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 March 31, 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 0-25176


                              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 April 21, 1997, there were 11,152,634 Common Shares outstanding.


<PAGE>

                              MEDCATH INCORPORATED

                                    FORM 10-Q

                                 March 31, 1997

                                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     6-8

   Item 2.  Management's discussion and analysis of
                   financial condition and results of operations           9-13

PART II - OTHER INFORMATION

    Item 4.  Submission of Matters to a Vote of Security Holders             14

   Item 6.  Exhibits and Reports on Form 8-K                                 14


          Signatures                                                         15



                                       2

<PAGE>
<TABLE>
<CAPTION>

                                               MedCath Incorporated
                                      Unaudited Condensed Consolidated Statements of Income

                                                                     Three Months Ended                  Six Months Ended
                                                                          March 31,                           March 31,
                                                              ---------------------------------------------------------------------
                                                                    1996             1997              1996             1997
                                                              ---------------------------------------------------------------------
<S>                                                            <C>              <C>               <C>                <C>    

Net revenue                                                     $ 17,283,929     $ 26,709,491      $ 28,492,562     $ 49,563,944

Operating expenses:
    Medical supplies and other                                     6,813,138       10,814,237        11,003,071       19,409,566
    Personnel costs                                                4,747,845        6,992,562         7,124,210       13,136,990
    Depreciation                                                   1,106,632        1,782,856         1,838,790        3,273,009
    Amortization                                                     566,418          931,581           753,327        1,681,739
    Provision for doubtful accounts                                  132,675          486,879           132,675          937,846
    Marketing, general and administrative                          1,263,780        1,797,103         2,624,027        3,699,314
                                                              ---------------------------------------------------------------------
        Total operating expenses                                  14,630,488       22,805,218        23,476,100       42,138,464
                                                              ---------------------------------------------------------------------
Income from operations                                             2,653,441        3,904,273         5,016,462        7,425,480
Interest expense                                                    (562,858)        (833,992)         (729,955)      (1,536,405)
Interest income                                                       70,925          581,460           254,054        1,256,621
Minority interest in earnings of consolidated entities               (30,053)        (269,976)         (392,174)        (840,171)
Equity in net earnings of unconsolidated joint venture                39,266                -            65,951                -
                                                              ---------------------------------------------------------------------
Income before income taxes                                         2,170,721        3,381,765         4,214,338        6,305,525

Provision for income taxes                                          (868,288)      (1,284,454)       (1,685,735)      (2,453,958)

                                                              =====================================================================
Net income                                                       $ 1,302,433      $ 2,097,311       $ 2,528,603      $ 3,851,567
                                                              =====================================================================


Net income per share                                               $    0.14         $   0.18         $    0.28        $   0.33
                                                              =====================================================================

Weighted average number of common and common
    equivalent shares outstanding                                  9,132,538       11,664,220         9,061,070      11,666,776

<FN>
See accompanying notes.
</FN>
</TABLE>










                                        3


<PAGE>

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

                                                                               September 30,             March 31,
                                                                           ---------------------    --------------------
                                                                                   1996                    1997
                                                                           ---------------------    --------------------
                                                                                                        (Unaudited)
<S>                                                                        <C>                      <C>   
ASSETS
Current assets:
    Cash and cash equivalents                                               $         5,026,305      $       10,876,192
    Short-term investments                                                           56,667,244              37,568,003
    Accounts receivable, net of allowance                                            11,155,477              19,658,661
    Medical supplies                                                                  1,549,029               2,656,109
    Deferred income taxes                                                               240,000                 240,000
    Prepaid expenses and other current assets                                           610,137                 876,902
                                                                           ---------------------    --------------------
       Total current assets                                                          75,248,192              71,875,867

Property, plant and equipment, net of accumulated depreciation                       72,303,824             108,187,050
Other assets                                                                          1,910,092               1,837,484
Start-up and organization costs, net of accumulated amortization                      7,628,018              11,249,394
Advances to physician groups                                                          5,609,178               6,059,209
Intangible assets, net of accumulated amortization                                   19,221,414              25,172,116
                                                                           =====================    ====================
Total assets                                                                $       181,920,718       $     224,381,120
                                                                           =====================    ====================


LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                                        $         2,861,343       $       3,273,077
    Distribution payable to minority interests                                          629,352               1,393,125
    Accrued liabilities                                                               3,623,704               7,704,933
    Current portion of long-term debt                                                 1,931,455               1,829,873
    Current portion of obligations under capital leases                                 392,713                 536,635
                                                                           ---------------------    --------------------
      Total current liabilities                                                      9,438,567              14,737,643

Deferred income taxes                                                                 2,864,535               2,943,445
Long-term debt                                                                       43,841,641              73,985,626
Obligations under capital leases                                                      2,053,797               2,348,744
                                                                           ---------------------    --------------------
Total liabilities                                                                    58,198,540              94,015,458

Minority interests in equity of consolidated entities                                 3,477,085               6,179,005

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, 1996 and March 31, 1997, respectively                           111,213                 111,467
    Paid-in capital                                                                 108,897,931             108,987,674
    Retained earnings                                                                11,235,949              15,087,516
                                                                           ---------------------    --------------------
Total shareholders' equity                                                          120,245,093             124,186,657
                                                                           ---------------------    --------------------

Total liabilities, minority interests and shareholders' equity              $       181,920,718       $     224,381,120
                                                                           =====================    ====================
<FN>
See accompanying notes.
</FN>
</TABLE>




                                        4
<PAGE>
<TABLE>
<CAPTION>

                              MedCath Incorporated
            Unaudited Condensed Consolidated Statements of Cash Flows

                                                                                             Six Months Ended
                                                                                                March 31,
                                                                                   -------------------------------------
                                                                                         1996                1997
                                                                                   ------------------  -----------------

<S>                                                                                <C>                 <C>   
Operating activities
Net Income                                                                          $     2,528,603     $     3,851,567
Adjustments to reconcile net income to net cash provided by operating activities:
      Depreciation and amortization                                                       2,651,385           5,039,864
      Equity in net earnings of unconsolidated joint venture                                (65,951)                  -
      Minority interest                                                                    (598,111)           (404,443)
      Deferred income taxes                                                                 175,000              78,910
      (Increase) decrease in current assets:
           Accounts receivable                                                           (6,598,611)         (8,503,187)
           Medical supplies                                                                (662,523)         (1,107,080)
           Prepaid expenses and other current assets                                       (153,438)           (266,765)
      Increase (decrease) in current liabilities:
           Accounts payable                                                               1,307,041              411,734
           Distribution payable to minority interest                                        177,158              763,773
           Accrued liabilities                                                            1,469,618            4,081,229
      Other                                                                                (136,316)             (42,662)
                                                                                   ------------------   ------------------
Net cash provided by operating activities                                                    93,855            3,902,940

Investing activities
Purchases of property, plant and equipment                                               (22,348,514)        (38,495,627)
Start-up and organization costs                                                           (5,202,116)         (4,852,247)
Advances to physician groups                                                              (1,751,972)         (1,114,094)
Repayments of advances to physician groups                                                   195,014             664,062
Net sale of short-term investments                                                         7,985,177          19,099,241
                                                                                   ------------------    -----------------
Net cash used in investing activities                                                    (21,122,411)        (24,698,665)

Financing activities
Proceeds from issuance of long-term debt                                                  21,982,481          26,670,629
Repayments of long-term debt                                                                (304,188)         (2,988,184)
Repayments of obligations under capital leases                                              (844,155)           (233,194)
Proceeds from issuance of common stock                                                       131,652              89,997
Investments by minority partners                                                             285,490           3,106,364
Payment of loan acquisition costs and deferred loan fees                                    (398,399)                  -
                                                                                   ------------------    -----------------
Net cash provided by financing activities                                                 20,852,881          26,645,612
                                                                                   ------------------    -----------------
Net increase (decrease) in cash and equivalents                                             (175,675)          5,849,887
Cash and cash equivalents, beginning of period                                             6,821,728           5,026,305
                                                                                   ------------------    -----------------
Cash and cash equivalents, end of period                                            $      6,646,053      $   10,876,192
                                                                                   ==================    =================
<FN>
See accompanying notes.

</FN>
</TABLE>


                                        5
<PAGE>


                              MedCath Incorporated
         Notes to Unaudited Condensed Consolidated Financial Statements
            For the Three and Six Month Periods Ended March 31, 1997


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 and six month periods ended March 31, 1997 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

Long term debt consisted of the following:
<TABLE>
<CAPTION>

                                                      September 30,       March 31,
                                                          1996               1997
                                                   --------------------------------------
<S>                                                  <C>                <C>           
McAllen REIT Loan                                    $   13,750,000     $   13,750,000
Arkansas REIT Loan                                       19,757,558         29,000,000
Tucson REIT Loan                                          1,062,531          8,135,110
Convertible subordinated debt                                     -          4,451,971
Notes payable to equipment lenders                       10,689,071         19,738,721
Other notes payable                                         513,936            739,697
                                                   --------------------------------------
                                                         45,773,096         75,815,499
Less current portion                                     (1,931,455)        (1,829,873)
                                                   ======================================
                                                      $  43,841,641     $   73,985,626
                                                   ======================================
</TABLE>

As of March 31,  1997,  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.

                                       6

<PAGE>

Note 3 - Long - Term Debt (continued)

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 March 31, 1997.

In March 1997, the Company obtained a financing commitment for up to $30 million
for the purpose of financing the land acquisition, construction and a portion of
the working capital costs of the Arizona Heart Hospital.  The interest rate will
be at a premium above LIBOR and the  outstanding  principal  balance will be due
and payable in full three years from the closing of the note,  if the  Company's
optional extension of one year is not exercised.

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 March 31, 1997 there was $9.9
million  outstanding under these notes. The notes bear interest at rates ranging
from 9.62% to 10.25% and are payable in monthly  installments  of principal  and
interest over five years.

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.

Note 4 - Business Combinations and New Operations

On March 3, 1997, the Arkansas Heart Hospital  received  Medicare  certification
from the  Arkansas  Department  of  Health  and  opened  slightly  earlier  than
anticipated.  The Company serves as the managing  member with an approximate 51%
interest in the limited  liability  company that  operates  the  Arkansas  Heart
Hospital.

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 Arizona  Heart  Hospital will be owned and operated by a
limited  liability  company in which the Company  owns a majority  interest  and
serves as  manager.  The  Company  expects  the total cost of  constructing  and
equipping the Arizona Heart Hospital to be  approximately  $44 million and plans
to open the hospital in fiscal year 1998.

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).

                                       7
<PAGE>

Note 5 - Newly Issued Accounting Standards

In February 1997, the Financial  Accounting  Standard Board issued Statement No.
128,  Earnings per Share,  which is required to be adopted on December 31, 1997.
At that time,  the Company will be required to change the method  currently used
to compute  earnings per share and to restate all prior  periods.  Under the new
requirements for calculating  primary earnings per share, the dilutive effect of
stock options will be excluded.  The impact is expected to result in an increase
in primary  earnings per share,  for the first quarters ended March 31, 1996 and
March 31,  1997,  of $.01 per share,  respectively.  The impact is  expected  to
result in an increase in primary  earnings  per share,  for the six months ended
March  31,  1996 and  March 31,  1997,  of $.01 per  share  and $.02 per  share,
respectively.  The impact of Statement 128 on the  calculation  of fully diluted
earnings per share for these periods is not expected to be material.
















                                       8
<PAGE>

                        MedCath Incorporated Management's
    Discussion and Analysis of Financial Condition and Results of Operations
            For the Three and Six Month Periods Ended March 31, 1997

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.

Acquisitions and New Operations

On March 3, 1997, the Arkansas Heart Hospital  received  Medicare  certification
from the  Arkansas  Department  of  Health  and  opened  slightly  earlier  than
anticipated.  The Company serves as the managing  member with an approximate 51%
interest in the limited  liability  company that  operates  the  Arkansas  Heart
Hospital.

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>

                                                              Three Months Ended             Six Months Ended
                                                                   March 31,                      March 31,
                                                        -------------------------------------------------------------
                                                             1996           1997           1996           1997
                                                        -------------------------------------------------------------
<S>                                                         <C>            <C>           <C>            <C>   
Net revenue:
   Diagnostics Division                                      53.3%          36.8%         61.7%          38.7%
   Practice Management Division                              23.2           18.4          23.6           19.7
   Hospital Division                                         23.5           44.8          14.7           41.6
                                                        -------------------------------------------------------------
         Total net revenue                                  100.0%         100.0%        100.0%         100.0%

Operating expenses:
   Medical supplies, personnel & other operating expense     66.8           66.7          63.6           65.6
   Depreciation and amortization expense                      9.7           10.2           9.1           10.0
   Provision for doubtful accounts                             .8            1.8            .5            1.9
   Marketing, general and administrative expense              7.3            6.7           9.2            7.5
                                                        -------------------------------------------------------------
         Total operating expenses                            84.6           85.4          82.4           85.0

                                                        -------------------------------------------------------------
Income from operations                                       15.4           14.6          17.6           15.0

Interest expense                                             (3.3)          (3.1)         (2.5)          (3.1)
Interest income                                                .4            2.2            .9            2.5
Minority interest in earnings of consolidated entities        (.2)          (1.0)         (1.4)          (1.7)
Equity in earnings of unconsolidated subsidiaries              .2              -            .2              -
                                                        -------------------------------------------------------------
Income before income taxes                                   12.5           12.7          14.8           12.7
Provision for income taxes                                   (5.0)          (4.8)         (5.9)          (4.9)
                                                        -------------------------------------------------------------
Net income                                                    7.5%           7.9%          8.9%           7.8%
                                                        =============================================================

</TABLE>

                                       9
<PAGE>

Results of Operations (continued)

Net revenue

Consolidated  net revenue for the second  quarter and six months ended March 31,
1997 increased  $9.4 million or 54.5% and $21.1 million or 74.0%,  respectively,
over the comparable  prior year periods.  These increases are primarily a result
of net revenue  generated  at the  McAllen and  Arkansas  Heart  Hospitals.  The
remainder of the increase in net revenue is the result of new operations in both
the  Practice  Management  Division  and the  Diagnostics  Division,  as well as
increases in net revenue of existing operations.

Net revenue in the  Diagnostics  Division for the second  quarter and six months
ended  March 31,  1997  increased  $622,000  or 6.8% and $1.6  million  or 9.1%,
respectively,  over the  comparable  prior year  periods.  Net  revenue  for the
division  increased  primarily as the result of three new Fixed-Site  Facilities
which opened within the last nine months.  The number of  Fixed-Site  Facilities
and Mobile Cath Labs either owned or operated by the Company  increased  from 28
in fiscal year 1996 to 31 in fiscal year 1997.

Net revenue in the Practice  Management  Division for the second quarter and six
months  ended March 31,  1997  increased  $890,000 or 22.2% and $3.0  million or
45.4%,  respectively,  over the comparable  prior year periods.  These increases
were  attributable  to the  acquisition  of contracts  to manage two  additional
physician  groups,  one in February  1996 and the second in October  1996.  Also
contributing  to the total  increase  in both  periods  is the  increase  in net
revenue from an existing  management  contract.  The total number of  physicians
under management in the Practice  Management  Division at this quarter end is 76
compared with 64 at the same time last year.

Net revenue in the Hospital Division for the second quarter and six months ended
March 31, 1997  increased  $7.9  million or 195.0% and $16.4  million or 391.0%,
respectively,  over the  comparable  prior year  periods.  These  increases  are
primarily attributable to revenues at the McAllen Heart Hospital which opened in
January of 1996.  Due to the initial  ramp-up of operations at the McAllen Heart
Hospital  during the first few months  subsequent to opening,  the three and six
month  increases over the comparable  prior year periods are  substantial.  Also
contributing  to the  Hospital  Division  increases  is one month of net revenue
generated at the Company's  second Heart  Hospital,  the Arkansas Heart Hospital
located in Little Rock, Arkansas, which opened in March of this year.

Operating Expenses and Income from Operations

Total  operating  expenses for the second quarter and six months ended March 31,
1997 increased  $8.2 million or 55.9% and $18.7 million or 79.5%,  respectively,
over the comparable  prior year periods.  Income from  operations for the second
quarter and six months ended March 31, 1997  increased $1.3 million or 47.1% and
$2.4 million or 48.0%,  respectively,  over the  comparable  prior year periods.
These  increases  are  attributable  to  increased  revenue at the  McAllen  and
Arkansas  Heart  Hospitals,  revenue  from  managing  two  additional  physician
practices and added revenue in the Diagnostic  Division for three new Fixed-Site
Facilities.  Operating  margins  decreased for the second quarter and six months
ended March 31, 1997 to 14.6% from 15.4% and to 15.0% from 17.6%,  respectively.
EBITDA  margins  for the second  quarter  and six months  ended  March 31,  1997
decreased  to 24.8% from 25.0% and to 25.0% from 26.7%,  respectively,  over the
comparable prior year periods.  These operating and EBITDA margin decreases were
primarily due to the operating expenses associated with the McAllen and Arkansas
Heart  Hospitals  and the  growth in the  Practice  Management  Division,  which
operates at lower margins than those realized in the Diagnostics Division.

                                       10
<PAGE>

Results of Operations (continued)

Income from  operations in the  Diagnostics  Division for the second quarter and
six months ended March 31, 1997 increased $125,000 or 3.5% and $441,000 or 6.8%,
respectively,   over  the  comparable  prior  year  periods.  Operating  margins
decreased  slightly  for the second  quarter and six months ended March 31, 1997
and 1996 to 37.2% from 38.3% and 36.3% from 37.0%, respectively.  EBITDA margins
for the second quarter and six months ended March 31, 1997 increased slightly in
the Diagnostics Division to 48.2% from 47.9% and 47.1% from 47.0%, respectively.
These  changes  are due  primarily  to the  results of  operations  of three new
Fixed-Site Facilities that have commenced operation since September 1996.

Income  from  operations  in the  Practice  Management  Division  for the second
quarter  and six months  ended March 31,  1997  increased  $229,000 or 55.1% and
$450,000  or  62.1%,  respectively,  over the  comparable  prior  year  periods.
Operating margins in the Practice Management Division for the second quarter and
six months  ended  March 31, 1997  increased  to 13.1% from 10.3% and 12.0% from
10.8%,  respectively,  over the comparable prior year periods. EBITDA margins in
the Practice  Management  Division  for the second  quarter and six months ended
March 31,  1997 also  increased  to 15.5%  from  11.7%  and  14.4%  from  12.3%,
respectively,  over the same comparable prior year periods.  These increases are
attributable  to  operating  income  from the  management  of two new  physician
groups,  one in  February  1996  and the  second  in  October  1996,  as well as
increased operating income from an existing management contract.

Income from  operations in the Hospital  Division for the second quarter and six
months ended March 31, 1997 increased $1.3 million or 286.7% and $2.3 million or
497.5%, respectively,  over the comparable prior year periods. EBITDA margins in
the Hospital Division for the second quarter and six months ended March 31, 1997
increased  to 19.3% from 6.7% and 21.5% from 6.0%,  respectively,  over the same
comparable   prior  year  periods.   The  increases  for  the  two  periods  are
attributable  to the results of operations at the McAllen Heart  Hospital  since
opening in January of 1996. The Arkansas Heart  Hospital,  which opened in March
1997,  experienced operating losses as expected in its first month of operations
and impacted the margins.

Marketing,  general and  administrative  expenses for the second quarter and six
months  ended March 31,  1997  increased  $533,000 or 42.2% and $1.1  million or
41.0%,  respectively,  over the comparable  prior periods.  These increases were
primarily  a  result  of  the  Company's   continued   investment  in  corporate
infrastructure to facilitate growth. The Company has continued to add additional
development and finance  personnel,  as well as personnel for new operations and
acquisitions.  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  for the second  quarter  and six months  ended March 31, 1997
increased  $271,000  or 48.2% and  $806,000  or 110.5%,  respectively,  over the
comparable  prior year  periods.  These  increases  are  primarily the result of
interest  incurred on borrowings  used to finance the McAllen and Arkansas Heart
Hospitals.  Substantially  all of  the  property,  plant  and  equipment  at the
hospitals was financed using borrowings that bear interest at rates ranging from
8.54% to 11.54%.  Interest  income for the second  quarter and six months  ended
March  31,  1997  increased  $511,000  or 719.8%  and $1.0  million  or  394.6%,
respectively,   over  the  comparable  prior  year  periods  due  to  additional
investment income earned on cash and short-term investments.

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<PAGE>


Results of Operations (continued)

Minority Interest in Earnings of Consolidated Entities

Minority  interest in earnings of consolidated  entities for the quarter and six
months ended March 31, 1997 increased $240,000 and $448,000,  respectively, over
the comparative prior year periods. 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 $3.9 million for the six months
ended March 31, 1997.  Accounts  receivable  increased  $8.5 million and accrued
liabilities  increased $4.1 million during the six month period. The increase in
receivables  is the result of  additional  receivables  from the  opening of the
Arkansas  Heart  Hospital,   additional  receivables  from  new  operations  and
increased  revenues in each of the  Company's  three  operating  divisions.  The
increase in accrued  liabilities is also a result of the opening of the Arkansas
Heart  Hospital and in conjunction  with  increased  income taxes payable due to
timing of payments.  At March 31, 1997, the Company had working capital of $57.1
million,  including  $48.4 million of cash and short-term  investments and $19.7
million in accounts receivable.

Investing Cash Flows

During the six months ended March 31, 1997, the Company  utilized a net of $24.7
million in investing  activities.  A total of $39.7  million was utilized in the
Hospital Division and consisted of land acquisition, construction, equipment and
start-up  costs for the  Company's  Heart  Hospitals.  A net of $4.1 million was
utilized in the Company's other operations.  Offsetting these outflows was $19.1
million provided from the sale of short term investments which were used to fund
a portion of the aforementioned investing activities.

Financing Cash Flows

Financing activities provided a net of $26.6 million during the six month period
ended March 31, 1997. A total of $26.2 million was provided by loan proceeds for
construction  and equipment costs at the Arkansas and Tucson Heart Hospitals and
$3.1  million  was  provided  by  investments  from  minority  partners  in  the
Bakersfield and Arizona Heart Hospitals during the six months.  Offsetting these
proceeds was the repayment of a portion of the  convertible  subordinated  debt,
long term debt and capital leases.

In March 1997, the Company obtained a financing commitment for up to $30 million
for the purpose of financing the land acquisition, construction and a portion of
the working capital costs of the Arizona Heart Hospital.  The interest rate will
be at a fixed premium above LIBOR and the outstanding  principal balance will be
due and payable in full three years from closing of the note,  if the  Company's
optional extension of one year is not exercised.

In January 1997,  the Company  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
$44.0  million and that  construction  will begin on the hospital in fiscal year
1997.

                                       12
<PAGE>


Liquidity and Capital Resources (continued)

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 March 31,  1997,  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 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 4.  Submission of Matters to a Vote of Security Holders

(a)   The Annual Meeting of Shareholders was held on February 19, 1997.

(b)   The matters voted upon and the results of the voting were as follows:

             (1) The  shareholders  voted 10,220,036 in the affirmative and none
                 in the  negative to re-elect  the  Chairman of the Board to the
                 Board of Directors and 10,268,036 in the  affirmative  and none
                 in the negative to re-elect the additional  five Board members.
                 There were  64,789  votes  withheld in the  re-election  of the
                 Chairman  of  the  Board  and  16,789  votes  withheld  in  the
                 re-election of the additional five Board members.
             (2) The shareholders  voted 9,369,774 shares in the affirmative and
                 568,792 shares in the negative to increase the number of shares
                 of Common  Stock  reserved  for  issuance  under the  Company's
                 Omnibus Stock Plan. There were 58,875 votes withheld.
             (3) The shareholders voted 10,035,686 shares in the affirmative and
                 8,382 shares in the negative to ratify the Board of  Director's
                 selection of Ernst & Young LLP as the Company's independent 
                 auditors for the fiscal year ending September 30, 1997.  There
                 were 27,257 votes withheld.

Item 6.  Exhibits and Reports on Form 8-K

             (a)    Exhibits

                    10    Operating Agreement of the Arizona Heart Hospital, LLC
                          dated as of January 6, 1997, by and among AHH 
                          Management, Inc. and several other parties thereto.
                    27    Financial Data Schedule  (EDGAR version only)

             (b)    Reports on Form 8-K filed during the three months ended 
                    March 31, 1997 are as follows:

                          Date of Report            Items Reported

                          January 10, 1997          Item 5. OTHER EVENTS
                          January 27, 1997          Item 5. OTHER EVENTS
                          February 11, 1997         Item 5. OTHER EVENTS
                          March 4, 1997             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


  April 22, 1997                                   /s/  Richard J. Post
                                                       -----------------------
                                                        Richard J. Post
                                                        Chief Financial Officer,
                                                        Secretary and Treasurer









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