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        December 31, 1996
                               ------------------------------------------

                                             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                    0-25176
                      ---------------------------------------------------

                              MEDCATH INCORPORATED
             (Exact name of registrant as specified in its charter)

        North Carolina                             56-1635096
---------------------------------          ------------------------------
  (State or other jurisdiction                  (I.R.S. Employer
of incorporation or organization)              Identification No.)

         7621 Little Avenue, Suite 106, Charlotte, North Carolina 28226
                    (Address of principal executive officers)
                                   (Zip Code)

                                 (704) 541-3228
              (Registrant's telephone number, including area code)

                                 Not Applicable
              (Former name, former address and former fiscal year,
                          if changed since last report)

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

Yes      X                  No_____

As of January 27, 1997, there were 11,146,749 Common Shares outstanding.


<PAGE>


                              MEDCATH INCORPORATED

                                    FORM 10-Q

                                December 31, 1996

                                Table of Contents

                                                                         Page
                                                                          No.

PART I - FINANCIAL INFORMATION (UNAUDITED)                          

   Item 1.  Condensed consolidated financial statements               

             * Condensed consolidated statements of income                3

             * Condensed consolidated balance sheets                      4

             * Condensed consolidated statements of cash flows            5

             *Notes to condensed consolidated financial statements      6-7

   Item 2.  Management's discussion and analysis of
                   financial condition and results of operations       8-11

PART II - OTHER INFORMATION

   Item 6.  Exhibits and Reports on Form 8-K                             12


          Signatures                                                     13















                                       2

<PAGE>
<TABLE>
<CAPTION>

                              MedCath Incorporated
                   Condensed Consolidated Statements of Income

                                                                        Three Months Ended
                                                                           December 31,
                                                                ------------------------------------
                                                                      1995              1996
                                                                ------------------------------------

<S>                                                              <C>               <C>       
Net revenue                                                      $  11,208,6$3    $   22,854,453

Operating expenses:
     Medical supplies and other                                      4,189,933         8,595,329
     Personnel costs                                                 2,376,365         6,144,428
     Depreciation                                                      732,158         1,490,153
     Amortization                                                      186,909           750,158
     Provision for doubtful accounts                                         -           450,967
     Marketing, general and administrative                           1,360,247         1,902,211
                                                                ------------------------------------
        Total operating expenses                                     8,845,612        19,333,246
                                                                ------------------------------------
Income from operations                                               2,363,021         3,521,207
Interest expense                                                      (167,097)         (702,413)
Interest income                                                        183,129           675,161
Minority interest in earnings of consolidated entities                (362,121)         (570,195)
Equity in net earnings of unconsolidated joint venture                  26,685                 -
                                                                ------------------------------------
Income before income taxes                                           2,043,617         2,923,760

Provision for income taxes                                            (817,447)       (1,169,504)

                                                                ====================================
Net income                                                       $   1,226,$70         1,754,256
                                                                ====================================


Net income per share                                                   $  0.14           $  0.15
                                                                ====================================

Weighted average number of common and common
     equivalent shares outstanding                                   8,989,601        11,684,550

<FN>
See accompanying notes.

</FN>
</TABLE>












                                        3
<PAGE>
<TABLE>
<CAPTION>
                              MedCath Incorporated
                      Condensed Consolidated Balance Sheets

                                                                               September 30,            December 31,
                                                                           ---------------------    --------------------
                                                                                   1996                    1996
                                                                           ---------------------    --------------------

<S>                                                                        <C>                      <C>  
ASSETS
Current assets:
    Cash and cash equivalents                                               $          5,026,30      $        7,122,549
    Short-term investments                                                           56,667,244              51,339,970
    Accounts receivable, net of allowance                                            11,155,477              13,942,689
    Medical supplies                                                                  1,549,029               1,567,873
    Deferred income taxes                                                               240,000                 240,000
    Prepaid expenses and other current assets                                           610,137                 857,129
                                                                           ---------------------    --------------------
       Total current assets                                                          75,248,192              75,070,210

Property, plant and equipment, net of accumulated depreciation                       72,303,824              82,843,333
Other assets                                                                          1,910,092               1,861,387
Start-up and organization costs, net of accumulated amortization                      7,628,018               8,590,817
Advances to physician groups                                                          5,609,178               5,626,313
Intangible assets, net of accumulated amortization                                   19,221,414              25,376,743
                                                                           =====================    ====================
Total assets                                                                $       181,920,718     $       199,368,803
                                                                           =====================    ====================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                        $          2,861,34     $         2,382,030
    Distribution payable to minority interests                                          629,352                 814,209
    Accrued liabilities                                                               3,623,704               5,079,010
    Current portion of long-term debt                                                 1,931,455               1,847,805
    Current portion of obligations under capital leases                                 392,713                 392,713
                                                                           ---------------------    --------------------
       Total current liabilities                                                      9,438,567              10,515,767

Deferred income taxes                                                                 2,864,535               2,914,535
Long-term debt                                                                       43,841,641              57,056,487
Obligations under capital leases                                                      2,053,797               1,971,756
                                                                           ---------------------    --------------------
Total liabilities                                                                    58,198,540              72,458,545

Minority interests in equity of consolidated entities                                 3,477,085               4,820,912

Shareholders' equity:
    Common stock, $.01 par value,  20,000,000 shares authorized, and 11,121,326
       and 11,146,749 shares issued and outstanding
       at September 30, and December 31, 1996, respectively                             111,213                 111,467
    Paid-in capital                                                                 108,897,931             108,987,674
    Retained earnings                                                                11,235,949              12,990,205
                                                                           ---------------------    --------------------
Total shareholders' equity                                                          120,245,093             122,089,346
                                                                           ---------------------    --------------------

Total liabilities, minority interests and shareholders' equity              $       181,920,718      $      199,368,803
                                                                           =====================    ====================
<FN>
See accompanying notes.
</FN>
</TABLE>


                                        4
<PAGE>
<TABLE>
<CAPTION>

                              MedCath Incorporated
                 Condensed Consolidated Statements of Cash Flows

                                                                                            Three Months Ended
                                                                                               December 31,
                                                                                   -------------------------------------
                                                                                         1995                1996
                                                                                   ------------------  -----------------

<S>                                                                                <C>                 <C>
Operating activities
Net Income                                                                          $    1,226,170      $     1,754,256
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                        946,005            2,276,753
      Minority interest                                                                          -              (22,536)
      Deferred income taxes                                                                 75,000               50,000
      (Increase) decrease in current assets:
           Accounts receivable                                                          (1,131,384)          (2,787,212)
           Medical supplies                                                               (182,196)             (18,844)
           Prepaid expenses and other current assets                                      (134,129)            (246,992)
      Increase (decrease) in current liabilities:
           Accounts payable                                                                358,494             (479,313)
           Distribution payable to minority interest                                       (19,009)             184,857
           Accrued liabilities                                                           1,470,389            1,455,306
      Other                                                                               (132,235)              (9,082)
                                                                                    -----------------  -----------------
Net cash provided by operating activities                                                2,477,105            2,157,193

Investing activities
Purchases of property, plant and equipment                                             (13,982,192)         (12,027,674)
Start-up and organization costs                                                         (3,357,314)          (1,488,971)
Advances to physician groups                                                              (555,000)            (429,000)
Repayments of advances to physician groups                                                 114,648              411,865
Net sales of short-term investments                                                      6,290,532            5,327,274
                                                                                    -----------------   ----------------
Net cash used in investing activities                                                  (11,489,326           (8,206,506)

Financing activities
Proceeds from issuance of long-term debt                                                 9,728,468            9,204,153
Repayments of long-term debt                                                              (129,095)            (524,929)
Repayments of convertible subordinated debt                                                      -           (1,907,987)
Repayments of obligations under capital leases                                            (520,523)             (82,041)
Proceeds from issuance of common stock                                                       5,664               89,997
Investments by minority partners                                                            40,000            1,366,364
Payment of loan acquisition costs and deferred loan fees                                  (318,056)                   -
                                                                                   ------------------  -----------------
Net cash provided by financing activities                                                8,806,458            8,145,557
                                                                                   ------------------  -----------------
Net increase (decrease) in cash and equivalents                                           (205,763)           2,096,244
Cash and cash equivalents, beginning of period                                           6,821,728            5,026,305
                                                                                   ------------------  -----------------
Cash and cash equivalents, end of period                                            $    6,615,965      $     7,122,549
                                                                                   ==================  =================
<FN>
See accompanying notes.
</FN>
</TABLE>



                                        5
<PAGE>

                              MedCath Incorporated
         Notes to Unaudited Condensed Consolidated Financial Statements
               For the Three Month Period Ended December 31, 1996


Note 1- General

The  accompanying  unaudited  condensed  consolidated  financial  statements  of
MedCath  Incorporated  (the  "Company")  have been prepared in  accordance  with
generally accepted accounting  principles for interim financial  information and
with  the  instructions  for  Form  10-Q  and  Article  10  of  Regulation  S-X.
Accordingly,  they do not include all of the information and footnotes  required
by generally accepted accounting  principles for complete financial  statements.
In the opinion of management,  the statements of the unaudited  interim  periods
include  all  adjustments  necessary  for fair  presentation  of results for the
periods  and  all  such  adjustments  are  of a  normal  recurring  nature.  The
accompanying  unaudited  condensed  consolidated  results of operations  for the
three month period ended December 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1997. For further
information,   refer  to  the  audited  consolidated  financial  statements  and
footnotes  thereto  included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1996.  Unless otherwise  specified,  capitalized  terms
used herein are used as defined in such Annual Report on Form 10-K.

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates and assumptions.

Note 2 - Net Income Per Share

The computation of primary and  fully-diluted net income per share is based upon
the weighted average number of common shares and common  equivalent  shares,  if
dilutive,  outstanding  during the period.  The computation of fully-diluted net
income per share also takes into  consideration  the use of market  price at the
end of the period,  when higher  than the average  market  price for the period.
Common stock  equivalents  represent the dilutive  effect of the exercise of all
outstanding  stock  options  and  the  assumed  conversion  of  all  outstanding
convertible debt. Fully-diluted net income per share is not presented because it
does not differ from primary net income per share.


Note 3 - Long-Term Debt
<TABLE>
<CAPTION>

Long term debt consisted of the following:

                                                                        September 30,      December 31,
                                                                            1996               1996
                                                                     --------------------------------------
<S>                                                                    <C>                <C>           
McAllen REIT Loan                                                      $   13,750,000     $   13,750,000
Arkansas REIT Loan                                                         19,757,558         25,559,664
Tucson REIT Loan                                                            1,062,531          4,353,526
Convertible subordinated debt                                                       -          4,451,971
Notes payable to equipment lenders                                         10,689,071         10,298,142
Other notes payable                                                           513,936            490,989
                                                                     --------------------------------------
                                                                           45,773,096         58,904,292
Less current portion                                                       (1,931,455)        (1,847,805)
                                                                     ======================================
                                                                        $  43,841,641     $   57,056,487
                                                                     ======================================

</TABLE>

                                       6
<PAGE>

Note 3 - Long - Term Debt (continued)

As of December 31, 1996,  approximately  $18.0 million was  available  under the
Company's $20 million  Revolver,  as computed in  accordance  with the borrowing
base, and there were no amounts  outstanding.  The proceeds of the Revolver have
been and are to be used to meet  ongoing  working  capital  requirements  and to
finance certain acquisitions approved by the lender.

The Revolver and REIT loan  agreements  contain  certain  restrictive  covenants
which prohibit the payment of dividends and require the  maintenance of specific
financial ratios and amounts. The Company was in compliance with these covenants
at December 31, 1996.

In October 1996, the Company issued a convertible  subordinated  promissory note
in the amount of $6.4 million in connection  with the  acquisition of a contract
to manage Heart Clinic, P.A. (See Note 4). In November 1996, $1.9 million of the
outstanding principal balance was paid in accordance with the terms of the note.
The  remaining  principal  amount of the note is due and  payable  on October 1,
1998, in cash or in shares of common stock of the Company at a conversion  price
of  $14  per  share.  Interest  is  payable  annually  at a  rate  of 4% on  the
outstanding principal. A contingent convertible subordinated promissory note was
also  issued  in  October  1996  and the  amount  of the  note  will be based on
performance levels of the Heart Clinic physicians for the 1997 calendar year.

In  December  1996,  the  Company  obtained  financing  of up to $16  million in
installment  notes  payable to equipment  lenders for the purpose of  purchasing
equipment for the Arkansas  Heart  Hospital.  At December 31, 1996 there were no
amounts  outstanding under these notes.  Through March of 1997, interest will be
payable  monthly  at the rate of 2.5%  above the prime  rate (as  defined by the
lender).  On April 1, 1997, the annual interest rate on all amounts  outstanding
will convert to 9.62%. On April 1, 1997 the Company will begin making  principal
and interest payments based on a five year amortization schedule.

Note 4 - Business Combinations and New Operations

In September 1996, the Company formed PMMI. In October 1996, PMMI entered into a
40-year contract to manage Heart Clinic,  P.A., a  multi-physician  cardiologist
group located in McAllen,  Texas. Total  consideration  given in connection with
the  acquisition  of the  management  contract  was  approximately  $6.3 million
(subject to increase if certain base performance  levels are exceeded in 1997 by
the physicians) and consisted of fixed and contingent  promissory notes that are
partially convertible into the Company's common stock (see Note 3).

In January 1997,  the Company  announced it had formed a venture for the purpose
of  constructing  and  operating  the  Arizona  Heart  Hospital to be located in
Phoenix,  Arizona.  The  Company  expects  the total  cost of  constructing  and
equipping the Arizona Heart Hospital to be  approximately  $35 million and plans
to open the hospital in fiscal year 1998.

                                       7
<PAGE>

                              MedCath Incorporated
Management's Discussion and Analysis of Financial Condition and Results of 
         Operations For the Three Month Period Ended December 31, 1996


The following  discussion and analysis is provided to increase the understanding
of, and should be read in conjunction with the Unaudited Condensed  Consolidated
Financial  Statements and accompanying  notes. All References to a "Note" are to
the "Notes to Unaudited Condensed  Consolidated  Financial Statements" contained
herein.  Unless otherwise  specified,  capitalized terms used herein are used as
defined in the Company's Annual Report on Form 10-K for the year ended September
30,  1996 and all  references  to the three month  periods  refer to the periods
ended December 31, 1995 and 1996, respectively.

Acquisitions and New Operations

In January 1997,  the Company  announced it had formed a venture for the purpose
of  constructing  and  operating  the  Arizona  Heart  Hospital to be located in
Phoenix,  Arizona.  The  Company  expects  the total  cost of  constructing  and
equipping the Arizona Heart Hospital to be  approximately  $35 million and plans
to open the hospital in fiscal year 1998.

Results of Operations

The following table sets forth, for the periods presented, the percentage of the
Company's  net revenue  represented  by the net revenue of each of the Company's
three  divisions  and by certain  items  reflected  in the  Unaudited  Condensed
Consolidated Statements of Income:

<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                                                       December 31,
                                                              --------------------------------
                                                                   1995            1996
                                                              --------------------------------
<S>                                                                 <C>           <C>   
   Diagnostics Division                                              74.6%         40.9%
   Practice Management Division                                      24.1          21.2
   Hospital Division                                                  1.3          37.9
                                                              --------------------------------
         Total net revenue                                          100.0%        100.0%

Operating Expenses:
   Medical supplies, personnel & other operating expense             58.6          64.5
   Depreciation and amortization expense                              8.2           9.8
   Provision for doubtful accounts                                    -             2.0
   Marketing, general and administrative expense                     12.1           8.3
                                                              --------------------------------
         Total operating expenses                                    78.9          84.6

                                                              --------------------------------
Income from operations                                               21.1          15.4

Interest expense                                                     (1.5)         (3.1)
Interest income                                                       1.6           3.0
Minority interest in earnings of consolidated entities               (3.2)         (2.5)
Equity in earnings of unconsolidated subsidiaries                      .2             -
                                                              --------------------------------
Income before income taxes                                           18.2           12.8
Provision for income taxes                                          (7.3)          (5.1)
                                                              --------------------------------
Net income                                                          10.9%           7.7%
                                                              ================================

</TABLE>
                                       8

<PAGE>

Results of Operations (continued)

Net revenue

Consolidated net revenue increased 103.9% to $22.9 million in fiscal year 1997 
from $11.2 million in fiscal year 1996. Of this $11.7 million increase, $8.5 
million was attributable to net revenue at the McAllen Heart Hospital, which 
opened in January  1996, and the remainder of the increase in total net revenue 
was the result  of  new  operations  in  both  the  Diagnostics  Division  and 
Practice Management Division, as well as increases in net revenue in existing 
operations.

Net revenue in the Practice  Management Division increased 80.0% to $4.8 million
in fiscal year 1997 from $2.7 million in fiscal year 1996  accounting  for $2.2 
million of the total increase in consolidated  net revenue.  This increase was 
attributable to the acquisition of contracts to manage Mid-Atlantic, in February
1996, and Heart Clinic,  in October 1996. Also contributing is the increase in 
net revenue from the existing  contract to manage AMC. The total number of 
physicians  under management  in the  Practice  Management  Division  at  this  
quarter  end is 76 compared with 55 at the same time last year.

Net  revenue in the  Diagnostics  Division  increased  11.6% to $9.3  million in
fiscal year 1997 from $8.3 million in fiscal year 1996 and  accounted  for $1.0 
million of the total  increase in net  revenue.  Net  revenue  from  Fixed-Site 
Facilities increased 16.5% primarily as the result of three new facilities in 
the Diagnostics Division.  Net revenue from operation of Mobile Cath Labs 
increased 4.7% as the result of an increase in the total number of procedures 
performed in the labs as well as the addition of several new hospital contracts.
The number of  Fixed-Site  Facilities  increased  from 5 in fiscal year 1996 to 
8 in fiscal year 1997 while mobile cath labs operated by the Company remained at
23 in both fiscal year 1996 and fiscal year 1997.

Operating Expenses and Income from Operations

Total operating  expenses  increased 118.6% to $19.3 million in fiscal year 1997
from $8.8  million in fiscal year 1996.  The increase was primarily attributable
to operating expenses at the McAllen Heart Hospital, expenses incurred in 
managing Mid-Atlantic and Heart Clinic and added operating expenses in the 
Diagnostic Division for three new Fixed-Site Facilities.  Income from operations
increased 49.0% to $3.5  million in fiscal year 1997 from $2.4  million in 1996.
Operating margins  decreased  to 15.4% in fiscal year 1997 from 21.1% in fiscal 
year 1996 and EBITDA margins  decreased  to 25.2% in fiscal year 1997 from 29.3%
in fiscal year 1996.  These decreases  were  primarily due to the  operating  
expenses  associated  with the McAllen Heart Hospital and the growth in the 
Practice Management Division, which operates at lower margins than those 
realized in the Diagnostics Division.

Income from operations in the Practice  Management  Division  increased 71.6% to
$530,000 in fiscal year 1997 from $309,000 in fiscal year 1996.  The increase is
attributable  to income from managing  Mid-Atlantic  and Heart Clinic as well as
increased  operating income from managing AMC. Operating margins in the Practice
Management  Division decreased to 10.9% in fiscal year 1997 from 11.5% in fiscal
year 1996 as a result of the expenses associated with managing Heart Clinic  and
Mid-Atlantic and the structure of the related  contracts.  EBITDA margins in the
Practice  Management  Division  remained  constant  at 13.2% for the three month
period ended December 31, 1995 and 1996.

Income from  operations  in the  Diagnostics  Division  increased  14.5% to $3.3
million in fiscal year 1997 from $2.9 million in fiscal year 1996.  The increase
is due primarily to three new Fixed-Site  Facilities that commenced  operations
since September 1996. Operating margins and EBITDA margins in the Diagnostics 
Division remained  constant  for the same  three  month  period in 1996,  at 34%
and 45%, respectively.

                                       9

<PAGE>



Marketing,  general and  administrative  expenses in fiscal year 1997 increased
39.8% over fiscal year 1996 primarily as a result of the Company's continued  
investment in corporate infrastructure to facilitate growth.  During the last 
year, the Company added both a human resources and an information systems  
department,  as well as additional development and finance personnel.  The 
remainder of the increase was attributable to increased  professional  fees 
associated with pursuing  business development  opportunities, the addition of
administrative  and  accounting personnel to support growth and increases in 
salaries.

Interest Expense and Interest Income

Interest expense increased  $535,000 in fiscal year 1997 over fiscal year 1996,
primarily as the result of  interest  incurred on  borrowings  used to finance 
the McAllen Heart Hospital.  Substantially  all of the property,  plant and 
equipment at the hospital were financed using borrowings that bear interest at 
rates ranging from 8.54% to 10.19%. Interest income increased $492,000 in fiscal
year 1997 compared with fiscal year 1996 due to  additional  investment  income 
earned on cash and short term investments.

Minority Interest in Earnings of Consolidated Entities

Minority  interest in earnings of  consolidated  entities  for the three  months
ended  December 31, 1995 and 1996 was $362,000 and  $570,000,  respectively,  an
increase of $208,000 or 57.5%.  In  developing  certain  Fixed-Site  Facilities,
Heart  Hospitals  and Mobile  Cath Labs the Company  has  entered  into  several
partnerships  and limited  liability  companies  ("LLC's").  The full results of
operations of these  partnerships and LLC's are included in the Company's income
before income taxes. Any increase or decrease in the minority  interest in these
entities earnings is directly attributable to the results of operations of these
entities.

Liquidity and Capital Resources

Operating Cash Flows

Net cash provided by operating  activities was $2.2 million for the three months
ended December 31, 1996. Accounts  receivable  increased $2.8 million during the
three months ended December 31, 1996.  This increase was the result of increased
revenues  in the  three  divisions  and  the  additional  receivables  from  new
consolidating entities. At December 31, 1996, the Company had working capital of
$64.6 million,  including  $58.5 million of cash and short-term  investments and
$13.9 million in accounts receivable.

Investing Cash Flows

During the three months ended December 31, 1996,  the Company  utilized a net of
$8.2 million in investing activities primarily for the construction, purchase of
equipment and start-up costs for the Company's  Heart  Hospitals;  consisting of
$8.1 million for the Arkansas Heart Hospital,  $2.8 million for the Tucson Heart
Hospital and $2.6 million for the Company's other  operations.  Offsetting these
outflows was $5.3 million on the sale of short term investments.

Financing Cash Flows

Financing  activities  provided $8.1 million during the three month period ended
December 31, 1996, primarily from loan proceeds for construction on the Arkansas
and  Tucson  Heart  Hospitals.   Investments  from  minority   partners  in  the
Bakersfield  Heart  Hospital also provided  additional  financing  proceeds this
quarter.  The repayment of a portion of the convertible  subordinated  debt (see
Note 3), long term debt and capital leases  somewhat  offset the $9.2 million of
proceeds this quarter.

                                       10

<PAGE>

The Company has formed a venture for the purpose of  constructing  and operating
the  Arizona  Heart  Hospital.   The  Company  anticipates  the  total  cost  of
constructing  and  equipping the Arizona  Heart  Hospital will be  approximately
$35.0 million and that  construction  will begin on the hospital in fiscal year 
1997.  Financing for construction of this hospital has not been obtained.

The  Company  expects  that each of its Heart  Hospitals  will  require  working
capital  advances  to fund a portion  of the  pre-opening  costs and to fund the
operations  subsequent to opening in the initial start-up phase of the hospital.
Substantial  investments  will be required  during the  development  phase,  and
operating  losses and  negative  cash flow will be  incurred  during the initial
operation of each Heart Hospital.

In September 1996, the Company formed PMMI, which in October 1996,  entered into
a 40-year contract to manage Heart Clinic, P.A., a multi-physician  cardiologist
group located in McAllen,  Texas. Total  consideration  given in connection with
the  acquisition  of the  management  contract  was  approximately  $6.3 million
(subject to increase if certain base performance  levels are exceeded in 1997 by
the physicians) and consisted of fixed and contingent  promissory notes that are
partially convertible into the Company's common stock (see Note 3).

As of December 31, 1996,  approximately  $18.0 million was  available  under the
Company's $20 million  Revolver,  as computed in  accordance  with the borrowing
base, and there were no amounts  outstanding.  The proceeds of the Revolver have
been and are to be used to meet  ongoing  working  capital  requirements  and to
finance certain acquisitions approved by the lender.

The Company anticipates financing its future operations through a combination of
amounts  available under the Revolver,  financing from other real estate lenders
and various equipment lenders,  capital contributions by minority partners, cash
reserves,  short-term investments and operating cash flows. The Company believes
the  combination  of these  sources  will be  sufficient  to meet the  Company's
currently  anticipated  Heart  Hospital  development,  acquisition  and  working
capital needs through fiscal year 1997.  In addition, in order to provide funds
necessary  for the  continued  pursuit of its  business  strategy,  the  Company
expects to incur, from time to time, additional  indebtedness to banks and other
financial  institutions and to issue, in public or private transactions,  equity
and debt  securities.  The  availability  and terms of any such  financing  will
depend upon market and other  conditions.  There can be no  assurance  that such
additional financing will be available on terms acceptable to the Company.

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<PAGE>

                                                      
PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K

             (a)    Exhibits

                    27       Financial Data Schedule (EDGAR version only)

             (b)    Reports  on Form 8-K filed  during  the three  months  ended
                    December 31, 1996 are as follows:

                          Date of Report             Items Reported

                          October 2, 1996            Item 5. OTHER EVENTS
                          October 4, 1996            Item 5. OTHER EVENTS
                          November 14, 1996          Item 5. OTHER EVENTS





















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<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.



                              MEDCATH INCORPORATED


                  Date                         Signature and Title


             January 28, 1997                  /s/  Richard J. Post
                                              -----------------------
                                              Richard J. Post
                                              Chief Financial Officer, Secretary
                                              and Treasurer

























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