,  if Unison  fails  soon to cure the
aforementioned rent defaults,  Omega may exercise its remedies under the leases,
including  termination of the leases, which would have a material adverse effect
on Unison's financial condition and results of operations.

The  terms  of a  mortgage  note  incurred  in  connection  with  the  Signature
Acquisition  ("the  Mortgage  Note")  require  Unison to  maintain,  among other
things, a consolidated  net worth of at least $39.0 million.  Unison's net worth
at September  30, 1997 was $4.2 million and,  therefore,  the Company was not in
compliance with this covenant. Unison has not received a waiver of this covenant
violation and, accordingly, classified the entire obligation of $18.5 million as
current.  The Company is current on its  payments on the  Mortgage  Note and the
lender has not indicated any intention to declare the Company in default. In the
event of a declaration of default,  Unison may be required to repay the Mortgage
Note or the lender may foreclose on the properties,  which would  materially and
adversely  impact Unison's  results of operations.  The Company is attempting to
refinance  the  Mortgage  Note,  as discussed in  "Management's  Discussion  and
Analysis of Financial  Condition  and Results of Operations - Liquidity and Cash


                                       9
<PAGE>

Flows".  With the  exception of the  classification  of the  Mortgage  Note as a
current  liability,  there was no financial  statement  impact as of and for the
nine months ended September 30, 1997 as a result of the Company's  noncompliance
with these covenants.

4.  CONTINGENCIES

Unison and certain of its current and former directors and officers are named as
defendants in several  purported  class action  complaints  seeking  unspecified
damages following Unison's  announcement in March 1997 that the Company expected
to restate its financial  statements for the nine-month  period ended  September
30,  1996.  See Part II, Item 1,  "Legal  Proceedings".  The Company  denies the
material  allegations  in these  complaints  and  intends to defend the  actions
vigorously.  While there can be no assurances in such matters,  Unison believes,
based on its  analysis  of the  complaints  and of its  insurance  coverage  and
communications  with its insurance  carriers,  that the ultimate  disposition of
these  matters will not  adversely  affect its  liquidity.  However,  an adverse
determination in these  proceedings,  if not covered by insurance,  would have a
material adverse impact on the Company's liquidity and results of operations.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

Certain  statements  contained  in  this  Quarterly  Report,  including  without
limitation statements containing the words "believes", "anticipates", "intends",
"expects" and words of similar import, may be forward-looking  statements within
the  meaning of  Section  27A of the  Securities  Act of 1933,  as amended  (the
"Securities  Act") and Section 21E of the  Securities  Exchange Act of 1934,  as
amended (the "Exchange  Act").  While the Company  believes that the assumptions
underlying  these  statements are  reasonable,  such  assumptions  (and thus the
statements  based upon them) could  prove to be  inaccurate.  Important  factors
which could cause results to vary include limitations on the Company's access to
debt or equity  financing  in light of recent  losses and cash flow  shortfalls,
adverse uninsured  determinations in existing or future litigation or regulatory
proceedings,  health care  statutory or regulatory  changes  which  disfavor the
types of care delivered by the Company, a reversal of the current limitations in
the supply of long-term care facilities and potential actions which may be taken
by creditors and lessors of the Company to enforce their remedies under material
indebtedness  and  operating  leases as to which the  Company  is  currently  in
default.  Important  factors  which could cause results to vary also include the
factors  discussed  in  Unison's  Annual  Report on Form 10-K for the year ended
December 31, 1996 in "Item 1 - Business" and "Item 7 -  Management's  Discussion
and  Analysis  of  Financial  Condition  and Results of  Operations  - Risks and
Uncertainties",  as well as factors discussed elsewhere in this report or in any
document incorporated herein by reference.

                                       10
<PAGE>

The  following  material  should be read in  conjunction  with the  Consolidated
Financial  Statements  of  the  Company  and  the  related  notes  thereto.  All
references in this  discussion  and analysis to years are to fiscal years of the
Company ended December 31 of such year.

RESULTS OF OPERATIONS

As described in Unison's Annual Report on Form 10-K, the Company recorded a loss
of $23.4 million for the year ended  December 31, 1996.  The Company  pursued in
late  1995  and  early  1996 an  aggressive  expansion  program  that,  in time,
overwhelmed the Company's financial reporting and management information systems
and  personnel.  The Company has taken steps which it believes will remedy these
problems  and should  prevent  them from  recurring.  Unison has  curtailed  its
acquisition  program and in April 1997 accepted the  resignations  of several of
its  principal  officers,  including  its  Chief  Executive  Officer  and  Chief
Financial  Officer.  Several  managers  in  accounting  and  finance  have  been
replaced,  and the  Company  hired a new CEO in  September  1997.  In the second
quarter of 1997, the Company  completed the conversion to new accounts  payable,
accounting and financial reporting computer systems. The Company is focusing its
nursing home  marketing  efforts on  increasing  occupancy  levels and improving
quality mix in order to increase revenues.  Unison is attempting to increase its
ancillary  services  revenues,   both  in  terms  of  acquiring  contracts  with
nonaffiliated  facilities  and  increasing the level of services to its existing
patients.  The  Company  is at the same time  working  to reduce  costs  without
adversely impacting the quality of care it provides. The number of corporate and
regional office personnel was reduced by approximately 33%, from 142 on December
31,  1996 to 95 on  October  31,  1997.  With the recent  implementation  of new
management  reporting  systems,  the  Company is better  equipped to monitor and
control its labor costs and other  operating  expenses.  These  initiatives  are
designed to improve both the Company's results of operations and its cash flows.

In May 1997, Unison announced that the results of operations for the nine months
ended   September  30,  1996   (excluding  the  pooling  effects  of  the  Ampro
Acquisition)  were  restated  from pretax income of $328,000 to a pretax loss of
$15.0 million. No attempt was made to determine the particular fiscal quarter or
quarters to which the adjustments  causing the restatement  pertain,  and all of
the  adjustments  were  confined  to the third  quarter of 1996.  Because of the
considerable costs and difficulty  involved and inasmuch as it would take months
of effort to do a precise allocation,  if indeed such an allocation is possible,
Unison  does not  believe it is in the best  interests  of its  shareholders  to
expend the Company's limited resources on that effort and has instead focused on
improving it's information systems.

                                       11
<PAGE>

The following table summarizes selected operating statistics.

                                              At September 30,
                                             ------------------
                                             1997          1996
                                             ----          ----
Leased and Owned Facilities:
  Number of facilities ...................     56            46
  Number of licensed beds:
    Long-term care .......................  4,770         4,134
    Assisted and independent living ......    315           196

Managed Facilities:
  Number of facilities ...................      1             3
  Number of licensed beds ................     71           310

Institutional Pharmacies:
  Number of outlets ......................      2             2
  Nonaffiliated facilities served ........     52            32

Laboratory Services:
  Number of laboratories .................      3             3
  Nonaffiliated entities served ..........    275           295

Therapy Services:
  Nonaffiliated entities served ..........    107            44


The following table identifies the Company's sources of net operating revenues.

                                       Three Months Ended     Nine Months Ended
                                          September 30,         September 30,
                                       ------------------     -----------------
                                         1997      1996         1997      1996
                                         ----      ----         ----      ----
Percentage of total revenues:
  Long term care ......................  75.9%     80.1%        76.4%     83.2%
  Therapy services ....................  14.9       8.8         14.8       6.2
  Pharmacy services ...................   5.6       5.1          5.1       4.4
  Laboratory services .................   2.8       4.8          2.9       5.1
  Medicare Part B billing and supply ..   0.8       1.2          0.8       1.1
                                        -----     -----        -----     ----- 
    Total ............................. 100.0%    100.0%       100.0%    100.0%
                                        =====     =====        =====     ===== 

                                       12
<PAGE>

Unison's revenues  fluctuate from facility to facility based on various factors,
including total capacity, occupancy rates, reimbursement methodologies and rates
among the payor  categories,  payor  mix and the  scope and  utilization  of the
Company's ancillary services. Medicare patients generate the highest revenue per
patient  day,  although  profitability  is  not  always  increased  due  to  the
additional  costs  associated  with the higher  level of care  required  by such
patients.  In general,  the Company  believes  that private pay sources are more
profitable  to the  Company  than  governmental  reimbursement  sources.  Unison
generally derives a higher profit margin from ancillary services than from basic
nursing services.

Data for  nursing  center  operations  with  respect to  sources of net  patient
revenues  and  patient  mix by payor type are set forth  below  (long-term  care
only).

                                     Three Months Ended     Nine Months Ended
                                        September 30,         September 30,
                                     ------------------     -----------------
                                       1997      1996         1997      1996
                                       ----      ----         ----      ----
Medicare ............................  34.5%     27.1%        33.4%     30.6%
Private and other ...................  15.5      17.7         15.7      16.5
                                      -----     -----        -----     ----- 
  Quality mix .......................  50.0      44.8         49.1      47.1
Medicaid ............................  50.0      55.2         50.9      52.9
                                      -----     -----        -----     ----- 
  Total ............................. 100.0%    100.0%       100.0%    100.0%
                                      =====     =====        =====     ===== 

THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED  
SEPTEMBER 30, 1996

In the third quarter of 1997,  Unison  recorded a net loss of $2.0  million,  or
$0.30 per share, compared to a net loss of $12.2 million, or $2.73 per share, in
the prior year quarter. Loss before income taxes amounted to $2.9 million in the
1997 third  quarter  compared to $17.0  million in the same  period in 1996.  As
indicated  above,  adjustments  to  restate  the  Company's  pretax  results  of
operations for the nine months ended September 30, 1996 in the aggregate  amount
of  approximately  $15.3  million were  recorded  exclusively  in the 1996 third
quarter statement of operations.  For this reason, results of operations for the
1997 third quarter are not comparable to the 1996 third quarter.

Total operating revenues increased $23.9 million,  or 67.3%, to $59.5 million in
the 1997 third quarter from $35.6 million in the  comparable  1996 quarter.  The
increase is due to revenues from patient  services  which  increased  from $35.1


                                       13
<PAGE>

million  in the 1996  third  quarter to $57.8  million  in the  current  period.
Patient days  increased  from 307,648,  or 80.6%  average  occupancy in the 1996
period,  to 381,508,  or 83.6%  average  occupancy in 1997.  The increase in net
patient  service  revenues is primarily  attributable to (i) the increase in the
number of long term care  facilities  operated,  (ii) the  increase  in services
provided  by the  pharmacy  and therapy  companies  and  progress  in  providing
ancillary  products and services to patients of Unison  facilities and unrelated
facilities which increased revenues by approximately $7.2 million;  and (iii) an
increase in Unison's  quality mix to 50.0% in the 1997 third quarter compared to
44.8% in the prior year  quarter.  Other  operating  revenues  increased to $1.7
million in the 1997 third  quarter  from  $467,000 in the prior year quarter due
primarily to ancillary  company  management  fees of $1.5  million,  offset by a
decrease  in managed  facilities  from  three at  September  30,  1996 to one at
September 30, 1997.

Wages and related expenses increased $8.5 million,  or 41.9%, from $20.3 million
in the 1996 third quarter to $28.8 million in the current quarter.  The increase
is due primarily to the increase in the number of facilities operated and growth
in the  ancillary  companies.  Wages and  related  expenses as a  percentage  of
revenues was 57.0% in 1996 and 48.4% in 1997.

Other operating  expenses increased from $21.5 million in the 1996 third quarter
to $22.0  million in the 1997  third  quarter.  Other  operating  expenses  as a
percentage of revenues  amounted to 37.0% in the 1997 third quarter and 60.3% in
the 1996 period.

Rent  expense  increased  from $3.9  million in the 1996  third  quarter to $4.0
million in the 1997 period. The increase is due primarily to the increase in the
number of leased facilities  operated.  Rent expense as a percentage of revenues
was 11.0% in the 1996 third quarter and 6.7% in the current quarter.

Interest  expense amounted to $5.1 million in the 1997 third quarter compared to
$1.5 million in the 1996 third quarter and increased as a percentage of revenues
from 4.1% in the 1996 third quarter to 8.6% in the 1997 period.  These increases
are  primarily  the  result of debt  incurred  and  assumed in  connection  with
acquisitions, including the $100.0 million of Senior Notes issued on October 31,
1996, as well as increases in borrowings for working  capital.  See "- Liquidity
and Capital Resources."

Depreciation and amortization  expense  increased from $1.6 million in the third
quarter of 1996 to $2.5 million in the 1997 third  quarter.  The increase is due
primarily to the increase in goodwill and lease operating rights associated with
acquisitions and an increase in fixed assets resulting from capital expenditures
and  ownership  interests in six  facilities  acquired with the  acquisition  of
Signature on October 31, 1996.

                                       14
<PAGE>

In the third quarter of 1996, Unison announced the planned  disposition of eight
nursing   facilities  (the   "Disposition   Facilities").   Of  the  Disposition
Facilities,  one was closed in June 1996 and three  others,  which had  incurred
operating  losses  since the  Company had  acquired  them in August  1995,  were
disposed  of in March  1997.  These  events,  as well as a history of  operating
losses at certain other facilities,  raised the possibility of continuing losses
associated with the Company's  income  producing  assets.  Consequently,  Unison
evaluated its long-lived  assets  including  property and  equipment,  goodwill,
lease operating rights and other intangible  assets for impairment in accordance
with SFAS No. 121.  Unison  determined that the fair value of certain assets was
less  then the  carrying  value  and,  accordingly,  recorded  a  provision  for
impairment losses in the amount of $3.9 million.  Included in this amount is the
estimated  costs to  sublease  and  exit  from the  Disposition  Facilities.  No
provision for impairment losses was recorded in the third quarter of 1997.

Unison  recorded  income tax benefits of $929,000 and $4.8 million for the third
quarter of 1997 and 1996, respectively. The effective rates of 32.2% in 1997 and
28.2% in 1996 are lower than the statutory federal income tax rate due primarily
to (i)  amortization  of  intangible  assets  and other  expenses  which are not
deductible  for tax; (ii) taxable income of certain  subsidiaries  which are not
consolidated  for tax purposes;  and (iii) the valuation  allowance  established
against deferred tax assets.

NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED 
SEPTEMBER 30, 1996

For the nine months ended September 30, 1997, Unison recorded a net loss of $9.0
million,  or $1.41 per share,  compared to a net loss of $10.7 million, or $2.43
per share,  for the 1996  period.  Loss before  income  taxes  amounted to $13.2
million in 1997 compared to $14.4 million in the 1996 period

Total operating  revenues  increased $68.5 million,  or 65.8%, to $172.6 million
for the nine  months  ended  September  30,  1997  from  $104.1  million  in the
comparable  1996 period.  The increase is due to revenues from patient  services
which  increased from $102.1 million in the 1996 period to $167.4 million in the
current period.  Patient days increased from 865,613, or 77.9% average occupancy
in the 1996 period,  to 1,145,796,  or 83.2%  average  occupancy,  in 1997.  The
increase in net patient  service  revenues is primarily  attributable to (i) the
increase in the number of long term care  facilities  operated  which  increased
revenues  by  approximately  $41.7  million and  patient  days by  approximately
323,584, (ii) the growth of the pharmacy and therapy companies,  and progress in
providing  ancillary  products and services to patients of Unison facilities and
unrelated  facilities which increased  revenues by approximately  $23.2 million;
and  (iii) an  increase  in  Unison's  quality  mix to 49.1% in the 1997  period


                                       15
<PAGE>

quarter  compared  to 47.1% in the prior year  period  which  contributed  to an
increase in  revenues  per patient day from $99.06 in the 1996 period to $114.23
in the current  period.  These  increases  were offset by a reduction in patient
revenues  amounting to approximately $4.8 million due to the disposition of four
nursing  facilities on March 1, 1997. Other operating revenues increased to $5.2
million  in the 1997  period  from $2.0  million  in the prior  year  period due
primarily to ancillary  company  management  fees of $4.6  million,  offset by a
decrease  in managed  facilities  from  three at  September  30,  1996 to one at
September 30, 1997.

Wages and related expense increased $34.0 million,  or 62.8%, from $54.3 million
in the 1996 period to $88.3  million in the current  period but  decreased  as a
percentage of revenues from 52.1% in 1996 to 51.2% in 1997. The dollar  increase
is due  primarily  to the increase in the number of  facilities  operated and an
increase in corporate overhead due to Unison's  acquisition  program during 1996
and its accounting and information system  conversions.  The percentage decrease
is due primarily to cost controls in the nursing facilities and staff reductions
in the corporate and regional offices.

Other operating expenses  increased $19.1 million,  or 43.3%, from $44.1 million
in the 1996  period to $63.2  million  in the 1997  period due  primarily  to an
increase in the number of facilities  operated as well as increases in corporate
overhead.  Other  operating  expenses as a percentage  of revenues  decreased to
36.6% in the 1997  period  from  42.4%  in the  1996  period  due in part to the
Company's cost containment efforts.

Rent expense  increased $1.8 million,  or 16.5%,  from $10.6 million in the 1996
period  to $12.4  million  in the  1997  period.  Rent  expense  decreased  as a
percentage  of  revenues  from 10.2% in the 1996  period to 7.2% in the  current
period.  The dollar  increase is due  primarily to the increase in the number of
leased  facilities  operated.  The  percentage  decrease  is due to (i) a higher
percentage of owned facilities to total facilities in 1997 than in 1996 and (ii)
the revenue growth of the Company's  therapy,  laboratory and pharmacy companies
which,  in the  aggregate,  recorded  rent expense  amounting to less than 1% of
revenues in the 1997 period.

Interest  expense  amounted to $14.7 million in the 1997 period compared to $3.0
million in the 1996 period and  increased as a percentage  of revenues from 2.8%
in the 1996 period to 8.5% in the current period.  The increase is primarily the
result of debt incurred and assumed in connection with  acquisitions,  including
the  $100.0  million of Senior  Notes  issued on October  31,  1996,  as well as
increases  in  borrowings  for working  capital.  See "-  Liquidity  and Capital
Resources."

                                       16
<PAGE>

Depreciation and amortization expense increased $4.5 million,  from $2.8 million
in the first nine months of 1996 to $7.3  million in the 1997  period,  and as a
percentage  of revenues from 2.7% in the 1996 period to 4.2% in the 1997 period.
These  increases  are due  primarily  to the  increase  in  goodwill  and  lease
operating  rights  associated with  acquisitions and an increase in fixed assets
resulting from capital  expenditures  and ownership  interests in six facilities
acquired from Signature on October 31, 1996.

In the third quarter of 1996, Unison announced the planned  disposition of eight
nursing   facilities  (the   "Disposition   Facilities").   Of  the  Disposition
Facilities,  one was closed in June 1996 and three  others,  which had  incurred
operating  losses  since the  Company had  acquired  them in August  1995,  were
disposed  of in March  1997.  These  events,  as well as a history of  operating
losses at certain other facilities,  raised the possibility of continuing losses
associated with the Company's  income  producing  assets.  Consequently,  Unison
evaluated its long-lived  assets  including  property and  equipment,  goodwill,
lease operating rights and other intangible  assets for impairment in accordance
with SFAS No. 121.  Unison  determined that the fair value of certain assets was
less  then the  carrying  value  and,  accordingly,  recorded  a  provision  for
impairment losses in the amount of $3.9 million.  Included in this amount is the
estimated  costs to  sublease  and  exit  from the  Disposition  Facilities.  No
provision for impairment losses was recorded for the nine months ended September
30, 1997.

Unison  recorded  income tax  benefits of $4.3  million and $3.8 million for the
nine months ended September 30, 1997 and 1996,  respectively.  The effective tax
rates of 32.2% in 1997 and 26.0% in 1996 are lower  than the  statutory  federal
income tax rate due primarily to (i) amortization of intangible assets and other
expenses  which are not  deductible  for tax;  (ii)  taxable  income of  certain
subsidiaries  which  are  not  consolidated  for tax  purposes;  and  (iii)  the
valuation allowance established against deferred tax assets.

RECENT ACCOUNTING PRONOUNCEMENTS

In March 1997,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 changes the manner in which earnings per common share ("EPS") are calculated
and presented.  Under SFAS 128, two EPS amounts are required: (i) basic EPS; and
(ii) diluted EPS. Basic EPS is computed by dividing  income  available to common
stockholders   by  the  weighted   average  number  of  common  shares  actually
outstanding  during the period.  Diluted EPS represents the per share allocation
of income  attributable  to common  stockholders  based on the weighted  average
number of common shares  actually  outstanding  plus dilutive  potential  common
shares outstanding such as options, warrants and convertible securities.  Unison


                                       17
<PAGE>

will be required to implement  SFAS 128 as of December 31, 1997. Had the Company
implemented  SFAS 128 on January 1, 1996,  the reported per share losses for the
1996 and 1997 periods would remain unchanged, as the Company's options, warrants
and convertible notes are antidilutive.

LIQUIDITY AND CASH FLOWS

LIQUIDITY

Unison  finances its working  capital needs out of its operating  cash flows and
draws under a revolving credit  facility.  Borrowings under this credit facility
amounted to $9.4 million at September  30, 1997 and $8.4 million at November 11,
1997 (the maximum amounts  available based on current levels of collateral) with
interest at the prime rate plus 4.0% (12.5% at September 30,  1997).  There were
no outstanding  borrowings  under this credit  facility at December 31, 1996. In
March  1997,  Unison paid a  management  fee (in lieu of a  termination  fee) of
$500,000.  The lender agreed that the existing facility would remain in place at
Unison's option until December 31, 1997.

The  Company  is  working to  develop  lending  relationships  that will use the
Company's  available  accounts  receivable and other available  assets to supply
additional  working capital.  Absent additional  financing,  Unison's cash flows
from  operations  and draws under its existing $10.0 million line of credit will
not be  sufficient  to meet its debt  service  requirements  in 1997 and beyond.
Unison has not yet made the scheduled payment of interest on the Senior Notes in
the amount of $6.6 million  which was due on November 1, 1997.  The grace period
with  respect to such payment  expires on November  30, 1997,  at which time the
Senior Notes may be accelerated  and payable in full. This would cause the total
amount of the Senior Notes to be classified as a current liability.

The  Company  has been  working  since  July  1997 on a plan to (a)  reduce  the
Company's costs of capital and operating  expenses to improve operating results;
(b) provide short-term and long-term liquidity;  and (c) restructure its balance
sheet and increase  stockholders' equity. The key elements of this plan include:
(i) the revenue enhancement and cost control initiatives described in "- Results
of  Operations";  (ii)  obtaining a new revolving  line of credit secured by its
eligible  accounts  receivable;  (iii)  completing a refinancing of the mortgage
note  incurred in  connection  with the  Signature  Acquisition  (the  "Mortgage
Note");  and then (iv) depending on market conditions,  an equity infusion.  The
Company is currently  seeking to replace the Mortgage Note (and to refinance one
of its  leased  facilities  which is  subject  to a  purchase  option)  with new
financing in the amount of up to $40.0 million.  The Mortgage Note,  which had a
balance  at  September  30,  1997 of $18.5  million,  is secured by the land and
buildings of six facilities obtained in the Signature Acquisition. Proceeds from
these financing transactions would be used for debt service and working capital.

                                       18
<PAGE>

The Company has been unable to complete the  refinancing  of the  Mortgage  Note
that would have provided the funds for the interest payment on the Senior Notes.
Unison  and the  prospective  lender  have  been  unable to come to terms on the
structure of a  transaction.  The Company is currently  reviewing a new proposal
from the prospective  lender and will consider such proposal in conjunction with
its other alternatives,  including a possible financial restructuring.  There is
no assurance that the Company will be successful in effecting any refinancing of
the Mortgage Note.

Even if the Company is successful in completing  financing  transactions  of the
type it is currently  seeking,  it will still not have  sufficient  liquidity to
meet all of its short- and  long-term  debt  service and  capital  requirements,
absent  significant  asset sales or a substantial  restructuring of its debt and
lease  obligations.  Some of  these  obligations  are  already  in  default,  as
described  below.  Market  conditions  permitting,  Unison  may  seek  to  raise
additional  equity through the private  placement of stock,  but there can be no
assurance that any such equity financing will be available.

The Company may incur an extraordinary  charge to earnings of up to $2.6 million
from  prepayment  penalties  and the write-off of deferred  financing  costs for
those  obligations  which are  proposed  to be paid off with  proceeds  from the
refinancing of the Mortgage Note.

The Senior  Notes and  certain  of  Unison's  other  debt and lease  obligations
contain covenants that prohibit or limit asset sales,  acquisitions,  incurrence
of  additional  debt and liens,  restricted  payments,  affiliate  transactions,
engaging  in  certain  mergers  and  consolidations  and  entering  new lines of
business. For example, the Senior Notes generally limit Unison's debt incurrence
to an amount equal to (1) the greater of $30.0  million of secured  indebtedness
or the sum of 60% of  inventory  plus  90% of  accounts  receivable  and (2) the
greater of $10.0 million of other  indebtedness or 10% of Unison's  consolidated
net worth (in  addition to  indebtedness  outstanding  at October 31, 1996 after
giving  effect to the  application  of the  proceeds  from the Senior  Notes and
refinancings of such  indebtedness)  except when its fixed charge coverage ratio
after  incurring  the  indebtedness  would be  greater  than 2 to 1 (2.25  after
December 31, 1997). As of September 30, 1997, Unison had incurred  approximately
$22.1 million of such secured and other indebtedness.  There can be no assurance
that the Company will obtain the necessary consents from its lessors and debtors
in the future if it  attempts  to engage in one of the  aforementioned  types of
transactions.

                                       19
<PAGE>

CASH FLOWS

At  September  30, 1997,  Unison had $3.8  million in cash and cash  equivalents
compared  to $17.4  million at  December  31,  1996.  The  Company had a working
capital  deficit of $29.6  million at September  30, 1997  compared to a working
capital  deficit at  December  31,  1996  amounting  to $14.0  million.  Current
maturities of notes and debt at September 30, 1997 amounted to $42.7 million, of
which $30.6 million is classified as a current  liability because Unison (i) was
not in compliance with certain financial covenants of the $18.5 million Mortgage
Note and (ii) was in default on loans from  affiliates,  of which $12.1  million
was reclassified as current.

Cash used in operations for the nine months ended September 30, 1997 amounted to
$7.2  million,  due  primarily  to the net loss of $9.0  million  net of noncash
items.

Net accounts receivable  increased $8.0 million, or 27.9%, from $28.6 million at
December 31, 1996 to $36.6  million at September  30, 1997.  The increase is due
primarily to collection issues resulting from changes in Medicare intermediaries
and high  turnover in the business  office and field  accounting  staffs who are
primarily responsible for collection of accounts receivable. Days outstanding in
accounts receivable for the long-term care facilities  increased from 38 days at
December 31, 1996 to 44 days at September 30, 1997. The Company anticipates that
its  allowance  for  doubtful  accounts  will  fluctuate  in the future and will
depend, in large part, on the mix of revenues, as well as the timing of payments
by private, third-party and governmental payors. While the Company believes that
the  allowance  for doubtful  accounts is adequate at September 30, 1997, if the
current  trend in days  outstanding  continues  the provision for bad debts will
increase in future periods.

Net cash used in  investing  activities  amounted  to $4.0  million  in the nine
months ended September 30, 1997. Capital  expenditures  amounted to $2.3 million
and expenditures for acquisitions,  net of cash acquired,  amounted to $659,000.
Cash used for lease deposits and other assets amounted to $1.0 million.

Net cash used in  financing  activities  amounted  to $2.4  million  in the nine
months ended  September  30, 1997 due  primarily  to a $2.1 million  decrease in
checks drawn in excess of bank  balances  and  $503,000  expended for debt issue
costs.  Principal  repayments  of notes and  long-term  debt  amounted  to $13.2
million, which was offset by borrowings of $13.3 million. At September 30, 1997,
Unison had $161.7 million in total debt (97.5% of total capitalization) compared
to $157.1  million at December  31, 1996  (93.1% of total  capitalization).  The
Company also had aggregate  minimum rent  obligations  of  approximately  $153.1
million (subject to certain increases) during the remainder of the initial terms
and first renewal periods under its operating leases.

                                       20
<PAGE>

In January  1997,  Unison  repaid with  proceeds  from the Senior Notes the $8.0
million Subordinated Note payable to the former BritWill  shareholders and $1.75
million  of  the  Additional  Payment  Obligation  due to  the  former  BritWill
shareholders.  Unison's remaining obligation  associated with the acquisition of
BritWill is the Additional  Payment  Obligation  amounting to $9.6 million as of
September  30, 1997.  The  Additional  Payment  Obligation is payable in monthly
installments of $117,000 to $166,000,  which include interest at 12.0% to 14.0%,
with a balloon payment of $8.1 million due August 9, 2000. The November  payment
of this obligation,  in the amount of $117,000, is currently in arrears. Because
these  payments are  contingent  upon revenue  targets  that, in light of recent
acquisitions,  are  likely to be  achieved,  the  previously  off-balance  sheet
Additional  Payment  Obligation is recorded as long-term debt and an increase in
lease operating rights in the  consolidated  balance sheets at December 31, 1996
and September 30, 1997.  Although this  accounting  treatment did not change the
amount of cash due to the former  BritWill  shareholders,  Unison will record an
increase in  amortization  and interest  expense in 1997 compared to 1996 in the
aggregate amount of approximately  $1.6 million ($1.2 million for the first nine
months  of 1997).  In the  event of a sale by Unison  prior to August 9, 2000 of
debt or equity securities  exceeding $10.0 million, the remaining balance of the
Additional Payment Obligation will be due in full.

Also in January  1997,  Unison  repaid $2.0  million of the  Sunbelt  Notes with
proceeds from the Senior Notes, and the remaining  $800,000 principal amount was
converted  into 105,196  shares of Unison Common  Stock.  The  conversion  price
($7.61) was equal to 85% of the average  closing price of Unison's  Common Stock
($8.95) for the 20-day trading period preceding notice of conversion on November
27, 1996.

In accordance with an adjustment  provision of the Signature  merger  agreements
relating  to  stockholders'  equity,  in March 1997 the former  shareholders  of
Signature received additional  consideration of $2,511,000,  paid in Convertible
Notes  ($1,827,000)  and 238,052 shares of Unison Common Stock.  The Convertible
Notes are convertible  into shares of Unison Common Stock at a conversion  price
of $2.875 per share,  subject to  adjustment  under certain  circumstances.  The
Convertible  Notes bear  interest  at the rate of 12.0% per annum and the unpaid
principal balance, plus accrued interest, is due on December 31, 1997.

On April 21, 1997,  Unison  obtained a $2.95  million  loan for general  working
capital  purposes from affiliates of two of its directors,  David A. Kremser and
Bruce H.  Whitehead.  This loan matured on November 1, 1997.  On  September  25,
1997,  Unison  borrowed an  additional  $1.0 million  from  Messrs.  Kremser and
Whitehead  which was due on October 7, 1997.  The loans bear  interest  at prime
plus 2.0% and are  secured by a pledge of certain  accounts  receivable  and the

                                       21
<PAGE>

stock of certain  Unison  subsidiaries.  Unison is  currently  in default on its
obligations  to repay  these  loans.  In  addition  to the  foregoing,  the loan
documents  state that the collateral  pledged for the working capital loans also
collateralizes  all  other  obligations  which  may be due to these  individuals
and/or entities which they control; and further that all such obligations are in
default due to cross default  provisions  in those loan and security  documents.
All of these obligations total, in the aggregate, approximately $18.9 million as
of September 30, 1997.

A  portion  of  the  purchase  consideration  for  Signature  was  comprised  of
promissory  notes in the amount of $1.1  million  which were placed in an escrow
account. Of this amount,  $500,000 was due to be paid to the former shareholders
of Signature on October 31, 1997. This note has not yet been paid.

OTHER FACTORS AFFECTING LIQUIDITY

The stated interest on the Senior Notes has  temporarily  increased to 13.50% at
September  30, 1997 and it is subject to further  increases of 0.25% on December
15, 1997 and at 90-day  intervals  thereafter  (to a maximum of 14.25%)  until a
registration  statement for the Senior Notes (or for Exchange  Notes on the same
terms) is filed with and declared  effective by the SEC.  Unison  delayed filing
the required  registration  statement  while it completed  work on its financial
statements  for 1996 and made the filing on July 3, 1997 but it has not yet been
declared effective. Further delays in completing the required registration, with
corresponding additional interest expense on the Senior Notes, are likely.

The terms of certain of Unison's  indebtedness and lease obligations require the
Company to meet certain  financial and  reporting  covenants  including  current
ratio  and cash flow and  maintenance  of  specified  levels  of net  worth.  At
September 30, 1997,  Unison was not in compliance with many of these  covenants.
At  September  30, 1997,  Unison was  obligated to Omega as a tenant under three
master lease agreements  covering 14 facilities having an aggregate minimum rent
of  approximately  $32.0 million  (subject to increase)  during the remainder of
their initial terms. Unison was, as of November 12, 1997, in arrears of its rent
obligations  under  these  leases (and the  BritWill  Texas  Leases  hereinafter
referred to) in the approximate amount of $874,000 plus late charges. The master
leases require the Company to maintain specified cash flow to rent ratios,  cash
flow to debt service ratios, minimum cash, current ratios and tangible net worth
ratios (each as  defined).  Unison also leases six  facilities  located in Texas
from  BritWill  Texas for an initial  term that  expires in December  2005.  The
BritWill Texas Leases contain cross default  provisions with the Omega leases by
which if Unison is in default under any Omega  indebtedness or lease obligation,
the Company is also in default under

                                       22
<PAGE>

the BritWill Texas Leases.  Unison was not in compliance with these covenants at
September 30, 1997 and did not obtain a waiver of the covenant  violations  from
Omega or BritWill  Texas.  The Company  continues to be out of  compliance  with
these covenants after this date and,  accordingly,  is negotiating with Omega to
restructure the  aforementioned  covenants.  There can be no assurance that such
restructuring will be accomplished,  or if accomplished,  that the restructuring
will result in more favorable  terms to Unison.  The lease  covenant  violations
have had no impact on Unison's historical financial statements. In any event, if
Unison fails soon to cure the aforementioned rent defaults (see " - Liquidity"),
Omega may exercise its  remedies  under the leases,  which would have a material
adverse impact on Unison's financial condition and results of operations.

The terms of the Mortgage Note require Unison to maintain, among other things, a
consolidated  net  worth  of at  least  $39.0  million.  Unison's  net  worth at
September  30,  1997 was $4.2  million  and,  therefore,  the Company was not in
compliance with this covenant. Unison has not received a waiver of this covenant
violation and, accordingly, classified the entire obligation of $18.5 million as
current.  The Company is current on its  payments on the  Mortgage  Note and the
lender has not indicated any intention to declare the Company in default. In the
event of a declaration of default,  Unison may be required to repay the Mortgage
Note or the lender may foreclose on the properties,  which would  materially and
adversely impact Unison's  results of operations.  Based on discussions with the
lender,  the Company does not believe that a declaration  of default will occur,
and it is attempting to refinance the Mortgage  Note, as discussed  above.  With
the exception of the classification of the Mortgage Note as a current liability,
there was no  financial  statement  impact as of and for the nine  months  ended
September  30,  1997 as a  result  of the  Company's  noncompliance  with  these
covenants.

Unison's  accounts  payable balance has increased from $10.5 million at December
31, 1997 to $13.3 million at September 30, 1997. In addition, as of November 14,
1997, the Company is obligated to certain vendors under  promissory notes in the
aggregate amount of $1.5 million,  most of which is due in 1997. A number of the
Company's  significant vendors have put the Company on cash terms. The inability
to pay vendors  could  result in a  disruption  of the supply of critical  items
which would materially adversely affect operations.

Unison and certain of its current and former directors and officers are named as
defendants  in several  class  action  complaints  seeking  unspecified  damages
following  Unison's  announcement  in March 1997 that the  Company  expected  to
restate its financial  statements for the nine-month  period ended September 30,
1996.  The Company  denies the  material  allegations  in these  complaints  and
intends to defend the actions  vigorously.  While there can be no  assurances in
such matters,  Unison believes that, based on its analysis of the complaints and
of its insurance coverage and communications with its insurance  carriers,  that

                                       23
<PAGE>

the  ultimate  disposition  of these  matters  will  not  adversely  affect  its
liquidity.  An adverse  determination  in these  proceedings,  if not covered by
insurance,  would have a material adverse impact on the Company's  liquidity and
results of operations. See Part II, Item 1, "Legal Proceedings."

At September 30, 1997, the aggregate  amount of Unison's net intangible  assets,
including lease operating rights,  goodwill,  deferred financing costs and other
intangibles, was $140.4 million. This balance represents 62.5% of Unison's total
assets at  September  30, 1997 and  approximately  33.4 times its  stockholders'
equity.  Should  events  occur  that  result  in  impairment  of  the  Company's
long-lived assets, such as unexpected increases in operating losses or potential
actions by  creditors  and  lessors of the  Company  because of  defaults  under
material  indebtedness and operating losses,  the Company may in the future need
to record a write-down of its lease operating rights or goodwill.

CONCLUSION

Because the Company's cash flows from operations and its available  capital have
been insufficient to meet its current operating expenses,  lease obligations and
debt  service  requirements,  the Company is  currently  in covenant and payment
default  in the terms of  material  operating  leases and  indebtedness.  In the
absence of obtaining  additional  capital  through  refinancing  of the Mortgage
Note, asset sales,  securing an increased revolving credit facility,  consensual
restructuring of debt and lease terms and/or similar measures,  the Company will
be  unable  to remedy  the  existing  defaults  and will  experience  additional
defaults  in  the  future.  The  Company's   operating  leases  are  subject  to
termination  in the event of  default,  and the  Company's  indebtedness  may be
accelerated in the event of continuing default.  Certain lenders could foreclose
on Company assets securing their indebtedness, which would include substantially
all of the Company's  operating  assets.  Accordingly,  the Company's  financial
condition  could  require that the Company  seek the  protection  of  applicable
reorganization  laws in order to avoid or delay  actions  by its  creditors  and
lessors which could  materially  adversely  affect or cause the cessation of the
Company's operations.


                                       24
<PAGE>

                           PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Unison and certain of its current and former directors and officers are named as
defendants  in several  purported  class action  complaints  following  Unison's
announcement  in March 1997 that the Company  expected to restate its  financial
statements  for the  nine-month  period ended  September 30, 1996. To date,  the
following actions have been filed in federal district court in Phoenix, Arizona:

       Martin  Grossman  FBO Martin  Grossman  Profit  Sharing  Plan and Alan S.
       Fellheimer v. Unison HealthCare  Corporation,  Jerry M. Walker,  Craig R.
       Clark and Paul J. Contris, Case No. CIV 97-0583.

       Leonard Goldstein and Ronne Goldstein v. Unison  HealthCare  Corporation,
       Jerry  M.  Walker,  Craig R.  Clark  and Paul J.  Contris,  Case No.  CIV
       97-0584.

       Toni Kaasbell v. Unison HealthCare  Corporation,  Craig R. Clark and Paul
       J. Contras [sic], Case No. CIV 97-0602.

       Joseph Grimes v. Unison HealthCare Corporation, Jerry M. Walker, Craig R.
       Clark and Paul J. Contris, Case. No. CIV 97-0603.

       Amothy  Corp.  v.  Unison  HealthCare  Corporation,  Bruce H.  Whitehead,
       Phillip R. Rollins,  Jerry M. Walker, Craig R. Clark and Paul J. Contris,
       Case No. CIV 97-0825.

       Karl E. Falkenstein v. Unison HealthCare Corporation, Bruce H. Whitehead,
       Phillip R. Rollins,  Jerry M. Walker, Craig R. Clark and Paul J. Contris,
       Case No. CIV 97-1017.

       Dr.  Stanley  Levine as Trustee for  Lakeside  Urology  Limited  Employee
       Profit Sharing Trust and Lakeside  Urology Limited  Employee Pension Plan
       v. Unison HealthCare Corporation Jerry M. Walker, Craig R. Clark and Paul
       J. Contris, Case. No. CIV 97-1412.

On September  8, 1997,  the Court  consolidated  the  aforesaid  actions for all
purposes under the title of the first filed case (Grossman). The purported class
periods  asserted in these actions vary, with the broadest such period beginning
December 18, 1995(when Unison commenced the initial public offering of its stock
(the  "IPO")) and ending March 11, 1997 (when  Unison  announced  the need for a
restatement).  The complaint in all these actions allege  violations of Sections
10 and 20 of the Exchange Act and Rule 10b-5  thereunder in that the  defendants
knew, or were reckless in not knowing, that Unison's results for the first three
quarters of 1996 were materially overstated, or misrepresented the capability of

                                       25
<PAGE>

Unison's internal accounting system to reliably record and reflect its financial
condition.  Amended  complaints  in four of these  actions  (GROSSMAN  ET AL. V.
UNISON  HEALTHCARE  CORPORATION  ET AL.,  GOLDSTEIN ET AL. V. UNISON  HEALTHCARE
CORPORATION  ET  AL.,  AMOTHY  CORP.  V.  UNISON  HEALTHCARE  CORP.  ET AL.  and
FALKENSTEIN  V.  UNISON  HEALTHCARE  CORP.  ET AL.) also  allege  violations  of
Sections  11 and 15 of the  Securities  Act in that the  registration  statement
covering,  and the prospectus used in connection with, the stock sold in the IPO
allegedly  misleadingly touted Unison's "growth strategy" and ability to control
costs while  failing to disclose  inadequacies  in its  accounting  system.  Two
actions (AMOTHY CORP. V. UNISON HEALTHCARE CORPORATION ET AL. and FALKENSTEIN V.
UNISON  HEALTHCARE  CORPORATION  ET AL.) also allege that the conduct  allegedly
giving rise to the alleged Exchange Act violations also violated the defendants'
state law fiduciary duties as directors and officers.  The individual defendants
include Jerry M. Walker, Craig R. Clark, Phillip R. Rollins and Paul J. Contris,
who at the time of their  resignations  were the President  and Chief  Executive
Officer,  Executive Vice President and Chief Operating  Officer,  Executive Vice
President  and  Chief   Financial   Officer  and  Executive   Vice  President  -
Acquisitions  and  Development,  respectively,  of the  Company,  and  Bruce  H.
Whitehead,  currently  Chairman of the Board of the Company.  The  plaintiffs in
these purported class actions seek compensatory  damages in unspecified  amounts
plus interest, attorneys' fees and costs.

In addition, an action styled JEFFREY D. VANDYKE V. CRUTTENDEN ROTH, INC., WHEAT
FIRST BUTCHER SINGER, BRUCE H. WHITEHEAD, UNISON HEALTHCARE CORPORATION, JOHN T.
LYNCH, JR., TROUVER CAPITAL PARTNERS, L.P., JERRY M. WALKER, PHILLIP R. ROLLINS,
CRAIG R. CLARK AND PAUL J. CONTRIS has been filed in the  Superior  Court of the
State of California  (County of Orange)  (Case No.  779111).  Defendant  John T.
Lynch,  Jr. is a member of the Board of  Directors  of Unison;  Trouver  Capital
Partners,  L.P. is a private  investment  banking  firm of which Mr.  Lynch is a
general  partner,  and Cruttenden  Roth, Inc. and Wheat First Butcher Singer are
investment banking firms that are named individually and as representatives of a
purported  defendant  underwriter class. The Orange County action is purportedly
filed on behalf of all persons who acquired Unison common stock in the Company's
IPO; it essentially alleges that in connection with the IPO, the defendants made
positive statements about the Company's prospects, for which there was no basis,
that accounts  receivable were overstated,  and that the Company's  statement of
financial  position  as of  September  30,  1995 was not fairly  presented.  The
plaintiff  seeks  compensatory  damages  in an  unspecified  amount  as  well as
interest, attorneys' fees and costs and extraordinary,  equitable and injunctive
relief as permitted by law or equity.

                                       26
<PAGE>

Unison's bylaws require the Company to indemnify current and former officers and
directors to the extent  permitted by Delaware law against such  liabilities and
related expenses. The Company is also obligated,  subject to certain conditions,
to indemnify the underwriters against such liabilities and expenses. The Company
denies the material  allegations  in these  complaints and intends to defend the
actions  vigorously.  While there can be no assurances  in such matters,  Unison
believes  that,  based on its analysis of the  complaints  and of its  insurance
coverage  and  communications  with its  insurance  carriers,  that the ultimate
disposition of these matters will not adversely affect its liquidity. An adverse
determination in these  proceedings,  if not covered by insurance,  would have a
material adverse impact on the Company's liquidity and results of operations.

A Unison  subsidiary  is the  defendant  in an  action  entitled  CARILLON/ALPHA
LIMITED V. BRITWILL HEALTHCARE COMPANY filed, and assigned Cause No. 96-5742, in
the  District  Court of Dallas  County,  Texas.  Plaintiff  in this action seeks
compensatory  damages in the amount of $216,000,  allegedly for unpaid rent, for
the  three-month  period during which  premises  leased to the  subsidiary  were
vacant and the cost of  releasing  same,  plus  interest  and  attorneys'  fees.
Unison,  which has asserted  various  defenses and intends to vigorously  defend
this  lawsuit,  nonetheless  believes  that an adverse  outcome would not have a
material effect on its financial condition or results of operations.

Items 2, 4 and 5 are not applicable.

Item 3. Defaults on Senior Securities

      (a) Defaults on payments of principal and interest:

Unison is in default on loans  obtained  for working  capital  purposes,  in the
aggregate  principal  amount of $3.95  million,  from Elk  Meadows  Investments,
L.L.C.  ("Elk Meadows") and BritWill  Investments  Company,  Ltd.  ("BIC").  Elk
Meadows is controlled by David A. Kremser, a member of the Board of Directors of
Unison,  and BIC is controlled by Bruce H.  Whitehead,  Chairman of the Board of
Directors of Unison. Of these loans, $1.0 million was due on October 7, 1997 and
$2.95  million  was due on  November  1, 1997.  Interest  payable on these loans
through November 14, 1997 amounts to approximately  $190,000. The loan documents
state  that all  other  obligations  which may be due to these  individuals  and
entities  which they control are in default due to cross  default  provisions in
those loan and security documents. These obligations are as follows.

A  portion  of  the  purchase  consideration  for  Signature  was  comprised  of
promissory  notes  which  were  placed in an  escrow  account.  Of these  notes,
$500,000 was due to be paid to Mr. Kremser and the other  Signature  shareholder
on October 31, 1997. This note, plus accrued interest of  approximately  $42,000
at November 14, 1997, has not been paid.

                                       27
<PAGE>

The  Company is in arrears as to the  November  1997  payment,  in the amount of
$117,000,  on the Additional  Payment  Obligation to the former  shareholders of
BritWill.  The payment is  comprised  of  principal in the amount of $96,000 and
interest  in the  amount of  $21,000.  The  balance  of the  Additional  Payment
Obligation at September 30, 1997 was $9.6 million.

The Company is obligated under subordinated notes payable to an affiliate of Mr.
Whitehead in the aggregate amount of approximately $2.4 million.  The Company is
current as to principal and interest payments on these notes.

Item 6. Exhibits and Reports on Form 8-K

      (a) Exhibits:

          See Exhibit Index  following the Signatures  page,  which index is
          incorporated herein by reference.

      (b) Reports filed on Form 8-K:

          None


                                       28
<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.

                                    UNISON HEALTHCARE CORPORATION
                                           (Registrant)


Date:  November 14, 1997            /s/ Michael A. Jeffries
                                    -------------------------------------
                                    Michael A. Jeffries
                                    President and Chief Executive Officer

                                    /s/ Warren K. Jerrems
                                    -------------------------------------
                                    Warren K. Jerrems
                                    Vice President and Chief Accounting
                                    Officer (Principal Accounting Officer)





                                       29
<PAGE>

                                  EXHIBIT INDEX


 Exhibit
 Number
 ------

  10.1  Employment Agreement of Michael A. Jeffries

  11    Statement Re: Computation of Per Share Earnings

  27    Financial Data Schedule (included only in the EDGAR filing)